As filed with the Securities and Exchange Commission on May 5, 1999
Registration No. 333-74827
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ALASKA PACIFIC BANCSHARES, INC.
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(Exact name of registrant as specified in charter)
Alaska 6035 92-0167101
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(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
Nugget Mall Branch
2094 Jordan Avenue
Juneau, Alaska 99801-8046
(907) 789-4844
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(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire Beth A. Freedman, Esquire
BREYER & ASSOCIATES PC SILVER, FREEDMAN & TAFF, L.L.P.
Suite 700 East Suite 700 East
1100 New York Avenue, N.W. 1100 New York Avenue, N.W.
Washington, D.C. 20005 Washington, D.C. 20005
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(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
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Calculation of Registration Fee
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Title of Each Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of
Being Registered Amount Being Price(1) Aggregate Offering Registration Fee
Registered(1) Price(1)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 1,058,000 $10.00 $10,580,000 $2,942(1)
Participation interests -- -- (2) (3)
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(1) Previously paid. Estimated solely for purposes of calculating the
registration fee. As described in the Prospectus, the actual number of
shares to be issued and sold are subject to adjustment based upon the
estimated pro forma market value of the registrant and market and financial
conditions.
(2) In addition, this registration statement also covers an undeterminate
amount of interest to be offered or sold pursuant to the Alaska Federal
Savings Bank 401(k) Savings Plan.
(3) The securities of Alaska Pacific Bancshares, Inc. to be purchased by the
Alaska Federal Savings Bank 401(k) Savings Plan are included in the amount
shown for Common Stock. Accordingly, pursuant to Rule 457(h) of the
Securities Act of 1933, as amended, no separate fee is required for the
participation interests. Pursuant to such rule, the amount being registered
has been calculated on the basis of the number of shares of Common Stock
that may be purchased with the current assets of such Plan.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
PROSPECTUS SUPPLEMENT
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ALASKA PACIFIC BANCSHARES, INC.
ALASKA FEDERAL SAVINGS BANK
401(k) PROFIT SHARING PLAN
This Prospectus Supplement relates to the offer and sale to
participants in the Alaska Federal Savings Bank 401(k) Profit Sharing Plan of up
to ____________ shares of Alaska Pacific Bancshares, Inc. common stock, par
value $.01 per share and related participation interests in the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan, as set forth herein.
In connection with the proposed conversion of Alaska Federal Savings
Bank from mutual to stock form and the formation of Alaska Pacific Bancshares,
Inc. as the holding company of Alaska Federal Savings Bank, the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan has been amended to provide for an
investment fund consisting of Alaska Pacific Bancshares, Inc. common stock as an
investment option for the participants in the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan (the "Employer Stock Fund"). The amended Plan permits
participants in the Alaska Federal Savings Bank 401(k) Profit Sharing Plan to
direct the trustee of the Employer Stock Fund to purchase Alaska Pacific
Bancshares, Inc. common stock with amounts in the Alaska Federal Savings Bank
401(k) Profit Sharing Plan attributable to the accounts of such participants.
This Prospectus Supplement relates solely to the initial election of a
participant to direct the purchase of Alaska Pacific Bancshares, Inc. common
stock in the conversion from mutual to stock form and not to any future
purchases under the Alaska Federal Savings Bank 401(k) Profit Sharing Plan or
otherwise.
The Prospectus dated __________________, 1999 of Alaska Pacific
Bancshares, Inc. (the "Prospectus"), which is being delivered with this
Prospectus Supplement, includes detailed information with respect to Alaska
Pacific Bancshares, Inc., the conversion from mutual to stock form, Alaska
Pacific Bancshares, Inc. common stock and the financial condition, results of
operations and business of Alaska Federal Savings Bank. This Prospectus
Supplement, which provides detailed information with respect to the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan, should be read only in
conjunction with the Prospectus. Capitalized terms not defined in this
Prospectus Supplement have the meanings ascribed to them in the Prospectus.
----------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY EACH PARTICIPANT, SEE "RISK FACTORS"
IN THE PROSPECTUS.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND
ARE NOT FEDERALLY INSURED OR GUARANTEED. THESE SECURITIES ARE
SUBJECT TO RISK, INCLUDING LOSS OF INVESTMENT.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE, OR
CORPORATION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is _____________, 1999.
<PAGE>
No person has been authorized to give any information or to make any
representation other than as contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
any such other information or representation must not be relied upon as having
been authorized by Alaska Pacific Bancshares, Inc., Alaska Federal Savings Bank
or the Alaska Federal Savings Bank 401(k) Profit Sharing Plan. This Prospectus
Supplement does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstance create any implication that there has been no change in
the affairs of Alaska Pacific Bancshares, Inc., Alaska Federal Savings Bank or
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan since the date hereof
or that the information herein contained or incorporated herein 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 delivered
herewith and should be retained for future reference.
TABLE OF CONTENTS
Page
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The Offering.................................................................. 1
Securities Offered................................................... 1
Election to Purchase Alaska Pacific Bancshares, Inc.
Common Stock in the conversion from mutual to stock form........... 1
Method of Directing Transfer......................................... 2
Time for Directing Transfer.......................................... 2
Irrevocability of Transfer Direction................................. 2
Subsequent Elections................................................. 2
Purchase Price of Alaska Pacific Bancshares, Inc.
Common Stock....................................................... 2
Nature of a Participant's Interest in Alaska Pacific
Bancshares, Inc. Common Stock...................................... 3
Voting and Tender Rights of Alaska Pacific Bancshares,
Inc. Common Stock.................................................. 3
Description of the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan................................................................. 3
Introduction......................................................... 3
Eligibility and Participation........................................ 4
Investment of Contributions.......................................... 4
Financial Data....................................................... 7
Administration of the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan................................................ 8
Reports to Alaska Federal Savings Bank 401(k) Profit
Sharing Participants............................................... 9
Amendment and Termination............................................ 9
Merger, Consolidation or Transfer.................................... 9
Federal Tax Aspects of the Alaska Federal Savings Bank
401(k) Profit Sharing Plan......................................... 9
Restrictions on Resale.............................................. 13
Legal Opinions............................................................... 13
Summary Plan Description (including Summaries of Material
Modifications thereto)..................................................... A-1
Financial Statements........................................................ B-1
Election Form
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<PAGE>
THE OFFERING
Securities Offered
Up to _____________ shares of Alaska Pacific Bancshares, Inc. common
stock which may be acquired by the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan for the accounts of employees participating in the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan, and related participation interests,
are offered hereby. Alaska Pacific Bancshares, Inc. is the issuer of such
securities. Only employees of Alaska Federal Savings Bank may participate in the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan. Information relating to
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan is contained in this
Prospectus Supplement and information relating to Alaska Pacific Bancshares,
Inc., the conversion from mutual to stock form and the financial condition,
results of operations and business of Alaska Federal Savings Bank is contained
in the Prospectus delivered herewith. The address of the principal executive
office of Alaska Pacific Bancshares, Inc. is 2094 Jordan Avenue, Juneau, Alaska
99801-8046 and its telephone number is (907) 789-4844. The address and telephone
number of Alaska Federal Savings Bank's principal office are the same as Alaska
Pacific Bancshares, Inc.'s.
Election to Purchase Alaska Pacific Bancshares, Inc. Common Stock in the
conversion from mutual to stock form
In connection with Alaska Federal Savings Bank's Conversion, the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan has been amended to permit each
participant to direct that all or part of the funds in his or her accounts under
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan (hereinafter referred
to in the aggregate as a participant's "Accounts") be transferred to the
Employer Stock Fund and used to purchase Alaska Pacific Bancshares, Inc. common
stock in the conversion from mutual to stock form. The trustee of the Employer
Stock Fund will follow the participants' directions and exercise Subscription
Rights to purchase Alaska Pacific Bancshares, Inc. common stock in the
conversion from mutual to stock form to the extent provided in Alaska Federal
Savings Bank's Plan of Conversion. See "Alaska Federal's Conversion - Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings" in the Prospectus. Funds not allocated to the purchase of Alaska
Pacific Bancshares, Inc. common stock will remain invested in accordance with
the investment instructions of participants in effect at such time.
Respective purchases by the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan in the conversion from mutual to stock form will be counted as
purchases by the individual participants at whose election they are made to the
extent of the funds directed by such participants to purchase Alaska Pacific
Bancshares, Inc. common stock, and will be subject to the purchase limitations
and subscription priorities applicable to such individuals, rather than being
counted in determining the maximum amount that Alaska Pacific Bancshares, Inc.'s
or Alaska Federal Savings Bank's Tax-Qualified Employee Plans (as defined in the
Prospectus) may purchase in the aggregate. See "Alaska Federal's Conversion -
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings" in the Prospectus.
<PAGE>
Method of Directing Transfer
Included with this Prospectus Supplement is an election and investment
form (the "Election Form"). If a participant wishes to direct some or all the
funds in his or her Accounts into the Employer Stock Fund to purchase Alaska
Pacific Bancshares, Inc. common stock in the conversion from mutual to stock
form, he or she should indicate that decision by checking the appropriate box in
Part 2 of the Election Form and completing this Part of the Election Form. If a
participant does not wish to make such an election, he or she should so indicate
by checking the appropriate box in Part 2 of the Election Form. See also
"Investment of Contributions - Alaska Pacific Bancshares, Inc. Common Stock
Investment Election Procedures" below.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Alaska Pacific Bancshares, Inc. common
stock in the conversion from mutual to stock form is __________________, 1999,
unless extended (the "Election Deadline"). A participant's completed Election
Form must be returned to the conversion center by _____________________, 1999 by
12:00 noon Alaska time on such date.
Irrevocability of Transfer Direction
Once received in proper form, an executed Election Form may not be
modified, amended or revoked without the consent of Alaska Federal Savings Bank
unless the conversion from mutual to stock form has not been completed within 45
days after the end of the Subscription and Community Offering. See also
"Investment of Contributions - Alaska Pacific Bancshares, Inc.
Common Stock Investment Election Procedures" below.
Subsequent Elections
After the Election Deadline, participants will not be permitted to
direct or redirect any portion of their Accounts into Alaska Pacific Bancshares,
Inc. common stock. Participants may direct the trustee of the Employer Stock
Fund to sell their shares of Alaska Pacific Bancshares, Inc. common stock
purchased in the conversion from mutual to stock form through the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan pursuant to the procedures outlined in
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan by filing a request
form with the Alaska Federal Savings Bank 401(k) Profit Sharing Plan
Administrator. See "Investment of Contributions - Adjusting Your Investment
Strategy" below. Participants are urged to read the accompanying prospectus
carefully, particularly with regard to the liquidity of the common stock.
Purchase Price of Alaska Pacific Bancshares, Inc. Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
Alaska Pacific Bancshares, Inc. common stock in the conversion from mutual to
stock form will be used by the trustee of the Employer Stock Fund to purchase
Alaska Pacific Bancshares, Inc. common stock through the exercise of
Subscription Rights granted to the Alaska Federal Savings Bank 401(k)
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<PAGE>
Profit Sharing Plan under Alaska Federal Savings Bank's Plan of Conversion. The
price paid for such shares of Alaska Pacific Bancshares, Inc. common stock will
be $10.00 per share, the same price as is paid by all other persons who purchase
Alaska Pacific Bancshares, Inc. common stock in the conversion from mutual to
stock form.
Nature of a Participant's Interest in Alaska Pacific Bancshares, Inc. Common
Stock
Alaska Pacific Bancshares, Inc. common stock will be held in the name
of the trustee of the Employer Stock Fund, in its capacity as trustee. The
trustee of the Employer Stock Fund will maintain individual accounts reflecting
each participant's individual interest in the Employer Stock Fund.
Voting and Tender Rights of Alaska Pacific Bancshares, Inc. Common Stock
The trustee of the Employer Stock Fund will exercise voting and tender
rights attributable to all Alaska Pacific Bancshares, Inc. common stock held by
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan Trust (the "Trust")
as directed by participants with interests in the Employer Stock Fund. Shares
with respect to which no instructions have been received by the trustee of the
Employer Stock Fund will be voted at the discretion of the trustee.
DESCRIPTION OF THE PLAN
Introduction
The Plan was adopted by Alaska Federal Savings Bank as a profit sharing
plan with a cash or deferred arrangement described at Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), to encourage employee
thrift and savings and to allow eligible employees to share in profits.
The Bank intends that the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan will comply in operation with each of the requirements of the Code
which are applicable to a plan qualified under Section 401(a) of the Code and
the requirements which are applicable to a qualified cash or deferred
arrangement under Section 401(k) of the Code.
The Plan is an "individual account plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and a
"defined contribution plan" under the Code. As such, the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan is not subject to the Plan Termination Insurance
provisions of Title IV of ERISA. However, the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan is subject to those provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA that apply to "individual account plans"
and "defined contribution plans" other than "money purchase pension plans."
Accordingly, the Alaska Federal Savings Bank 401(k) Profit Sharing Plan is not
subject to the funding requirements contained in Part 3 of Title I of ERISA or
Section 412 of the Code which by their terms do not apply to an individual
account plan (other than a money purchase pension plan). In addition, the Alaska
Federal
3
<PAGE>
Savings Bank 401(k) Profit Sharing Plan does not provide for distribution of
participants' Accounts in the form of a qualified joint and survivor annuity or
a qualified preretirement survivor annuity. Neither the plan termination
insurance provisions, the funding requirements nor the annuity requirements
contained in ERISA and/or the Code will be extended to participants or
beneficiaries under the Alaska Federal Savings Bank 401(k) Profit Sharing Plan.
Reference to Full Text of Plan. The following statements are summaries
of certain provisions of the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan. They are not a complete description of such provisions and are qualified
in their entirety by the full text of the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan which is filed as an exhibit to the registration statement
of which this Prospectus Supplement is a part and which is incorporated by
reference herein. Copies of the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan are available to all employees upon request to the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan Administrator. Each employee is urged to
read carefully the full text of the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan.
Reference to Summary Plan Description. Certain information regarding
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan is contained in the
Summary Plan Description (including Summaries of Material Modifications
thereto)(the "Summary Plan Description"), a copy of which is attached to, and
made a part of, this Prospectus Supplement.
Tax and Securities Laws. Participants should consult with legal counsel
regarding the tax and securities laws implications of participation in the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan. Any directors, officers
or beneficial owners of more than 10% of the outstanding shares of Alaska
Pacific Bancshares, Inc. common stock should consider the applicability of
Sections 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended, to
his or her participation in the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan.
Eligibility and Participation
All employees of Alaska Federal Savings Bank who have met the
eligibility requirements may participate in the Alaska Federal Savings Bank
401(k) Profit Sharing Plan by completing and filing with Alaska Federal Savings
Bank an application for participation. [See "JOINING THE PLAN - Eligibility" and
"- Participation" in the Summary Plan Description attached hereto - needs to be
included in amended SPD]
As of May 1, 1999 there were approximately 70 persons eligible to
participate in the Alaska Federal Savings Bank 401(k) Profit Sharing Plan, and
38 persons had elected to participate in the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan.
Investment of Contributions
Investment Options. All amounts credited to participants' Accounts
under the Alaska Federal Savings Bank 401(k) Profit Sharing Plan are held in the
Trust, which is administered by the trustee of the Alaska Federal Savings Bank
401(k) Profit Sharing Plan appointed by Alaska Federal Savings Bank's Board of
Directors.
4
<PAGE>
Each participant must instruct the trustee of the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan as to how funds held in his or her
Accounts are to be invested. In addition to the Employer Stock Fund,
participants may elect to instruct the trustee of the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan to invest such funds in any or all of the
following investment options ("Investment Options"): (a) Cash Reserve, (b) U.S.
Government Fund, (c) Delaware Fund, (d) Decatur Total Return, (e) Dividend
Growth Fund, or (f) International Equity. Investments in the Employer Stock Fund
may be made only through reallocation of existing funds in the six investment
options listed above. A brief description of the Employer Stock Fund is set
forth below.
Employer Stock Fund. Effective until ________________, 1999, or such
later date as elected by Alaska Pacific Bancshares, Inc., participants in the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan may elect to direct the
trustee of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan to
transfer some or all of the funds in their Accounts to the Employer Stock Fund
to purchase Alaska Pacific Bancshares, Inc. common stock in the conversion from
mutual to stock form. The price paid for shares of Alaska Pacific Bancshares,
Inc. common stock will be the same price as is paid by all other persons who
purchase Alaska Pacific Bancshares, Inc. common stock in the conversion from
mutual to stock form. The number of shares, if any, subject to purchase for the
Accounts of each participant who may elect to invest in Alaska Pacific
Bancshares, Inc. common stock is not currently determinable. Any cash dividends
received on Alaska Pacific Bancshares, Inc. common stock held by the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan will be reinvested in accordance
with the participant's investment instructions then in effect.
The Plan is intended to comply with the requirements of Section 404(c)
of ERISA, whereby the participants (not the trustee of the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan or other Plan fiduciaries) will be
solely responsible for their decision to invest any portion of their Accounts in
any one or more of the Investment Options, including the Employer Stock Fund.
Please see the Summary Plan Description attached hereto and the other
information provided by the trustee of the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan, the Alaska Federal Savings Bank 401(k) Profit Sharing Plan
Administrator and other Plan fiduciaries with regard to each participant's
rights and responsibilities pertaining to the investment of his or her Accounts.
The investment in Alaska Pacific Bancshares, Inc. common stock involves
certain risks. No assurance can be given that shares of Alaska Pacific
Bancshares, Inc. common stock purchased pursuant to the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan will thereafter be able to be sold at a price
equal to or in excess of the purchase price. See also "Risk Factors" in the
Prospectus.
Alaska Pacific Bancshares, Inc. Common Stock Investment Election
Procedures. Participants may instruct the trustee of the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan to purchase Alaska Pacific Bancshares, Inc.
common stock by redirecting funds from their existing Accounts into the Employer
Stock Fund by filing an Election Form with the Alaska Federal Savings Bank
401(k) Profit Sharing Plan Administrator on or prior to the Election Deadline.
[Total funds redirected by each participant into the Employer Stock Fund must
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<PAGE>
represent whole share amounts (i.e., must be divisible by the $10.00 per share
purchase price) and must be allocated in not less than 10% increments from
Investment Options containing the participant's Plan funds.] When a participant
instructs the trustee of the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan to redirect the funds in his or her existing Accounts into the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan in order to purchase Alaska
Pacific Bancshares, Inc. common stock, the trustee of the Employer Stock Fund
will liquidate funds from the appropriate Investment Option(s) and apply such
redirected funds as requested, in order to effect the new allocation.
For example, a participant may fund an election to purchase 100 shares
of Alaska Pacific Bancshares, Inc. common stock by redirecting the aggregate
purchase price of $1,000 for such shares from the following Investment Options
(provided the necessary funds are available in such Investment Options): (i) 10%
from Cash Reserve, (ii) 30% from Delaware Fund, and (iii) 60% from Dividend
Growth Fund. In such case, the trustee of the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan would liquidate $100 of the participant's funds from Cash
Reserve, $300 from funds in Delaware Fund and $600 from funds in Dividend Growth
Fund to raise the $1,000 aggregate purchase price. If a participant's
instructions cannot be fulfilled because the participant does not have the
required funds in one or more of the Investment Options to purchase the shares
of Alaska Pacific Bancshares, Inc. common stock subscribed for, the participant
will be required to file a revised Election Form with the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan Administrator by the Election Deadline. Once
received in proper form, an executed Election Form may not be modified, amended
or rescinded without the consent of Alaska Federal Savings Bank unless the
conversion from mutual to stock form has not been completed within 45 days after
the end of the Subscription and Community Offering.
Adjusting Your Investment Strategy. Unless changed in accordance with
the terms of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan, future
allocations of a participant's contributions would remain unaffected by the
election to purchase Alaska Pacific Bancshares, Inc. common stock through the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan in the conversion from
mutual to stock form. A participant may modify a prior investment allocation
election or request the transfer of funds to another investment vehicle by
filing a written notice with the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan Administrator. However, fund transfers out of the Employer Stock
Fund are permitted only during an "Investment Change Period." An "Investment
Change Period" opens at the beginning of the third business day after Alaska
Pacific Bancshares, Inc. issues a "Quarterly Earnings Release" and closes at the
end of the twelfth business day after such release. The term "Quarterly Earnings
Release" means any press release issued by Alaska Pacific Bancshares, Inc. for
general distribution which announces, for the first time, Alaska Pacific
Bancshares, Inc.'s. Results of operations for a particular fiscal quarter. The
Bank anticipates these opportunities will occur four times per year. The Bank
will attempt to notify participants of the commencement of each Investment
Change Period but will not assume responsibility for doing so.
Valuation of Accounts. The Investment Options (other than the Employer
Stock Fund) are valued daily, and the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan is valued from time to time by the trustee of the Employer Stock
Fund, but not less often than monthly. In determining such value, the Trust
assets shall be valued at their current fair market value.
6
<PAGE>
When Alaska Pacific Bancshares, Inc. common stock is sold subsequent to
the conversion, the cost or net proceeds are charged or credited to the Accounts
of participants affected by the purchase or sale. The Bank expects to pay any
brokerage commissions, transfer fees and other expenses incurred in the sale and
purchase of Alaska Pacific Bancshares, Inc. common stock for the Employer Stock
Fund. A participant's Accounts will be adjusted to reflect changes in the value
of shares of Alaska Pacific Bancshares, Inc. common stock resulting from stock
dividends, stock splits and similar changes.
The net gain (or loss) of the Trust from investments (including
interest payments, dividends, realized and unrealized gains and losses on
securities, and any expenses paid from the Trust) are determined not less often
than monthly, and are allocated among the Accounts of participants according to
the balance of each such Accounts as of the end of each quarter. For purposes of
such allocations, all assets of the Trust are valued at their fair market value
pursuant to the method described in the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan.
Financial Data
Employer Contributions. For the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan Year ended December 31, 1998, Alaska Federal Savings Bank
made matching contributions totaling approximately $44,803.18. The Bank has made
no discretionary contributions to the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan for the fiscal year ended December 31, 1998. See generally
"CONTRIBUTIONS TO THE PLAN" in the Summary Plan Description attached hereto.
Due to the additional expenses related to the establishment and
operation of the ESOP and RRP, Alaska Federal Savings Bank may determine to
reduce its matching contribution under the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan in the future.
Performance of Alaska Pacific Bancshares, Inc. Common Stock. As of the
date of this Prospectus Supplement, no shares of Alaska Pacific Bancshares, Inc.
common stock have been issued or are outstanding and there is no established
market for Alaska Pacific Bancshares, Inc. common stock. Accordingly, there is
no record of the historical performance of Alaska Pacific Bancshares, Inc.
common stock.
Performance of Investment Options. The following table provides
performance data with respect to the Investment Options available under the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan, based on information
provided to the Company by Delaware Group Retirement Services, the trustee for
funds invested in such Investment Options.
The information set forth below with respect to the Investment Options
has been reproduced from materials supplied by Delaware Trust. The Bank and
Alaska Pacific Bancshares, Inc. take no responsibility for the accuracy of such
information.
Additional information regarding the Investment Options may be
available from Delaware Trust or Alaska Federal Savings Bank. Participants
should review any available
7
<PAGE>
additional information regarding these investments before making an investment
decision under the Alaska Federal Savings Bank 401(k) Profit Sharing Plan.
<TABLE>
<CAPTION>
Net Investment Performance
--------------------------------------------
For Twelve-Month Period December 31, 1998
Ended December 31, Annualized
----------------------- -----------------
1998 1997 1996 3 Years 5 Years
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Cash Reserve...................... 4.75 4.84 4.63 4.74 4.53
U.S. Government Fund.............. 7.08 8.45 2.82 6.09 5.04
Delaware Fund..................... 17.40 24.47 13.94 18.52 15.64
Growth & Income Fund.............. 10.57 31.24 19.97 20.30 18.77
International Equity.............. 9.03 4.26 20.23 10.97 9.15
DEVON ............................ 22.16 34.93 22.90 26.53 23.71
Small Cap Value .................. (5.10) 33.03 22.12 15.52 12.11
DELCAP ........................... 17.72 14.04 13.77 15.16 13.42
TREND ............................ 13.57 19.43 10.71 14.51 14.01
</TABLE>
Each participant should note that past performance is not necessarily
an indicator of future results.
Administration of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan
Trustee. The trustee of the Employer Stock Fund is appointed by the
Board of Directors of Alaska Federal Savings Bank to serve at its pleasure. The
current trustee for the Investment Options (other than the Employer Stock Fund)
is Delaware Trust. First Bankers Trust Company, N.A. will serve as trustee of
the Employer Stock Fund.
The trustee of the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan receives and holds the contributions to the Alaska Federal Savings Bank
401(k) Profit Sharing Plan in trust and distributes them to participants and
beneficiaries in accordance with the provisions of the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan. The trustee of the Employer Stock Fund is
responsible, following participant direction, for effectuating the investment of
the assets of the Trust in Alaska Pacific Bancshares, Inc. common stock.
Plan Administrator. Delaware Trust and Alaska Federal Savings Bank
share the duties of Plan Administrator. The Bank is responsible for
administration of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan and
is appointed by and serves at the pleasure of the Board of Directors of Alaska
Federal Savings Bank. The Bank may appoint individuals to assist in the
administration of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan and
in carrying out its responsibilities for interpretation of the provisions of the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan, prescribing procedures
for filing applications for benefits, preparation and distribution of
information explaining the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan, furnishing Alaska Federal Savings Bank with reports with respect to the
administration of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan,
receiving, reviewing and keeping on file reports of the financial condition of
the Trust, and appointing or employing individuals to assist in the
administration of the Alaska Federal Savings Bank 401(k) Profit Sharing Plan.
Delaware Trust is responsible for maintenance of Plan records, preparation and
filing of all returns and reports relating to the Alaska Federal Savings Bank
401(k) Profit
8
<PAGE>
Sharing 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 and
beneficiaries under Sections 104 and 105 of ERISA.
Reports to Plan Participants
As of the end of each fiscal quarter, the Alaska Federal Savings Bank
401(k) Profit Sharing Plan Administrator will furnish to each participant a
statement showing (i) balances in the participant's Accounts as of the end of
that period, (ii) the amount of contributions and forfeitures allocated to his
or her Accounts for that period, and (iii) the adjustments to his or her
Accounts to reflect a respective share of dividends on Alaska Pacific
Bancshares, Inc. common stock, and other income, gains or losses, if any.
Amendment and Termination
It is the intention of Alaska Federal Savings Bank to continue the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan indefinitely.
Nevertheless, Alaska Federal Savings Bank, by action of its Board of Directors,
may terminate the Alaska Federal Savings Bank 401(k) Profit Sharing Plan in its
sole discretion at any time and for any reason. If the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan is terminated in whole or in part, then,
regardless of other provisions in the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan, each participant affected by such termination shall become fully
vested in all of his Accounts. The Bank reserves the right to make from time to
time any amendment or amendments to the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan which do not cause any part of the Trust to be used for, or
diverted to, any purpose other than the exclusive benefit of participants or
their beneficiaries; provided, however, that Alaska Federal Savings Bank may
make any amendment it determines necessary or desirable, with or without
retroactive effect, to comply with ERISA and the Code.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan with another plan, or the transfer of
the Trust assets to another plan, the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan requires that each participant would (if either the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan or the other plan were then terminated)
receive a benefit immediately after the merger, consolidation or transfer which
is equal to or greater than the benefit he or she would have been entitled to
receive immediately before the merger, consolidation or transfer (if the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan had then been terminated).
Federal Tax Aspects of the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan
The Plan will be administered to comply in operation with the
requirements (i) for qualification under Section 401(a) of the Code, (ii) for
treatment as a qualified cash or deferred arrangement under Section 401(k) of
the Code, and (iii) for exclusion of elective deferrals under Section 402(g) of
the Code. Assuming that the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan is administered in accordance with such Sections of the Code, participation
in the
9
<PAGE>
Alaska Federal Savings Bank 401(k) Profit Sharing Plan should have the following
implications for federal income tax purposes:
(a) Amounts contributed to participants' Accounts, including
participant elective deferrals, and the investment earnings on these Accounts,
are not includable in participants' gross income for federal income tax purposes
until such contributions or earnings are actually distributed or withdrawn from
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan. However, participant
elective deferrals to the Alaska Federal Savings Bank 401(k) Profit Sharing Plan
are subject to both FICA and Medicare taxes. Special tax treatment may apply to
the taxable portion of any distribution that includes Alaska Pacific Bancshares,
Inc. common stock, that is paid to another employer's plan or to an IRA in a
"rollover," or that is eligible for special tax treatment for lump sum
distributions (as described below).
(b) Income earned by the Trust will not be taxable to the Trust.
Permitted Rollover Amounts. Most payments from the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan will be "eligible rollover
distributions." This means that they can be rolled over to an IRA or to another
employer plan that accepts rollovers. Required minimum payments, beginning
generally in the year in which the participant reaches age 70 1/2 or retires,
whichever is later, cannot be rolled over.
Direct Rollover. A participant may choose a direct rollover of all or
any portion of a payment that is an "eligible rollover distribution." In a
direct rollover, the eligible rollover distribution is paid directly from the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan to an IRA or another
employer plan that accepts rollovers. If the participant chooses a direct
rollover, the rollover amount will not be taxed until it is taken out of the IRA
or the employer plan.
Payments that are not Rolled Over. A payment made to a participant is
subject to 20% mandatory income tax withholding. This amount is sent to the IRS
as income tax withholding, and it will be credited against any income tax owed
for the year. The payment is taxed in the year it is received unless, within 60
days, it is rolled over to an IRA or to another plan that accepts rollovers. If
the payment is not rolled over, special tax rules may apply (as described
below).
Sixty-Day Rollover Option. Even if a participant has an eligible
rollover distribution paid to him or her, all or part of it can still be rolled
over to an IRA or to another employer plan that accepts rollovers. However, the
rollover must be made within 60 days after the payment is received. The portion
of the payment that is rolled over will not be taxed until it is taken out of
the IRA or the employer plan. The participant can roll over up to 100% of the
payment from the Alaska Federal Savings Bank 401(k) Profit Sharing Plan,
including an amount equal to the 20% that was withheld, by including other money
to replace the 20% that was withheld. On the other hand, if only the 80% that
was received is rolled over, the participant will be taxed on the 20% that was
withheld.
Additional 10% Tax. If a participant receives a payment before reaching
age 59 1/2 and does not roll it over, then, in addition to the regular income
tax, an extra tax equal to 10% of the
10
<PAGE>
taxable portion of the payment may be imposed. The additional 10% tax does not
apply to the payment if it is (1) paid because the participant separates from
service with the employer during or after the year in which the participant
reaches age 55, (2) paid because of retirement due to disability, (3) paid as
equal (or almost equal) payments over the participant's life or life expectancy
(or the participant's and his or her beneficiary's lives or life expectancies),
(4) used to pay certain medical expenses, (5) paid to a beneficiary upon a
participant's death, or (6) paid to an alternate payee pursuant to a qualified
domestic relations order.
Special Tax Treatment. If an eligible rollover distribution is not
rolled over, it will be taxed in the year it is received. However, if it
qualifies as a "lump sum distribution," it may be eligible for special tax
treatment. A lump sum distribution is a payment, within one year, of the
participant's entire balance under the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan (and certain other similar plans of the employer) that is payable
because the participant has reached age 59 1/2, has separated from service with
his employer, or has died. For a payment to qualify as a lump sum distribution,
the recipient must have been a participant in the Alaska Federal Savings Bank
401(k) Profit Sharing Plan for at least 5 years. The special tax treatment for
lump sum distributions is described below.
Five-Year Averaging. If the participant receives a lump sum
distribution after reaching age 59 1/2, he or she may be able to make a
one-time election to figure the tax on the payment by using "5-year
averaging." 5-year averaging often reduces the tax owed because it
treats the payment much as if it were paid over 5 years. The entire tax
(using current tax rates) is paid in the year in which the lump sum
distribution is received.
Ten-Year Averaging For Those Born Before January 1, 1936. If a
participant receives a lump sum distribution and was born before
January 1, 1936, he or she can make a one-time election to figure the
tax on the payment by using "10-year averaging" (using 1986 tax rates)
instead of 5-year averaging (using current tax rates). Like the 5- year
averaging rules, 10-year averaging often reduces the amount of tax
owed.
Capital Gain Treatment For Those Born Before January 1, 1936.
In addition, if a participant who was born before January 1, 1936,
receives a lump sum distribution, he or she may elect to have the
portion of the payment that is attributable to pre-1974 participation
in the Alaska Federal Savings Bank 401(k) Profit Sharing Plan (if any)
taxed as long-term capital gain.
There are other limits on the special tax treatment for lump sum
distributions. For example, a participant can generally elect this special tax
treatment only once during his or her lifetime, and the election applies to all
lump sum distributions received in that same year. If the participant has
previously rolled over a payment from the Alaska Federal Savings Bank 401(k)
Profit Sharing Plan (or certain other similar plans of the employer), he or she
cannot use this special tax treatment for later payments from the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan. If the payment is rolled over to an
IRA, the participant will not be able to use this special tax treatment for
later payments from the IRA. Also, if any portion of the payment is rolled over
to an IRA, this special tax treatment is not available for the rest of the
payment.
11
<PAGE>
The special tax treatment for lump sum distributions described above,
other than the special rules for those born before January 1, 1936, has been
repealed for all such distributions received in tax years beginning after
December 31, 1999.
Employer Securities. There is a special rule for a payment from the
Alaska Federal Savings Bank 401(k) Profit Sharing Plan that includes employer
securities. To use this special rule, the payment must qualify as a lump sum
distribution, as described above (or would qualify except that the participant
has not participated in the Alaska Federal Savings Bank 401(k) Profit Sharing
Plan for at least 5 years). Under this rule, the participant has the option of
not paying tax on the "net unrealized appreciation" of the securities until they
are sold. Net unrealized appreciation generally is the increase in the value of
the securities that took place while they were held by the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan.
The participant may elect not to have the special rule apply to the net
unrealized appreciation. In such case, the net unrealized appreciation will be
taxed in the year the securities are received from the Alaska Federal Savings
Bank 401(k) Profit Sharing Plan (and may be eligible for the special tax
treatment described above), unless they are rolled over. The securities
(including any net unrealized appreciation) can be rolled over to an IRA or to
another employer plan that accepts rollovers.
Other Payment Recipients. In general, the rules summarized above that
apply to payments to participants also apply to payments to participants'
surviving spouses and to spouses or former spouses who are alternate payees
pursuant to a qualified domestic relations order. Some of the rules summarized
above also apply to a deceased participant's beneficiary who is not a spouse.
However, there are some significant exceptions for payments to surviving
spouses, alternate payees, and other beneficiaries.
A surviving spouse of a deceased participant may choose to have an
eligible rollover distribution paid in a direct rollover to an IRA or paid to
the spouse. If the spouse has the payment made to him or her, such spouse can
keep it or roll it over to an IRA (but not to an employer plan). An alternate
payee has the same choices as the participant. Thus, an alternate payee can have
the payment paid as a direct rollover or paid to the alternate payee. If the
alternate payee has it paid to him or her, the alternate payee can either keep
it or roll it over to an IRA or to another employer plan that accepts rollovers.
A beneficiary other than the surviving spouse cannot roll over the payment under
any circumstances.
A surviving spouse, alternate payee or another beneficiary may be able
to use the special tax treatment for lump sum distributions and the special rule
for payments that include employer securities, as described above. A payment
that is received because of the participant's death may be eligible for the
special tax treatment available for lump sum distributions if the participant
met the appropriate age requirements, whether or not the participant had 5 years
of participation in the Alaska Federal Savings Bank 401(k) Profit Sharing Plan.
The foregoing is only a brief summary of certain federal income tax
aspects of the Alaska Federal Savings Bank 401(k) Profit Sharing 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
12
<PAGE>
consequences of participating in or receiving distributions from the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan. Accordingly, each participant
may wish to consult a tax advisor concerning the Federal, state and local tax
consequences of participating in and receiving distributions from the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan.
Participants subject to taxes imposed by state, local and other taxing
authorities, including foreign governments, should also consult with their own
attorneys or tax advisers regarding the tax consequences thereunder.
Restrictions on Resale
Any person receiving shares of Alaska Pacific Bancshares, Inc. common
stock under the Alaska Federal Savings Bank 401(k) Profit Sharing Plan who is an
"affiliate" of Alaska Federal Savings Bank or Alaska Pacific Bancshares, Inc. 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 Alaska Federal
Savings Bank) may re-offer or resell such shares only pursuant to a registration
statement or, assuming the availability thereof, pursuant to Rule 144 or some
other exemption from the registration requirements of the Securities Act of
1933. Any person who may be an "affiliate" of Alaska Federal Savings Bank or
Alaska Pacific Bancshares, Inc. may wish to consult with counsel before
transferring any Alaska Pacific Bancshares, Inc. common stock owned by him or
her. In addition, participants are advised to consult with counsel as to the
applicability of Section 16 of the Securities Exchange Act of 1934 which may
restrict the sale of Alaska Pacific Bancshares, Inc. common stock acquired under
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan, or other sales of
Alaska Pacific Bancshares, Inc. common stock.
LEGAL OPINIONS
The validity of the issuance of Alaska Pacific Bancshares, Inc. common
stock will be passed upon by Breyer & Associates PC, 1100 New York Avenue, N.W.,
Washington, D.C. 20005, which firm acted as special counsel for Alaska Pacific
Bancshares, Inc. and Alaska Federal Savings Bank in connection with Alaska
Federal Savings Bank's Conversion.
13
<PAGE>
================================================================================
Summary Plan Description
Prepared for
Alaska Federal Savings Bank
================================================================================
#4021(2/96) (C)1998 Universal Pensions, Inc., Brainerd, MN 56401
A-1
<PAGE>
Introduction
Effective 05-01-1999, Alaska Federal Savings Bank has amended the Alaska Federal
Savings Bank 401(k) Savings Plan designed to help you meet your financial needs
during your retirement years. The Plan was originally effective on 07-01- 1992
and its plan sequence number is 001. The plan sequence number identifies the
number of qualified plans that Alaska Federal Savings Bank currently maintains
or has previously maintained.
To become a Participant in the Plan, you must meet the Plan's eligibility
requirements. Once you become a Participant, Alaska Federal Savings Bank will
maintain an Individual Account for you. Each Plan Year your account will be
adjusted to reflect contributions, gains, losses, etc. The percentage of your
account to which you will be entitled when you terminate employment depends on
the Plan's vesting schedule. These features are explained further in the
following pages.
The actual Plan is a complex legal document that has been written in the manner
required by the Internal Revenue Service e (IRS) and is referred to as the Basic
Plan Document. This document is called a Summary Plan Description (SPD) and e
explains and summarizes the important features of the Basic Plan Document.
Alaska Federal Savings Bank may make e contributions to this Plan. In addition,
you may be able to elect to reduce your annual taxable income by deferring a
portion of your Compensation into the Plan as Employee 401(k) Contributions. You
should consult the Basic Plan Document for technical and detailed Plan
provisions. The legal operation of the Plan is controlled by the Basic Plan
Document and not this SPD.
If at any time you have specific questions about the Plan as it applies to you,
please bring them to the attention of the Plan Administrator whose address and
telephone number appear in Section One of this SPD. You may also examine the
Basic Plan Document itself at a reasonable time by making arrangements with the
Plan Administrator.
#4021(2/96) (C)1998 Universal Pensions, Inc., Brainerd, MN 56401
A-2
<PAGE>
Contents of the Summary Plan Description
SECTION ONE DEFINITIONS
SECTION TWO ELIGIBILITY AND PARTICIPATION
Information in this section includes:
Eligible Classes of Employees
Age and Service Requirements
How Hours of Service Are Counted
When You Can Participate in the Plan
SECTION THREE FUNDING AND ADMINISTRATION OF THE
PLAN
Information in this section includes:
Plan Contribution Sources, Allocations and Limitations
Compensation
Plan Administration and Management
Self Direction of Investments
SECTION FOUR DISTRIBUTION OF BENEFITS AND
VESTING
Information in this section includes:
Benefit Eligibility
Distribution of Benefits
How Your Vested Amount is Determined
Restrictions or Penalties on Distributions
Payouts to Your Beneficiaries
SECTION FIVE CLAIMS PROCEDURE
Information in this section
includes:
What to do to Receive Benefits
How to File a Claim
SECTION SIX MISCELLANEOUS
Information in this section
includes:
Borrowing From the Plan
Break in Service Situations
Plan Termination
SECTION SEVEN RIGHTS UNDER ERISA
Information in this section includes:
The Rights and Protections a Plan Participant is Entitled
to Under the Employee Retirement Income Security Act
A-3
<PAGE>
SECTION ONE: DEFINITIONS
The following definitions are used in the text of this SPD. These words and
phrases are capitalized throughout the SPD for ease of reference.
Compensation - means the earnings paid to you by Alaska Federal Savings Bank.
Employee - means any person employed by Alaska Federal Savings Bank.
Employee 401(k) Contributions - means the dollars you put into the Plan through
before-tax payroll deductions.
Employer - means Alaska Federal Savings Bank, the corporation maintaining this
Plan.
Employer Contribution - means the amount contributed to the Plan on your behalf
by Alaska Federal Savings Bank.
Individual Account - means the contribution account established and maintained
for you which is made up of all contributions made by you or on your behalf.
Matching Contribution - means a contribution made by Alaska Federal Savings Bank
to the 401(k) Plan on your behalf based upon your Employee 401(k) Contributions
and/or your Nondeductible Employee Contributions.
Participant - means an Employee who has met the eligibility requirements, has
entered the Plan, and has become eligible to make or receive a contribution to
his or her Individual Account.
Payroll Deduction Form - means the agreement you sign to authorize Alaska
Federal Savings Bank to deduct your Employee 401(k) Contributions from your
Compensation and put them into the 401(k) Plan.
Plan - means the specific retirement Plan Alaska Federal Savings Bank has set
up. The Plan is governed by a legal document containing various technical and
detailed provisions. The Plan Administrator has a copy of the Plan document.
Plan Administrator - The Plan Administrator is responsible for directly
administering the Plan. Alaska Federal Savings Bank is the Plan Administrator of
this Plan and is therefore responsible for the day-to-day administration and
management of the Plan. To ensure efficient and sound operation and management
of the Plan, Alaska Federal Savings Bank has the discretionary authority to
appoint other persons as may be necessary to act on its behalf or assist in
performing these responsibilities. The address and phone number of Alaska
Federal Savings Bank are listed below.
Alaska Federal Savings Bank
2094 Jordan Ave
Juneau, AK 99801
907-789-4844
Plan Year - means the twelve month period ending on 06-30.
SECTION TWO: ELIGIBILITY AND PARTICIPATION
ELIGIBLE CLASSES OF EMPLOYEES
You will generally be eligible to become a Participant in the Plan after having
satisfied the age and service requirements. Even if you satisfy the eligibility
criteria, however, you are not eligible to participate if you are covered by a
collective bargaining agreement (e.g., union agreement) unless the agreement
requires you to be eligible.
AGE AND SERVICE REQUIREMENTS
A-4
<PAGE>
Employee 401(k) and Matching Contributions
You will become eligible to enter the Plan, make Employee 401(k) Contributions
and receive Matching Contributions after you have completed .25 year(s) of
service for Alaska Federal Savings Bank and attained the age of 18.
Profit Sharing Contributions
You will become eligible to enter the Plan and receive profit sharing
contributions after you have performed .25 year(s) of service for Alaska Federal
Savings Bank and attained the age of 18.
HOW HOURS OF SERVICE ARE COUNTED
Your hours of service are generally counted on the basis of the actual number of
hours you work or for which you are entitled to Compensation. Instead of
counting hours of service for purposes of determining your number of Years of
Eligibility Service, however, you will receive credit for the period of time
during which you are paid or entitled to pay from Alaska Federal Savings Bank
for each type of contribution for which you are required to perform a fractional
Year of Eligibility Service.
However, since this is an amendment and restatement of an existing Plan, you
will not be required to satisfy the eligibility requirements stated above if you
were a Participant in the prior Plan.
WHEN YOU CAN PARTICIPATE IN THE PLAN
After you have met the eligibility requirements, you will become a Participant
in the Plan on the applicable entry date(s). During each Plan Year there are
generally at least two entry dates. Alaska Federal Savings Bank has designated
Quarterly as the entry date(s) for this Plan.
You will continue to participate in the Plan as long as you do not incur a break
in service. A break in service is a period of at least 12 consecutive months
during which you do not perform services for Alaska Federal Savings Bank.
However, no break in service will occur if the reason you did not work was
because of certain absences due to birth, pregnancy or adoption of children,
military service or other service during a national emergency during which your
re-employment under a federal or state law is protected and you do, in fact,
return to work within the time required by law.
SECTION THREE: PLAN FUNDING AND ADMINISTRATION
PLAN CONTRIBUTION SOURCES, ALLOCATIONS AND LIMITATIONS
Employee 401(k) Contributions
Effective 05-01-1999 (or the date you begin participating in the Plan, if
later), you may make before-tax contributions to the Plan through payroll
deduction. Such contributions are called Employee 401(k) Contributions.
To begin making Employee 401(k) Contributions, you must complete and sign a
Payroll Deduction Form. Once you become eligible to participate in the Plan,
Alaska Federal Savings Bank will provide you with such form.
For example, assume your compensation is $15,000. For Plan Year 1999, you wish
to make an Employee 401(k) Contribution to the Plan and sign a Payroll Deduction
Form authorizing an Employee 401(k) Contribution of 5% of your Compensation. As
a result, Alaska Federal Savings Bank will pay you $14,250 as gross taxable
income and will deposit your 5% Employee 401(k) Contribution (i.e., $750) into
the Plan for you.
A-5
<PAGE>
Limits on Employee 401(k) Contributions
Federal tax laws and plan documents govern the amount of Employee 401(k)
Contributions which you may make. Specifically, federal law places two annual
limits on the amount you may defer into a 401(k) plan - an individual limit and
an average limit.
Individual Limit
Federal tax law limits the amount you can put into the Plan during each of your
tax years (generally, a calendar year). For 1999, the limit is $10,000. This
amount is indexed periodically for changes in the cost-of-living index. This
limit applies to all Employee 401(k) Contributions you make during your tax year
to any 401(k) plans maintained by your present or former employers.
If you defer more than you are allowed, you must submit in writing for the
return of the excess to Alaska Federal Savings Bank no later than March 1.
The excess amount and any earnings you may have received on the excess must be
taken out of the Plan by April 15 of the year following the year the money went
into the Plan. The excess amounts will appear on your Form W-2 and will be
taxable income for the year in which you put the excess into the Plan. If the
excess is not removed from the Plan by April 15, you will have to pay additional
income tax.
EXAMPLE: You deferred $100 more than the law allows in 1998 and you had earnings
of $10 on the excess. You removed your $100 excess and the $10 earnings by April
15, 1999. The excess will be reported on your 1998 Form W-2 and you will pay
income tax on that amount.
Average Limits
Tax law defines a group of an employer's employees known as highly compensated
employees. Highly compensated employees making Employee 401(k) Contributions are
limited in the percent of their compensation which they defer based on the
average percent of compensation deferred by the non-highly compensated group of
employees during the Plan Year. If these limits apply to you, Alaska Federal
Savings Bank can give you additional information about them.
Plan Specific Limitations
Upon completion of a Payroll Deduction Form, your compensation will be reduced
each pay period by the percent you specify. Alaska Federal Savings Bank permits
you to defer a percentage of your Compensation from 1% to 17% in increments of
1% each Plan Year.
To change the amount of your Employee 401(k) Contributions, you must complete
and sign a revised Payroll Deduction Form and return it to Alaska Federal
Savings Bank at least 30 days before the change will take effect or a lesser
number of days if Alaska Federal Savings Bank permits. Alaska Federal Savings
Bank will establish uniform and nondiscriminatory rules regarding when you may
change your Payroll Deduction form.
To discontinue making Employee 401(k) Contributions, you must complete and sign
a revised Payroll Deduction Form.
Alaska Federal Savings Bank will establish uniform and nondiscriminatory rules
regarding when you may resume making deferrals if you stop.
Matching Contributions
Individual Limits
Matching Contributions are Employer Contributions which are contributed to the
Plan based on your Employee 401(k) Contributions. Effective 05-01-1999 (or the
date you begin participating in the Plan, if later), Alaska Federal Savings Bank
will make Matching Contributions to the Plan equal to 50% of your Employee
401(k) Contributions.
A-6
<PAGE>
However, Matching Contributions will not be made with respect to your
contributions in excess of $1,000.00.
To share in the Matching Contribution, you must be a Participant in the Plan on
at least one day of the Plan Year and make Employee 401(k) Contributions.
Average Limits
Tax law defines a group of an employer's employees known as highly compensated
employees. Highly compensated employees receiving Matching Contributions are
limited in the amount of Matching Contributions which they may receive based on
the average Matching Contribution (as a percent of compensation) received by the
non-highly compensated group of employees during the Plan Year. If these limits
apply to you, Alaska Federal Savings Bank can give you additional information
about them.
Profit Sharing Contributions
Each year, the managing body of Alaska Federal Savings Bank will determine the
amount, if any, which it will contribute to the Plan. Employer Contributions to
a profit sharing plan in general can range from 0% to 15% of participants'
compensation each year.
If you satisfy the requirements and are entitled to a profit sharing
contribution, you will receive a pro rata allocation based on your Compensation
in relation to the Compensation of all Participants entitled to profit sharing
contributions.
For example, assume you are one of 10 Participants in the Plan and your
Compensation is $10,000. Assume further the Compensation of all Participants
when added together equals $100,000. The ratio of your Compensation ($10,000) to
that of all Participants ($100,000) is 1/10. Therefore, 1/10 of the contribution
made by your Employer to the Plan will be allocated to your account.
Qualified Nonelective Contributions (QNECs) and Qualified Matching Contributions
(QMACs)
QNECs and QMACs may be made by Alaska Federal Savings Bank to satisfy special
nondiscrimination rules which apply to the Plan. These contributions are fully
vested when made and are subject to the same restrictions on withdrawals
applicable to Employee 401(k) Contributions.
Rollover and Transfer Contributions
Alaska Federal Savings Bank allows you to make rollover contributions,
regardless of whether you have become a Participant in the Plan. You are 100%
vested in your rollover contributions at all times and may withdraw them from
the Plan at any time.
Alaska Federal Savings Bank allows you to make transfer contributions,
regardless of whether you have become a Participant in the Plan. You are 100%
vested in your transfer contributions and may withdraw them from the Plan at any
time. However, assets transferred from a money purchase pension plan to this
Plan may not be distributed before your retirement, death, disability or
severance from employment or prior to plan termination.
Annual Additions Limitation
In spite of the contribution/allocation formulas described earlier, federal law
limits the annual amount which may be allocated to your account to the lesser of
$30,000 or 25% of your Compensation.
COMPENSATION
The definition of compensation for plan purposes can vary for many reasons. For
example, federal tax law may require use of one definition of compensation for
nondiscrimination testing and another definition for contribution allocation
purposes.
A-7
<PAGE>
In addition, federal tax law permits employers such as Alaska Federal Savings
Bank to choose the definition of compensation which will be used for other
purposes. Regardless of the various definitions of compensation which may be
required or allowed, however, in the event your Compensation exceeds $160,000
per year, only the first $160,000 will be counted as Compensation under the
Plan. This $160,000 cap will be adjusted periodically by the Internal Revenue
Service for increases in the cost-of-living.
Also, if you satisfy the eligibility requirements and enter the Plan on a date
other than the first day of the year over which your Compensation is to be
determined, the Compensation earned during the year, but prior to your entry
into the Plan, will be excluded.
Alaska Federal Savings Bank has elected to use your Plan Year W-2 compensation
for purposes of this Plan. Your Compensation, however, will be adjusted as
described below.
For purposes of determining your Compensation, elective deferrals you make to
Alaska Federal Savings Bank cafeteria, 401(k), salary deferral SEP or tax
sheltered annuity plan will be included.
PLAN ADMINISTRATION AND MANAGEMENT
All contributions made to the Plan on your behalf will be placed in a trust fund
established to hold dollars for the benefit of all Participants. Alaska Federal
Savings Bank will establish and maintain an Individual Account for you and all
Participants. Your Individual Account will be used to track your share in the
total trust fund.
This Plan allows you to direct the investment of the assets in your Individual
Account. Alaska Federal Savings Bank will establish uniform and
nondiscriminatory policies describing how and when you may provide investment
directions. You will be responsible for any expenses and losses resulting from
your choice of investments.
SECTION FOUR: DISTRIBUTION OF BENEFITS AND VESTING
BENEFIT ELIGIBILITY
Certain events must occur before you can withdraw money from the Plan. In
general, benefits may be withdrawn upon termination of employment after
attaining normal retirement age or upon Plan termination.
Normal retirement age under this Plan is age 60.
You may withdraw all or a portion of the vested Employer Contributions if you:
terminate employment before attaining normal retirement age
become disabled
qualify for in-service distributions
In addition, you may withdraw your Employee 401(k) Contributions if you:
attain age 59 1/2 but continue to work
incur a financial hardship
Under your Plan, the only financial needs which are considered to meet the
financial hardship requirements are the following items: deductible medical
expenses for you or your immediate family, purchase of your principal residence,
payment of tuition for the next quarter or semester for you or your immediate
family, or to prevent eviction from your home or foreclosure upon your principal
residence. A hardship distribution cannot exceed the amount of your immediate
and heavy financial need and you must have obtained all distributions and all
nontaxable loans from all Plans maintained by Alaska
A-8
<PAGE>
Federal Savings Bank prior to qualifying for a hardship distribution. Hardship
distributions are subject to a 10% penalty tax if received before you reach age
59 1/2.
Form of Payment
Payments from the Plan that are eligible rollover distributions can be taken in
two ways. You may have all or any portion of your eligible rollover distribution
either (1) paid in a direct rollover to an IRA or another employer plan or (2)
paid to you. If you choose to have your Plan benefits paid to you, you will
receive only 80% of the payment, because Alaska Federal Savings Bank is required
to withhold 20% of the payment and send it to the IRS as income tax withholding
to be credited against your taxes.
Alaska Federal Savings Bank will give you more information about your options
around the time you request your payout from the Plan. That information will,
among other things, define an eligible rollover distribution.
If your vested Individual Account (i.e., the amount of money in the Plan you are
entitled to) is no more than $5,000, your benefits will be paid, either directly
to you or as a direct rollover to an IRA or another plan, in a single lump sum
payment. If your vested Individual Account is more than $5,000, your benefits
under the Plan will be made in a form other than an annuity.
Timing of Benefit Payments
If the value of your Individual Account is no more than $5,000, Alaska Federal
Savings Bank may direct that your benefits be paid within 90 days after the end
of the Plan Year in which you become eligible to receive them.
If your account is more than $5,000, your funds may be left in the Plan until
you submit a written request to Alaska Federal Savings Bank for payment.
However, you must begin taking required minimum distributions at age 70 1/2 if
you are a five percent or more owner of your Employer. If you are not a five
percent or more owner, you must begin taking required minimum distributions from
the Plan by April 1 of the year after the year in which you turn age 70 1/2 or ,
if later, April 1 of the year after the year in which you separate from service.
Alaska Federal Savings Bank can provide you with the proper request forms. Once
you have returned the completed request to Alaska Federal Savings Bank, payment
will be made no later than 90 days after the close of the Plan Year in which
Alaska Federal Savings Bank received your request.
Required Minimum Distributions
The tax laws and regulations require you to start taking minimum distributions
from the Plan by April 1 of the year after the year in which you turn 70 1/2
years of age if you are a five percent or more owner of your Employer. If you
are not a five percent or more owner, you must begin taking minimum
distributions from the Plan by April 1 of the year after the year in which you
turn age 70 1/2 or, if later, April 1 of the year after the year in which you
separate from service. Minimum distributions must continue every year thereafter
and must be taken by December 31. In general, the amount of the annual minimum
distribution is determined by dividing the balance in your Individual Account by
your life expectancy or the joint life expectancy of you and your Plan
beneficiary.
DETERMINING YOUR VESTED AMOUNT
Amount of Benefit
Whether you receive the full value of your account(s) depends on the reason you
are receiving the distribution and your vested percentage in your contributions.
Your distribution will be the full value of your Individual Account (that is,
you will be 100% vested) if you reach normal retirement age, Alaska Federal
Savings Bank terminates this Plan, there is a complete discontinuance of
contributions to the Plan, you die, become disabled or you satisfy the early
retirement age provisions.
However, if you terminate employment and thus become eligible for a distribution
from the Plan, your distribution will be only the vested amount in your
Individual Account. Loss, denial or reduction of anticipated benefits may occur
if you terminate employment before becoming fully vested, or if all or a portion
of your benefit is set aside for an alternate payee
A-9
<PAGE>
under a qualified domestic relations order (QDRO). You may also lose your
benefit if you cannot be located when a benefit becomes payable to you.
However, the vested amount of your Individual Account will depend upon the types
of contributions made to your account. You will be fully vested at all times in
all Employee 401(k) Contributions, Qualified Nonelective Contributions and
Qualified Matching Contributions.
Your vested amount is determined by multiplying the value of your Individual
Account subject to the plan's vesting schedule by the applicable percentage from
the vesting schedule. The vesting schedule determines how rapidly your
Individual Account balance becomes nonforfeitable based on years of service.
EXAMPLE: Assume you have $10,000 in your Individual Account and you terminate
employment when you are 40% vested. Your vested amount would be $4,000 (.40 x
$10,000).
You will generally be vested in your Individual Account derived from profit
sharing contributions and forfeitures according to the following schedule.
Years of Vesting Service Vested Percentage
- ------------------------ -----------------
1 20%
2 40%
3 60%
4 80%
5 100%
6 100%
7 100%
You will generally be vested in your Individual Account derived from Matching
Contributions and forfeitures according to the following schedule.
Years of Vesting Service Vested Percentage
- ------------------------ -----------------
1 20%
2 40%
3 60%
4 80%
5 100%
6 100%
7 100%
Years of Vesting Service
You must provide a minimum of 1000 hours of service to complete a year of
vesting service. In addition, you must exceed 500 Hours of service to avoid a
break in vesting service.
All of your years of service with Alaska Federal Savings Bank are counted for
the purpose of determining your vested percentage. In addition, you will receive
credit for vesting purposes for hours of service with .
Profit Sharing Contribution Forfeitures
If you are not 100% vested and receive a distribution of your profit sharing
contributions, the dollars left in the Plan are called forfeitures. In your
Plan, forfeitures are used to reduce profit sharing contributions. If you return
to work for Alaska Federal Savings Bank before incurring five consecutive one
year breaks in service, you may recapture the forfeited benefit.
A-10
<PAGE>
Generally, your forfeited benefit will be restored immediately by Alaska Federal
Savings Bank if you have not incurred five consecutive one year breaks in
service, and if you pay back to the Plan the distribution which you received.
Matching Contribution Forfeitures
If you are not 100% vested and receive a distribution of your Matching
Contributions, the dollars left in the Plan are called forfeitures. In your
Plan, forfeitures are used to reduce matching contributions. If you return to
work for Alaska Federal Savings Bank before incurring five consecutive one year
breaks in service, you may recapture the forfeited benefit. Generally, your
forfeited benefit will be restored immediately by Alaska Federal Savings Bank if
you have not incurred five consecutive one year breaks in service, and if you
pay back to the Plan the distribution which you received.
RESTRICTIONS OR PENALTIES ON DISTRIBUTIONS
If you receive a distribution before reaching age 59 1/2, you must pay an
additional 10% penalty tax on dollars included in income. There are, however,
exceptions to the 10% early distribution penalty. Your tax advisor can assist
you in determining if one of the exceptions applies to your distribution.
PAYOUTS TO YOUR BENEFICIARIES
Your beneficiary will receive the total value of your Individual Account when
you die. If you are married, your spouse will automatically be your beneficiary.
To choose another beneficiary, you must sign a written form listing a nonspouse
beneficiary. Your spouse must give written consent to this in the presence of a
notary public. Contact Alaska Federal Savings Bank if you wish to choose a
nonspouse beneficiary. If the vested value of your Individual Account is no more
than $5,000, your beneficiary will receive a lump sum payment of the entire
amount.
If the value of your Individual Account is greater than $5,000, your beneficiary
will receive a payout(s) in a form other than an annuity.
SECTION FIVE: CLAIMS PROCEDURE
WHAT TO DO TO RECEIVE BENEFITS
You or your beneficiary must file a written request with the Plan Administrator
in order to start receiving benefits when you become eligible for them or when
you die.
HOW TO FILE A CLAIM
A claim should be filed with Alaska Federal Savings Bank. You may claim a
benefit to which you think you are entitled by filing a written request with
Alaska Federal Savings Bank. The claim must set forth the reasons you believe
you are eligible to receive benefits and authorize Alaska Federal Savings Bank
to conduct such examinations and take such steps as may be necessary to evaluate
the claim.
If your claim is turned down, Alaska Federal Savings Bank will provide you or
your beneficiary with a written notice of the denial within 60 days of the date
your claim was filed. This notice will give you the specific reasons for the
denial, the specific provisions of the Plan upon which the denial is based, and
an explanation of the procedures for appeal. You or your beneficiary will have
60 days from receipt of the notice of denial in which to make written
application for review by Alaska Federal Savings Bank. You may request that the
review be in the nature of a hearing. You may be represented by an attorney if
you so desire. Alaska Federal Savings Bank will issue a written decision on this
review within 60 days after receipt of the application for review.
A-11
<PAGE>
SECTION SIX: MISCELLANEOUS
BORROWING FROM THE PLAN
Effective Date
As a Participant in this Plan, you may be able to borrow a portion of your
vested account balance. The loan program adopted by Alaska Federal Savings Bank
is available on a uniform basis to all parties in interest to the Plan who meet
loan qualification requirements.
Loan Program Administrator
If you have questions regarding the loan program you should contact Karen
Livingston, the person responsible for administering your loan program. You may
reach Karen Livingston, the loan program administrator, at 907-789-4844.
Loan Application Procedure
To apply for a loan under this Plan, you must complete and return to Karen
Livingston a Loan Application Form, furnishing all information requested and pay
any required loan application processing fees.
Collateral Pledge
A percentage of your vested account balance equal to the amount borrowed divided
by your vested account balance is pledged as security for repayment of loans
under this program.
Default Provisions
You will be deemed to have defaulted on your loan if you fail to remit payment
in a timely manner as required under the Loan Agreement, breach any of your
obligations or duties under the Loan Agreement, or terminate employment.
Upon default, Alaska Federal Savings Bank is entitled to foreclose its security
interest in your vested account balance pledged for repayment upon the
occurrence of an event which triggers a distribution of your benefits. In
addition, Alaska Federal Savings Bank will report as taxable any amounts which
are deemed distributed as a result of failing to make loan payments.
Employer Securities
Alaska Federal Savings Bank is offering a one time option to purchase Company
Stock. Once Company Stock is purchased the dollar amount per plan participant
will be provided to Delaware for liquidation of least aggressive fund to the
most aggressive fund to satisfy the request. If you want to purchase company
shares, but want to maintain their current investment portfolio mix within the
Delaware mutual funds, you can rebalance their Delaware accounts shortly after
the purchase is executed.
You will be able to transfer out of company stock and back into the Delaware
mutual funds. However, you will not be able to transfer into the company stock
fund. To execute a transfer out of the stock fund, you must call our customer
service center at 800-510-401(k). Our customer service rep will document the
request in writing to First Bankers Trust and will batch all requests to the
trustee on the 10th of each month. Transfers among the Delaware funds will be
executed through our phone system/customer service lines and will transact as of
the close of the business the request is received. The request should be
communicated by 4:00 P.M. EST.
PLAN TERMINATION
Alaska Federal Savings Bank expects to continue the Plan indefinitely. However,
in the unlikely event Alaska Federal Savings Bank must terminate the Plan, you
will become 100% vested in the aggregate value of your Individual Account
regardless of whether your vesting years of service are sufficient to make you
100% vested under the vesting schedule(s).
A-12
<PAGE>
If the Plan terminates, benefits are not insured by the Pension Benefit Guaranty
Corporation (PBGC). Under the law, PBGC insurance does not cover the type of
plans called defined contribution plans. This Plan is a defined contribution
plan and, therefore, is not covered.
BREAK IN SERVICE SITUATIONS
If you quit your job, incur a break in service and then return to work, your
date of participation depends on whether you had a vested interest in
contributions (other than your Employee 401(k) Contributions) at the time you
quit and incurred a break in service.
If you had a vested interest, you will participate again upon your return to
employment. In addition, your vesting years of service accumulated prior to the
time you quit and incurred a break in service will be counted in figuring your
vested interest.
If you did not have a vested interest, any eligibility years of service
occurring before the break in service will be taken into account and you will
begin to participate again upon your return to service unless the number of
consecutive one year breaks in service equals or exceeds the greater of five
years, or the aggregate number of eligibility years of service preceding the
breaks in service. If your period of consecutive breaks in service exceeds your
period of prior service, you will be treated as a new employee and will
participate again when you satisfy the Plan's eligibility requirements. In
addition, any vesting years of service occurring before the break in service
will be taken into account in computing your vested interest under the Plan
unless the number of consecutive one year breaks in service equals or exceeds
the greater of five years or the aggregate number of vesting years of service
preceding the breaks in service. For example, if you work for two years, quit
without being vested, and then return to employment after a break of two years
or more, the Plan will give you vesting credit for the initial two year period.
SECTION SEVEN: RIGHTS UNDER ERISA
THE RIGHTS AND PROTECTIONS A PLAN PARTICIPANT IS ENTITLED TO UNDER THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT
As a Participant in this Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA provides that all Plan Participants shall be entitled to do the following:
1. Examine, without charge, at the Plan Administrator's office and at
other specified locations, such as worksites and union halls, all Plan
documents, including insurance contracts, collective bargaining
agreements and copies of all documents filed by Alaska Federal Savings
Bank with the U.S. Department of Labor, such as detailed annual reports
and Plan descriptions.
2. Obtain copies of all Plan documents and other Plan information upon
written request to Alaska Federal Savings Bank. Alaska Federal Savings
Bank may make a reasonable charge for the copies.
3. Receive a summary of the Plan's annual financial report. Alaska Federal
Savings Bank is required by law to furnish each participant with a copy
of this Summary Annual Report.
4. Obtain, once a year, a statement of the total pension benefits accrued
and the nonforfeitable (vested) pension benefits (if any) or the
earliest date on which benefits will become nonforfeitable (vested).
The Plan may require a written request for this statement, but it must
provide the statement free of charge.
In addition to creating rights for Plan Participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your Plan, called fiduciaries of the Plan, have a duty to
do so prudently and in the interest of you and other Plan Participants and
beneficiaries. No one, including Alaska Federal Savings Bank, your union, or any
other person, may fire you or otherwise discriminate against you in any way to
prevent you from obtaining a pension benefit or exercising your rights under
ERISA.
If your claim for a benefit is denied in whole or in part, you must receive a
written explanation of the reason for the denial. You have the right to have
Alaska Federal Savings Bank review and reconsider your claim. Under ERISA, there
are steps
A-13
<PAGE>
you can take to enforce the above rights. For instance, if you request materials
from Alaska Federal Savings Bank and do not receive them within 30 days, you may
file suit in a federal court. In such a case, the court may require Alaska
Federal Savings Bank to provide the materials and pay you up to $100 a day until
you receive the materials, unless the materials were not sent because of reasons
beyond the control of Alaska Federal Savings Bank. If you have a claim for
benefits which is denied, or ignored, in whole or in part, you may file suit in
a state or federal court. If it should happen that Plan fiduciaries misuse the
Plan's money, or if you are discriminated against for asserting your rights, you
may seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay the
costs and fees. If you lose, the court may order you to pay these costs and
fees. For example, if the court finds your claim is frivolous, expenses may be
assessed against you.
If you have any questions about your Plan, you should contact Alaska Federal
Savings Bank. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest area office of the U.S.
Labor- Management Services Administration, Department of Labor.
Further, if this Plan is maintained by more than one employer, you can obtain,
in writing, information as to whether a particular employer is participating in
this Plan and, if so, the participating Employer's address. In addition, you may
request, in writing, a complete list of Employers participating in this Plan.
You may obtain such information by making a written request to Alaska Federal
Savings Bank. Alaska Federal Savings Bank is the most significant (parent)
employer of the group of employers maintaining this Plan.
Employer Information
- --------------------
Name: Alaska Federal Savings Bank
Address: 2094 Jordan Ave
Juneau, AK 99801
Business Telephone: 907-789-4844
Employer Identification Number: 92-0005106
Employer's Income Tax Year End: 06-30
Agent for Service of Legal Process
- ----------------------------------
The Agent for Service of Legal Process is the person upon whom any legal papers
can be served. Service of legal process may be made upon a Plan Trustee, the
Employer or the Plan Administrator.
Name: Alaska Federal Savings Bank
Address: 2094 Jordan Avenue
Juneau, AK 99801
Trustee(s)
- ----------
Name: Delaware Management Trust Company
Business Address: 1818 Market Street
Philadelphia, PA 19103
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<PAGE>
ALASKA FEDERAL SAVINGS BANK
401(k) PLAN FINANCIALS
(AS REPORTED ON THE PLAN'S FORM 5500)
Year Ended
December 31, 1997
-----------------
Assets:
Cash ....................................................... $ --
Receivables ................................................ --
Investments: ............................................... --
U.S. Government securities .............................. --
Corporate debt and equity instruments ................... --
Real estate and mortgages (other than to participants) .. --
Loans to participants: .................................. --
Mortgages ......................................... --
Other ............................................. --
Other ................................................... --
----------
Total investments ................................. 1,399,055
Buildings and other property used in plan operations ....... --
Other assets ............................................... --
----------
Total assets ............................................ 1,399,005
Liabilities:
Payables ................................................... --
Acquisition indebtedness ................................... --
Other liabilities .......................................... --
----------
Total liabilities .......................................... --
----------
Net assets ................................................. 1,399,055
Income:
Contributions received or receivable in cash from:
Employer(s) ............................................. --
Employees ............................................... 76,393
Other ................................................... --
----------
Total ............................................. 76,393
Noncash contributions ...................................... --
Earnings from investments .................................. 203,413
Net realized gain (loss) on sale or exchange
of assets ................................................. --
Other income ............................................... --
----------
Total income ............................................ 203,413
Expenses:
Distribution of benefits and payments to
provide benefits: ......................................... --
Directly to participants or their beneficiaries ......... --
Other ................................................... --
----------
Total distribution of benefits and payments to
provide benefits ....................................... 18,422
Administrative expense ..................................... --
Other expenses ............................................. --
----------
Total expenses .......................................... 18,422
----------
Net income (loss) ................................. $ 184,676
B-1
<PAGE>
THE ALASKA FEDERAL SAVINGS BANK
401(k) PROFIT SHARING PLAN
PARTICIPANT ELECTION TO INVEST IN HOLDING COMPANY STOCK
<TABLE>
<CAPTION>
1. PARTICIPANT DATA
__________________________________________________________________________________________________
<S> <C> <C>
Print your full name above (Last, first, middle initial) Social Security Number
__________________________________________________________________________________________________
Street Address City State Zip
$______________________________________________________________ _____________ ____________
Balance of Participant's Plan Accounts at Date of this Election Date of Birth Date of Hire
</TABLE>
2. INVESTMENT DIRECTION
The Plan is giving participants a special opportunity to invest their
account balances in common stock issued by Alaska Pacific Bancshares, Inc. in
connection with the conversion of Alaska Federal Savings Bank from the mutual to
the stock form. This election may be made during the Subscription and Community
Offering, with respect to the balance in your accounts under the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan (hereinafter referred to as your
"Accounts") as of the date of this election. Please review the Subscription and
Community Prospectus dated __________________, 1999 (the "Prospectus") and the
Prospectus Supplement (the "Supplement") dated __________________, 1999 before
making any decision.
Investing in Alaska Pacific Bancshares, Inc. common stock entails some
risks, and we encourage you to discuss this investment decision with your spouse
and your investment advisor. Delaware Group Finanical Services, the Trustee of
the Alaska Federal Savings Bank 401(k) Profit Sharing Plan, First Banker's Trust
Company, N.A., the trustee of the Employer Stock Fund under the Alaska Federal
Savings Bank 401(k) Profit Sharing Plan and the Alaska Federal Savings Bank
401(k) Profit Sharing 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.
Any shares purchased by the Alaska Federal Savings Bank 401(k) Profit
Sharing Plan pursuant to your election will be subject to the conditions or
restrictions otherwise applicable to Alaska Pacific Bancshares, Inc. common
stock, as discussed in the Prospectus and Supplement. In addition, once you have
elected to have your Accounts invested in Alaska Pacific Bancshares, Inc. common
stock, you may have limited opportunities to change this investment decision.
Any part of your Accounts invested in Alaska Pacific Bancshares, Inc. common
stock may be changed to an alternative authorized investment under the Alaska
Federal Savings Bank 401(k) Profit Sharing Plan only during an "Investment
Change Period."
An "Investment Change Period" opens at the beginning of the third
business day after Alaska Pacific Bancshares, Inc. issues a "Quarterly Earnings
Release" and closes at the end of the twelfth business day after such release.
The term "Quarterly Earnings Release" means any press release issued by Alaska
Pacific Bancshares, Inc. for general distribution which announces, for the first
time, Alaska Pacific Bancshares, Inc.'s results of operations for a particular
fiscal quarter. The Bank anticipates these opportunities will occur four times
per year. The Bank will attempt to notify participants of the commencement of
each Investment Change Period but will not assume responsibility for doing so.
<PAGE>
[ ] I hereby direct the trustee of the Employer Stock Fund to obtain the
funds necessary to purchase such shares of Alaska Pacific Bancshares,
Inc. common stock by using funds in my current Accounts from among the
following Investment Options in the following percentages (in not less
than 10% increments):
[ ] Cash Reserve _____%
[ ] U.S. Government Fund _____%
[ ] Delaware Fund _____%
[ ] Growth & Income Fund _____%
[ ] International Equity Fund _____%
[ ] DEVON _____%
[ ] Small Cap Value _____%
[ ] DELCAP _____%
[ ] TREND _____%
[ ] I choose not to invest any of my Accounts in Alaska Pacific Bancshares,
Inc. common stock.
3. PARTICIPANT SIGNATURE AND ACKNOWLEDGMENT - REQUIRED
By signing this PARTICIPANT INVESTMENT ELECTION, I authorize and direct the
Alaska Federal Savings Bank 401(k) Profit Sharing 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 Alaska
Pacific Bancshares, Inc. common stock, and I have read the explanation provided
in Part 2 of this form. I am aware of the risks involved in the investment in
Alaska Pacific Bancshares, Inc. common stock, and understand that the trustees
of the Alaska Federal Savings Bank 401(k) Profit Sharing Plans and the Employer
Stock Fund and the Plan Administrator are not responsible for my choice of
investment. In addition I understand if my order for Alaska Pacific Bancshares,
Inc. common stock is unable to be fulfilled either partially or in full, any
remaining funds will be allocated to my existing investment options.
________________________________________________________________________________
Participant's Signature Date Signed
Signed before me this ________ day of ________, 1999 __________________________
Notary Public
My Commission Expires _____________________________
PLEASE COMPLETE AND RETURN BY ______________________
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK INFORMATION
CENTER AT ____________________.
<PAGE>
PROSPECTUS
[LOGO]
ALASKA PACIFIC BANCSHARES, INC.
(PROPOSED HOLDING COMPANY FOR ALASKA FEDERAL)
925,750 SHARES OF COMMON STOCK
Alaska Federal Savings Bank is converting from the mutual form to the stock form
of organization and becoming a wholly-owned subsidiary of Alaska Pacific
Bancshares, Inc. As part of the conversion, Alaska Federal will change its name
to Alaska Pacific Bank. Alaska Pacific Bancshares, Inc. is offering its common
stock to the public as part of its conversion. The conversion must be approved
by a majority of the votes eligible to be cast by the members of Alaska Federal.
OFFERING SUMMARY
Price Per Share: $10.00
Proposed trading symbol: OTC Bulletin Board
<TABLE>
<CAPTION>
Maximum Maximum
Without Further Subject to Further
Minimum Midpoint Regulatory Approval Regulatory Approval
------- -------- ------------------- -------------------
<S> <C> <C> <C> <C>
Number of shares: 595,000 700,000 805,000 925,750
Gross offering proceeds: $5,950,000 $7,000,000 $8,050,000 $9,257,500
Estimated underwriting commissions
and other offering expenses: $480,150 $494,640 $509,130 $525,794
Estimated net proceeds: $5,469,850 $6,505,360 $7,540,870 $8,731,706
Estimated net proceeds per share: $9.19 $9.29 $9.36 $9.43
</TABLE>
For a discussion of certain risks that you should consider, see "Risk
Factors" beginning on page 1.
With the approval of the Office of Thrift Supervision, Alaska Pacific Bancshares
may increase the maximum number of shares by up to 15% to 925,750 shares.
Alaska Pacific Bancshares intends to list the common stock through the OTC
Bulletin Board or the National Daily Quotation System "Pink Sheets" published by
the National Quotation Bureau, Inc. Charles Webb & Company, a Division of Keefe,
Bruyette & Woods, Inc., will use its best efforts to assist Alaska Pacific
Bancshares in selling at least the minimum number of shares but does not
guarantee that this number will be sold. Charles Webb is not obligated to
purchase any shares of common stock in the offering. Charles Webb intends to
make a market in the common stock.
- --------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any 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.
- --------------------------------------------------------------------------------
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact the stock information center toll free at (888) 277-8625.
CHARLES WEBB & COMPANY, INC., a
Division of Keefe, Bruyette & Woods, Inc.
The date of this prospectus is ___________, 1999
<PAGE>
WHO IS ELIGIBLE TO PURCHASE STOCK?
o First Priority: Depositors of Alaska Federal with at least $50 on
deposit on December 31, 1997.
o Second Priority: Alaska Pacific Bancshares' employee stock
ownership plan.
o Third Priority: Depositors of Alaska Federal with at least $50 on
deposit on March 31, 1999.
o Fourth Priority: Depositors of Alaska Federal on April 30, 1999
and borrowers of Alaska Federal on October 20, 1993 whose loans
were still outstanding on April 30, 1999.
o Fifth Priority: Residents of the communities of Juneau,
Ketchikan, Sitka and Wrangell, Alaska.
o Sixth Priority: All other people.
For additional information regarding eligibility, see "Alaska Federal's
Conversion - The Subscription, Direct Community and Syndicated Community
Offerings."
The subscription offering will end at 12:00 Noon, Alaska Time, on
______________, 1999. If the conversion is not completed by _________, 1999, and
the Office of Thrift Supervision gives Alaska Federal more time to complete the
conversion, Alaska Pacific Bancshares will give all subscribers the opportunity
to increase, decrease or cancel their orders. All extensions may not go beyond
__________, 2001. Alaska Pacific Bancshares will hold all funds received from
subscribers in an interest-bearing savings account at Alaska Federal until the
conversion is completed or terminated. Alaska Pacific Bancshares will return all
funds promptly with interest if the conversion is terminated.
<PAGE>
[Map of State of Alaska with Alaska Federal's Market Area and Offices depicted]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................................. (i)
Risk Factors............................................................................. 1
Selected Financial Information.......................................................... 6
How Alaska Pacific Bancshares Intends to Use the Conversion Offering Proceeds ........... 8
Alaska Pacific Bancshares' Dividend Policy............................................... 10
Market for Alaska Pacific Bancshares' Common Stock....................................... 11
Capitalization........................................................................... 13
Historical and Pro Forma Regulatory Capital Compliance................................... 15
Pro Forma Data........................................................................... 16
Shares to be Purchased by Management with Subscription Rights............................ 21
Alaska Federal Savings Bank Statements of Income......................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations.... 23
Recent Developments of Alaska Federal.................................................... 38
Business of Alaska Pacific Bancshares.................................................... 43
Business of Alaska Federal............................................................... 43
Management of Alaska Pacific Bancshares.................................................. 71
Management of Alaska Federal............................................................. 72
Regulation............................................................................... 81
Taxation................................................................................. 90
Alaska Federal's Conversion.............................................................. 94
Restrictions on Acquisition of Alaska Pacific Bancshares................................. 108
Description of Capital Stock of Alaska Pacific Bancshares ............................... 113
Registration Requirements................................................................ 114
Legal and Tax Opinions................................................................... 114
Experts.................................................................................. 115
Where You Can Find More Information...................................................... 115
Index to Financial Statements............................................................ 116
</TABLE>
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus carefully,
including the financial statement and notes to financial statements found at the
back of this prospectus, before you decide to invest. For assistance, please
contact the stock information center toll free at (888) 277-8625.
The Companies
Alaska Pacific Bancshares, Inc. Alaska Federal formed Alaska Pacific
2094 Jordan Avenue Bancshares to be its holding company. To
Juneau, Alaska 99801 date, Alaska Pacific Bancshares has only
(907) 789-4844 conducted organizational activities. After
the conversion, Alaska Pacific Bancshares
will own all of Alaska Federal's capital
stock and will direct, plan and coordinate
Alaska Federal's business activities. After
the conversion, Alaska Pacific Bancshares
might become an operating company or acquire
or organize other operating subsidiaries,
including other financial institutions,
although it currently has no specific plans
or agreements to do so.
Alaska Federal Savings Bank Alaska Federal's business strategy is to
2094 Jordan Avenue operate as a community-oriented bank
Juneau, Alaska 99801 dedicated to financing home ownership and
(907) 789-4844 providing quality customer service. Alaska
Federal operates out of six full service
offices in Southeast Alaska with two offices
located in Juneau, two offices located in
Ketchikan, one office located in Sitka and
one office located in Wrangell. Alaska
Federal considers the communities of Juneau,
Ketchikan, Sitka and Wrangell, as its
primary market area for making loans and
attracting deposits.
Alaska Federal's principal business is
attracting deposits from the general public
and using those funds to originate
residential mortgage loans and in recent
years has placed increased emphasis on
commercial and consumer lending. At December
31, 1998, Alaska Federal had total assets of
$110.8 million, deposits of $101.9 million
and total equity of $7.3 million.
For a discussion of Alaska Federal's
business strategy and recent results of
operations, see "Management's Discussion and
Analysis of Financial Condition and Results
of Operations." For a discussion of Alaska
Federal's business activities, see "Business
of Alaska Federal."
(i)
<PAGE>
The Conversion
What is the Conversion (page 86) The conversion is a change in Alaska
Federal's legal form of organization. As a
federal mutual savings bank, Alaska Federal
currently has no stock or stockholders.
Instead, Alaska Federal operates for the
mutual benefit of its depositors and
borrowers who elect its directors and vote
on other important matters. Through the
conversion, Alaska Federal will become a
stock savings bank, change its name to
Alaska Pacific Bank, and will be owned and
controlled by the holder of its stock,
Alaska Pacific Bancshares. Stockholders of
Alaska Pacific Bancshares will have voting
rights stockholders.
Alaska Federal is conducting the conversion
under the terms of its plan of conversion.
The Office of Thrift Supervision has
approved the conversion with the condition
that Alaska Federal's members approve the
conversion. Alaska Federal has called a
special meeting of its members for
_________, 1999 to vote on the conversion.
Alaska Federal's Reasons for By converting to the stock form of
Conversion (page 87) organization, Alaska Federal will be
structured in the form used by commercial
banks, most business entities and a large
number of savings institutions. The
conversion will be important to Alaska
Federal's future growth and performance by:
o providing a larger capital base
which will permit Alaska Federal
to increase the number and
amount of loans it can make to
the people and businesses in its
market area,
o providing Alaska Federal the
ability to expand its financial
services through the addition of
new branch offices, the
expansion of the automated
teller machine network, and the
implementation of electronic
banking services via the
internet,
o providing for the renovation of
existing facilities,
specifically the main office in
Juneau,
o enhancing its ability to attract
and retain qualified management
through stock-based compensation
plans,
o providing Alaska Federal's
customers and the community the
ability to own stock in a local
community oriented financial
institution, and
o enhancing its ability to expand
its financial services.
(ii)
<PAGE>
Presently, Alaska Federal does not have any
specific plans or arrangements for
diversification or expansion.
Benefits of the Conversion to Alaska Pacific Bancshares and Alaska Federal
Management of Alaska Pacific intend to adopt the following benefit plans
Bancshares and Alaska Federal and executive officer severance agreements:
(pages 67- 73)
o Employee Stock Ownership Plan.
This plan intends to purchase 8%
of the shares issued in the
conversion. This would range
from 47,600 shares, assuming
595,000 shares are issued in the
conversion, to 64,4007 shares,
assuming 805,000 shares are
issued in the conversion. Alaska
Pacific Bancshares will allocate
these shares to employees over a
period of years in proportion to
their compensation.
o Stock Option Plan. Under this
plan, Alaska Pacific Bancshares
may award stock options to key
employees and directors. The
number of options available
under this plan will be equal to
10% of the number of shares sold
in the conversion. This would
range from 59,500 shares,
assuming 595,000 shares are
issued in the conversion, to
80,500 shares, assuming
805,000920,000 shares are issued
in the conversion. This plan
will require shareholder
approval.
o Management Recognition and
Development Plan. Under this
plan, Alaska Pacific Bancshares
may award shares of restricted
stock to key employees and
directors at no cost to the
recipient. The number of shares
available under this plan will
equal 4% of the number of shares
sold in the conversion. This
would range from 23,800 shares,
assuming 595,000 shares are
issued in the conversion, to
32,200 shares, assuming 805,000
shares are issued in the
conversion. This plan will
require shareholder approval.
o Employment Agreement with Alaska
Federal's and Alaska Pacific
Bancshares' President and Chief
Executive Officer. The
employment agreement will
provide for severance benefits
if the President and Chief
Executive Officer is terminated
following a change in control of
Alaska Pacific Bancshares of
Alaska Federal. Assuming that a
change in control had occurred
at December 31, 1998, the
President and Chief Executive
Officer would be entitled to a
lump sum cash payment of
approximately $343,605.
(iii)
<PAGE>
o Severance Agreements with Alaska
Federal's, Senior Vice President
and Chief Financial Officer, and
Senior Vice President and Chief
Operating Officer and five other
senior officers. These
agreements will provide for
severance benefits if the
executive is terminated
following a change in control of
Alaska Pacific Bancshares or
Alaska Federal. Assuming that a
change in control had occurred
at December 31, 1998, the
aggregate amount payable to
these executive and senior
officers would have been
approximately $803,567.
o Employee Severance Compensation
Plan. This plan will provide
severance benefits to eligible
employees if there is a change
in control of Alaska Pacific
Bancshares or Alaska Federal. In
the event the provisions of the
severance plan are triggered,
the total amount of payments due
would be approximately $130,000.
The following table summarizes the total
number and dollar value of the shares of
common stock, assuming 700,000 shares are
issued in the conversion, which the employee
stock ownership plan would acquire and the
total value of all shares available for
award under the stock option plan and the
management development and recognition plan.
The table assumes the value of the shares is
$10.00 per share. The table does not include
a value for the options because their value
would be equal to the fair market value of
the common stock on the day that the options
are granted. As a result, the employee stock
ownership plan would only realize financial
gains if the market price of common stock
increases.
<TABLE>
<CAPTION>
Percentage
Number Estimated of Shares
of Value of Issued in the
Shares Shares Conversion
------ ------ ----------
<S> <C> <C> <C>
Employee stock
ownership plan........... 56,000 $560,000 8.0%
Management develop-
ment and recognition-
plan awards.............. 28,000 280,000 4.0
Stock options............. 70,000 -- 10.0
------- -------- ----
Total.................... 154,000 $840,000 22.0%
======= ======== ====
</TABLE>
For a discussion of certain risks associated
with these plans and agreements, see "Risk
Factors -- Implementation of Benefit Plans
Will Increase Future Compensation Expense
and May Lower Alaska Federal's Net Income"
and "--
(iv)
<PAGE>
Severance Agreements and Severance Plan
Could Make Takeover Attempts More Difficult
to Achieve."
The Offering
Subscription Offering (page 90) Alaska Federal has granted subscription
rights in the following order of priority
to:
1. Persons with $50 or more on
deposit at Alaska Federal as of
December 31, 1997.
2. The Alaska Pacific Bancshares'
employee stock ownership plan.
3. Persons with $50 or more on
deposit at Alaska Federal as of
March 31, 1999.
4. Alaska Federal's depositors as
of April 30, 1999 and borrowers
of Alaska Federal as of October
20, 1993 whose loans continue to
be outstanding as of April 30,
1999.
To ensure that Alaska Federal properly
identifies your subscription rights, you
must list all of your deposit accounts and
loans as of the eligibility dates on the
stock order form. If you fail to do so, your
subscription may be reduced or rejected.
The subscription offering will end at 12:00
Noon, Alaska Time, on ________, 1999. If the
offering is oversubscribed, Alaska Pacific
Bancshares will allocate shares in order of
the priorities described above under a
formula contained in the plan of conversion.
Subscription Rights Are Not You may not transfer your sSubscription
Transferable (page 99) rights or use these for the benefit of any
one else person. If you violate this
prohibition, you may lose your right to
purchase shares and may face criminal
prosecution and other sanctions.
Community Offering (page 91) Alaska Pacific Bancshares may offer shares
not sold in the subscription offering to the
general public in a community offering.
People who are residents of the communities
of Juneau, Ketchikan, Sitka and Wrangell,
Alaska will have first preference to
purchase shares in a community offering. If
shares are available, Alaska Pacific
Bancshares expects to offer them to the
general public immediately after the end of
the subscription offering, but may begin a
community offering at any time during the
subscription offering.
(v)
<PAGE>
Alaska Pacific Bancshares and Alaska Federal
may reject orders received in the community
offering either in whole or in part. If your
order is rejected in part, you cannot cancel
the remainder of your order.
Purchase Price of the The independent appraisal by RP Financial,
Common Stock (page 96) LC., dated as April 16, 1999, established
the offering range. This appraisal was based
on Alaska Federal's financial condition and
operations and the effect of the additional
capital raised in the offering. The purchase
price is $10.00 per share. The Boards of
Directors of Alaska Pacific Bancshares and
Alaska Federal consulted with Charles Webb
in determining it. You will not pay a
commission to buy any shares in the
conversion.
After completion of the conversion and the
offering, each share of Alaska Pacific
Bancshares common stock will have a book
value of $17.18, at the maximum of the
offering range. This means the price paid
for each share sold in this offering will be
58.21% of the book value. In addition, the
price to earnings ratio at the maximum of
the offering range will be 14.93 times.
These ratios are important factors used by
RP Financial in determining the appraised
value of Alaska Federal. Alaska Federal's
price to book ratio is lower than its peer
group of publicly traded thrift institutions
of 109.19% and its price to earnings ratio
is higher to this same peer group of 15.02
times.
Number of Shares to be Issued Alaska Pacific Bancshares will sell between
in the Conversion (page 96) 595,000 and 805,000 shares of its common
stock in this offering. With regulatory
approval, Alaska Pacific Bancshares may
increase the number of shares to 925,750
without giving you further notice.
The amount of common stock that Alaska
Pacific Bancshares will offer in the
conversion is based on an independent
appraisal of the estimated market value of
Alaska Pacific Bancshares and Alaska Federal
as if the conversion had occurred as of the
date of the appraisal.
RP Financial, L.C., the independent
appraiser, has estimated that, in its
opinion, as of April 16, 1999, the estimated
market value ranged between $5,950,000 and
$8,050,000 with a midpoint of $7,000,000. RP
Financial based its appraisal in part on
Alaska Federal's financial condition and
operations and the effect on Alaska Federal
of the additional capital raised by the
sale of common stock in this offering. RP
Financial will update the appraisal before
the conversion is completed.
(vi)
<PAGE>
Limitations on the Purchase The minimum purchase is 25 shares.
of Common Stock in the
Conversion (page 98)
The maximum purchase in the subscription
offering by any person or group of persons
through a single deposit account is $125,000
of common stock, which equals 12,500 shares.
The maximum purchase by any person in the
community offering is $125,000 of common
stock, which equals 12,500 shares.
The maximum purchase in the subscription
offering and community offering combined by
any person, related persons or persons
acting together is $250,000 of common stock,
which equals 25,000 shares.
How to Purchase Common Stock If you want to subscribe for shares, you
(page 94) must complete an original stock order form
and send it together with full payment to
Alaska Federal in the postage-paid envelope
provided. You must sign the certification
that is part of the stock order form. Alaska
Federal must receive your stock order form
before the end of the subscription offering.
You may pay for shares in any of the
following ways:
o In Cash if delivered in person.
o By Check or Money Order made
payable to Alaska Pacific
Bancshares, Inc.
o By Withdrawal from an account at
Alaska Federal. To use funds in
an IRA at Alaska Federal you
must transfer your account to an
unaffiliated institution or
broker. Please contact the stock
information center at least one
week before the end of the
subscription offering for
assistance.
Alaska Federal will pay interest on your
subscription funds at the rate it pays on
passbook accounts from the date it receives
your funds until the conversion is completed
or terminated. All funds authorized for
withdrawal from deposit accounts with Alaska
Federal will earn interest at the applicable
account rate until the conversion is
completed. There will be no early withdrawal
penalty for subscriptions paid for by
withdrawal from certificates of deposit.
After Alaska Federal receives your order,
you cannot cancel or change it without
Alaska Federal's consent. If Alaska Pacific
Bancshares will notify all subscribers if it
intends to sell fewer than 595,000 shares or
more than 925,750 shares, and give them the
opportunity to change or cancel their
orders.
(vii)
<PAGE>
Alaska Pacific Bancshares' Alaska Pacific Bancshares will use the
and Alaska Federal's greater of 50% of the net conversion
Use of Proceeds From the proceeds, or that portion of the net
Sale of Common Stock in proceeds which would increase Alaska
the Conversion (page 8) Federal's fully phased-in tangible capital
to 10% of adjusted total assets, to buy all
of the common stock of Alaska Federal. In
addition, Alaska Pacific Bancshares will use
these funds as follows:
o to loan an amount equal to 8% of
the gross proceeds of the
offering to the employee stock
ownership plan to fund its
purchase of common stock;
o for general corporate purposes,
which may include, for example,
paying cash dividends or buying
back shares of its common stock;
and
o to expand operations through
acquiring or establishing
additional branch offices or
acquiring other financial
institutions, although it has no
specific plans, arrangements,
agreements or understandings,
written or oral, regarding these
activities.
Pending such use, Alaska Pacific Bancshares
will invest the net proceeds in investment
securities with short intermediate terms or
in a deposit account at Alaska Federal.
Alaska Federal will use the net proceeds
received from the offering as follows:
o in the short term, to invest in
short and intermediate term U.S.
Government and agency
obligations and ultimately to
originate or participate in loan
originations with other local,
state-wide regional banks,
subject to Alaska Federal's
policies, procedures and
underwriting criteria;
o a portion of the net proceeds
may be used to renovate its main
office in Juneau, which is
estimated to cost up to
$500,000, and for leasehold
improvements of approximately
$235,000 for its proposed office
in Auke Bay; and
o a portion of the net proceeds
may be used to expand its
automated teller machine network
by adding two machines in 1999
and one in 2000, which is
estimated to cost $75,000.
(viii)
<PAGE>
Purchases of Common Alaska Federal's directors and executive
Stock by Alaska Federal's officers intend to subscribe for 66,000
Officers and Directors shares regardless of the number of shares
(page 20) issued in the conversion. This number equals
7.9% of the 805,000 shares that would be
issued at the maximum of the offering range.
If fewer shares are issued in the
conversion, then officers and directors may
own a greater percentage of Alaska Pacific
Bancshares. Directors and executive officers
will pay the same $10.00 per share price as
everyone else who purchases shares in the
conversion.
Plans to List the Common Stock Alaska Pacific Bancshares intends to list
Over the Counter through the OTC the common stock through the OTC Bulletin
Bulletin Board or the National Board or the National Daily Quotation System
Daily Quotation System "Pink Sheets" published by the National
"Pink Sheets" (page 10) Quotation Bureau, Inc. Keefe Bruyette &
Woods, Inc. intends to be a market maker in
the common stock. After shares of the common
stock begin trading, you may contact a stock
broker to buy or sell shares. Alaska Pacific
Bancshares cannot assure you that there will
be an active trading market for the common
stock, that you will be able to sell the
shares when you want to, or at a price equal
to or above $10.00. See "Risk Factors --
Possible Limited Market for Alaska Pacific
Bancshares' Common Stock May Lower Market
Price."
Alaska Pacific Bancshares' Alaska Pacific Bancshares intends to pay a
Plan to Pay Quarterly Cash quarterly cash dividend with an annualized
Dividends (page 9) rate of $0.20 per share, starting after the
completion of the first full quarter after
the conversion. Alaska Pacific Bancshares
does not guarantee that it will pay
dividends in the future.
(ix)
<PAGE>
Additionally, in connection with the
conversion, Alaska Pacific Bancshares and
Alaska Federal have committed to the Office
of Thrift Supervision that during the
one-year period following consummation of
the conversion, Alaska Pacific Bancshares
will not take any action to declare an
extraordinary dividend to stockholders that
would be treated by recipients as a tax-free
return of capital for federal income tax
purposes.
(x)
<PAGE>
RISK FACTORS
Before investing in Alaska Pacific Bancshares' common stock please
carefully consider the matters discussed below. Alaska Pacific Bancshares'
common stock is not a savings account or deposit and is not insured by the
Federal Deposit Insurance Corporation or any other government agency.
Alaska Federal's Business Depends Heavily on the Economic Condition of its
Primary Market Area and Weak Market Area Demographics has Hurt Core Earnings and
Limits Growth Prospects
Because Alaska Federal operates in an isolated area with generally
small increases in population and where opportunities for growth are limited,
Alaska Federal's core earnings, which are earnings from lending, investment and
deposit activities, have been lower than its peers. The geographic limitations
and low growth characteristics of Alaska Federal's primary market area also
limits its ability to increase its loan and deposit base. Additionally, because
a substantial portion of Alaska Federal's borrowers and depositors and
substantially all of Alaska Federal's real estate collateral is located in this
market area, a downturn in the economy of the primary market area could increase
the risk of loan losses.
Alaska Federal focuses on serving customers in the Southeast Alaska
communities of Juneau, Ketchikan, Sitka, and Wrangell. These areas are
relatively isolated from one another as Southeastern Alaska consists primarily
of islands, along with a stretch of mainland along the coast. Generally, the
individual communities are accessible only by the Alaska Marine Highway System,
requiring transportation by ferries, or by air, making travel difficult,
particularly during the winter months.
The State of Alaska enjoyed a period of prosperity and economic
expansion during the late 1970s and early 1980s as a result of the boom in the
oil industry and the construction of the Alaska pipeline. The plummeting oil
prices in the mid-1980s resulted in a severe recession throughout Alaska. The
Southeast region, where Alaska Federal is located, recovered from this economic
downturn through greater reliance on tourism and natural resource industries,
such as timber, mining and fishing. The economy of Southeast Alaska also depends
on government employment, with the Capital of Alaska located in Juneau. However,
Juneau is experiencing a slow-down in its growth in government employment as the
city of Anchorage's government employment continues to grow rapidly. The
recurring possibility of the relocation of the state capital from Juneau to
Anchorage further complicates this situation. Alaskans have voted on this
proposal in 1974 and 1994 and defeated it each time. Although Juneau remains the
state capital, rapid government employment in Anchorage continues to pose a
threat to Juneau. The relocation of the state capital would have a serious
adverse effect on the Juneau economy and the economy of Southeast Alaska. See
"Business of Alaska Federal -- Market Area."
Alaska Federal's Recent Growth in Commercial Business and Consumer Lending Poses
Greater Risks Than Residential Lending
Commercial and consumer loans involve more risk than residential
lending and are subject to a greater extent to adverse conditions in the
economy. Alaska Federal operates as a community bank, and has implemented a
lending strategy that has involved a shift from a primary focus on residential
lending to the increased origination of commercial business and consumer loans.
1
<PAGE>
After the conversion, Alaska Federal intends to continue its efforts to increase
its volume of commercial business and consumer loans. There can be no assurances
that Alaska Federal will meet its objective in increasing the volume of its
commercial business and consumer loan portfolios. Factors that may affect the
ability of Alaska Federal to increase its originations of such loans include the
demand for such loans, interest rates and the state of the local and national
economy. See "Business of Alaska Federal -- Lending Activities -- Commercial
Business Lending" and "-- Consumer Lending."
Loss of Key Personnel May Hurt Alaska Federal's Operations
The loss of Craig E. Dahl, Alaska Federal's Chief Executive Officer and
President, Lisa Corrigan Bell, Alaska Federal's Senior Vice President and Chief
Operating Officer, and Roger K. White, Alaska Federal's Senior Vice President
and Chief Financial Officer could have a material adverse impact on the
operations of Alaska Federal. Since 1993, these executive officers have been
instrumental in managing the business affairs of Alaska Federal. The loss of any
of these individuals could have a material adverse impact on the operations of
Alaska Federal. Alaska Federal does not have an established management
succession plan. Accordingly, should Alaska Federal lose the services of Mr.
Dahl, Ms. Bell or Mr. White, the Board of Directors would have to search outside
of Alaska Federal for qualified, permanent replacements. This search may be
prolonged and Alaska Federal cannot assure you that it will be able to locate
and hire qualified replacements. Neither Alaska Federal nor Alaska Pacific
Bancshares has any plans to obtain a "key man" life insurance policy for any
individual. For a discussion of Alaska Federal's management, see "Management of
Alaska Federal."
Possible Loss of a Tax Benefit in the Form of Net Operating Loss Carryforwards
If a change in ownership in Alaska Federal occurs as a result of the
conversion under Section 382 of the Internal Revenue Code, Alaska Federal may
lose a portion of, or all of, the net operating loss carryforwards available as
of the date of the close of the conversion. At December 31, 1998, Alaska Federal
had $3.9 million of net operating loss carryforwards for federal and state
income tax purposes which will expire in 2002 to 2012 if not utilized to offset
taxable income. Alaska Pacific Bancshares may use net operating loss
carryforwards to offset future taxable income. This is a tax benefit to Alaska
Federal. See "Taxation -- Federal Taxation -- Net Operating Loss Carryforwards"
and Note 11 to Notes to the Financial Statements included at the back of this
prospectus.
Implementation of Benefit Plans Will Increase Future Compensation Expense and
May Lower Alaska Federal's Net Income
Alaska Federal will recognize additional material employee compensation
and benefit expenses that stem from the shares purchased or granted to employees
and executives under new benefit plans. Alaska Federal cannot predict the actual
amount of these new expenses because applicable accounting practices require
that they be based on the fair market value of the shares of common stock at
specific points in the future. Alaska Pacific Bancshares would recognize
expenses for its employee stock ownership plan when it releases shares to
participants' accounts and would recognize expenses for the management
recognition and development plan over the vesting period of awards made to
recipients. These expenses are reflected in
2
<PAGE>
the pro forma financial information under "Pro Forma Data" assuming the $10.00
per share purchase price as fair market value. Actual expenses, however, may be
higher or lower. Recently proposed accounting rules would also require Alaska
Pacific Bancshares to recognize compensation expense for stock options awarded
to non-employee directors. For further discussion of these plans, see
"Management of Alaska Federal -- Benefits."
Issuance of Shares for Benefit Programs May Lower Your Ownership Interest
If Alaska Pacific Bancshares issues the shares for the management
recognition and development plan from authorized but unissued stock, your
ownership interest could be reduced by up to approximately 3.9%. If Alaska
Pacific Bancshares issues the shares for the stock option plan from authorized
but unissued stock, your ownership interest could be reduced by up to
approximately 9.1%. Alaska Pacific Bancshares intends to issue shares to its
officers and directors through these new stock based benefit programs, if
stockholders approve these plans. See "Pro Forma Data."
Possible Voting Control by Management and Employees May Make Takeover Attempts
More Difficult to Achieve
The shares of common stock that Alaska Federal's directors and
executive officers intend to purchase in the conversion, when combined with the
shares that may be awarded or sold to participants under the Alaska Pacific
Bancshares' employee stock ownership plan and Alaska Pacific Bancshares'
stock-based benefit plans, could ultimately result in management and employees
controlling a significant percentage of Alaska Pacific Bancshares' common stock.
If these individuals were to act together, they could have significant influence
over the outcome of any stockholder vote. This voting power may discourage
takeover attempts that you would like to see happen and reduce the likelihood
that you will receive a takeover premium. In addition, the total voting power of
management and employees could reach in excess of 20% of Alaska Pacific
Bancshares' outstanding stock, if 805,000 shares are issued at the maximum of
the range. That level would enable management and employees as a group to defeat
any stockholder matter that requires an 80% vote. For information about
management's intended stock purchases and the number of shares that may be
awarded under new benefit plans, see "Shares to be Purchased by Management With
Subscription Rights," "Management of Alaska Federal -- Executive Compensation"
and "Restrictions on Acquisition of Alaska Pacific Bancshares."
Provisions in Alaska Pacific Bancshares' Articles of Incorporation and Statutory
Provisions that Could Discourage Takeover Attempts by Other Parties
Provisions in Alaska Pacific Bancshares' Articles of Incorporation and
Bylaws, the corporation law of the state of Alaska, and federal regulations may
make it difficult and expensive to pursue a takeover attempt that management
opposes. These provisions may discourage or prevent takeover attempts that you
would like to see happen and reduce the likelihood that you will receive a
takeover premium. These provisions will also make the removal of the current
board of directors or management of Alaska Pacific Bancshares, or the
appointment of new directors, more difficult.
3
<PAGE>
For further information about these provisions, see "Restrictions on
Acquisition of Alaska Pacific Bancshares."
Employment Agreement, Severance Agreements and Severance Plan Could Make
Takeover Attempts More Difficult to Achieve
The employment agreement for the President and Chief Executive Officer,
the severance agreements for executive and senior officers and the severance
plan may increase the costs of acquiring Alaska Pacific Bancshares, thereby
discouraging future attempts to take over Alaska Pacific Bancshares or Alaska
Federal. The employment agreement and the severance agreements of executive and
senior officers of Alaska Pacific Bancshares and Alaska Federal provide for cash
severance payments and/or the continuation of health, life and disability
benefits if the officer is terminated following a change in control of Alaska
Pacific Bancshares or Alaska Federal. If a change in control had occurred at
December 31, 1998, the aggregate value of the severance benefits available to
the executive and senior officers under the agreements would have been
approximately $344,000, $531,000 and $272,000, respectively. In addition, if a
change in control had occurred at December 31, 1998 and all eligible employees
had been terminated, the aggregate payment due under the Severance Plan would
have been approximately $130,000. For information about the proposed severance
agreements and Severance Plan, see "Management of Alaska Federal -- Executive
Compensation."
Limited and Inactive Market for Alaska Pacific Bancshares' Common Stock May
Lower Market Price
Because Alaska Pacific Bancshares has never issued capital stock,
Alaska Pacific Bancshares does not know whether an active trading market will
develop. Because of the relatively small size of the offering, it is highly
unlikely that an active and liquid market for the common stock will develop. As
a result, you may not be able to sell all of your shares on short notice and the
sale of a large number of shares all at once could temporarily lower the market
price. Therefore, you should consider the potentially illiquid and long-term
nature of an investment in the common stock. Furthermore, Alaska Pacific
Bancshares cannot guarantee anyone who purchases shares in the conversion that
they will be able to sell their shares at or above the $10.00 purchase price.
For further information on the expected trading market for Alaska Pacific
Bancshares' common stock, see "Market for Alaska Pacific Bancshares' Common
Stock."
Your Subscription Funds Could be Held for an Extended Time Period If Completion
of the Conversion Is Delayed
Your subscription funds could be held for an extended time period if
the conversion is not completed by __________, 1999 and the Office of Thrift
Supervision gives Alaska Federal more time to complete this conversion. If this
occurs, Alaska Pacific Bancshares will contact everyone who subscribed for
shares to see if they still want to purchase stock. This is commonly referred to
as a "resolicitation offering." A material change in the independent appraisal
of Alaska Pacific Bancshares and Alaska Federal would be the most likely, but
not necessarily the only, reason for a delay in completing the conversion.
Federal regulations permit the Office of Thrift Supervision to grant one or more
time extensions, none of which may exceed 90 days. Extensions may not go beyond
__________, 2001. In the resolicitation offering, Alaska Pacific Bancshares
would mail a supplement to this prospectus to you if you subscribed for stock to
let you confirm, modify or cancel your subscription. If you fail to respond to
the resolicitation offering, it would be as if you had canceled your order and
all subscription funds, together with accrued interest, would be returned to
you. If you authorized payment by withdrawal of funds on deposit at Alaska
Federal, that authorization would terminate. If you affirmatively confirm your
subscription order during the resolicitation offering, Alaska Pacific Bancshares
and Alaska Federal would continue to hold your subscription funds until the end
of the resolicitation offering. Your resolicitation order would be irrevocable
4
<PAGE>
without the consent of Alaska Pacific Bancshares and Alaska Federal until they
complete the conversion.
Rising Interest Rates Could Hurt Alaska Federal's Profits
If interest rates rise, Alaska Federal anticipates that its net
interest income would decline as interest paid on deposits would increase more
quickly than the interest earned on loans and investment securities. In
addition, rising interest rates may adversely affect Alaska Federal's earnings
because rising rates may cause a decrease in customer demand for loans and a
reduction in value of Alaska Federal's securities available for sale. For
further discussion of how changes in interest rates could impact Alaska Federal,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset and Liability Management and Market Risk."
Alaska Federal's Return on Equity Will Be Below Average After Conversion Because
of High Capital Levels
In recent years, Alaska Federal's return on average equity has been
below the average return on equity for publicly held savings associations and
banks of comparable size. As a result of the additional capital that will be
raised in this offering, Alaska Pacific Bancshares expects that its return on
average equity will continue to be below average after the offering. In
addition, compensation expense will increase as a result of the new benefit
plans. Over time, Alaska Pacific Bancshares intends to use the net proceeds from
this offering to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity competitive
with other publicly traded financial institutions. It could take a number of
years to achieve this goal, and Alaska Pacific Bancshares cannot assure you that
it can attain this goal. Consequently, you should not expect a competitive
return on equity in the near future. See "Pro Forma Data" for an illustration of
the financial effects of this stock offering.
5
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables contain certain information concerning the
financial position and results of operations of Alaska Federal at the dates and
for the periods indicated. Selected financial information for 1998 and 1997 was
derived from the audited financial statements. Selected financial information
for 1996 is derived from unaudited financial statements. Prior to December 31,
1997, Alaska Federal's fiscal year ended June 30, and all audits performed prior
to December 31, 1997, were as of June 30. You should read this information in
conjunction with the Financial Statements and related Notes thereto included at
the back of this prospectus.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
FINANCIAL CONDITION DATA:
<S> <C> <C> <C>
Total assets.................................... $110,806 $114,476 $109,287
Loans, net...................................... 70,836 78,720 76,611
Loans held for sale............................. 899 440 181
Investment securities available for sale........ 18,176 13,334 16,860
Investment securities held to maturity.......... -- 6,196 6,874
Cash, due from banks, and interest-
bearing deposits with banks.................... 14,584 10,130 3,195
Deposits........................................ 101,945 96,959 96,810
Federal Home Loan Bank of Seattle advances...... -- 9,000 4,800
Total equity capital............................ 7,250 7,140 6,358
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
OPERATING DATA:
<S> <C> <C> <C>
Interest income................................. $ 8,218 $ 8,479 $7,970
Interest expense................................ 3,807 4,031 3,667
Net interest income ............................ 4,411 4,448 4,303
Provision for loan losses....................... 60 25 176
Net interest income
after provision for loan losses................ 4,351 4,423 4,127
Noninterest income.............................. 888 796 955
Noninterest expense............................. 4,903 4,620 5,226
Income before income tax........................ 336 599 (144)
Income tax benefit.............................. -- (100) (200)
Net income...................................... $ 336 $ 699 $ 56
</TABLE>
6
<PAGE>
At December 31,
------------------------------
1998 1997 1996
OTHER DATA:
Number of:
Real estate loans outstanding ............. 720 931 880
Deposit accounts .......................... 12,508 12,735 12,923
Full service offices ...................... 6 6 5
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets(1) .................. 0.31% 0.63% 0.05%
Return on average equity(2) .................. 4.67 10.36 0.81
Interest rate spread(3) ...................... 3.99 4.02 4.16
Net interest margin(4) ....................... 4.01 3.99 4.36
Average interest-earning assets to
average interest-bearing liabilities ....... 108.11 106.29 105.68
Noninterest expense as a
percent of average total assets ............. 4.45 4.15 4.88
Asset Quality Ratios:
Nonaccrual and 90 days or more past
due loans as a percent of total
loans, net ................................. -- 0.18 --
Nonperforming assets as a
percent of total assets ..................... 0.28 0.13 --
Allowance for losses as a percent
of gross loans receivable ................... 0.94 0.94 0.95
Allowance for losses as a percent
of nonperforming loans ..................... -- 514.38 --
Net charge-offs to average
outstanding loans ........................... 0.19 -- 0.02
Capital Ratios:
Total equity to assets ....................... 6.54 6.24 5.82
Average equity to average assets ............. 6.54 6.06 6.43
- ---------------
(1) Net income divided by average total assets.
(2) Net income divided by average equity capital.
(3) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
7
<PAGE>
HOW ALASKA PACIFIC BANCSHARES
INTENDS TO USE THE CONVERSION OFFERING PROCEEDS
Alaska Pacific Bancshares estimates the net proceeds from the sale of
the common stock which are being offered in the conversion will range from $5.5
million to $7.5 million, or up to $8.7 million if the estimated valuation range
is increased by 15%. See "Pro Forma Data" for the assumptions used to arrive at
such amounts.
The following table presents the estimated net proceeds of the
offering, the amounts contributed to Alaska Federal, and the amount of Alaska
Pacific Bancshares' loan to the employee stock ownership plan. See "Pro Forma
Data" for the assumptions used to arrive at these amounts. The Office of Thrift
Supervision must approve the issuance of up to 925,750 shares in the conversion.
<TABLE>
<CAPTION>
925,750
595,000 700,000 805,000 Shares Sold at
Shares Sold at Shares Sold at Shares Sold at $10.00 Per Share
$10.00 Per Share $10.00 Per Share $10.00 Per Share (Maximum of
(Minimum of (Midpoint of (Maximum of Offering Range
Offering Range) Offering Range) Offering Range) As Adjusted)
--------------- --------------- --------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Gross proceeds........................... $5,950 $7,000 $8,050 $9,258
Less: estimated underwriting commissions
and other offering expenses........... (480) (495) (509) (526)
------ ------ ------ ------
Net proceeds............................. $5,470 $6,505 $7,541 $8,732
====== ====== ====== ======
Amount to be retained by Alaska
Pacific Bancshares.................... 1,287 5,184 5,335 5,510
Amount to be contributed to Alaska
Federal............................... 5,021 2,307 3,340 4,526
Amount of loan by Alaska Pacific
Bancshares to the employee stock
ownership plan........................ (544) (640) (736) (846)
</TABLE>
The Office of Thrift Supervision has given Alaska Pacific Bancshares
conditional approval to use the greater of 50% of the net conversion proceeds,
and that portion of the net proceeds which would increase Alaska Federal's fully
phased-in tangible capital to 10% of adjusted total assets, to purchase all of
the capital stock of Alaska Federal to be issued in the conversion. In addition,
Alaska Pacific Bancshares will use these funds as follows:
o to loan the employee stock ownership plan the amount necessary to
purchase 8% of the shares sold in the conversion. The employee stock
ownership plan purchases would range between 47,600 shares at the
minimum of the offering range and 64,400 shares at the maximum of the
offering range.
At the midpoint of the offering range, the employee stock ownership
plan would purchase 56,000 shares. If 925,750 shares are issued in the
conversion, the employee stock ownership plan would purchase 74,060
shares. It is anticipated that the employee stock ownership plan loan
will have a 10-year term with interest payable at the prime rate as
published in The Wall Street Journal on the closing date of the
conversion. The loan will be repaid principally from Alaska Pacific
8
<PAGE>
Bancshares' contributions to the employee stock ownership plan and
from any dividends paid on shares of common stock held by the employee
stock ownership plan.
o for additional contributions to Alaska Federal in the form of debt or
equity, to support future diversification or acquisition activities;
o for general corporate purposes, which may include, for example, paying
cash dividends to the stockholders of Alaska Pacific Bancshares and
for future repurchases of common stock to the extent permitted under
Alaska law and federal regulations.
o to expand operations through acquiring or establishing additional
branch offices or acquiring other financial institutions, although it
has no specific plans, arrangements, agreements or understandings,
written or oral, regarding these activities.
Pending such use, Alaska Pacific Bancshares will invest the net
proceeds in investment securities with short intermediate terms or in a deposit
account at Alaska Federal.
Receipt of the net proceeds of the sale of the common stock will
increase Alaska Federal's capital and will provide it with the ability to expand
its financial services through the addition of new branch offices, the expansion
of the automated teller machine network, and the implementation of electronic
banking services via the internet. Alaska Federal will use the net proceeds
received from the offering as follows:
o in the short term, to invest in short and intermediate term U.S.
Government and agency obligations and ultimately to originate or
participate in loan originations with other local, state-wide regional
banks, subject to Alaska Federal's policies, procedures and
underwriting criteria;
o to renovate its main office in Juneau, which is estimated to cost up
to $500,000, and for leasehold improvements of approximately $235,000
for its proposed office in Auke Bay; and
o to expand its automated teller machine network by adding two machines
in 1999 and one in 2000, which is estimated to cost $75,000.
9
<PAGE>
Except as described above, neither Alaska Pacific Bancshares nor Alaska
Federal has specific plans for the investment of the proceeds of this offering.
Although Alaska Federal's capital currently exceeds regulatory requirements, it
is converting to stock form to structure itself in the form of organization used
by commercial banks and most other financial services companies. For a
discussion of management's business reasons for undertaking the conversion, see
"Alaska Federal's Conversion -- Reasons for the Conversion."
Following the conversion, the Board of Directors will have the
authority to adopt plans for repurchases of common stock, subject to statutory
and regulatory requirements. Since Alaska Pacific Bancshares has not yet issued
stock, it does not have enough information to make a decision on whether or not
to repurchase stock. The Board of Directors will consider many facts and
circumstances in determining whether to repurchase stock in the future. These
factors include:
o market and economic factors such as the price at which the stock is
trading in the market,
o the volume of trading,
o the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment,
o the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and
o the ability to improve Alaska Pacific Bancshares' return on equity.
The Board will also consider the avoidance of dilution to stockholders
by not having to issue additional shares to cover the exercise of stock options
or to fund employee stock benefit plans as another factor. In addition, the
Board of Directors will consider any other circumstances in which repurchases
would be in the best interests of Alaska Pacific Bancshares and its
stockholders. Before any stock repurchases, the Board of Directors must
determine that both Alaska Pacific Bancshares and Alaska Federal will be
capitalized in excess of all applicable regulatory requirements after any such
repurchases and that capital will be adequate, taking into account, among other
things, Alaska Federal's level of nonperforming and classified assets, Alaska
Pacific Bancshares' and Alaska Federal's current and projected results of
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "Alaska Federal's Conversion --
Restrictions on Repurchase of Stock."
ALASKA PACIFIC BANCSHARES' DIVIDEND POLICY
General
Alaska Pacific Bancshares intends to pay a quarterly cash dividend with
an annualized rate of $0.20 per share, starting after the completion of the
first full quarter after the conversion. In addition, the Board of Directors may
declare and pay periodic special cash dividends in addition to, or in lieu of,
regular cash dividends. Alaska Pacific Bancshares' Board of Directors will
determine declarations or payments of any dividends, whether regular or special.
The Board of Directors will take
10
<PAGE>
into account the amount of the net proceeds retained by Alaska Pacific
Bancshares, Alaska Pacific Bancshares' financial condition, results of
operations, tax considerations, capital requirements, industry standards, and
economic conditions. The Board will also consider the regulatory restrictions
that affect the payment of dividends by Alaska Federal to Alaska Pacific
Bancshares discussed below. Alaska law prohibits Alaska Pacific Bancshares from
paying a dividend if, prior to the payment of a dividend, the amount of its
retained earnings is less than the amount of the distribution, or immediately
after payment of a dividend its liabilities would exceed its assets. In order to
pay such cash dividends, however, Alaska Pacific Bancshares must have available
cash either from the net proceeds raised in the conversion and retained by
Alaska Pacific Bancshares, borrowings by Alaska Pacific Bancshares, dividends
received from Alaska Federal, or earnings on Holding Company assets. Alaska
Pacific Bancshares can give no assurances that any dividends, either regular or
special, will be declared or paid, or if declared and paid, what the amount of
dividends will be or whether they will continue uninterrupted.
Current Restrictions
Dividends from Alaska Pacific Bancshares may depend, in part, upon
receipt of dividends from Alaska Federal because Alaska Pacific Bancshares
initially will have no source of income other than dividends from Alaska Federal
and earnings from the investment of the net proceeds from the offering retained
by Alaska Pacific Bancshares. The Office of Thrift Supervision imposes certain
limitations on the payment of dividends from Alaska Federal to Alaska Pacific
Bancshares which utilize a three-tiered approach that permits various levels of
distributions based primarily upon a savings association's capital level. Alaska
Federal currently meets the criteria to be designated a Tier 1 association and
consequently could distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year. In addition, Alaska
Federal may not declare or pay a cash dividend on its capital stock if it would
reduce the regulatory capital of Alaska Federal below the amount required for
its liquidation account. The liquidation account is required to be established
in connection with the conversion. See "Regulation -- Federal Regulation of
Savings Associations -- Limitations on Capital Distributions," "Alaska Federal's
Conversion-- Effects of Conversion to Stock Form on Depositors and Borrowers of
Alaska Federal -- Liquidation Account" and Note 14 of the Notes to Financial
Statements included in the back of this prospectus.
Additionally, in connection with the conversion, Alaska Pacific
Bancshares and Alaska Federal have committed to the Office of Thrift Supervision
that during the one-year period following consummation of the conversion, Alaska
Pacific Bancshares will not take any action to declare an extraordinary dividend
to stockholders that would be treated by recipients as a tax-free return of
capital for federal income tax purposes.
Tax Considerations
In addition to the above restrictions, Alaska Federal cannot use its
retained earnings appropriated to 1988 base year bad debt reserves and deducted
for federal income tax purposes to pay cash dividends to Alaska Pacific
Bancshares without paying federal income taxes at the then current income tax
rate on the amount deemed distributed, which would include the amounts of any
federal income taxes attributable to the distribution. See "Taxation -- Federal
Taxation" and Note 11 of the Notes to Financial Statements included in the back
of this prospectus. Alaska Pacific Bancshares does not contemplate any
distribution by Alaska Federal that would result in a recapture of Alaska
Federal's 1988 base year bad debt reserve for income tax purposes or create the
above-mentioned federal tax liabilities.
MARKET FOR ALASKA PACIFIC BANCSHARES' COMMON STOCK
Alaska Pacific Bancshares was recently formed and has never issued
capital stock. Alaska Federal, as a mutual institution, has never issued capital
stock. Alaska Pacific Bancshares intends to list the common stock
over-the-counter through either the National Daily Quotation System "Pink
Sheets" published by the National
11
<PAGE>
Quotation Bureau, Inc. or the OTC Bulletin Board and to request Keefe, Bruyette
& Woods, Inc. to agree to match buy and sell orders for the shares. Keefe,
Bruyette & Woods, Inc. has agreed to make a market in the common stock following
the conversion, although it has no obligation to do so. However, Alaska Pacific
Bancshares cannot assure that timely and accurate quotations will be regularly
available. The development of a liquid public market depends on the existence of
willing buyers and sellers and their existence is not within the control of
Alaska Pacific Bancshares, Alaska Federal or any market maker. Because of the
small size of the offering, it is highly unlikely that an active and liquid
market for the common stock will develop and the number of active buyers and
sellers at any particular time is expected to be limited. Under these
circumstances, investors in the common stock could have difficulty disposing of
their shares on short notice and should not view the common stock as a
short-term investment. Furthermore, Alaska Pacific Bancshares cannot assure that
purchasers will be able to sell their shares at or above the $10.00 per share
purchase price or that published quotations will be regularly available.
12
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Alaska
Federal at December 31, 1998, and the pro forma consolidated capitalization of
Alaska Pacific Bancshares after giving effect to the assumptions under "Pro
Forma Data," based on the sale of the number of shares indicated in the table.
The issuance of 925,750 shares would require Office of Thrift Supervision
approval of an updated appraisal confirming that valuation. A change in the
number of shares to be issued in the conversion may materially affect pro forma
consolidated capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
----------------------------------------------------------------------
925,750
595,000 700,000 805,000 Shares Sold
Shares Sold Shares Sold Shares Sold at $10.00
Capitalization at $10.00 at $10.00 at $10.00 Per Share(2)
as of Per Share(1) Per Share(1) Per Share(1) (Maximum of
December 31, (Minimum of (Midpoint of (Maximum of Offering Range
1998 Offering Range) Offering Range) Offering Range) as Adjusted)
---- --------------- --------------- --------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3).......................... $101,945 $101,945 $101,945 $101,945 $101,945
Federal Home Loan Bank of
Seattle advances.................. -- -- -- -- --
-------- -------- -------- -------- --------
Total deposits and borrowed funds.... $101,945 $101,945 $101,945 $101,945 $101,945
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value
per share, authorized; none
issued or outstanding........... $ -- $ -- $ -- $ -- $ --
Common stock:
20,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4)................. -- 6 7 8 9
Additional paid-in capital........ -- 5,464 6,498 7,533 8,722
Retained earnings,
substantially restricted(5).... 7,548 7,548 7,548 7,548 7,548
Unrealized gain on securities,
net of tax..................... (298) (298) (298) (298) (298)
Less:
Common Stock to be acquired
by employee stock ownership
plan(6)....................... -- (476) (560) (644) (741)
Common Stock to be acquired
by management recognition
and development plan(7)....... -- (238) (280) (322) (370)
------ ------- ------- ------- -------
Total stockholders' equity........... $7,250 $12,006 $12,915 $13,825 $14,871
====== ======= ======= ======= =======
</TABLE>
(footnotes on following page)
13
<PAGE>
- ------------
(1) Does not reflect the possible increase in the estimated valuation range to
reflect material changes in the financial condition or results of
operations of Alaska Federal or changes in market conditions or general
financial, economic and regulatory conditions, or the issuance of
additional shares under the stock option plan.
(2) This column represents the pro forma capitalization of Alaska Pacific
Bancshares in the event the aggregate number of shares of common stock
issued in the conversion is 15% above the maximum of the estimated
valuation range. See "Pro Forma Data" and footnote 1 to the table under
"Pro Forma Data."
(3) This does not reflect withdrawals from deposit accounts for the purchase of
common stock. Withdrawals will reduce pro forma deposits by the amounts of
the withdrawals.
(4) Alaska Federal's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to Alaska Pacific Bancshares, and 9,000 shares of preferred stock,
no par value per share, none of which will be issued in connection with the
conversion.
(5) Applicable regulatory capital requirements substantially restrict total
equity. Additionally, Alaska Federal is prohibited from paying any dividend
that would reduce its regulatory capital below the amount in the
liquidation account, which will be established for the benefit of Alaska
Federal's eligible account holders and supplemental eligible account
holders at the time of the conversion and adjusted downward thereafter as
such account holders reduce their balances or when they are no longer
depositors. See "Alaska Federal's Conversion -- Effects of Conversion to
Stock Form on Depositors and Borrowers of Alaska Federal -- Liquidation
Account."
(6) Assumes that the employee stock ownership plan will acquire 8% of the
common stock sold in the conversion with funds borrowed from Alaska Pacific
Bancshares. This would range between 47,600 shares, assuming 595,000 shares
are issued in the conversion, to 74,060 shares, assuming 925,750 shares are
issued in the conversion. The employee stock ownership plan will repay the
loan principally from Alaska Pacific Bancshares' contributions to the
employee stock ownership plan and dividends payable on the common stock
held by the employee stock ownership plan over the anticipated 10-year term
of the loan. Under generally accepted accounting principles, the amount of
common stock to be purchased by the employee stock ownership plan
represents unearned compensation and is, accordingly, reflected as a
reduction of capital. The release of shares to employee stock ownership
plan participants' accounts, will result in a corresponding reduction in
the charge against capital. Since the funds are borrowed from Alaska
Pacific Bancshares, the borrowing will be eliminated in consolidation and
no liability or interest expense will be reflected in the consolidated
financial statements of Alaska Pacific Bancshares. See "Management of
Alaska Federal -- Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share of a number of
shares equal to 4% of the shares of common stock issued in the conversion
at the minimum, midpoint, maximum and 15% above the maximum of the
estimated valuation range. This would range between 23,800 shares, assuming
595,000 shares are issued in the conversion, to 37,030 shares, assuming
925,750 shares are issued in the conversion. The issuance of an additional
4% of the shares of common stock for the management development and
recognition plan from authorized but unissued shares would dilute the
ownership interest of stockholders by 3.9%. The shares are reflected as a
reduction of stockholders' equity. See "Risk Factors -- Issuance of Shares
for Benefit Programs May Lower Your Ownership Interest," "Pro Forma Data"
and "Management of Alaska Federal -- Benefits -- Management Recognition and
Development Plan." The management development and recognition plan is
requires stockholder approval, which is expected to be sought at a meeting
to be held no earlier than six months following the conversion.
14
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At December 31, 1998, Alaska Federal exceeded each of the three Office
of Thrift Supervision capital requirements. The following table presents Alaska
Federal's historical and pro forma capital position relative to its capital
requirements at December 31, 1998. The amount of capital infused into Alaska
Federal is based on achieving a tangible capital ratio for Alaska Federal of
10.0% of adjusted total assets at the minimum, midpoint, maximum and 15% above
the maximum of the estimated valuation range, in dollars and as a percentage of
applicable assets. For purposes of the table below, the amount the employee
stock ownership plan expects to borrow and the cost of the shares the management
recognition and development plan expects to acquire is deducted from pro forma
regulatory capital. For a discussion of the assumptions underlying the pro forma
capital calculations, see "How Alaska Pacific Bancshares Intends to Use the
Conversion Offering 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 Office of Thrift Supervision. For a discussion of the
capital standards applicable to Alaska Federal, see "Regulation -- Federal
Regulation of Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1998
-------------------------------------------------------------------------
Minimum of Estimated Midpoint of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
---------------------- ------------------------ ----------------------
595,000 Shares 700,000 Shares 805,000 Shares
December 31, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
---------------------- ---------------------- ------------------------ ----------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets(1) Amount Assets(1)(2) Amount Assets(1)(2) Amount Assets(1)(2)
------ --------- ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted accounting
principles capital......... $7,250 6.60% $11,448 10.00% $11,465 10.00% $11,483 10.00%
Tangible capital............ $7,548 6.85% $11,746 10.23% $11,763 10.24% $11,781 10.23%
Tangible capital requirement 1,652 1.50 1,722 1.50 1,724 1.50 1,727 1.50
------ ---- ------- ----- ------- ----- ------- -----
Excess...................... $5,896 5.35% $10,024 8.73% $10,039 8.74% $10,054 8.73%
====== ==== ======= ===== ======= ===== ======= =====
Core capital................ $7,548 6.85% $11,746 10.23% $11,763 10.24% $11,781 10.23%
Core capital requirement (3) 3,304 3.00 3,444 3.00 3,447 3.00 3,453 3.00
------ ---- ------- ----- ------- ----- ------- -----
Excess...................... $4,244 3.85% $ 8,301 7.23% $ 8,316 7.24% $ 8,328 7.23%
====== ==== ======= ===== ======= ===== ======= =====
Total capital (4)........... $8,222 12.35% $12,420 18.40% $12,437 18.42% $12,455 18.44%
Risk-based
capital requirement........ 5,325 8.00 5,400 8.00 5,401 8.00 5,405 8.00
------ ---- ------- ----- ------- ----- ------- -----
Excess...................... $2,897 4.35% $ 7,020 10.40% $ 7,036 10.42% $ 7,050 10.44%
====== ==== ======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
PRO FORMA AT DECEMBER 31, 1998
------------------------------
15% above
Maximum of Estimated
Valuation Range
------------------------
925,750 Shares
at $10.00 Per Share
------------------------
Percent of
Adjusted
Total
Amount Assets(1)(2)
------ ------------
(Dollars in thousands)
Generally accepted accounting
principles capital......... $11,490 10.00%
Tangible capital............ $11,788 10.23%
Tangible capital requirement 1,728 1.50
------- -----
Excess...................... $10,060 8.73%
======= =====
Core capital................ $11,788 10.23%
Core capital requirement (3) 3,457 3.00
------- -----
Excess...................... $ 8,331 7.23%
======= =====
Total capital (4)........... $12,462 18.44%
Risk-based
capital requirement........ 5,406 8.00
------- -----
Excess...................... $ 7,056 10.44%
======= =====
- -------------
(1) Based upon total adjusted assets of $110.1 million at December 31, 1998 and
$114.5 million, $114.6 million, $114.7 million and $114.8 million at the
minimum, midpoint, maximum and maximum, adjusted, of the estimated
valuation range, respectively, for purposes of the tangible and core
capital requirements, and upon risk-weighted assets of $66.6 million at
December 31, 1998 and $67.5 million, $67.5 million, $67.5 million and $67.6
million at the minimum, midpoint, maximum, and maximum, as adjusted, of the
estimated valuation range, respectively, for purposes of the risk-based
capital requirement.
(2) Assumes that Alaska Federal will receive the greater of 50% of the net
conversion proceeds, or that portion of the net conversion proceeds which
would increase its tangible capital to 10% of adjusted total assets. Also
reflects a deduction from capital for unearned employee stock ownership
plan shares equal to 8% of the shares offered and unearned management
recognition plan shares equal to 4% of the shares offered. The remainder of
the net conversion proceeds will be retained by Alaska Pacific Bancshares
with a reduction for the anticipated loan payable to Alaska Pacific
Bancshares by the employee stock ownership plan.
(3) The current Office of Thrift Supervision core capital requirement for
savings associations is 3% of total adjusted assets. The Office of Thrift
Supervision has proposed core capital requirements which would require a
core capital ratio of 3% of total adjusted assets for thrifts that receive
the highest supervisory rating for safety and soundness and a core capital
ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
15
<PAGE>
PRO FORMA DATA
The conversion requires that the common stock must be sold at a price
equal to the estimated market value of Alaska Pacific Bancshares and Alaska
Federal as converted, based upon an independent valuation. The estimated
valuation range as of April 16, 1999 is from a minimum of $5,959,000 to a
maximum of $8,050,000 with a midpoint of $7,000,000. At a price per share of
$10.00, this results in a minimum number of shares of 595,000 a maximum number
of shares of 805,000 and a midpoint number of shares of 700,000.
Alaska Pacific Bancshares cannot determine the actual net proceeds from
the sale of the common stock until the conversion is completed. However, net
proceeds indicated on the following table are based upon the following
assumptions:
1. Charles Webb will receive a management fee of $25,000 and a
success fee of 1.5% of the aggregate purchase price of the shares
of common stock sold in the subscription offering and direct
community offerings as discussed under "Alaska Federal's
Conversion -- Plan of Distribution for the Subscription, Direct
Community and Syndicated Community Offerings."
2. All of the common stock will be sold in the subscription and
direct community offerings.
3. Conversion expenses, including the fees paid to Charles Webb,
will range from approximately $480,150 to $509,130 if a minimum
number of shares, 595,000 shares, to the maximum number of
shares, 805,000 shares, are sold, and $494,640 if a midpoint
number of shares, 700,000 shares, are sold.
Actual expenses may vary from this estimate, and the fees paid will
depend upon the percentages and total number of shares sold in the subscription
offering, direct community offering and syndicated community offering and other
factors.
Alaska Pacific Bancshares and Alaska Federal prepared the pro forma
data that follows with the assistance of RP Financial. The following table
summarizes the historical net income and retained earnings of Alaska Federal and
the pro forma consolidated net income and stockholders' equity of Alaska Pacific
Bancshares at and for the year ended December 31, 1998. Pro forma consolidated
net income has been calculated as if the conversion was completed on January 1,
1998 and the estimated net proceeds had been invested at 4.52% beginning on that
date. That percentage yield represents the one-year U.S. Treasury Bill yield as
of December 31, 1998. While Office of Thrift Supervision regulations call for
the use of a yield equal to the arithmetic average of the weighted average yield
earned by Alaska Federal on its interest-earning assets and the rates paid on
its deposits, Alaska Pacific Bancshares believes that the one-year U.S. Treasury
Bill yield is a more realistic yield on the investment of the conversion
proceeds.
A pro forma after-tax return of 4.52% is used for both Alaska Pacific
Bancshares and Alaska Federal, after giving effect to no federal and state
income tax as a result of net operating loss carryforwards. See "Taxation --
Federal Taxation." Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the number of shares
of common stock indicated in the footnotes to the table. Per share amounts have
been computed as if the common stock had been outstanding at January 1, 1998 or
at December 31, 1998, but without any adjustment of historical or pro forma
stockholders' equity per share to reflect the earnings on the estimated net
proceeds.
Alaska Pacific Bancshares and Alaska Federal did not figure into this
calculation the following four items:
1. the shares to be reserved for issuance under the's stock option
plan, which is expected to be voted upon by stockholders at a
meeting to be held no earlier than six months following the
conversion;
16
<PAGE>
2. withdrawals from deposit accounts to purchase common stock in the
conversion;
3. the issuance of shares from authorized but unissued shares to the
management development and recognition plan, which is expected to
be voted upon by stockholders at a meeting to be held no earlier
than six months following the conversion; or
4. the liquidation account that Alaska Federal will establish for
the benefit of eligible account holders and supplemental eligible
account holders. See "Alaska Federal's Conversion -- Effects of
Conversion to Stock Form on Deposits and Borrowers of Alaska
Federal -- Liquidation Account.
The following pro forma data, which is based on Alaska Federal's
retained earnings at December 31, 1998 and net income for the year ended
December 31, 1998, may not represent the actual financial effects of the
conversion or the operating results of Alaska Pacific Bancshares after the
conversion. The pro forma data relies exclusively on the assumptions outlined
above. The pro forma data does not represent the fair market value of Alaska
Pacific Bancshares' common stock, the current fair market value of Alaska
Federal's or Alaska Pacific Bancshares' assets or liabilities, or the amount of
money that would be available for distribution to shareholders if Alaska Pacific
Bancshares is liquidated.
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1998
----------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
----- ----- ----- ---------------
595,000 700,000 805,000 925,750(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds.................................. $ 5,950 $ 7,000 $ 8,050 $ 9,258
Less: estimated underwriting
commissions and other
offering expenses .............................. (480) (495) (509) (526)
Estimated net proceeds .......................... 5,470 6,505 7,541 8,732
Less: Common stock acquired by
employee stock ownership plan .................. (476) (560) (644) (741)
Less: Common stock to be
acquired by management
recognition and development
plan ........................................... (238) (280) (322) (370)
--------- --------- --------- ---------
Net investable proceeds .................. $ 4,756 $ 5,665 $ 6,575 $ 7,621
========= ========= ========= =========
Consolidated net income:
Historical .................................. $ 336 $ 336 $ 336 $ 336
Pro forma income on net
proceeds(2) ................................ 215 256 297 344
Pro forma employee stock
ownership plan adjustments(3) .............. (48) (56) (64) (74)
Pro forma management
recognition and development
plan adjustments(4) ........................ (48) (56) (64) (74)
--------- --------- --------- ---------
Pro forma net income ...................... $ 455 $ 480 $ 505 $ 532
========= ========= ========= =========
Consolidated net income
per share (5)(6):
Historical .................................. $ 0.61 $ 0.52 $ 0.45 $ 0.39
Pro forma income on net
proceeds ................................... 0.39 0.39 0.40 0.40
Pro forma employee stock
ownership plan adjustments(3) .............. (0.09) (0.09) (0.09) (0.09)
Pro forma management
recognition and development
plan adjustments(4) ........................ (0.09) (0.09) (0.09) (0.09)
--------- --------- --------- ---------
Pro forma net income
per share ................................ $ 0.82 $ 0.73 $ 0.67 $ 0.61
========= ========= ========= =========
Shares used in earnings per share
calculations ................................... 552,160 649,600 747,040 859,096
Purchase price as a multiple of
pro forma net income per share ................. 12.20 13.70 14.93 16.39
Consolidated stockholders' equity
(book value):
Historical.................................. $ 7,250 $ 7,250 $ 7,250 $ 7,250
Estimated net proceeds ...................... 5,470 6,505 7,541 8,732
Less: Common stock acquired
by employee stock ownership
plan ....................................... (476) (560) (644) (741)
Less: Common stock to be
acquired by management
recognition and development
plan(4) .................................... (238) (280) (322) (370)
--------- --------- --------- ---------
Pro forma stockholders'
equity(7) .............................. $ 12,006 $ 12,915 $ 13,825 $ 14,871
========= ========= ========= =========
Consolidated stockholders' equity
per share(6)(8):
Historical(6) ............................... $ 12.18 $ 10.36 $ 9.01 $ 7.83
Estimated net proceeds ...................... 9.19 9.29 9.37 9.43
Less: Common stock acquired
by employee stock ownership
plan ....................................... (0.80) (0.80) (0.80) (0.80)
Less: Common stock to be
acquired by management
recognition and development
plan(4) .................................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders'
equity per share(9) ..................... $ 20.17 $ 18.45 $ 17.18 $ 16.06
========= ========= ========= =========
Shares used in book value
calculations ................................... 595,000 700,000 805,000 925,750
Purchase price as a percentage
of pro forma stockholders'
equity per share ............................... 49.58% 54.20% 58.21% 62.27%
</TABLE>
(footnotes on following page)
18
<PAGE>
- -----------------
(1) Gives effect to the sale of an additional 120,750 shares in the conversion,
which may be issued to cover an increase in the pro forma market value of
Alaska Pacific Bancshares and Alaska Federal as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination by RP
Financial that such issuance is compatible with its determination of the
estimated pro forma market value of Alaska Pacific Bancshares and Alaska
Federal as converted. See "Alaska Federal's Conversion -- Stock Pricing and
Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing common stock in the conversion. Since purchasers may
withdraw funds on deposit at Alaska Federal to purchase shares of common
stock, which will reduce deposits by the amount of such purchases, the
net amount of funds available to Alaska Federal for investment following
receipt of the net proceeds of the conversion will be reduced by the amount
of the withdrawals.
(3) The employee stock ownership plan will borrow the funds used to acquire the
shares at an interest rate equal to the prime rate as published in The Wall
Street Journal on the closing date of the conversion, which rate is
currently 7.75%, from the net proceeds from the conversion retained by
Alaska Pacific Bancshares. The amount of this borrowing has been reflected
as a reduction from gross proceeds to determine estimated net investable
proceeds. Alaska Pacific Bancshares intends to make contributions to the
employee stock ownership plan in amounts at least equal to the principal
and interest requirement of the debt. As the debt is paid down,
stockholders' equity will be increased. Alaska Pacific Bancshares' payment
of the employee stock ownership plan debt is based upon equal installments
of principal over a 10-year period, assuming a combined federal and state
income tax rate of 0.0%. Interest income earned by Alaska Pacific
Bancshares on the employee stock ownership plan debt offsets the interest
it will pay on the employee stock ownership plan loan. No reinvestment is
assumed on proceeds contributed to fund the employee stock ownership plan.
Applicable accounting practices require that compensation expense for the
employee stock ownership plan be based upon shares committed to be released
and that unallocated shares be excluded from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share purchase price. See "Management of Alaska Federal -- Benefits
--Employee Stock Ownership Plan."
(4) In calculating the pro forma effect of the management recognition and
development plan, it is assumed that the required stockholder approval has
been received, that the shares were acquired at the beginning of the period
presented in open market purchases at the $10.00 per share purchase price,
that 20% of the amount contributed was an amortized expense during the
period, and that the combined federal and state income tax rate is 0.0%.
The issuance of authorized but unissued shares of the common stock instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 3.9% and pro forma net income per share would
be $0.86, $0.78, $0.72 and $0.67 at the minimum, midpoint, maximum and 15%
above the maximum of the estimated valuation range for the year ended
December 31, 1998, respectively, and pro forma stockholders' equity per
share would be $19.79, $18.13, $16.90 and $15.83 at the minimum, midpoint,
maximum and 15% above the maximum of the estimated valuation range at
December 31, 1998, respectively. Shares issued under the management
recognition and development plan vest 20% per year and for purposes of this
table compensation expense is recognized on a straight-line basis over each
vesting period. In the event the fair market value per share is greater
than $10.00 per share on the date shares are awarded, total management
recognition and development plan expense would increase. The total
estimated expense was multiplied by 20% (the total percent of shares for
which expense is recognized in the first year) resulting in pre-tax
management recognition and development plan expense of $47,600, $56,000,
$64,000 and $74,060 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range for the year ended December 31,
1998, respectively. No effect has been given to the shares reserved for
issuance under the proposed stock option plan.
19
<PAGE>
(5) Per share amounts are based upon shares outstanding of 595,000, 700,000,
805,000 and 925,750 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range for the year ended December 31,
1998, respectively, which includes the shares of common stock sold in the
conversion less the number of shares assumed to be held by the employee
stock ownership plan not committed to be released within the first year
following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional employee stock ownership plan expense or the
proposed management recognition and development plan expense, as described
above.
(7) "Book value" represents the difference between the stated amounts of Alaska
Federal's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of eligible
account holders and supplemental eligible account holders in the
conversion, or the federal income tax consequences of the restoration to
income of Alaska Federal's special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation. See
"Alaska Federal's Conversion -- Effects of Conversion to Stock Form on
Depositors and Borrowers of Alaska Federal" and "Taxation." The amounts
shown for book value do not represent fair market values or amounts
distributable to stockholders in the unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 595,000, 700,000,
805,000 and 925,750 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the common stock.
20
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the
approximate purchases of common stock by each director and executive officer of
Alaska Federal, including their associates, as defined by applicable
regulations. No individual has entered into a binding agreement with respect to
these intended purchases, and, therefore, actual purchases could be more or less
than indicated below. Directors and officers of Alaska Federal and their
associates may not purchase in excess of 33% of the shares sold in the
conversion. For purposes of the following table, it has been assumed that
sufficient shares will be available to satisfy subscriptions in all categories.
Directors, officers, their associates and employees will pay the same price as
all other subscribers for the shares for which they subscribe.
<TABLE>
<CAPTION>
Percent of Percent of
Anticipated Anticipated Shares at the Shares at the
Number of Dollar Minimum of Maximum of
Shares to be Amount to be the Estimated the Estimated
Name and Position Purchased(1) Purchased Valuation Range Valuation Range
- ----------------- ------------ --------- --------------- ---------------
<S> <C> <C> <C> <C>
Craig E. Dahl 5,000 $50,000 0.8% 0.6%
President, Chief Executive
Officer and Director
Lisa Corrigan Bell 5,000 50,000 0.8 0.6
Senior Vice President and
Chief Operating Officer
Roger K. White 5,000 50,000 0.8 0.6
Senior Vice President and
Chief Financial Officer
Avrum M. Gross 10,000 100,000 1.7 1.2
Chairman of the Board
Roger Grummett 10,000 100,000 1.7 1.2
Director
Hugh N. Grant 10,000 100,000 1.7 1.2
Director
Deborah Marshall 6,000 60,000 1.0 0.7
Director
D. Eric McDowell 5,000 50,000 0.8 0.6
Director
William J. Schmitz 10,000 100,000 1.7 1.2
Director ------ -------- ---- ---
Total 66,000 $660,000 11.0% 7.9%
====== ======== ==== ===
</TABLE>
- -----------------
(1) Does not include any shares to be awarded pursuant to the employee stock
ownership plan and management recognition and development plan or options
to acquire shares pursuant to the stock option plan.
21
<PAGE>
ALASKA FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of Alaska Federal Savings Bank for
the fiscal years ended December 31, 1998 and 1997 have been audited by Deloitte
& Touche LLP, independent auditors. The report of independent auditors is
included in the back of this prospectus. These statements should be read in
conjunction with the Financial Statements and related Notes included in the back
of this prospectus.
Years Ended December 31,
------------------------
1998 1997
---- ----
(In thousands)
Interest Income
Loans .................................................. $ 6,653 $ 7,014
Investment securities .................................. 1,039 1,324
Interest-bearing deposits with banks ................... 526 141
------- -------
Total interest income ................................ 8,218 8,479
Interest Expense
Deposits ............................................... 3,642 3,564
Federal Home Loan Bank advances ........................ 165 467
------- -------
Total interest expense ............................... 3,807 4,031
------- -------
Net Interest Income .................................... 4,411 4,448
Provision for loan losses ................................. 60 25
------- -------
Net interest income after provision for loan losses .... 4,351 4,423
Noninterest Income
Mortgage servicing income .............................. 232 259
Service charges on deposit accounts .................... 195 249
Other service charges and fees ......................... 129 133
Gain on sale of mortgage loans ......................... 332 155
------- -------
Total noninterest income ............................. 888 796
Noninterest Expense
Compensation and benefits .............................. 2,538 2,353
Occupancy .............................................. 1,105 1,064
Data processing ........................................ 317 306
Professional and consulting fees ....................... 158 141
Marketing and public relations ......................... 143 123
Cost of operations of foreclosed properties ............ 13 --
Other .................................................. 629 633
------- -------
Total noninterest expense ............................ 4,903 4,620
------- -------
Income before income tax .......................... 336 599
Income tax benefit ........................................ -- (100)
------- -------
Net Income ............................................. $ 336 $ 699
======= =======
See Notes to Financial Statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is intended to assist in understanding the
financial condition and results of operations of Alaska Federal. The discussion
and analysis does not include any comments relating to Alaska Pacific Bancshares
since it has no significant operations. You should read the information
contained in this section should be read in conjunction with the Financial
Statements and the accompanying Notes in the back of this prospectus, as well as
the other sections of this prospectus.
Alaska Federal's results of operations depend primarily on its net
interest income, which is the difference between the income earned on its
interest-earning assets, consisting of loans and investments, and the cost of
its interest-bearing liabilities, consisting of deposits and Federal Home Loan
Bank of Seattle borrowings. Among other things, fee income, provisions for loan
losses, operating expenses and income tax provisions also affect Alaska
Federal's net income. General economic and competitive conditions, particularly
changes in market interest rates, government legislation and policies concerning
monetary and fiscal affairs, housing and financial institutions and the
attendant actions of the regulatory authorities also significantly affect Alaska
Federal's results of operations.
Forward-Looking Statements
This prospectus contains forward-looking statements which are based on
assumptions and describe future plans, strategies and expectations of Alaska
Federal. These forward-looking statements are generally identified by use of the
word "believe," "expect," "intend," anticipate," "estimate," "project," or
similar words. Alaska Federal's ability to predict results of the actual effect
of future plans or strategies is uncertain. Factors which could have a material
adverse effect on our operations include, but are not limited to, changes in
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in our market areas and accounting
principles and guidelines. You should consider these risks and uncertainties in
evaluating forward-looking statements and you should not rely too much on these
statements.
Operating Strategy
Alaska Federal's strategy is to operate a community-oriented financial
institution devoted to serving the needs of its customers. Alaska Federal's
business consists primarily of attracting retail deposits from the general
public and using those funds to originate one- to four-family residential loans
in its primary market area. To a lesser but growing extent, Alaska Federal also
originates commercial business loans, consumer loans, construction loans, and
commercial real estate loans. See "Business of Alaska Federal -- Lending
Activities."
Comparison of Financial Condition at December 31, 1998 and December 31, 1997
Total assets of Alaska Federal were $110.8 million at December 31, 1998
compared to $114.5 million at December 31, 1997. An $8.0 million decline in the
loan portfolio, including loans and loans held for sale, which was partially
offset by an increase in investments in deposits in other institutions, was the
primary cause of this decrease.
Loans were $71.5 million at December 31, 1998 compared to $79.5 million
at December 31, 1997, a 10.1% decrease. The decrease was primarily the result of
significant mortgage refinancing during 1998 while a
23
<PAGE>
large proportion of the mortgages originated by Alaska Federal were sold in the
secondary market. In addition, between December 31, 1997 and December 31, 1998
Alaska Federal had continued growth in its commercial business loan portfolio as
it emphasized the origination of loans with higher yields and shorter maturities
for asset liability management purposes. See "-- Asset and Liability Management
and Market Risk." A substantial portion of Alaska Federal's loan portfolio is
secured by real estate, either as primary or secondary collateral, located in
its primary market area. There are certain risks associated with this credit
concentration. See "Risk Factors -- Alaska Federal's Business Depends Heavily on
the Economic Condition of its Primary Market Area and Weak Market Area
Demographics has Hurt Core Earnings and Limits Growth Prospects."
Loans held-for-sale were $899,000 at December 31, 1998 compared to
$440,000 at December 31, 1997. To mitigate interest rate risk, Alaska Federal
designates all or a portion of its mortgage originations, depending on current
yields and its interest rate risk position, as held for sale. Such loans are
generally fixed-rate one-to-four family mortgage loans that conform to secondary
market standards and have terms of 15 years or more. Alaska Federal generally
sells such loans to the Federal Home Loan Mortgage Corporation, Alaska Housing
Finance Corporation and similar agencies and retains related servicing rights.
See "-Asset and Liability Management and Market Risk."
Cash and cash equivalents were $14.6 million at December 31, 1998
compared to $10.1 million at December 31, 1997. The increase between December
31, 1997 and December 31, 1998 primarily reflects the increase in liquidity as
the result of mortgage prepayments.
Available-for-sale securities were $18.1 million at December 31, 1998,
compared to $13.3 million at December 31, 1997. This increase primarily resulted
from transferring $5.7 million of securities from held-to- maturity to the
available-for-sale category during the fourth quarter of 1998 concurrent with
adopting Statement of Financial Accounting Standards Number 133, "Accounting for
Derivative Instruments and Hedging Activities." The transfer did not indicate an
intention to sell specific securities but rather was done to provide more
flexibility in managing the entire investment portfolio. In total, investment
securities decreased $1.4 million in 1998 due primarily to principal reductions
and maturities of approximately $7.0 million in long-term mortgage-backed and
other securities, offset by the addition of $6.0 million on short-term agency
securities. The shift to short-term securities, as well as interest-earning
deposits in banks, was made because of historically low long-term interest rates
concurrent with relatively high short-term rates during much of 1998.
Premises and equipment increased moderately to $3.3 million at December
31, 1998 from $3.2 million at December 31, 1997, primarily as a result of new
additions which exceeded depreciation. The Board of Directors has approved a
plan to sell Alaska Federal's building in Ketchikan in 1999 and the loss is
anticipated to be approximately $170,000. In addition, Alaska Federal has plans
to open a new office in the Juneau area in leased premises, which consists of
approximately 1,000 square feet. Alaska Federal has an option for 60 days and is
preparing a study of the feasibility regarding the opening of this office as a
new full service branch of Alaska Federal. However, as of December 31, 1998
Alaska Federal had made no specific commitments. See "Business of Alaska Federal
- -- Properties" and Note 6 of Notes to Financial Statements.
Total deposits were $101.9 million at December 31, 1998 an increase of
approximately $5.0 million or 5.1% compared to $97.0 million at December 31,
1997. Management attributes the increase primarily to increased market share
resulting from its marketing efforts.
There were no Federal Home Loan Bank of Seattle advances outstanding at
December 31, 1998 compared to $9.0 million at December 31, 1997 as deposit
growth and funds generated from maturing loans and mortgage backed securities
and retained earnings were sufficient to meet liquidity needs. Subject to market
conditions, Alaska Federal intends to engage in "wholesale leveraging" by
investing Federal Home Loan Bank of Seattle advances in investment securities of
the type in which Alaska Federal currently invests, with the goal of recognizing
income on the difference between the interest rate paid on the advances and the
interest rate earned on the securities.
24
<PAGE>
Accordingly, Federal Home Loan Bank advances might increase to approximately
$30 million to $40 million to support this "wholesale leveraging," which may
commence prior to the consummation of the conversion. To the extent any Federal
Home Loan Bank advances would be outstanding before the consummation of the
conversion, Alaska Federal may use a portion of the net proceeds to repay them.
See "How Alaska Pacific Bancshares Intends to Use the Conversion Offering
Proceeds," "Business of Alaska Federal -- Investment Activities" and "-- Deposit
Activities and Other Sources of Funds -- Borrowings."
Total equity capital was $7.3 million at December 31, 1998 and $7.1
million at December 31, 1997.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. During fiscal 1998 interest rates declined resulting in a
rapid refinancing of outstanding mortgage loans. Alaska Federal was not willing
to increase its interest rate risk by retaining in its portfolio the lower
yielding fixed rate loans it was originating and as a result its loan portfolio
declined which reduced interest income. The yield on long term securities was
only slightly higher than the yields available on overnight funds and other
short-term investments. As a result, Alaska Federal invested its surplus funds
in overnight deposits, short-term certificates of deposit and short-term
investment securities.
Net Income. Net income was $336,000 for the year ended December 31,
1998, compared to $699,000 for the year ended December 31, 1997. Higher
noninterest expense in 1998 compared to 1997, specifically higher compensation
and benefits, partially offset by an increase in gain on sale of mortgage loans,
was the primary reason for the decline in pretax income. In addition, there was
no tax provision in 1998 compared with a tax benefit of $100,000 recognized in
1997.
Net Interest Income. Net interest income was virtually unchanged at
$4.4 million for both years. Interest income decreased from $8.5 million for the
year ended December 31, 1997 compared to $8.2 million for the year ended
December 31, 1998, primarily as a result of lower average balances of loans and
investment securities. This was partially offset by an increase in the average
balance of interest-earning assets in banks but the interest income received on
these investments is significantly less than the amount earned on loans and many
investment securities. Interest expense decreased 5.0% from $4.0 million for the
year ended December 31, 1997 to $3.8 million for the year ended December 31,
1998 as a result of a decrease in the average balance of outstanding borrowings.
The average cost of deposits was 3.94% for both periods and the average balance
of deposits increased 2.1%. Alaska Federal has been able to maintain its deposit
base without resorting to aggressive deposit pricing. The average rate paid on
Federal Home Loan Bank of Seattle advances increased from 6.06% for the year
ended December 31, 1997 to 6.22% for the year ended December 31, 1998, however,
this was more than offset by a decline in the average balance of borrowings as a
result of the repayment of all outstanding advances during 1998. The interest
rate spread decreased to 3.99% for the year ended December 31, 1998 from 4.02%
for the year ended December 31, 1997.
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered by
management as adequate to provide for known and inherent risks in the loan
portfolio, including management's continuing analysis of factors underlying the
quality of the loan portfolio. These factors include changes in portfolio size
and composition, actual loan loss experience, current economic conditions,
detailed analysis of individual loans for which full collectibility may not be
assured, and determination of the existence and realizable value of the
collateral and guarantees securing the loans. See "Business of Alaska Federal --
Lending Activities -- Nonperforming Assets and Delinquencies" and Note 1 of
Notes to Financial Statements.
The provision for loan losses was $60,000 for the year ended December
31, 1998 compared to $25,000 for the year ended December 31, 1997. This
provision reflected the additional risk as consumer and commercial loans
increased as a percentage of the total loan portfolio. For further information,
see the discussion on the allowance and related methodology contained in
"Business of Alaska Federal -- Allowance for Loan Losses."
25
<PAGE>
Noninterest Income. Noninterest income was $888,000 for the year ended
December 31, 1998 compared to $796,000 for the year ended December 31, 1997.
This 11.6% increase resulted primarily from a general increase in Alaska
Federal's gain on sale of mortgage loans which increased $177,000 from the year
ended December 31, 1997 to $332,000 for the year ended December 31, 1998. This
increase was the result of the significant increase in refinances as well as the
decision to sell in the secondary market a significant amount of the loan
production. Noninterest income also includes charges on deposit accounts, fees
for travelers checks, official checks, safe deposit boxes and overdrafts. In
fiscal 1998 service charges on deposit accounts declined $54,000 as a result of
the growth of Northstar checking accounts which include many services in the
monthly service charge. Certain of these accounts do not carry a monthly service
charge if a minimum balance is maintained. Overdraft fees were raised
significantly to market levels late in 1998.
Noninterest Expenses. Noninterest expenses were $4.9 million for the
year ended December 31, 1998, compared to $4.6 million for the year ended
December 31, 1997. This increase resulted primarily from an increase in
compensation and benefits of $185,000 as a result of several pay increases, the
addition of a marketing coordinator position, increased benefit costs including
a higher matching level for 401(k) accounts, and staffing of the new branch in
Ketchikan in December 1997. Occupancy expenses increased $41,000 for the year
ended December 31, 1998 compared to the year ended December 31, 1997 as a result
of opening the new branch. Alaska Federal anticipates that other expenses will
increase in subsequent periods following the consummation of the conversion as a
result of increased costs associated with operating as a public company and
increased compensation expense as a result of the implementation of the
management recognition and development plan, if approved by Alaska Pacific
Bancshares' stockholders. See "Risk Factors -- Alaska Federal's Return on Equity
Will Be Below Average After Conversion Because of High Capital Levels," and "--
Implementation of Benefit Plans will Increase Future Compensation Expense and
May Lower Alaska Federal's Net Income."
Income Taxes. Alaska Federal did not recognize any tax on current
income for the years ended December 1998 or 1997 because of the existence of
$3.9 million in net operating loss carryforwards, which expire in various years
beginning in 2002 through 2012. At December 31, 1998, Alaska Federal had $1.6
million in deferred tax assets, which were offset by a valuation allowance of
$1.3 million. Net deferred tax assets of $300,000, have been recognized in
income, and are included in other assets as of December 31, 1998, including
$100,000 recognized in 1997.
Average Balances, Interest and Average Yields/Cost
The earnings of Alaska Federal depend largely on the spread between the
yield on interest-earning assets, which consist primarily of loans and
investments, and the cost of interest-bearing liabilities, which consist
primarily of deposit accounts and borrowings, as well as the relative size of
Alaska Federal's interest-earning assets and interest-bearing liabilities.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields, interest rate
spread, net interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances for a period have been
calculated using the average of daily balances during this period.
26
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1997
----------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1).................................. $ 73,988 $ 6,653 8.99% $ 78,947 $ 7,014 8.88%
Investment securities....................... 18,855 1,039 5.51 22,953 1,324 5.77
Interest-earning deposits in banks.......... 10,021 525 5.24 2,548 141 5.53
-------- ------- ---- -------- ------- ----
Total interest-earning assets............ 102,864 8,217 7.99 104,448 8,479 8.12
Allowance for loan losses................... (700) (729)
Cash and due from banks..................... 3,174 3,066
Other assets................................ 4,730 4,516
-------- --------
Total assets............................. $110,068 $111,301
======== ========
Interest-bearing liabilities:
Deposits:
Interest-bearing demand..................... $ 23,848 529 2.22 $ 24,716 552 2.23
Money market ............................... 13,862 520 3.75 13,318 520 3.90
Savings .................................... 18,118 585 3.23 17,559 575 3.27
Certificates of deposit..................... 36,664 2,007 5.47 34,972 1,919 5.49
-------- ----- ---- -------- ------ ----
Total interest-bearing deposits........... 92,492 3,641 3.94 90,565 3,566 3.94
Borrowings..................................... 2,654 165 6.22 7,702 467 6.06
-------- ----- ---- -------- ------ ----
Total interest-bearing liabilities.......... 95,146 3,806 4.00 98,267 4,033 4.10
Noninterest-bearing demand deposits......... 4,740 3,558
Other liabilities and capital............... 10,182 9,476
-------- --------
Total liabilities and capital............. $110,068 $111,301
======== ========
Interest-earning assets:
Net interest income............................ $ 4,411 $4,448
======= ======
Interest rate spread........................... 3.99% 4.02%
==== ====
Net interest margin on average total assets.... 4.01% 3.99%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities...... 108.11% 106.29%
====== ======
</TABLE>
- ------------
(1) Average loans includes non-performing loans and loans held for sale.
Interest income does not include interest on loans 90 days or more past
due.
27
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and
volumes on net interest income of Alaska Federal. Information is provided with
respect to effects on interest income attributable to changes in volume, which
are changes in volume multiplied by prior rate; effects on interest income
attributable to changes in rate, which are changes in rate multiplied by prior
volume; and changes in rate/volume, which is a change in rate multiplied by
change in volume.
Year Ended December 31, 1998
Compared to Year Ended
December 31, 1997
Increase (Decrease) Due to
---------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
(In thousands)
Interest-earning assets:
Loans .................................... $ 85 $(441) $ (5) $(361)
Investment securities .................... (59) (236) 10 (285)
Interest-earning deposits
in banks ................................ (8) 414 (22) 384
----- ----- ----- -----
Total net change in income
on interest-earning assets ........... 21 (266) (17) (262)
Interest-bearing liabilities:
Interest-bearing demand accounts ......... (4) (19) -- (23)
Money market savings accounts ............ (20) 21 (1) --
Savings accounts ......................... (8) 18 -- 10
Certificates of deposit .................. (5) 93 -- 88
Borrowings .............................. 12 (306) (8) (302)
----- ----- ----- -----
Total net change in expense
on interest-bearing liabilities ...... (25) (193) (9) (227)
----- ----- ----- -----
Net change in net interest income .......... $ 46 $ (73) $ (8) $ (35)
===== ===== ===== =====
28
<PAGE>
Yields Earned and Rates Paid
The following table sets forth, at the date and for the periods
indicated, the weighted average yields earned on Alaska Federal's assets and the
weighted average interest rates paid on Alaska Federal's liabilities, together
with the net yield on interest-earning assets.
For the Year
Ended December 31,
At December 31, ------------------
1998 1998 1997
---- ---- ----
Weighted average yield on:
Loans, net ................................. 8.67% 8.99% 8.88%
Investment securities ...................... 5.60 5.51 5.77
Interest-earning deposits in banks ......... 4.80 5.24 5.53
Total interest-earning assets ............ 7.69 7.99 8.12
Weighted average rate paid on:
Interest-bearing demand accounts .......... 2.15 2.22 2.23
Money market savings accounts .............. 3.74 3.75 3.90
Savings accounts ........................... 3.01 3.23 3.27
Certificates of deposit .................... 5.16 5.47 5.49
Total interest-bearing deposits .......... 3.72 3.94 3.94
Borrowings .................................. -- 6.22 6.06
Total interest-bearing liabilities ...... 3.72 4.00 4.10
Interest rate spread (spread between
weighted average rate on all
interest-earning assets and all interest-
bearing liabilities) ........................ 3.97 3.99 4.02
Net interest margin (net interest income
(expense) as a percentage of average
interest-earning assets) ................... -- 4.29 4.26
Asset and Liability Management and Market Risk
Alaska Federal's Risks When Interest Rates Change. Alaska Federal's
profitability depends primarily on its net interest income, which is the
difference between the income it receives on its loan and investment portfolio
and its cost of funds, which consists of interest paid on deposits and
borrowings. The relative amounts of interest-earning assets and interest-bearing
liabilities also affect net interest income. When interest-earning assets equal
or exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. Alaska Federal's profitability is also affected by
the level of income and expenses. Non-interest income includes service charges
and fees and gain on sale of investments. Non-interest expenses primarily
include compensation and benefits, occupancy and equipment expenses, deposit
insurance premiums and data processing expenses. General economic and
competitive conditions, particularly changes in market interest rates,
government legislation and regulation and monetary and fiscal policies also
significantly affect Alaska Federal's results of operations.
How Alaska Federal Measures Its Risk of Interest Rate Changes. Alaska
Federal does not maintain a trading account for any class of financial
instrument nor does it engage in hedging activities or purchase high-risk
29
<PAGE>
derivative instruments. Furthermore, Alaska Federal has no foreign currency
exchange rate risk or commodity price risk. For information regarding the
sensitivity to interest rate risk of Alaska Federal's interest-earning assets
and interest-bearing liabilities, see the tables under "Business of Alaska
Federal -- Lending Activities -- Loan Maturity and Repricing," "-- Investment
Activities" and "-- Deposit Activities and Other Sources of Funds -- Deposit
Accounts -- Time Deposits by Maturities."
Alaska Federal has sought to reduce the exposure of its earnings to
changes in market interest rates by attempting to manage the mismatch between
asset and liability maturities and interest rates. The principal element in
achieving this objective is to increase the interest-rate sensitivity of Alaska
Federal's interest-earning assets by originating for its portfolio loans with
interest rates that periodically adjust to market conditions. Alaska Federal
relies on retail deposits as its primary source of funds. Management believes
retail deposits, compared to brokered deposits, reduce the effects of interest
rate fluctuations because they generally represent a more stable source of
funds.
In order to encourage institutions to reduce their interest rate risk,
the Office of Thrift Supervision adopted a rule incorporating an interest rate
risk component into the risk-based capital rules. Using data compiled by the
Office of Thrift Supervision, Alaska Federal receives a report which measures
interest rate risk by modeling the change in net portfolio value over a variety
of interest rate scenarios. The Office of Thrift Supervision developed this
procedure for measuring interest rate risk to replace the "gap" analysis, which
is the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period. Net portfolio
value is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in net portfolio value that will occur upon an immediate change in
interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under Office of Thrift Supervision regulations, an institution with a greater
than "normal" level of interest rate risk take a deduction from total capital
for purposes of calculating its risk-based capital. The Office of Thrift
Supervision, however, has delayed the implementation of this regulation. An
institution with a "normal" level of interest rate risk is defined as one whose
"measured interest rate risk" is less than 2.0%. Institutions with assets of
less than $300 million and a risk-based capital ratio of more than 12.0% are
exempt. Alaska Federal is exempt because of its asset size. Based on Alaska
Federal's regulatory capital levels at December 31, 1998, Alaska Federal
believes that, if the proposed regulation was implemented at that date, Alaska
Federal's level of interest rate risk would not have caused it to be treated as
an institution with greater than "normal" interest rate risk.
The following table is provided by the Office of Thrift Supervision
which illustrates the change in net portfolio value at December 31, 1998, based
on Office of Thrift Supervision assumptions, that would occur in the event of an
immediate change in interest rate, with no effect given to any steps which
management might take to counter the effect of that interest rate movement.
<TABLE>
<CAPTION>
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
------------------------------------- ---------------------------
Basis Point ("bp") Net Portfolio
Change in Rates $ Amount $ Change(1) % Change Value Ratio(2) Change(3)
--------------- -------- ----------- -------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400 $ 9,470 $(1,181) (11)% 8.50% (89) bp
300 10,002 (648) (6) 8.92 (47)
200 10,457 (193) (2) 9.27 (12)
100 10,695 44 -- 9.45 5
0 10,651 9.39
(100) 10,723 72 1 9.43 4
(200) 11,169 519 5 9.77 37
(300) 12,241 1,591 15 10.58 119
(400) 13,380 2,729 26 11.43 204
</TABLE>
(footnotes on following page)
30
<PAGE>
- -------------
(1) Represents the increase (decrease) of the estimated net portfolio value at
the indicated change in interest rates compared to the NPV assuming no
change in interest rates.
(2) Calculated as the estimated net portfolio value divided by the portfolio
value of total assets.
(3) Calculated as the increase (decrease) of the net portfolio value ratio
assuming the indicated change in interest rates over the estimated net
portfolio value ratio assuming no change in interest rates.
The above table illustrates, for example, that at December 31, 1998 an
instantaneous 200 basis point increase in market interest rates would reduce
Alaska Federal's net portfolio value by approximately $193,000, or (2)%, and an
instantaneous 200 basis point decrease in market interest rates would increase
Alaska Federal's net portfolio value by approximately $519,000 or 5%.
The following summarizes key exposure measures for the dates indicated.
They measure the change in net portfolio value ratio for a 200 basis point
adverse change in interest rates.
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1998 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pre-shock net portfolio value ratio 9.39% 10.31% 10.16%
Post-shock net portfolio value ratio 9.27 10.27 7.96
Decline in net portfolio value ratio 12 bp 4 bp 36 bp
</TABLE>
The Office of Thrift Supervision uses certain assumptions in assessing
the interest rate risk of savings associations. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate mortgage loans,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
expected rates of prepayments on loans and early withdrawals from certificates
could deviate significantly from those assumed in calculating the table.
Liquidity and Capital Resources
Alaska Federal's primary sources of funds are deposits and proceeds
from principal and interest payments on loans and mortgage-backed securities,
and Federal Home Loan Bank of Seattle advances. While maturities and scheduled
amortization of loans and mortgage-backed securities are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The primary investing activity of Alaska Federal is the origination of
one- to four-family mortgage loans. During the years ended December 31, 1998 and
1997, Alaska Federal originated $27.9 million and $13.6 million of these loans,
respectively. However, Alaska Federal increased significantly its originations
of commercial business loans, land loans and multi-family real estate loans.
Between December 31, 1997 and 1998, commercial business loans increased by $1.7
million (64.0%), land loans increased by $1.5 million (137.0%%), and
multi-family real estate loans increased by $200,000 (9.0%). See "Risk Factors
- -- Alaska Federal's Recent Growth in Commercial Business and Consumer Lending
Poses Greater Risks Than Residential Lending" and "Business of Alaska Federal --
Lending Activities." Other investing activities during these periods include the
purchase of $6.0 million in callable agency securities in 1998. There were no
purchases of investment securities in 1997.
31
<PAGE>
Principal repayments on loans, mortgage-backed securities and deposits were the
primary means for funding these activities.
Alaska Federal must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. Alaska Federal's sources of funds include deposits and
principal and interest payments from loans and mortgage-backed securities and
investments, and Federal Home Loan Bank of Seattle advances. During fiscal years
1998 and 1997, Alaska Federal used its sources of funds primarily to fund loan
commitments and to pay maturing savings certificates and deposit withdrawals. At
December 31, 1998, Alaska Federal had loan commitments (excluding loans in
process), including unused portions of commercial business lines of credit, of
$1.5 million.
At December 31, 1998, Alaska Federal had $290,000 of unrealized losses
on mortgage-backed securities classified as available for sale, which amount
represented 2.7% of the amortized cost basis ($10.7 million) of the related
securities. Movements in market interest rates will affect the unrealized gains
and losses in these securities. However, assuming that the securities are held
to their individual dates of maturity, even in periods of increasing market
interest rates, as the securities approach their dates of maturity, the
unrealized loss will begin to decrease and eventually be eliminated.
At December 31, 1998, certificates of deposit amounted to $36.8
million, or 36.1%, of Alaska Federal's total deposits, including $29.0 million
which were scheduled to mature by December 31, 1999. Historically, Alaska
Federal has been able to retain a significant amount of its deposits as they
mature. Management of Alaska Federal believes it has adequate resources to fund
all loan commitments by deposits and, if necessary, Federal Home Loan Bank of
Seattle advances and sale of mortgage loans and that it can adjust the offering
rates of savings certificates to retain deposits in changing interest rate
environments.
The Office of Thrift Supervision requires a savings institution to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 4.0% of the average daily balance of its net
withdrawable deposits and short-term borrowings. In addition, short-term liquid
assets currently must constitute 1.0% of the sum of net withdrawable deposit
accounts plus short-term borrowings. Alaska Federal's actual short-and long-term
liquidity ratios at December 31, 1998 and 1997 were 32.6% and 21.9%,
respectively. Alaska Federal has consistently maintained liquidity levels in
excess of regulatory requirements.
Alaska Federal is required to maintain specific amounts of capital
pursuant to Office of Thrift Supervision requirements. As of December 31, 1998,
Alaska Federal was in compliance with all regulatory capital requirements which
were effective as of this date with tangible, core and risk-based capital ratios
of 6.85%, 6.85% and 12.35%, respectively. For a detailed discussion of existing,
future, proposed and certain to-be-proposed regulatory capital requirements, see
"Regulation -- Federal Regulation of Savings Associations - Capital
Requirements." See "Historical and Pro Forma Capital Compliance" for a numerical
presentation of Alaska Federal's historical and pro forma capital levels at
December 31, 1998 relative to regulatory requirements.
Year 2000 Readiness Disclosure
Alaska Federal is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be effected by the year 2000 issue.
The year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.
32
<PAGE>
Ms. Lisa Bell, Alaska Federal's Chief Operating Officer, chairs Alaska
Federal's Y2K Task Force, which includes a cross-section of bank managers and
the internal auditor. The Audit Committee of the Board of Directors oversees the
Y2K readiness effort. Ms. Bell makes a quarterly progress report to the Board of
Directors. Management has been active in promoting customer confidence and
public education on Y2K issues. The Mayor of Juneau has appointed Mr. Craig E.
Dahl, President and Chief Executive Officer of Alaska Federal, to the City's Y2K
Task Force and Mr. Dahl has appeared on television and radio panel discussions.
The Y2K Task Force has developed and is implementing a comprehensive
plan to make all information and non-information technology assets year 2000
compliant. The plan is comprised of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and
concerns. This phase is complete.
2. Assessment - Develop a plan, identify and evaluate all vital
systems of Alaska Federal. This phase was completed as of June
30, 1998.
3. Renovation - Upgrade or replace any critical system that is
non-year 2000 compliant. This phase was substantially completed
as of December 31, 1998.
4. Validation - Testing all critical systems and third-party vendors
for year 2000 compliance. The validation phase was substantially
complete as of March 16, 1999 and will be complete by June 30,
1999. Alaska Federal has replaced all in-house equipment (teller
station equipment, etc.) with year 2000 compliant equipment. A
third-party service bureau processes all customer transactions
and has completed upgrades to its systems to be year 2000
compliant. Alaska Federal is relying on the results of proxy
testing by its third-party service bureau for certain date
sensitive testing. The proxy testing, which involved the use of
live client data, tested the results of transactions at various
test dates before and after the year 2000 date change and covered
all of the applications used by Alaska Federal. This proxy
testing was completed in December 1998. Alaska Federal, along
with 165 other financial institutions on the Vision System,
successfully conducted connectivity testing during December 1998.
Connectivity testing, which lasted approximately eight hours,
involved Alaska Federal and its third-party service bureau each
rolling forward their computer systems to January 3, 2000 so that
Alaska Federal could process its own data files under simulated
year 2000 conditions using all applications. Alaska Federal
participated actively in follow-up testing conducted on April 25
and April 28, 1999 to further increase management confidence in
the integrity of the Fiserve system. Results in the form of paper
output reports will be made available by Fiserve for review and
certification in early May. Other parties whose year 2000
compliance may effect Alaska Federal include the Federal Home
Loan Bank of Seattle, brokerage firms, the operator of Alaska
Federal's automated teller machine network and Alaska Federal's
pension plan administrator. These third parties have indicated
their compliance or intended compliance. Where it is possible to
do so, Alaska Federal has scheduled testing with these third
parties. Where testing is not possible, Alaska Federal will rely
on certifications from vendors and service providers.
5. Implementation - Placement of renovated systems on-line. As
Alaska Federal completes the validation phase, Alaska Federal
expects to determine any necessary remaining remedial actions and
provide for their implementation. Alaska Federal has already
implemented a new year 2000 compliant computerized teller system
and has verified the year 2000 compliance of its computer
hardware and other equipment containing embedded microprocessors.
Alaska Federal's plan provides for year 2000 readiness to be
completed by June 30, 1999.
33
<PAGE>
Alaska Federal estimates its total cost to identify, fix and replace
computer equipment, software programs or other equipment containing embedded
microprocessors that were not year 2000 compliant, exclusive of internal labor
costs to be $600,000, of which $211,000 has been incurred as of December 31,
1998. Alaska Federal charges system maintenance or modification costs to expense
as incurred, but capitalizes and amortizes the cost of new hardware, software or
other equipment over their estimated useful lives. Alaska Federal does not
separately track the internal costs and time that its own employees spend on
year 2000 issues, which are principally payroll costs.
Because Alaska Federal depends substantially on its computer systems
and those of third parties, the failure of these systems to be year 2000
compliant could cause substantial disruption of Alaska Federal's business and
could have a material adverse financial impact on Alaska Federal. Failure to
resolve year 2000 issues presents the following risks to Alaska Federal: (1)
Alaska Federal could lose customers to other financial institutions, resulting
in a loss of revenue, if Alaska Federal's third party service bureau is unable
to properly process customer transactions; (2) governmental agencies, such as
the Federal Home Loan Bank of Seattle, and correspondent institutions could fail
to provide funds to Alaska Federal, which could materially impair Alaska
Federal's liquidity and affect Alaska Federal's ability to fund loans and
deposit withdrawals; (3) concern on the part of depositors that year 2000 issues
could impair access to their deposit account balances could result in Alaska
Federal experiencing deposit outflows prior to December 31, 1999; and (4) Alaska
Federal could incur increased personnel costs if additional staff is required to
perform functions that inoperative systems would have otherwise performed.
Alaska Federal has developed a Y2K Contingency Master Plan to minimize
disruption of service and risk of loss from safety and soundness, profitability
and customer confidence concerns. The Contingency Master Plan is further defined
in two specific types of contingency plans: the Business Resumption Plan and the
Remediation Contingency Plan.
The Business Resumption Contingency Plan addresses the actions Alaska
Federal would take if core business processes, such as paying and receiving,
cannot be carried out in the normal manner through the century date change due
to system or vendor failure. Alaska Federal's Business Resumption Contingency
Plan follows an industry-recognized four phase approach:
o Organization Planning
o Business Impact Analysis
o Contingency Planning
o Validation
The first two phases are complete and the contingency planning and
validation phases will be complete by June 30, 1999. The Continuity Control
Group, which is comprised of members of the Y2K Task Force and the existing
Disaster Recovery Control Group, has identified the interdependency between the
six critical systems and the four core business processes, and has completed a
risk assessment of possible failure scenarios. An individual business resumption
plan has been drafted for each core business process under every failure
scenario rated medium or high risk.
Alaska Federal has developed a Remediation Contingency Plan, which will
be implemented in the event that a critical system will not meet regulatory
deadlines for renovation, validation or implementation. Management is confident
that it will not need to implement the Remediation Contingency Plan, as all
critical systems have been renovated, validated and implemented within required
time frames.
Management believes that it is not possible to estimate the potential
lost revenue due to the year 2000 issue, as the extent and longevity of any
potential problem cannot be predicted. Because substantially all of Alaska
Federal's loan portfolio consists of loans to individuals rather than commercial
enterprises, management believes that year 2000 issues will not impair the
ability of Alaska Federal's borrowers to repay their debt.
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There can be no assurances that Alaska Federal's year 2000 plan will
effectively address the year 2000 issue, that Alaska Federal's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of Alaska Federal or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
Alaska Federal's business, financial condition or results of operations.
However, management of Alaska Federal is confident of its ability to complete
the transition into the next century with minimal disruption of normal service
levels.
The Office of Thrift Supervision conducted a Y2K Examination on March
23, 1998. Management of Alaska Federal is satisfied with the results of this
examination.
Impact of Accounting Pronouncements and Regulatory Policies
Accounting For Stock-based Compensation. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement encourages all entities to adopt a
new method of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at the date it
is granted (the fair value based method). Companies may, however, continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method must disclose in a footnote to the financial statements pro
forma net income and, if presented, earnings per share, as if this statement had
been adopted. The accounting requirements of this statement are effective for
fiscal years that begin after December 15, 1995; however, companies that elect
to continue to measure compensation using the intrinsic value based method are
required to disclose information for awards granted in their first fiscal year
beginning after December 15, 1994. Management expects to use the intrinsic value
based method upon consummation of the conversion and the adoption of stock based
benefit plans.
Accounting For Transfers And Servicing of Financial Assets And
Extinguishment of Liabilities. Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996, and is to be applied prospectively. This statement does not permit earlier
or retroactive application. Statement of Financial Accounting Standards No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. The standards are based on
consistent application of a financial-components approach that focuses on a
control period. Under the approach, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. Statement of
Financial Accounting Standards No. 125 provides consistent standards
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. Adoption of this statement on January 1, 1997 did not
have a material impact on Alaska Federal's financial position or results of
operations.
Earnings Per Share. Statement of Financial Accounting Standards No.
128, "Earnings Per Share," issued in February 1997, establishes standards for
computing and presenting earnings per share and applies to entities with
publicly-held common stock or potential common stock. It replaces the
presentation of primary EPS with a presentation of basic earnings per share and
requires the dual presentation of basic and diluted earnings per share on the
face of the income statement. This statement is effective for financial
statements issued for periods ending after December 15, 1997 including interim
periods; earlier applications are not permitted. This statement requires
restatement of all prior period earnings per share data presented.
Disclosure of Information About Capital Structure. Statement of
Financial Accounting Standards No. 129, "Disclosure of Information About Capital
Structure," establishes standards for disclosing information about an
35
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entity's capital structure, including information about securities, liquidation,
preference or preferred stock and redeemable stock. The statement is effective
for Alaska Federal's financial statements as of December 31, 1998. Alaska
Federal is prepared to comply with the additional reporting requirements of this
statement, and does not anticipate that the implementation of this statement
will have a material impact on Alaska Federal's consolidated financial
statements.
Comprehensive Income. Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," issued in June 1997, establishes
standards for reporting and presenting of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented with
the same prominence as other financial statements. Statement of Financial
Accounting Standards No. 130 requires that companies classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial condition. Statement of Financial Accounting Standards No. 130 is
effective for fiscal years beginning after December 15, 1997. This statement
requires reclassification of financial statements for earlier periods provided
for comparative purposes. Alaska Federal adopted this Statement in 1998.
Disclosure About Segments. Statement of Financial Accounting Standards
No. 131, "Disclosure About Segments of an Enterprise and Related Information,"
issued in June 1997, establishes standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Statement of
Financial Accounting Standards No. 131 supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." Statement of Financial Accounting Standards No. 131 became
effective for Alaska Federal's fiscal year ended December 31, 1998, and requires
that comparative information from earlier years be restated to conform to its
requirements. However, Alaska Federal has no separately identifiable operating
segments under this Statement.
Employers' Disclosures About Pensions And Other Postretirement
Benefits. Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," issued in
February 1998, standardizes disclosure requirements for pensions and other
postretirement benefits and requires additional disclosure on changes in benefit
obligations and fair values of plan assets in order to facilitate financial
analysis. Statement of Financial Accounting Standards No. 132 is effective for
fiscal years beginning after December 15, 1997, with earlier application
encouraged. The adoption of Statement of Financial Accounting Standards No. 132
will have no impact on Alaska Federal's results of operations and financial
condition as this statement relates to disclosure requirements. Alaska Federal
adopted Statement of Financial Accounting Standards No. 132 on January 1, 1998,
and its adoption did not significantly affect Alaska Federal's financial
reporting.
Accounting For Derivative Instruments And Hedging Activities. Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," issued in June 1998, standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under Statement of Financial Accounting Standards
No. 133, entities are required to carry all derivative instruments in the
statement of financial position at fair value. The accounting for changes in the
fair value (i.e., gains and losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, on the reasons for holding it. If certain conditions are met,
entities may elect to designate a derivative instrument as a hedge of exposures
to changes in fair value, cash flows or foreign currencies. See Notes 1 and 3 of
the Notes to Financial Statements included in the back of this prospectus for
further information. Statement of Financial Accounting Standards No. 133 is
effective for financial statements issued for periods beginning after June 15,
1999, although earlier adoption is permitted. Alaska Federal adopted this
Statement effective October 1, 1998. Its adoption did not result in a material
impact on its operations, financial position or liquidity.
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Accounting for Mortgage-backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," issued in October 1998, amends
Statement of Financial Accounting Standards No. 65, "Accounting for Certain
Mortgage Banking Activities," and Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," for
years beginning after December 15, 1998. Currently, neither Alaska Pacific
Bancshares nor Alaska Federal conduct any mortgage banking activities.
Effect of Inflation and Changing Prices
The Financial Statements and related financial data presented herein
have been prepared in accordance with generally accepted accounting principles,
which generally require the measurement of financial position and operating
results in terms of historical dollars, without considering the changes in
relative purchasing power of money over time due to inflation. The primary
impact of inflation is reflected in the increased cost of Alaska Federal's
operations. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
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RECENT DEVELOPMENTS
The following tables set forth certain information concerning the
financial position and results of operations of Alaska Federal at the dates and
for the periods indicated. Information at March 31, 1999 and for the three
months ended March 31, 1999 and 1998 are unaudited, but, in the opinion of
management, contain all adjustments (none of which were other than normal
recurring entries) necessary for a fair presentation of the results of
operations for such periods. Information at December 31, 1998 and for the year
then ended was derived from the audited financial statements, included at the
back of this prospectus. The selected operating data for the three months ended
March 31, 1999 are not necessarily indicative of the results of operations for
the entire fiscal year. This information should be read in conjunction with the
Financial Statements and Notes thereto, included at the back of this prospectus.
At At
March 31, December 31,
1999 1998
---- ----
(Unaudited)
(In Thousands)
SELECTED FINANCIAL CONDITION DATA:
Total assets ..................................... $ 111,781 $ 110,806
Loans, net ....................................... 75,697 70,836
Loans held for sale .............................. 939 899
Allowance for loan losses ........................ (688) (674)
Investment securities available-for-sale ......... 17,332 18,176
Cash, due from banks, and interest-
bearing deposits with banks ................... 11,271 14,584
Deposits ......................................... 99,729 101,945
Federal Home Loan Bank of Seattle advances ....... 2,100 --
Total equity capital ............................. 7,311 7,250
Three Months
Ended March 31,
----------------------
1999 1998
---- ----
(Unaudited)
(In Thousands)
OPERATING DATA:
Interest income .............................. $1,989 $2,151
Interest expense ............................. 867 1,060
------ ------
Net interest income .......................... 1,122 1,091
Provision for loan losses .................... 15 15
------ ------
Net interest income after
provision for loan losses ................... 1,107 1,076
Noninterest income ........................... 160 226
Noninterest expense .......................... 1,214 1,198
Income before income tax ..................... 53 104
Income tax benefit ........................... -- --
------ ------
Net income ................................... $ 53 $ 104
====== ======
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Three Months
Ended March 31,
---------------------
1999 1998
---- ----
Number of:
Real estate loans outstanding ................. 724 720
Deposit accounts .............................. 12,605 12,508
Full service offices .......................... 6 6
At or For the
Three Months
Ended March 31,
--------------------
1999 1998
---- ----
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets (1) ......................... 0.19% 0.36%
Return on average equity (2) ......................... 2.92 5.75
Interest rate spread (3) ............................. 4.14 3.76
Net interest margin (4) .............................. 4.10 3.78
Average interest-earning assets to
average interest-bearing liabilities ................ 107.23 106.75
Noninterest expense as a
percent of average assets ........................... 4.43 4.16
Asset Quality Ratios:
Nonaccrual and 90 days or more past
due loans as a percent of total loans, net ........ --% 0.43%
Nonperforming assets as a
percent of total assets ............................ 0.14 0.43
Allowance for losses as a percent of gross
loans receivable .................................... 0.90 1.00
Allowance for losses as a percent
of nonperforming loans .............................. -- 154.81
Net charge-offs to average
outstanding loans .................................. -- 0.01
Capital Ratios:
Total equity to assets ............................... 6.54 6.48
Average equity to average assets ..................... 6.63 6.27
- --------------
(1) Annualized net income divided by average total assets.
(2) Annualized net income divided by average equity capital.
(3) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(4) Annualized net interest income as a percentage of average interest-earning
assets.
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Regulatory Capital
The table below sets forth Alaska Federal's capital position relative
to its OTS capital requirements at the date indicated. The definitions of the
terms used in the table are those set forth in the OTS capital regulations. See
"REGULATION -- Federal Regulation of Alaska Federal -- Capital Requirements."
At March 31, 1999
-----------------------------------------
Percent of Adjusted Total
Amount or Risk-Weighted Assets(1)
------ --------------------------
(In Thousands)
Tangible capital level ................ $7,601 6.87%
Tangible capital requirement .......... 1,660 1.50
------ -----
Excess ................................ 5,941 5.37
Core capital level .................... 7,601 6.87
Core capital requirement .............. 3,321 3.00
------ -----
Excess ................................ 4,280 3.87
Risk-based capital level .............. 8,289 12.36
Risk-based capital requirement ........ 5,363 8.00
------ -----
Excess ................................ 2,926 4.36
- ------------
(1) Based upon adjusted total assets for purposes of the tangible and core
capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirement.
Non-Performing Assets and Delinquencies
Alaska Federal had no loans accounted for on a non-accrual basis at
March 31, 1999 or December 31, 1998. Classified loans at March 31, 1999 totaled
$756,000 ($43,000 classified as doubtful, $606,000 classified as substandard and
$107,000 designated as "special mention") compared to $773,000 at December 31,
1998. Foreclosed properties amounted to $155,000 at March 31, 1999, compared to
$311,000 at December 31, 1998. At March 31, 1999, Alaska Federal had no accruing
loans that were contractually past due 90 days or more and had no restructured
loans.
The allowance for loan losses was $688,000 at March 31, 1999 compared
to $674,000 at December 31, 1998. Charge-offs totaled $1,000 for the three
months ended March 31, 1999, compared to $10,000 for the three months ended
March 31, 1998. There were no recoveries for the three months ended March 31,
1999 compared to $1,000 for the three months ended March 31, 1998.
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The following table sets forth the breakdown of the allowance for loan
losses by category at March 31, 1999.
Percent of
Loans in Each
Category to
Amount Total Loans
------ -----------
(In thousands)
Real estate loans:
Permanent:
One- to four-family ..................... $125 49.97%
Multi-family ............................ 12 3.04
Commercial .............................. 105 13.67
Land .................................... 28 3.66
Construction:
One- to four-family ..................... 7 1.91
Multi-family ............................ 1 0.07
Commercial .............................. 6 0.75
Commercial ................................ 76 8.04
Consumer:
Home equity .............................. 24 10.22
Boat ..................................... 55 7.15
Automobile ............................... 27 1.24
Other .................................... 6 0.28
Unallocated ............................... 216 --
---- ------
Total allowance for loan losses ......... $688 100.00%
==== ======
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Total assets were $111.8 million at March 31, 1999 compared to $110.8
million at December 31, 1998. This increase resulted primarily from an increase
in loans, funded by FHLB advances and reductions in short-term investments and
interest-earning deposits in banks.
Cash, due from banks, and interest-bearing deposits with banks were
$11.3 million at March 31, 1999 compared to $14.6 million at December 31, 1998.
Investment securities available-for-sale were $17.3 million at March 31, 1999
compared to $18.2 million at December 31, 1998. These decreases primarily
reflect the decrease in liquidity as a result of increased loans and decreased
deposits.
The Office of Thrift Supervision requires a savings institution to
maintain an average daily balance of liquid assets, which are cash and eligible
investments, equal to at least 4.0% of the average daily balance of its net
withdrawable deposits and short-term borrowings. Alaska Federal's actual
liquidity ratios were 29.2% and 32.6% at March 31, 1999 and December 31, 1998,
respectively. Alaska Federal has consistently maintained liquidity levels in
excess of regulatory requirements.
Loans, net, were $75.7 million at March 31, 1999 compared to $70.8
million at December 31, 1998, a 6.9% increase. This increase resulted primarily
from increased originations of both mortgage and nonmortgage loans, as well as
retaining the majority of mortgage loans originated during the quarter, rather
than selling them in the secondary market.
Deposits were $99.7 million at March 31, 1999 compared to $101.9
million at December 31, 1998, a 2.2% decrease. A moderate decline in deposit
levels is considered normal during the first quarter of the year due to seasonal
fluctuations in the local economy.
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Advances from the Federal Home Loan Bank of Seattle increased to $2.1
million at March 31, 1999 from none outstanding at December 31, 1998 to fund
loan demand.
Net income of $53,000 and a decrease in unrealized losses on securities
of $8,000 for the three months ended March 31, 1999 resulted in comprehensive
income of $61,000, which increased total equity to $7.3 million at March 31,
1999.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
General. During the three months ended March 31, 1999, Alaska Federal
began to reverse a decline in total loans by increasing loan originations and by
retaining a substantial portion of mortgage loan production. Mortgage and
nonmortgage loans are added to the portfolio to increase net interest income,
while maintaining interest-rate risk at acceptable levels.
Net Income. Net income for the three months ended March 31, 1999 was
$53,000 compared to $104,000 for the three months ended March 31, 1998, a
decrease of $51,000. The decrease resulted primarily from a decrease in
noninterest income, particularly in gains on sale of mortgage loans.
Net Interest Income. Net interest income increased 2.8% to $1.12
million for the first quarter of 1999, compared with $1.09 million for the same
period in 1998. In comparing the two periods, both interest income and interest
expense were lower in 1999 due to a lower interest rate level in general, but a
moderately higher long term rate which tended to reduce deposit rates to a
relatively greater extent than loan and investment rates.
Provision for Loan Losses. The provision for loan losses remained level
at $15,000 for the three months ended March 31, 1999, unchanged from the same
period in 1998.
Noninterest Income. Noninterest income declined 29.0% to $160,000 in
the three months ended March 31, 1999 compared with $226,000 for the three
months ended March 31, 1998. The decline resulted primarily from a $70,000
decrease in gain on sale of mortgage loans. The majority of mortgage loans
originated during the first quarter of 1999 were retained in the loan portfolio,
rather than being sold in the secondary market, as was the case during the first
quarter of 1998. Despite selling mortgage loans, and retaining the related
servicing rights, during much of 1998, mortgage servicing income has declined
gradually due to rapid prepayments in the servicing portfolio in 1998, as well
as increasing amortization expense on capitalized mortgage servicing rights. As
a result, mortgage servicing income declined to $52,000 for the first quarter of
1999 compared with $59,000 in the first quarter of 1998.
Offsetting the declines in mortgage-related income was a 14% increase
in service charges on deposit accounts and other service charges and fees, which
amounted to $102,000 in the first quarter of 1999, compared to $90,000 in the
first quarter of 1998. This increase resulted from increases in both the number
of accounts and the rates charged.
Noninterest Expenses. Noninterest expense remained approximately
unchanged at $1.2 million for each of the three month periods ended March 31,
1999 and 1998. Moderate increases in compensation and benefits (2.2%), data
processing charges (3.0%) and other expenses (1.8%) were partially offset by an
11.2% decrease in marketing and related expenses.
Income Taxes. No income tax expense was recognized for each of the
three month periods ended March 31, 1999 or 1998 due to net operating loss
carryforwards, which expire in various years beginning in 2002 and through 2012.
Other. On April 16, 1999, Alaska Federal's Board of Directors approved
the opening of a new office location in leased premises in the Juneau area,
including the expenditure of approximately $230,000 for equipment and leasehold
improvements.
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BUSINESS OF ALASKA PACIFIC BANCSHARES
General
Alaska Federal directed the organization of Alaska Pacific Bancshares
as an Alaska business corporation on March 19, 1999 for the purpose of becoming
a holding company for Alaska Federal upon completion of the conversion. As a
result of the conversion, Alaska Federal will be a wholly owned subsidiary of
Alaska Pacific Bancshares and Alaska Pacific Bancshares will own all of the
issued and outstanding capital stock of Alaska Federal.
Business
Prior to the conversion, Alaska Pacific Bancshares has not and will not
engage in any significant activities other than that of an organizational
nature. Upon completion of the conversion, Alaska Pacific Bancshares' sole
business activity will be the ownership of the outstanding capital stock of
Alaska Federal. In the future, Alaska Pacific Bancshares may acquire or organize
other operating subsidiaries, although there are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, Alaska Pacific Bancshares will neither own nor lease any
property but will instead use the premises, equipment and furniture of Alaska
Federal with the payment of appropriate rental fees, as required by applicable
law.
Since Alaska Pacific Bancshares will only hold the outstanding capital
stock of Alaska Federal, the competitive conditions applicable to Alaska Pacific
Bancshares will be the same as those confronting Alaska Federal. See "Business
of Alaska Federal -- Competition."
BUSINESS OF ALASKA FEDERAL
General
Alaska Federal was founded as "Alaska Federal Savings and Loan
Association of Juneau" in 1935 and changed its name to "Alaska Federal Savings
Bank" in October 1993. Alaska Federal is regulated by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. The Federal Deposit
Insurance Corporation under the Savings Association Insurance Fund currently
insures Alaska Federal's deposits, which have been federally insured since 1937.
Alaska Federal has been a member of the Federal Home Loan Bank System since
1937.
Alaska Federal experienced steady growth, especially during the 1980s
when the entire state of Alaska was enjoying the benefits of the distribution of
oil based revenues. In the mid-1980s the price of oil plummeted which caused a
severe recession in Alaska. As a result, Alaska Federal suffered substantial
losses on many of its loans and investments which had been originated during the
1970s and early 1980s. From 1985 to 1993 there was a significant change in the
balance sheet and operational structure of Alaska Federal. The branch offices in
Valdez and Palmer which had originally been opened in connection with the
business boom brought on by the construction of the Alaska Pipeline were closed
as the economies of these cities did not sustain their growth after completion
of the project. Assets declined and the concentration of earning assets shifted
from loans to investments and cash. Alaska Federal faced a difficult time
balancing the need for earnings and capital against long term operating income.
As a result, Alaska Federal chose to sell a significant amount of its loan
portfolio in the secondary market in exchange for the gain on sale of loans. The
gain that was realized on the loans enabled Alaska Federal to continue to
operate through a difficult economic period but this gain resulted in
significantly reduced income from earning assets as the funds were reinvested in
lower yielding assets.
Many of the losses incurred by Alaska Federal during this period were a
result of the economy and were further aggravated by commercial real estate and
business loans that were poorly underwritten, were secured by collateral
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<PAGE>
outside of Alaska Federal's primary market area and were not properly monitored
for credit weakness. The Financial Institutions Reform, Recovery and Enforcement
Act of 1989 mandated strict new capital requirements and placed many other
restrictions on lending and other aspects of Alaska Federal's operations. The
combined effects of the recession, poor underwriting decisions and stringent
regulations caused many banks and thrift institutions to fail. Alaska Federal is
one of the two surviving thrift institutions in the state and one of only two
remaining financial institutions headquartered in Southeast Alaska.
At the same time Alaska Federal was experiencing these operating
problems, it also experienced a series of management and employee problems. A
lack of system and internal controls, untrained staff, management conflict and a
series of personnel related litigation resulted in a complete change in senior
and middle management between mid- 1992 through 1993. These operational and
employee problems occupied a significant amount of management time between 1993
and 1996.
The result of these operating and employee problems for Alaska Federal
was the execution of a Supervisory Agreement with the Office of Thrift
Supervision on July 15, 1991, which was updated on June 20, 1995. The
Supervisory Agreement required Alaska Federal to, among other things:
(4) develop a business plan that covers: (a) growth of assets; (b)
improvement of core profitability; (c) improvement of efficiency
and employee turnover; and (d) effective management of the risks
associated with current and proposed asset concentrations.
(5) develop an internal asset review policy;
(6) develop an internal audit plan; and
(7) maintain certain minimum capital levels.
Management's efforts to reverse the trend of Alaska Federal's shrinking
loan portfolio started in 1994. Alaska Federal's increase in a loan to deposit
ratio of approximately 45% in 1993 to 70% at December 31, 1998 reflects these
efforts. During this period of recovery, management's efforts shifted from
managing specific operational problems to developing strategic initiatives for
Alaska Federal. These strategic initiatives included the diversification into
consumer and selected commercial business lending, which has provided Alaska
Federal with increased yields, decreased interest rate risk and provided access
to additional lending opportunities. In addition, Alaska Federal revised its
written policies and procedures and developed the business plan required by the
Office of Thrift Supervision. As a result of these remedial actions, on August
15, 1996 the Supervisory Agreement was terminated by the Office of Thrift
Supervision.
Alaska Federal operates, and intends to continue to operate, as a
community oriented financial institution and is devoted to serving the needs of
its customers. Alaska Federal's business consists primarily of attracting retail
deposits from the general public and using those funds to originate one- to
four-family mortgage loans. To a lesser but growing extent, Alaska Federal also
originates commercial business loans, consumer loans, residential construction
loans and commercial real estate loans. See "-- Lending Activities."
Market Area
Alaska Federal's primary market area includes the communities of
Juneau, Ketchikan, Sitka and Wrangell. Alaska Federal's market area covers 500
miles along the Pacific Ocean coastline from Yakutat in the north to Prince of
Wales Island in the south, and encompasses approximately 35,000 square miles of
land. The region is home to approximately 74,000 residents who reside in 11
communities. This area has similar economic characteristics, however, there is
diversity in some unique industries. All of Juneau, Ketchikan, Sitka and
Wrangell offer a number of recreational activities, which are popular tourist
attractions.
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Alaska Federal's market area exhibits a range of historical and
projected demographic trends, which reflect the impact of the various economic
developments in these areas. These trends include population and household
increases, employment and construction, which are discussed below and based on
information provided by the U.S. Census:
o Population growth. From 1990 to 1998, the community of Juneau
reported a gain in population of 1.6%. During the same period,
the communities of Ketchikan Gateway, Sitka and Wrangell each
reported a loss in population of 0.3%, 0.2% and 0.2%,
respectively. The State of Alaska experienced an increase of 1.4%
in population during this period, which is higher than the 1.0%
increase reported by the United States.
o Employment. At November 1998, the communities of Juneau,
Ketchikan Gateway, Sitka, and Wrangell reported unemployment
rates of 5.2%, 6.2%, 4.2% and 6.9%, respectively. Each community
experienced a decrease from its unemployment rate reported for
the same period during the prior year, as did the State of Alaska
and other communities in the state of Alaska. The unemployment
rates for the State of Alaska and for the United States at
November 1998 were 5.4% and 4.1%, respectively. The decrease in
unemployment rates in Alaska Federal's market area reflects the
economic recovery experienced throughout the State of Alaska.
o Construction. During 1996, the communities of Juneau, Sitka and
Ketchikan experienced a housing shortage. During 1998, all three
communities experienced an increase in residential and commercial
construction, which is indicative of the lower interest rate
environment and reflects a recovery from the timber mill
closures.
Additional information regarding each of the communities in Alaska
Federal's market area is provided below:
Alaska Federal's main office and one full service branch office are
located in Juneau (population approximately 30,684), which is the Capital of
Alaska. The primary economic sources in Juneau are government, tourism, support
services for logging and fish processing, mining and fishing. Historically,
Juneau had an active mining industry (primarily gold and silver), however,
mining employment has declined as a result of environmental pressures and a
decline in the price of gold. According to information provided by the Alaska
Department of Labor, the largest employers in Juneau are the state, local and
federal governments, Bartlett Regional Hospital and the University of Alaska.
The Juneau unemployment rate for November 1998 was 5.2%.
Two full service offices of Alaska Federal are located in Ketchikan
(population approximately 14,231). Ketchikan is an industrial center and a major
port of entry in Southeast Alaska with a diverse economy. A large fishing fleet,
fish processing facilities, timber and wood products manufacturing, and tourism
are Ketchikan's main economic support. In 1997, the Ketchikan Pulp Corporation's
pulp mill closed when its 50-year contract with the U.S. Forest Service for
timber was canceled, which resulted in the loss of 320 jobs. To ease the affects
of the shut-down, the U.S. Forest Service is allocating timber for the sawmill
to continue operations until 2000. The largest employers in the Ketchikan
Gateway Borough include the city and state government, Ketchikan General
Hospital, the Ketchikan Gateway School District, the Ketchikan Pulp Mill and the
federal government. The Ketchikan Gateway Borough unemployment rate for November
1998 was 6.2%.
One full service office of Alaska Federal is located in Sitka
(population approximately 8,779) located on the west coast of Baranof Island
fronting the Pacific Ocean, on Sitka Sound. The primary economic sources in
Sitka are fishing, fish processing, tourism, government, transportation, retail
and health care services. Sitka is a port of call for many cruise ships each
summer. The largest employers in Sitka include the Southeast Alaska Regional
Health Corp, the Sitka Borough School District, city, state and federal
governments and the Sitka Community Hospital. Other Sitka employers include the
Alaska State Trooper Training Academy and numerous businesses involved in
commercial and sport fishing and tourism. The Sitka Borough unemployment rate
for November 1998 was 4.2%.
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<PAGE>
Alaska Federal also has a full service office located in Wrangell
(population approximately 2,589). Wrangell's economy is based on commercial
fishing, fish processing and timber from the Tongass National Forest. In
connection with its fishing industry, a dive fishery is also under development.
There has also been renewed gold mining activities. In 1994, Wrangell
experienced a downturn in its economy with the closing of the Alaska Pulp Corp.
sawmill, which forced approximately 20% of the workforce into other employment.
Silver Bay Logging bought the mill and reopened it in April 1998. Other Wrangell
employers include city, state and federal government, Wrangell Public Schools,
Wrangell Medical Center and Wrangell Fisheries, Inc.. The Wrangell-Petersburg
Borough unemployment rate for November 1998 was 6.9%.
The State of Alaska maintains a "Permanent Fund" program to provide for
long-term stability of the state funded by oil revenues. The Permanent Fund pays
each resident of the state just for living in Alaska. In 1998, each resident
received a payment of $1,540 to help offset the high cost of living in Alaska.
The 1999 Alaska Legislature is addressing, for the first time, a substantial
funding deficit caused by lower than anticipated oil prices but it is
politically unwilling to utilize the Permanent Fund to fund the deficit,
preferring instead to discuss instituting a state income tax along with the use
of some permanent fund monies.
Competition
Alaska Federal faces strong competition in its primary market area for
the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for deposits has historically
come from commercial banks and credit unions operating in its primary market
area. Alaska Federal competes with four commercial banks including one
Southeast-Alaska based community bank and three statewide regional banks and six
credit unions in its primary market area. Particularly in times of high interest
rates, Alaska Federal has faced additional significant competition for
investors' funds from short-term money market securities, other corporate and
government securities and credit unions. Alaska Federal's competition for loans
also comes from mortgage bankers. This competition for deposits and the
origination of loans may limit Alaska Federal's future growth.
Lending Activities
General. At December 31, 1998, Alaska Federal's total loan portfolio
amounted to $71.5 million, or 64.5% of total assets at that date. Alaska Federal
has traditionally concentrated its lending activities on conventional first
mortgage loans secured by one- to- four family properties, with these loans
amounting to $34.3 million, or 47.9% of the total loan portfolio at December 31,
1998. In addition, Alaska Federal originates construction loans, commercial real
estate loans, land loans, consumer loans and commercial business loans. A
substantial portion of Alaska Federal's loan portfolio is secured by real
estate, either as primary or secondary collateral, located in its primary market
area.
Loans Made by Alaska Federal in Excess of New Limitations. Office of
Thrift Supervision regulations restrict the amount that savings associations may
loan to one borrower. At December 31, 1998, Alaska Federal had two loans that
exceed its current loan-to-one borrower limitation. These loans exceed the
loan-to-one borrower limitation because this limit was reduced as the result of
the passage of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989. The loans are considered "non-conforming" from a regulatory perspective
because they were originally made in conformance with the loan-to-one borrower
limit but due to the regulatory reduction, are now in excess of the limit. As
"non-conforming" loans, Alaska Federal must make reasonable efforts when
renewing or modifying these loans to bring them into conformance with the
current regulatory limits. The current loan-to-one borrower limit is 15% of an
institution's unimpaired capital and surplus, or for Alaska Federal,
approximately $1.2 million at December 31, 1998. All of these loans were
performing in accordance with their terms on that date.
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<PAGE>
Loan Portfolio Analysis. The following table sets forth the composition
of Alaska Federal's loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1998 1997
------------------------ ---------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate:
Permanent:
One- to four-family................... $ 34,252 47.90% $ 40,891 51.45%
Multi-family.......................... 2,485 3.48 2,281 2.87
Commercial nonresidential............. 10,683 14.94 13,751 17.30
Land.................................... 2,589 3.62 1,093 1.38
Construction:
One- to four-family................... 957 1.34 1,513 1.90
Multi-family.......................... 1,079 1.51 1,980 2.49
Commercial nonresidential............. 439 0.61 -- --
Commercial business ..................... 4,282 5.99 2,618 3.29
Consumer:
Home equity........................... 8,401 11.75 8,435 10.61
Boat.................................. 5,058 7.07 5,547 6.98
Automobile............................ 978 1.37 959 1.21
Other................................. 307 0.42 403 0.51
---------- -------- --------- --------
Total loans....................... $ 71,510 100.00% $ 79,471 100.00%
======== ====== ======== ======
Less:
Allowance for loan losses............. $ 674 $ 751
---------- ----------
Loans, net............................. $70,836 $78,720
======= =======
</TABLE>
One- to Four-Family Real Estate Lending. Historically, Alaska Federal
has concentrated its lending activities on the origination of loans secured by
first mortgages on existing one- to four-family residences located in its
primary market area. At December 31, 1998, $34.3 million, or 47.9% of Alaska
Federal's total loan portfolio consisted of these loans. Alaska Federal
originated $27.9 million and $13.6 million of one- to four-family residential
mortgage loans during the years ended December 31, 1998 and 1997, respectively.
Generally, Alaska Federal's fixed-rate one- to- four family mortgage
loans have maturities of 15 and 30 years and are fully amortizing with monthly
payments sufficient to repay the total amount of the loan with interest by the
end of the loan term. Generally, Alaska Federal originates these loans under
terms, conditions and documentation which permit them to be sold to U.S.
Government sponsored agencies such as the Federal Home Loan Mortgage Corporation
and the Alaska Housing Finance Corporation, a state agency that provides
affordable housing programs. Alaska Federal's fixed-rate loans customarily
include "due on sale" clauses, which give Alaska Federal the right to declare a
loan immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage and the loan is not paid.
Alaska Federal offers adjustable rate mortgage loans at rates and terms
competitive with market conditions. At December 31, 1998, $5.5 million, or
15.7%, of Alaska Federal's one- to four-family residential loan portfolio
consisted of adjustable rate mortgage loans. Alaska Federal retains these
adjustable rate mortgage loans primarily for its portfolio. Alaska Federal
currently originates adjustable rate mortgage loans that adjust annually based
on the weekly average yield of U.S. Treasury securities adjusted to a constant
maturity of one year, plus 2.5%, with annual and life time interest rate
adjustment limits of 2% to 6%, respectively. Alaska Federal
47
<PAGE>
offers these adjustable rate mortgage loans at an initial below market "teaser"
rate. Alaska Federal qualifies borrowers, however, at the fully indexed rate.
Alaska Federal's adjustable rate mortgages are typically based on a 15 or
30-year amortization schedule. Alaska Federal's adjustable rate mortgage loans
do not provide for negative amortization.
Borrower demand for adjustable rate mortgage loans versus fixed-rate
mortgage loans is a function of the level of interest rates, the expectations of
changes in the level of interest rates and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and adjustable rate mortgage loans that can be
originated at any time is largely determined by the demand for each in a
competitive environment. In general, there has been reduced demand for
adjustable rate mortgage loans in Alaska Federal's primary market area.
Alaska Federal also originates one- to four-family mortgage loans under
Federal Home Loan Mortgage Corporation, Federal Housing Administration, Veterans
Administration, and Alaska Housing Finance Corporation programs. Alaska Federal
generally sells these loans in the secondary market, servicing retained, which
means Alaska Federal retains the right to collect principal and interest
payments and forward it to the purchaser of the loan, maintain escrow accounts
for payment of taxes and insurance and perform other loan administration
functions. See "-- Loan Originations, Sales and Purchases."
Alaska Federal requires title insurance insuring the status of its lien
on all loans where real estate is the primary source of security. Alaska Federal
also requires that fire and casualty insurance be maintained in an amount at
least equal to the outstanding loan balance and flood insurance where
appropriate.
One- to- four family residential mortgage loans may be made up to 80%
of the appraised value of the security property without private mortgage
insurance. Pursuant to underwriting guidelines adopted by the Board of
Directors, Alaska Federal can lend up to 97% of the appraised value of the
property securing a one- to four-family residential loan; however, Alaska
Federal generally obtains private mortgage insurance on the portion of the
principal amount that exceeds 80% of the appraised value of the security
property.
To a lesser extent, Alaska Federal has recently begun to originate
loans secured by non-owner occupied residential properties that are sold to the
Federal Home Loan Mortgage Corporation.
Land Lending. Alaska Federal also originates loans secured by first
mortgages on residential building lots on which the borrower proposes to
construct a primary residence. These loans generally have terms of up to five
years and are fixed-rate, fully amortizing loans. Alaska Federal also originates
commercial land loans, which have floating rates that adjust annually. At
December 31, 1998 and 1997, these loans amounted to $2.6 million and $1.1
million, respectively.
Loans secured by undeveloped land or improved lots involve greater
risks than one- to- four family residential mortgage loans because such loans
are more difficult to evaluate. If the estimate of value proves to be
inaccurate, in the event of default and foreclosure Alaska Federal may be
confronted with a property the value of which is insufficient to assure full
repayment.
Construction Lending. At December 31, 1998, construction loans amounted
to $2.5 million, or 3.5% of total loans, all of which were secured by properties
located in Alaska Federal's primary market area.
Construction loans are made for a term of up to 12 months. Construction
loans are made at adjustable rates based on the prime lending rate with interest
payable monthly. Alaska Federal originates construction loans to individuals who
have a contract with a builder for the construction of their residence. Alaska
Federal typically requires that permanent financing with Alaska Federal or some
other lender be in place prior to closing any construction loan to an
individual.
48
<PAGE>
Construction loans to builders are typically made with a maximum
loan-to-value ratio of the lesser of 80% of the cost of construction or 75% of
the appraised value. Construction loans to individuals are typically made in
connection with the granting of the permanent financing on the property. Alaska
Federal generally underwrites these loans, which typically convert to a fully
amortizing adjustable- or fixed-rate loan at the end of the construction term,
according to the underwriting standards for a permanent loan.
Prior to making a commitment to fund a construction loan, Alaska
Federal requires an appraisal of the property by an independent state-licensed
and qualified appraiser approved by the Board of Directors. Alaska Federal's
staff also reviews and inspects projects prior to disbursement of funds during
the term of the construction loan. Loan proceeds are generally disbursed after
inspection of the project.
Although construction lending affords Alaska Federal the opportunity to
achieve higher interest rates and fees with shorter terms to maturity than one-
to four-family mortgage lending, construction lending is generally considered to
involve a higher degree of risk than one- to four-family mortgage lending. It is
more difficult to evaluate construction loans than permanent loans. At the time
the loan is made, the value of the collateral securing the loan must be
estimated based on the projected selling price at the time the residence is
completed, typically six to 12 months later, and on estimated building and other
costs (including interest costs). Changes in the demand for new housing in the
area and higher-than-anticipated building costs may cause actual results to vary
significantly from those estimated. Accordingly, Alaska Federal may be
confronted, at the time the residence is completed, with a loan balance
exceeding the value of the collateral. Because construction loans require active
monitoring of the building process, including cost comparisons and on-site
inspections, these loans are more difficult and costly to monitor. Increases in
market rates of interest may have a more pronounced effect on construction loans
by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the
overall demand for new housing. The fact that in-process homes are difficult to
sell and typically must be completed in order to be successfully sold also
complicates the process of working out problem construction loans. This may
require Alaska Federal to advance additional funds and/or contract with another
builder to complete the residence. Furthermore, in the case of speculative
construction loans, there is the added risk associated with identifying an
end-purchaser for the finished home.
Alaska Federal has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending to primarily residential
properties, and limiting its speculative loans to a small number of well-known
local builders.
Multi-Family and Commercial Real Estate Lending. The multi-family
residential loan portfolio consists primarily of loans secured by small
apartment buildings and the commercial real estate loan portfolio consists
primarily of loans secured by retail, office, warehouse, mini-storage facilities
and other improved commercial properties. These loans generally range in size
from $200,000 to $400,000 and the largest loan totalled $1.5 million at December
31, 1998 and was performing in accordance with its terms. At December 31, 1998,
Alaska Federal had $2.5 million of multi-family residential and $10.7 million of
commercial real estate loans, which amounted to 3.5% and 14.9%, respectively, of
the total loan portfolio at this date. Multi-family and commercial real estate
loans are generally underwritten with loan-to-value ratios of up to 75% of the
lesser of the appraised value or the purchase price of the property. These loans
generally are made at the prime rate for 15 to 20 year terms, with adjustment
periods of one, three or five years and they adjust at a rate equal to this
prime rate plus a negotiated margin of 1% to 3%. Because of the inherently
greater risk involved in this type of lending, substantially all of Alaska
Federal's multi-family and commercial real estate loans are secured by property
located within Alaska Federal's primary market area.
Alaska Federal is also an approved lender under the Alaska Housing
Finance Corp. Multi-Family Participation Program, which was introduced in 1998.
The Alaska Housing Finance Corp. Multi-Family Participation Program provides for
up to 80% of the loan amount, which allows Alaska Federal to pursue larger
lending opportunities while mitigating its risk.
49
<PAGE>
Multi-family residential and commercial real estate lending entails
significant additional risks as compared with single-family residential property
lending. Multi-family residential and commercial real estate loans typically
involve large loan balances to single borrowers or groups of related borrowers.
The payment experience on these loans typically is dependent on the successful
operation of the real estate project. Supply and demand conditions in the market
for office, retail and residential space can significantly affect these risks,
and, as such, may be subject to a greater extent to adverse conditions in the
economy generally. To minimize these risks, Alaska Federal generally limits
itself to its market area. Alaska Federal reviews all commercial real estate
loans in excess of $250,000 on an annual basis to ensure that the loan meets
current underwriting standards.
Commercial Business Lending. At December 31, 1998, commercial business
loans amounted to $4.3 million, or 6.0% of total loans, compared to $2.6
million, or 3.3% of total loans, at December 31, 1997.
Alaska Federal originates commercial business loans to small sized
businesses in its primary market area. Commercial business loans are generally
made to finance the purchase of seasonal inventory needs, new or used equipment,
and for short-term working capital. Security for these loans generally includes
equipment, boats, accounts receivable and inventory, although commercial
business loans are sometimes granted on an unsecured basis. Commercial business
loans are made for terms of seven years or less, depending on the purpose of the
loan and the collateral, with loans to finance operating lines made for one year
or less renewed annually at an interest rate based on the prime rate plus a
margin of between 1 and 2.5 percentage points.
During the year ended December 31, 1998, Alaska Federal increased its
use of resources for loan guarantees through the Small Business Administration,
the U.S. Department of Agriculture and the Alaska Industrial Development and
Export Authority. Alaska Federal has also worked with local municipal agencies,
such as the Juneau Economic Development Council and the Cities of Sitka and
Ketchikan in exploring participation or guaranty programs in each of these
cities. At December 31, 1998, Alaska Federal had $1.4 million in loans
originated under these programs. Generally, Alaska Federal receives guarantees
of between 75% and 90% of the loan amount. In addition, Alaska Federal has
retained portions of four commercial loans originated through participation
programs with Alaska Industrial Development and Export Authority, Alaska
Electrical Pension Trust, and Alaska Housing Finance Corporation. As of December
31, 1998, Alaska Federal's portion of these loans totalled $700,000.
Alaska Federal also makes commercial loans secured by commercial
charter boats. These loans have ten year terms with an interest rate that
adjusts based on the prime interest rate. Alaska Federal also makes loans
secured by commercial fishing boats that have ten year terms and are based on
the prime interest rate. In connection with the loans on these boats, Alaska
Federal receives a ships preferred marine mortgage to protect its interest in
the collateral. Alaska Federal has also granted flooring lines to two boat
dealers for the purchase of boats and other related marine equipment. At
December 31, 1998 Alaska Federal had $2.2 million of commercial business loans
secured by boats.
At December 31, 1998, the largest commercial business loan was a
$500,000 line of credit with an outstanding balance of $300,000, was secured by
stock, and was performing according to its terms.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
often have equipment, inventory, accounts receivable or other business assets as
collateral, the liquidation of collateral in the event of a borrower default is
often not a sufficient source of repayment because accounts receivable may be
uncollectible and inventories and equipment may be obsolete or of limited use,
among other things. Accordingly, the repayment of a commercial business loan
depends primarily on the creditworthiness of the borrower (and any guarantors),
while liquidation of collateral is a secondary and often insufficient source of
repayment.
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<PAGE>
Consumer Lending. At December 31, 1998, consumer loans totaled $14.7
million, or 20.6%, of the total loans, compared to $15.3 million, or 19.2% of
total loans, at December 31, 1997. Over the last five years, Alaska Federal has
made a concerted effort to increase consumer lending volume, with particular
emphasis on home equity loans, boat loans and automobile loans. Total consumer
loans increased by approximately $12.0 million, or 357%, between June 30, 1993
and December 31, 1997.
Consumer loans generally have shorter terms to maturity or repricing
and higher interest rates than long-term, fixed-rate mortgage loans. In addition
to home equity, boat loans and automobile loans, Alaska Federal's consumer loans
consist of loans secured by airplanes, deposit accounts, and unsecured loans for
personal or household purposes.
The largest category of Alaska Federal's consumer loan portfolio is
closed-end, fixed-rate home equity loans that are made on the security of
residences. At December 31, 1998, fixed-rate home equity loans totaled $7.8
million, or 10.9% of the total loan portfolio, compared to $8.3 million, or
10.4% of the total loan portfolio at December 31, 1997. Home equity loans
normally do not exceed 95% of the appraised value of the residence or 100% of
the tax assessment, less the outstanding principal of the first mortgage and
have terms of up to 15 years requiring monthly payments of principal and
interest.
At December 31, 1998, consumer boat loans amounted to $5.1 million, or
7.1% of the total loan portfolio compared to $5.5 million, or 7.0% of the total
loan portfolio at December 31, 1997. Alaska Federal offers boat loans with
maturities of between five and 15 years, which generally range in principal
amounts from $15,000 to $350,000 and are secured by new and used boats. Alaska
Federal makes boat loans of less than $50,000 at fixed rates of interest and
loans over $50,000 are made at an interest that is adjustable based on the prime
lending rate. Alaska Federal generally makes boat loans on new boats of up to
85% of the value and 75% on used boats but in certain instances it will loan up
to 100% of the value.
At December 31, 1998, automobile loans amounted to $1.0 million, or
1.4% of the total loan portfolio compared to $1.0 million, or 1.2% of the total
loan portfolio at December 31, 1997. Alaska Federal offers automobile loans with
maturities of six years with fixed rates of interest.
Alaska Federal also requires title, fire and casualty insurance on
secured consumer loans. The only title exception is for home equity loans under
$25,000 where a property profile, obtained from a title company, indicates there
are no liens or encumbrances not previously disclosed. Consumer loans for boats
and airplanes also require a breach of warranty endorsement.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles or boats and particularly used
automobiles. In these cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on these loans.
These loans may also give rise to claims and defenses by a consumer loan
borrower against an assignee of these loans such as Alaska Federal, and a
borrower may be able to assert against this assignee claims and defenses that it
has against the seller of the underlying collateral. At December 31, 1998, there
were no consumer loans 90 days or more past due.
Loan Maturity and Repricing. The following table sets forth certain
information at December 31, 1998 regarding the dollar amount of loans maturing
in Alaska Federal's portfolio based on their contractual terms to final
maturity, but does not include scheduled payments or potential prepayments.
Demand loans, loans having no stated
51
<PAGE>
schedule of repayments and no stated maturity, and overdrafts are reported as
due in one year or less. Loan balances do not include undisbursed loan proceeds,
unearned discounts, and allowance for loan losses.
<TABLE>
<CAPTION>
After After After After 1 Year
1 Year 3 Years 5 Years -----------------
Within Through Through Through Beyond Fixed Adjustable
1 Year 3 Years 5 Years 10 Years 10 Years Total Rates Rates
------ ------- ------- -------- -------- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
Permanent:
One- to four-family......... $ 550 $1,259 $ 839 $2,163 $30,585 $35,396 $29,302 $ 5,544
Multi-family................ -- -- 409 894 1,182 2,485 629 1,856
Commercial nonresidential... 45 135 348 3,617 6,599 10,744 2,671 8,028
Land ..................... 108 221 1,958 201 101 2,589 838 1,643
Construction:
One- to four-family......... 1,522 -- -- -- -- 1,522 -- --
Multi-family................ 1,295 -- -- -- -- 1,295 -- --
Commercial nonresidential... 576 -- -- -- -- 576 -- --
Commercial................... 1,241 41 1,078 1,284 638 4,282 249 2,792
Consumer:
Home equity................. 98 253 784 4,506 2,760 8,401 6,570 1,733
Boat ..................... 14 77 217 2,405 2,384 5,097 4,648 435
Automobile.................. 52 328 525 73 -- 978 920 6
Other ..................... 145 105 11 46 -- 307 116 46
-------- ------ ------ ------- ------- ------- ------- --------
Total.................... $ 5,646 $2,419 $6,169 $15,189 $44,249 $73,672 $45,943 $22,083
======= ====== ====== ======= ======= ======= ======= =======
</TABLE>
Loan Solicitation and Processing. Alaska Federal obtains its loan
applicants almost exclusively from walk-in traffic, which is generated through
media advertising, referrals from existing customers and, in the case of
commercial loans, through officer business development calls and activities.
Local real estate agents refer a small percentage of Alaska Federal's mortgage
loan applicants, and dealers refer some consumer loans, such as boat loans.
Alaska Federal requires title insurance on all loans. All mortgage loans require
fire and extended coverage on appurtenant structures and flood insurance, if
applicable.
Loan approval authority varies based on loan type. The President and
Chief Executive Officer has authority to approve all residential mortgage loans
up to and including $250,000 that are originated for Alaska Federal's portfolio
and up to the agency limit if the loan is to be sold in the secondary market,
multi-family and commercial real estate loans up to and including $300,000, and
consumer loans up to and including $200,000. Alaska Federal's Senior Loan
Committee consisting of the President and Chief Executive Officer, the Chief
Operating Officer and the two lending division managers must approve loans in
excess of these amounts up to and including $500,000. The Board of Directors
must approve all loans in excess of the Senior Loan Committee's approval
authority.
Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
independent fee appraiser approved by Alaska Federal and licensed or certified
by the State of Alaska undertakes an appraisal of the real estate offered as
collateral. Alaska Federal promptly notifies applicants of the decision.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment.
Pursuant to Office of Thrift Supervision regulations, loans-to-one
borrower cannot exceed 15% of Alaska Federal's unimpaired capital and surplus.
At December 31, 1998, the loan-to-one borrower limitation for Alaska
52
<PAGE>
Federal was $1.2 million and Alaska Federal had two loans that were in excess of
this limitation. These loans exceed the loan-to-one borrower limitation because
this limit was reduced as the result of the passage of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. The loans are
considered "non-conforming" from a regulatory perspective because although they
were originally made in conformance with the loan-to-one borrower limit, due to
the regulatory changes they are now in excess of the limit. As "non-conforming"
loans, Alaska Federal must make reasonable efforts when renewing or modifying
these loans to bring them into conformance with the current regulatory limits.
All of these loans were performing in accordance with their terms on that date.
See "Lending Activities -- Loans Made by Alaska Federal in Excess of New
Limitations" and "Regulation -- Federal Regulation of Savings Associations --
Loans-to-One Borrower."
Loan Originations, Sales and Purchases. Historically, Alaska Federal's
primary lending activity has been the origination of one- to four-family
residential mortgage loans. During the past five years, Alaska Federal has
increased its emphasis on the origination of commercial and consumer loans.
Between December 31, 1997 and 1998, commercial business loans increased by 63.6%
to $4.3 million at December 31, 1998. See "Alaska Federal's Risk Factors --
Recent Growth in Commercial Business and Consumer Lending Poses Greater Risks
Than Residential Lending."
Alaska Federal generally sells all loans without recourse. Alaska
Federal generally sells conventional fixed- rate one- to four-family residential
mortgage loans to the Federal Home Loan Mortgage Corporation or Alaska Home
Finance Corporation, servicing retained. By retaining the servicing, Alaska
Federal receives fees for performing the traditional services of processing
payments, accounting for loan funds, and collecting and paying real estate
taxes, hazard insurance and other loan-related items, such as private mortgage
insurance. At December 31, 1998, Alaska Federal's servicing portfolio was $83.4
million. For the year ended December 31, 1998, loan servicing fees totaled
$255,000, gross, before amortization of servicing rights. In addition, Alaska
Federal retains certain amounts in escrow for the benefit of investors. Alaska
Federal is able to invest these funds but is not required to pay interest on
them. At December 31, 1998, these escrow balances totaled $866,000.
Statement of Financial Accounting Standards No. 125 provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. For a discussion of this Statement, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Accounting Pronouncements and Regulatory Policies --
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities."
53
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended December 31,
-----------------------
1998 1997
---- ----
(In thousands)
Loans originated:
Real estate:
Permanent:
One- to four-family ...................... $ 27,926 $ 13,637
Multi-family.............................. 850 --
Commercial nonresidential................. 1,550 1,849
Land...................................... 1,985 586
Construction:
One- to four-family....................... 3,200 2,899
Multi-family.............................. -- --
Commercial nonresidential ................ 1,223 340
Commercial.................................... 3,359 1,949
Consumer:
Home equity............................... 3,899 4,678
Boat...................................... 1,013 2,121
Automobile................................ 555 646
Other..................................... 511 403
-------- --------
Total loans originated................... 46,071 29,108
Loans purchased................................ -- --
Loans sold..................................... (23,689) (9,882)
Principal repayments........................... (29,573) (16,830)
Foreclosed loans............................... (311) --
-------- --------
Net increase (decrease) in loans and
loans held for sale........................... $ (7,502) $ 2,396
======== ========
Loan Commitments. Occasionally, Alaska Federal issues, without charge,
commitments for fixed- and adjustable-rate single-family residential mortgage
loans conditioned upon the occurrence of certain events. These commitments are
made in writing on specified terms and conditions and are honored for up to 60
days. The only commercial commitments issued by Alaska Federal are business
lines of credit; letters of credit are not offered. At December 31, 1998, Alaska
Federal had $2.4 million of outstanding net loan commitments, including unused
portions on commercial business lines of credit and undisbursed funds on
residential construction loans. See Note 12 to Notes to Financial Statements
included in the back of this prospectus.
Loan Origination and Other Fees. Alaska Federal, in most instances,
receives loan origination fees and discount "points." Loan fees and points are a
percentage of the principal amount of the mortgage loan which are charged to the
borrower for funding the loan. The amount of points charged by Alaska Federal
varies, though the range generally is between one and two points. Accounting
standards require fees received (net of certain loan origination costs) for
originating loans to be deferred and amortized into interest income over the
contractual life of the loan. Net deferred fees associated with loans that are
prepaid are recognized as income at the time of prepayment. Alaska Federal had
$253,000 of net deferred mortgage loan fees at December 31, 1998.
Nonperforming Assets and Delinquencies. Alaska Federal utilizes one
full time loan collector to monitor the loan portfolio and communicate with
customers concerning past due payments. The size of the portfolio and
historically low delinquency rates allows one individual to manage consumer,
commercial and residential loans, including those loans serviced for other
investors. When a borrower fails to make a required payment, Alaska Federal
institutes collection procedures. The process for monitoring consumer,
commercial and residential loans are the same for each
54
<PAGE>
type of loan until foreclosure or repossession of the collateral. Depending on
the value or nature of the collateral, the loan servicing manager, senior lender
or senior management directs any further action.
Customers who miss a payment are mailed a computer-generated notice 15
days after the payment due date. If the customer does not pay promptly, the
collector telephones the customer 20 days after the payment due date. After 30
days, the collector sends a letter which begins the demand process. Follow-up
contacts are made between the 30th and 60th day, after which the collector sends
a demand letter that specifies the action Alaska Federal will take and the
deadline for resolving the delinquency. While most delinquencies are cured
promptly, the collector initiates foreclosure or repossession, according to the
terms of the security instrument and applicable law, if the deadline in the 60
day letter is not met.
Residential loans have a highly structured process for foreclosure. In
addition to Alaska Federal's residential loan portfolio, Alaska Federal services
real estate loans for other investors who in turn have their own requirements
that must be followed. Alaska Federal evaluates consumer and commercial business
loans individually depending on the nature and value of the collateral.
Alaska Federal places all loans which are past due 90 days or more on
nonaccrual status and all previously recorded interest income is reversed.
Alaska Federal charges off consumer loans when it is determined they are no
longer collectible.
Alaska Federal's Board of Directors is informed monthly as to the
status of all mortgage, commercial and consumer loans that are delinquent 30
days or more, the status on all loans currently in foreclosure, and the status
of all foreclosed and repossessed property owned by Alaska Federal.
The following table sets forth information with respect to Alaska
Federal's nonperforming assets and restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15 at the dates indicated.
At December 31,
----------------
1998 1997
---- ----
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial ........................................... $ -- $132
Consumer:
Automobile ......................................... -- 12
Other .............................................. -- 2
---- ----
Total .......................................... -- 146
Accruing loans which are contractually past
due 90 days or more ................................... -- --
Total of nonaccrual and 90 days past due
loans ....................................... -- 146
Foreclosed property ................................... 311 --
---- ----
Total nonperforming assets ..................... $311 $146
==== ====
Restructured loans .................................... $ -- $ --
==== ====
Nonaccrual and 90 days or more past due loans
as a percentage of loans, net......................... --% 0.18%
Nonaccrual and 90 days or more past due loans
as a percentage of total assets....................... --% 0.13
Nonperforming assets as a percentage of
total assets.......................................... 0.28 0.13
55
<PAGE>
Gross interest income that would have been recorded for the year ended
December 31, 1998 if nonaccrual loans had been current according to their
original terms and had been outstanding throughout the year, and the amount of
interest income on these loans that was included in net income for the year,
were, in both cases, immaterial.
Foreclosed Property. Alaska Federal classifies real estate acquired as
a result of foreclosure or by deed-in-lieu of foreclosure is classified as
foreclosed property until sold. When Alaska Federal acquires property, it is
recorded at the lower of its cost, which is the unpaid principal balance of the
related loan plus foreclosure costs, or fair market value. Subsequent to
foreclosure, the property is carried at the lower of the foreclosed amount or
fair value, less estimated selling costs. At December 31, 1998, Alaska Federal
had $311,000 in foreclosed properties consisting of two single-family homes.
Both properties are listed for sale and are expected to sell for amounts
sufficient to cover current outstanding balances, plus recover some or all of
expenses that have already been charged against earnings.
Asset Classification. The Office of Thrift Supervision has adopted
various regulations regarding problem assets of savings institutions. The
regulations require that each insured institution review and classify its assets
on a regular basis. In addition, in connection with examinations of insured
institutions, Office of Thrift Supervision examiners have authority to identify
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful and loss.
Substandard assets must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. The regulations have also created a special mention category,
described as assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention. If
an asset or portion thereof is classified loss, the insured institution
establishes specific allowances for loan losses for the full amount of the
portion of the asset classified loss. A portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
Alaska Federal monitors its asset quality through the use of an Asset
Classification Committee, which is comprised of senior lenders and executive
officers. The committee meets quarterly to review the loan portfolios, with
specific attention given to assets with an identified weakness, as well as
reviewing the local, state and national economic trends and the adequacy of the
allowance for loan and lease losses.
At December 31, 1998 and 1997, the aggregate amounts of Alaska
Federal's classified assets (as determined by Alaska Federal), were as follows:
At December 31,
-----------------------------
1998 1997
---- ----
(In thousands)
Loss............................. $ -- $ --
Doubtful......................... 25 1
Substandard assets............... 583 1,508
Special mention.................. 476 85
At December 31, 1998, assets classified as substandard, doubtful or
loss totaled $608,000. This compared to $1.5 million at December 31, 1997. In
1997, the largest component was a $1.3 million commercial building which had
been foreclosed by Alaska Federal, and subsequently sold with Alaska Federal
providing the financing. Alaska Federal classified the loan as substandard until
the new owners had operated the business for more than
56
<PAGE>
two years with demonstrated cash flow. That loan was subsequently removed from
classified status. By comparison, the largest component of the 1998 classified
loans was $311,000 for two new homes foreclosed and held in "foreclosed
property" pending sale. The remaining substandard and doubtful loans are
comprised of single family homes and one 42 foot motor yacht.
Special mention loans increased from $85,000 at December 31, 1997 to
$476,000 at December 31, 1998. This total consists of four single family homes,
with one loan representing $249,000 of the total at December 31, 1998. Alaska
Federal believe these loans are well secured, but are being monitored carefully
due to known problems with borrowers' employment.
Allowance for Loan Losses. Alaska Federal maintains an allowance for
credit losses sufficient to absorb losses inherent in the loan portfolio. Alaska
Federal has established a systematic methodology to ensure that the allowance is
adequate. The Asset Classification policy requires an ongoing quarterly
assessment of the probable estimated losses in the portfolios. The Asset
Classification Committee reviews the following information:
o All loans classified during the previous analysis. Current
information as to payment history, or actions taken to correct
the deficiency are reviewed , and if justified, the loan is no
longer classified. If conditions have not improved, the loan
classification is reviewed to ensure that the appropriate action
is being taken to mitigate loss.
o All loans past due on scheduled payments. The committee reviews
all loans that are past due 30 days or more, taking into
consideration the borrower, nature of the collateral and its
value, the circumstances that have caused the delinquency, and
the likelihood of the borrower correcting the conditions that
have resulted in the delinquent status. The committee may
recommend more aggressive collection activity, inspection of the
collateral, or no change in its classification.
o Reports from Alaska Federal's managers. Lending managers may be
aware of a borrower's circumstances that has not yet resulted in
any past due payments but has the potential for problems in the
immediate future. Each lending manager reviews their respective
lending unit's loans and identifies any that may have developing
weaknesses. This "self identification" process is an important
component of maintaining credit quality, as each lender is
accountable for monitoring as well as originating loans.
o Current economic conditions. Alaska Federal takes into
consideration economic condition in its market area, the state's
economy, and national economic factors that could influence the
quality of the loan portfolio in general. The unique, isolated
geography of Alaska Federal's market area of Southeast Alaska
requires that each community's economic activity be reviewed.
o Trends in Alaska Federal's delinquencies. Alaska Federal's market
area has seasonal trends and as a result, the portfolio tends to
have similar fluctuations. Prior period statistics are reviewed
and evaluated to determine if the current conditions exceed
expected trends.
The amount that is to be added to allowance for loan losses is based
upon a variety of factors. Many financial institutions establish required
reserves based, to a great extent, upon their own experience. Alaska Federal's
loan portfolio has traditionally consisted primarily of loans secured by single
family homes, and with the exception of a severe state-wide oil-driven recession
in the mid 1980s, the loss experience has been minimal. The current business
plan, however, has focused on increasing the amount of commercial and consumer
loans, which will inherently carry a higher risk of loss than single family
homes. Consequently, until Alaska Federal is able to establish a meaningful,
reliable loan loss record of its own for the consumer and commercial loans, the
reserve for these types of loans has been based upon industry standards, advice
from its regulators, and management's experience with similar portfolios in
other institutions.
57
<PAGE>
In addition to establishing a specific percentage for reserves on each
classified loan, there is a loss factor applied to the remaining portfolio of
loans that are considered "pass". This amount recognizes the inherent risk of
loss connected with each lending activity in that specific type of loan.
Management may elect, on each loan, to reserve a greater amount than
the standard amount designated for that category. The size of the institution,
the size of the portfolio, and the relatively small number of classified loans,
results in most members of the committee being directly familiar with the
borrower, the collateral or the circumstances giving rise to the concerns.
The calculated amount is compared to the actual amount recorded in the
allowance at the end of each quarter and a determination is made as to whether
the allowance is adequate or needs to be increased. Management increases the
amount of the allowance for loan losses by charges to income and decreased by
loans charged off (net of recoveries).
The following table illustrates the percentages that are generally used
by Alaska Federal to calculate the allowance for loan losses.
<TABLE>
<CAPTION>
Current
Loans Paying Special
Portfolio As Agreed Mention Substandard Doubtful Loss
- --------- --------- ------- ----------- -------- ----
<S> <C> <C> <C> <C> <C>
One- to four-family residential............. 0.3% 0.8% 2.0% 40.0% 100.0%
Multi-family residential.................... 0.5 2.0 10.0 40.0 100.0
Commercial real estate...................... 1.0 2.0 10.0 40.0 100.0
Construction................................ 0.5 - 1.0 2.0 7.5 - 10.0 40.0 100.0
Commercial business loans................... 1.0 3.0 10.0 40.0 100.0
Consumer loans.............................. 1.0 2.0 10.0 40.0 100.0
</TABLE>
Alaska Federal's three loan categories, that it considers in evaluating
risk, are residential, commercial and consumer. The reserve percentages that
apply to each category are intended to reflect the varying degree of risk
associated with each type of loan. The following comments represent management's
view of the risks inherent in each portfolio category.
o One- to four-family Residential - The range of the allowance
varies from .3% for pass, .8% for special mention and 2% for
substandard. Alaska Federal's market area is comprised primarily
of a population with above-average incomes and market conditions
that have, over the long term, supported a stable or increasing
market value of real estate. Absent an overall economic downturn
in the economy, experience in this portfolio indicates that
losses are minimal provided the property is reasonably
maintained, and marketing time to resell the property is
relatively short.
o Multi-family Residential - The range of the allowance established
for these loans is .5% for pass, 2.0% for special mention, and
10% for substandard. While there have been minimal losses taken
in this segment of the portfolio, the rental market is very
susceptible to the effects of an economic downturn. While Alaska
Federal monitors loan to value ratios, the conditions that would
create a default would carry through to a new owner which may
require that Alaska Federal discount the property or hold it
until conditions improve.
o Commercial Real Estate - The range of the allowance established
for these loans is 1.0% for pass, 2% for special mention, and 10%
for substandard. As with multi-family loans, the classification
of commercial real estate loans closely corresponds to economic
conditions which will limit the marketability of the property,
resulting in higher risk than a loans secured by a single family
58
<PAGE>
residence. It has been management's decision to reserve on
commercial real estate loans at or near the reserve levels of
commercial business loans.
o Construction Loans (Residential and Commercial) - The range of
the allowance established for these loans is .5% for residential
construction and 1.0% for commercial construction on loans
classified as pass, 2.0% for special mention, and from 7.5% to
10% for substandard depending on residential or commercial
purpose. There are a variety of risks in construction lending,
increased in Alaska by a short building season, difficult
building sites and construction delays due to delivery of
materials. While Alaska Federal has established construction loan
policies and underwriting guidelines designed to mitigate the
risk, there is still a higher risk of loss with these loans.
o Commercial Business Loans - The range of the allowance
established for these loans is 1.0% for pass, 3.0% for special
mention, and 10% for substandard. These types of loans carry the
highest degree of risk, relying on the ongoing success of the
business to repay the loan. Collateral for commercial credits is
often difficult to secure, and even more difficult to liquidate
in the event of a default. The 1% for pass loans represents an
industry benchmark for commercial credits, and if a commercial
business loan demonstrates any credit weakness, the reserve is
increased to aggressively recognize the additional risk.
o Consumer Loans - The range of the allowance established for these
loans is 1.0% to 2.0% for pass, 2.0% for special mention, and 10%
for substandard. The consumer loan portfolio has a wide range of
factors, determined primarily by the nature of the collateral and
the credit history and capacity of the borrower. The loans tend
to be smaller in principal amount and secured by second deeds of
trust, automobiles, and pleasure boats. Loans for automobiles and
pleasure boats generally experience higher than average wear in
the Alaska's environment and hold a higher degree of risk of loss
in the event of repossession.
Management believes that the allowance for loan losses at December 31,
1998 was adequate at that date. Although management believes that it uses the
best information available to make these determinations, future adjustments to
the allowance for loan losses may be necessary and results of operations could
be significantly and adversely affected if circumstances differ substantially
from the assumptions used in making the determinations.
While Alaska Federal believes it has established its existing allowance
for loan losses in accordance with generally accepted accounting principles,
there can be no assurance that regulators, in reviewing Alaska Federal's loan
portfolio, will not request Alaska Federal to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect Alaska Federal's financial
condition and results of operations.
59
<PAGE>
The following table sets forth information with respect to Alaska
Federal's nonperforming assets and restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15 at the dates indicated. It is
the policy of Alaska Federal to cease accruing interest on loans 90 days or more
past due.
At December 31,
----------------------
1998 1997
---- ----
(Dollars in thousands)
Allowance at beginning of period .................. $ 751 $ 723
Provision for loan losses ......................... 60 25
Recoveries:
Real estate:
Construction:
Commercial nonresidential .................. 1 --
Consumer:
Other ......................................... 3 4
----- -----
Total recoveries ......................... 4 4
Charge-offs:
Commercial ....................................... 99 --
Consumer:
Automobile ..................................... 23 --
Other .......................................... 19 1
----- -----
Total charge-offs ........................ 141 1
----- -----
Net charge-offs ........................ 137 (3)
----- -----
Balance at end of period .......................... $ 674 $ 751
===== =====
Allowance for loan losses as a percentage of
total loans outstanding at the end of the period.. 0.94% 0.94%
Net charge-offs as a percentage of average
loans outstanding during the period............... 0.19 --
Allowance for loan losses as a percentage of
nonperforming loans at end of period.............. NA 514.38
As of December 31, 1998, there were no loans past due 90 days or more,
therefore, there were no loans on nonaccrual status. While there were loans
during the course of the fiscal year that fell into nonaccrual status, those
loans all were subsequently paid current, paid off, or were charged off.
Accordingly, there was no unrecognized interest during fiscal 1998 due to
nonaccrual loans.
60
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- -------------------------------------
As a % % of As a % % of
of Out- Loans in of Out- Loans in
standing Category standing Category
Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans
------ -------- ----- ------ -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Permanent:
One- to four-family............. $110 0.32% 47.90% $126 0.31% 51.45%
Multi-family.................... 12 0.50 3.48 11 0.50 2.87
Commercial...................... 107 1.01 4.94 151 1.10 17.30
Land............................ 26 1.00 3.62 11 1.00 1.38
Construction:
One- to four-family............. 5 0.50 1.34 8 0.50 1.90
Multi-family.................... 11 1.00 1.51 20 1.00 4.60
Commercial...................... 4 1.00 0.61 -- -- --
Commercial......................... 59 1.37 5.99 38 1.45 1.19
Consumer:
Home equity..................... 25 0.30 11.75 26 0.30 10.61
Boat............................ 51 1.01 7.07 56 1.00 6.98
Automobile...................... 21 2.11 1.37 12 1.24 1.21
Other........................... 4 1.44 0.42 4 1.05 0.51
Unallocated........................ 239 -- 288
----- ---- ------ ----- ---- ------
Total allowance for loan losses.. $ 674 0.93% 100.00% $ 751 0.94% 100.00%
===== ==== ====== ===== ==== ======
</TABLE>
The allocated portion of the allowance for loan losses has decreased
from $463,000 at December 31, 1997 to $435,000 at December 31, 1998. Changes in
loan quality, mix and volume contributed to this decrease.
Loans classified as substandard, doubtful or loss decreased $901,000
from December 31, 1997 to December 31, 1998. This change is attributable to a
$1.3 million commercial building loan which had been foreclosed by Alaska
Federal and subsequently sold with Alaska Federal providing the financing.
Alaska Federal classified this loan as substandard in 1997, and contributed
$26,000 to the allowance for loan losses at that date. Alaska Federal no longer
included this loan in the substandard category at December 31, 1998, as it had
been foreclosed. An increase in doubtful loans in 1998, related primarily to one
bankruptcy case, partially offset this decrease in the allowance for loan
losses. This loan contributed $10,000 to the allowance for loan losses at
December 31, 1998.
Special mention loans increased from $85,000 in 1997 to $476,000 in
1998. This increase was mainly in the one- to four-family residential mortgage
loan category, and the increase contributed $3,000 to the allowance for loan
losses.
A change in the mix and volume of loans in the pass category resulted
in a decrease of $18,000 in the allowance for loan losses. The largest factors
contributing to this change were a decrease of $6.6 million in one- to
four-family loans and $1.8 million in commercial nonresidential real estate
loans in the pass category. This resulted in a total $38,000 decrease in the
allowance for loan losses at December 31, 1998. This decrease was partially
offset by a $1.6 million increase in commercial business loans in the pass
category, which resulted in a $16,000 increase in the allowance for loan losses
at December 31, 1998.
61
<PAGE>
The 10% decrease in the loan portfolio, as well as management's
evaluation of current economic conditions and overall delinquency trends,
contributed to the decrease in the unallocated reserve of $49,000, from $288,000
at December 31, 1997, to $239,000 at December 31, 1998. There were no changes in
the methods of estimation or assumptions used in the development of the
allowance for loan losses which contributed to a significant change in the
allowance in 1997 or 1998.
Investment Activities
Federal law permits Alaska Federal to invest in various types of liquid
assets, including U.S. Treasury obligations, securities of various federal
agencies and of state and municipal governments, deposits at the Federal Home
Loan Bank of Seattle, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
Alaska Federal may also invest a portion of its assets in commercial paper and
corporate debt securities. Alaska Federal must also maintain an investment in
Federal Home Loan Bank stock as a condition of membership in the Federal Home
Loan Bank of Seattle.
Federal regulations require Alaska Federal to maintain a minimum amount
of liquid assets. At December 31, 1998, Alaska Federal's regulatory liquidity of
32.6% exceeded the 4% required by Office of Thrift Supervision regulations.
Investment securities provide liquidity for funding loan originations and enable
Alaska Federal to improve the match between the maturities and repricing of its
interest-rate sensitive assets and liabilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Regulation."
Alaska Federal's Asset Liability Management Committee determines
appropriate investments in accordance with the Board of Directors' approved
investment policies and procedures. Alaska Federal's policies generally limit
investments to U.S. Government and agency securities and mortgage-backed
securities issued and guaranteed by Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association and Government National Mortgage
Association. Alaska Federal's policies provide that investment purchases be
ratified at monthly Board of Directors meetings. Certain considerations, which
include the interest rate, yield, settlement date and maturity of the
investment, Alaska Federal's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments) affect the
making of investments. The effect that the proposed investment would have on
Alaska Federal's credit and interest rate risk, and risk-based capital is also
considered. From time to time, investment 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 the level of yield that will be
available in the future, as well as management's projections as to the
short-term demand for funds to be used in Alaska Federal's loan origination and
other activities.
62
<PAGE>
The following table sets forth the composition of Alaska Federal's
investment and mortgage-backed securities portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1998 1997
----------------------------------- ---------------------------------
Fair Amortized Percent of Fair Amortized Percent of
Value Cost Portfolio Value Cost Portfolio
----- ---- --------- ----- ---- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
Available for sale:
Mortgage-backed securities:
Federal National Mortgage
Association..................... $3,701 $3,801 20.4% $ 4,604 $4,696 23.9%
Federal Home Loan Mortgage
Corporation..................... 5,095 5,269 28.0 -- -- --
Government National
Mortgage Association............ 1,622 1,638 8.9 2,340 2,319 12.1
Collateralized mortgage
obligations..................... 761 767 4.2 1,192 1,214 6.2
U.S. agencies and corporations:
Callable debentures:
Federal Home Loan Mortgage
Corporation................... 2,997 3,000 16.5 3,994 4,000 20.7
Federal Home Loan Bank......... 3,001 3,000 16.5 -- -- --
Small Business Administration
pools.......................... 999 999 5.5 1,204 1,177 6.2
------- ------- ----- ------- ------- ----
Total available for sale.... 18,176 18,474 100.0% 13,334 13,406 69.1%
Held to Maturity:
Mortgage-backed securities:
Federal National Mortgage
Association................... -- -- -- 147 145 0.8
Federal Home Loan Mortgage
Corporation................... -- -- -- 5,806 6,051 30.1
------- ------- ----- -------- -------- -----
Total held to maturity..... -- -- -- 5,953 6,196 30.9
------------------------ ----- -------- -------- -----
Total.................. $18,176 $18,474 100.0% $19,287 $19,602 100.0%
======= ======= ===== ======= ======= =====
</TABLE>
At December 31, 1998, the portfolio of U.S. Government and agency
securities (available-for-sale) had an aggregate estimated fair value of $7.0
million and the portfolio of mortgage-backed securities (available-for-sale) had
an estimated fair value of $10.3 million.
At December 31, 1998, mortgage-backed securities consisted of Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association and
Government National Mortgage Association issues. At December 31, 1998, their
amortized cost was $10.7 million. The mortgage-backed securities portfolio had
coupon rates ranging from 6.0% to 9.0% and had a weighted average yield of 5.6%
during the year ended December 31, 1998. At December 31, 1998, Alaska Federal's
collateralized mortgage obligations did not qualify as high risk mortgage
securities as defined under Office of Thrift Supervision regulations.
Mortgage-backed securities, which also are known as mortgage
participation certificates or pass-through certificates, typically represent
interests in pools of single-family or multi-family mortgages in which payments
of both principal and interest on the securities are generally made monthly. The
principal and interest payments on these mortgages are passed from the mortgage
originators, through intermediaries, generally U.S. Government agencies and
government sponsored enterprises, that pool and resell the participation
interests in the form of securities, to investors
63
<PAGE>
such as Alaska Federal. These U.S. Government agencies and government sponsored
enterprises, which guarantee the payment of principal and interest to investors,
primarily include the Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association and the Government National Mortgage Association.
Mortgage-backed securities typically are issued with stated principal amounts,
and the securities are backed by pools of mortgages that have loans with
interest rates that fall within a specific range and have varying maturities.
Mortgage-backed securities generally yield less than the loans that underlie
these securities because of the cost of payment guarantees and credit
enhancements. In addition, mortgage-backed securities are usually more liquid
than individual mortgage loans and may be used to collateralize certain
liabilities and obligations of Alaska Federal. These types of securities also
permit Alaska Federal to optimize its regulatory capital because they have low
risk weighting.
The actual maturity of a mortgage-backed security may be less than its
stated maturity due to prepayments of the underlying mortgages. Prepayments that
are faster than anticipated may shorten the life of the security and may result
in a loss of any premiums paid and thereby reduce the net yield on these
securities. Although prepayments of underlying mortgages depend on many factors,
including the type of mortgages, the coupon rate, the age of mortgages, the
geographical location of the underlying real estate collateralizing the
mortgages and general levels of market interest rates, the difference between
the interest rates on the underlying mortgages and the prevailing mortgage
interest rates generally is the most significant determinant of the rate of
prepayments. During periods of declining mortgage interest rates, if the coupon
rate of the underlying mortgages exceeds the prevailing market interest rates
offered for mortgage loans, refinancing generally increases and accelerates the
prepayment of the underlying mortgages and the related security. Under these
circumstances, Alaska Federal may be subject to reinvestment risk because, to
the extent that Alaska Federal's mortgage-backed securities amortize or prepay
faster than anticipated, Alaska Federal may not be able to reinvest the proceeds
of these repayments and prepayments at a comparable rate.
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of Alaska
Federal's investment and mortgage-backed securities at December 31, 1998.
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------------------------------------------------------
Amount Due or Repricing within:
Over One to Over Five to
One Year or Less Five Years Ten Years Over Ten Years Totals
------------------ ------------------ ------------------- ------------------ -------------------
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Federal National
Mortgage Association....... $ 3,801 5.62% -- -- -- -- -- -- $ 3,801 5.62%
Federal Home Loan Mortgage
Corporation.............. 5,269 5.23 -- -- -- -- -- -- 5,269 5.23
Government National
Mortgage Association..... 881 6.29 -- -- -- -- 757 7.32 1,638 6.77
Collateralized mortgage
obligations................ -- -- -- -- -- -- 767 5.36 767 5.36
U.S. agencies and corporations:
Callable debentures:
Federal Home Loan
Mortgage Corporation... 3,000 5.20 -- -- -- -- -- -- 3,000 5.20
Federal Home Loan Bank.. 3,000 5.00 -- -- -- -- -- -- 3,000 5.00
Small Business
Administration pools.. 999 4.93 -- -- -- -- -- -- 999 4.93
------ --- --- --- ------
Total.......................... $16,950 $1,524 $18,474
====== ===== ======
</TABLE>
Alaska Federal's investment policy permits investment in "off balance
sheet" derivative instruments such as "forwards," "futures," "options" and
"swaps," however, Alaska Federal has not utilized such instruments.
64
<PAGE>
At December 31, 1998, only Alaska Federal's investment in the common
stock of the Federal Home Loan Bank of Seattle (carrying and market values of
$1.3 million) had an aggregate book value in excess of 10% of Alaska Federal's
total equity.
The following table sets forth certain information with respect to each
security (other than U.S. Government and agency securities and mutual funds
which invest exclusively in such securities) which had an aggregate book value
in excess of 10% of Alaska Federal's retained earnings at the dates indicated.
At December 31,
-------------------------------------------
1998 1997
-------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
Collateralized mortgage
obligations............... $767 $761 $1,214 $1,192
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of Alaska
Federal's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while general interest rates
and money market conditions significantly influence deposit inflows and outflows
and loan prepayments. Alaska Federal may use borrowings on a short-term basis to
compensate for reductions in the availability of funds from other sources.
Alaska Federal may also use borrowings on a longer-term basis for general
business purposes.
Deposit Accounts. Alaska Federal attracts deposits from within Alaska
Federal's primary market area through the offering of a broad selection of
deposits as set forth in the following table. In determining the terms of its
deposit accounts, Alaska Federal considers current market interest rates,
profitability to Alaska Federal, matching deposit and loan products and its
customer preferences and concerns. Alaska Federal's deposit mix and pricing is
generally reviewed bi-weekly. Alaska Federal does not accept brokered deposits
nor does it currently hold deposits from municipalities or other public
entities.
In the unlikely event Alaska Federal is liquidated after the
Conversion, depositors will be entitled to full payment of their deposit
accounts prior to any payment being made to Alaska Pacific Bancshares, as
stockholder of Alaska Federal. Substantially all of Alaska Federal's depositors
are residents of the State of Alaska.
65
<PAGE>
The following table sets forth information concerning Alaska Federal's
time deposits and other interest-bearing deposits at December 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
---- ---- -------- ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
--% NA Non-interest-bearing $ 5,046 $100 4.95%
2.15 NA Interest-bearing demand 25,570 100 25.08
3.74 NA Money market deposit accounts 15,872 3,500 15.57
3.00 NA Savings accounts 18,674 100 18.32
Certificates of Deposit
-----------------------
3.78 7-31 days Fixed-term, fixed-rate 194 500 0.19
4.04 32-59 days Fixed-term, fixed-rate 216 500 0.21
4.28 60-89 days Fixed-term, fixed-rate 305 500 0.30
4.54 90-179 days Fixed-term, fixed-rate 2,008 500 1.97
4.94 180-269 days Fixed-term, fixed-rate 4,106 500 4.03
4.97 270-364 days Fixed-term, fixed-rate 455 500 0.45
5.27 One year Fixed-term, fixed-rate 11,016 500 10.81
5.54 18 month Fixed-term, fixed-rate 447 500 0.44
5.63 Two year Fixed-term, fixed-rate 2,881 500 2.83
5.74 Three year Fixed-term, fixed-rate 98 500 0.10
5.88 Five year Fixed-term, fixed rate 1,678 500 1.65
5.34 Gold Minor Fixed term, fixed-rate 2,264 500 2.22
One year
7.85 Deferred Comp Fixed term, fixed rate 768 -- 0.75
One year
4.35 One year Fixed-term, variable rate 1,512 500 1.48
4.35 IRA 2-1/2 year Fixed-term, variable rate 3,415 100 3.35
5.23 Varies Jumbo certificates 5,420 -- 5.32
------- ------
TOTAL $101,945 100.00%
======= ======
</TABLE>
The following table indicates the amount of Alaska Federal's jumbo
certificates of deposit by time remaining until maturity as of December 31,
1998. Jumbo certificates of deposit are certificates in amounts of $100,000 or
more.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Three months or less................. $1,759
Over three through six months........ 1,030
Over six through twelve months....... 1,491
Over twelve months................... 1,140
-------
Total............................ $5,420
======
The following table sets forth the balances and changes in dollar
amounts of deposits in the various types of savings accounts offered by Alaska
Federal at the dates indicated.
66
<PAGE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1998 1997
------------------------------------- ---------------------
Percent Percent
of Increase of
Amount Total (Decrease) Amount Total
------ ----- ---------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-interest bearing demand accounts......$ 5,046 4.95% $ 1,154 $ 3,892 4.01%
Interest-bearing demand accounts.......... 25,570 25.08 1,631 23,939 24.69
Money market deposit accounts............. 15,872 15.57 2,574 13,298 13.72
Savings accounts.......................... 18,674 18.32 (17) 18,691 19.28
Variable-rate certificates which mature :
Within 1 year......................... 3,285 3.22 (696) 3,981 4.11
After 1 year, but within 2 years..... 1,314 1.29 (132) 1,446 1.49
After 2 years, but within 5 years..... 1,082 1.06 369 713 0.74
Fixed rate certificates which mature:
Within 1 year......................... 25,683 25.19 (581) 26,264 27.09
After 1 year, but within 2 years...... 2,836 2.78 1,406 1,430 1.47
After 2 years, but within 5 years..... 2,583 2.53 (722) 3,305 3.14
-------- ------ ------- -------- ------
Total........................ $101,945 100.00% $ 4,986 $ 96,959 100.00%
======== ====== ======= ======== ======
</TABLE>
Time Deposits by Rates
The following table sets forth the time deposits in Alaska Federal
classified by rates at the dates indicated.
At December 31,
-------------------------------
1998 1997
---- ----
(In thousands)
3.00 - 3.99%...................... $ 305 $ 7
4.00 - 4.99%...................... 12,147 3,813
5.00 - 5.99%...................... 18,583 22,953
6.00 - 6.99%...................... 4,658 9,224
7.00% and over.................... 1,090 1,142
------- -------
Total........................ $36,783 $37,139
======= =======
67
<PAGE>
Time Deposits by Maturities
The following table sets forth the amount and maturities of time
deposits at December 31, 1998.
Amount Due
------------------------------------------------------------
Over Over
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years Total
-------- ----- ----- ----- ------- -----
(Dollars in thousands)
3.00 - 3.99%....... $ 305 $ -- $ -- $ -- $ -- $ 305
4.00 - 4.99%....... 9,491 1,520 1,104 32 -- 12,147
5.00 - 5.99%....... 16,312 926 803 70 473 18,584
6.00 - 6.99%....... 2,862 1,703 10 64 18 4,657
7.00% and over..... -- -- 1,030 60 -- 1,090
------- ------ ------ ----- ----- -------
Total......... $28,970 $4,149 $2,947 $ 226 $ 491 $36,783
======= ====== ====== ===== ===== =======
Deposit Activities and Other Sources of Funds
The following table sets forth the deposit activities of Alaska Federal
for the periods indicated.
Year Ended
December 31,
----------------------
1998 1997
---- ----
(In thousands)
Beginning balance ............................... $ 96,959 $ 96,810
-------- --------
Net deposits (withdrawals)
before interest credited ...................... 1,791 (3,100)
Interest credited ............................... 3,195 3,249
-------- --------
Net increase (decrease) in deposits ............. 4,986 149
-------- --------
Ending balance .................................. $101,945 $ 96,959
======== ========
Borrowings. Deposits and loan repayments are the primary source of
funds for Alaska Federal's lending and investment activities. However, Alaska
Federal may rely upon advances from the Federal Home Loan Bank of Seattle to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The Federal Home Loan Bank of Seattle functions as a central
reserve bank providing credit for thrift institutions and many other member
financial institutions. The Federal Home Loan Bank of Seattle requires Alaska
Federal, as a member, to own capital stock in the Federal Home Loan Bank of
Seattle and authorizes it to apply for advances on the security of this stock
and certain of its mortgage loans and other assets (principally securities which
are obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness standards have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At December 31, 1998,
Alaska Federal had no advances outstanding from the Federal Home Loan Bank of
Seattle. At December 31, 1998, Alaska Federal had a borrowing capacity of $22.1
million with the Federal Home Loan Bank of Seattle.
68
<PAGE>
The following table sets forth certain information regarding short-term
borrowings by Alaska Federal at the end of and during the periods indicated:
Year Ended
December 31,
------------------
1998 1997
---- ----
(Dollars in thousands)
Maximum amount of borrowings outstanding
at any month end:
Federal Home Loan Bank advances ................. $9,000 $9,000
Approximate average short-term borrowings
outstanding with respect to:
Federal Home Loan Bank advances ................. 2,654 7,702
Approximate weighted average rate paid on:
Federal Home Loan Bank advances ................. 6.22% 6.06%
At December 31,
----------------------
1998 1997
---- ----
(Dollars in thousands)
Balance outstanding at end of period:
Federal Home Loan Bank advances .................. $ -- $ 9,000
Weighted average rate paid on:
Federal Home Loan Bank advances .................. --% 6.08%
Subsidiary Activities
As of December 31, 1998, Alaska Federal did not own any active
subsidiaries.
69
<PAGE>
Properties
The following table sets forth certain information regarding Alaska
Federal's offices at December 31, 1998.
Approximate
Location Year Opened Square Footage Deposits
- -------- ----------- -------------- --------
(In thousands)
Main Office:
Nugget Mall Office (1) 1984 16,000 $38,106
2094 Jordan Avenue, 2nd Floor
Juneau, Alaska 99801
Branch Offices:
301 N. Franklin Street 1960 6,268 29,474
Juneau, Alaska 99801
400 Mission Street (2) 1974 5,300 15,158
Ketchikan, Alaska 99901
2442 Tongass Avenue (3) 1997 1,550 1,425
Ketchikan, Alaska 99901
101 Lake Street (4) 1978 3,326 14,208
Sitka, Alaska 99835
219 Front Street (5) 1999 1,200 3,574
Wrangell, Alaska 99929
- -------------
(1) Lease expires in January 2009, with one 10-year option to renew.
(2) Alaska Federal is reviewing a listing agreement on the Mission Street
building in Ketchikan, with the intention of selling the facility and
vacating the current branch space in favor of a new, smaller office at a
more advantageous location in the downtown area.
(3) Lease expires in November 2002, with four three-year options to renew.
(4) Lease expires in May 2003, with option to renew for an unspecified term.
(5) Lease expires in January 2004.
Alaska Federal is studying the feasibility of opening a 1,000 square
foot branch in the Auke Bay area of Juneau. Pending the outcome of a demographic
review, a remodeling cost estimate, and meetings with the local branch of the
University of Alaska, which is adjacent to the proposed site, Alaska Federal has
paid the equivalent of two months rent to the building owner to take the
property off the market for 60 days, or through April 1999. Anticipated opening
of the branch would be mid-summer 1999.
Alaska Federal maintains three automated teller machines including one
at the Nugget Mall adjacent to the Juneau office, one at the Juneau airport and
one at the Sitka branch office. At December 31, 1998, the net book value of
Alaska Federal's properties and its fixtures, furniture and equipment was $3.3
million.
70
<PAGE>
Personnel
As of December 31, 1998, Alaska Federal had 57 full-time and nine
part-time employees, none of whom are represented by a collective bargaining
unit. Alaska Federal believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
Alaska Federal, mainly as a defendant, such as claims to enforce liens,
condemnation proceedings on properties in which Alaska Federal holds security
interests, claims involving the making and servicing of real property loans and
other issues incident to Alaska Federal's business. Alaska Federal is not a
party to any pending legal proceedings that it believes would have a material
adverse effect on the financial condition or operations of Alaska Federal.
MANAGEMENT OF ALASKA PACIFIC BANCSHARES
Alaska Pacific Bancshares' Board of Directors consists of seven persons
divided into three classes, each of which contain approximately one-third of the
Board. One class consisting of Avrum M. Gross and William J. Schmitz, has a term
of office expiring at the first annual meeting of stockholders after their
initial election by stockholders; a second class, consisting of Roger Grummett
and Deborah Marshall has a term of office expiring at the second annual meeting
of stockholders after their initial election by stockholders; and a third class,
consisting of Craig E. Dahl, Hugh N. Grant and D. Eric McDowell has a term of
office expiring at the third annual meeting of stockholders after their initial
election by stockholders.
Alaska Pacific Bancshares' executive officers are elected annually and
hold office until death, resignation or removal by the Board of Directors. The
executive officers of Alaska Pacific Bancshares are:
Name Position
---- --------
Craig E. Dahl President and Chief Executive Officer
Lisa Corrigan Bell Senior Vice President and Chief Operating Officer
Roger K. White Senior Vice President, Chief Financial Officer and Secretary
Since the formation of Alaska Pacific Bancshares, none of the executive
officers, directors or other personnel has received remuneration from Alaska
Pacific Bancshares. Information concerning the principal occupations, employment
and compensation of the directors and executive officers of Alaska Pacific
Bancshares during the past five years is set forth under "Management of Alaska
Federal -- Biographical Information."
71
<PAGE>
MANAGEMENT OF ALASKA FEDERAL
Alaska Federal's Board of Directors consists of seven persons divided
into three classes as nearly equal in number as possible. Each class serves for
three-year terms with one class elected annually. Alaska Federal's executive
officers are elected annually by the Board of Directors and serve at the Board's
discretion. The following table sets forth information with respect to the
directors and executive officers of Alaska Federal.
Directors
<TABLE>
<CAPTION>
Year Year of
Elected Expiration
Name Age(1) Position Director of Term
---- ------ -------- -------- -------
<S> <C> <C> <C>
Craig E. Dahl 49 President, Chief Executive 1996 2001
Officer and Director
Roger Grummett 56 Director 1987 2000
Hugh N. Grant 63 Director 1990 2001
Avrum M. Gross 62 Chairman of the Board 1982 1999
Deborah Marshall 46 Director 1992 2000
D. Eric McDowell 56 Director 1989 2001
William J. Schmitz 68 Director 1987 1999
Executive Officers Who Are Not Directors
----------------------------------------
Name Age(1) Position
- ---- ------ --------
Lisa Corrigan Bell 39 Senior Vice President and Chief Operating Officer
Roger K. White 48 Senior Vice President and Chief Financial Officer
</TABLE>
- -------------
(1) At December 31, 1998.
Biographical Information
The principal occupation(s) of each of the above individuals for the
past five years, as well as other information, is set forth below. All of the
individuals reside in Juneau, Alaska, unless otherwise indicated. No family
relationships exist between or among the individuals.
Craig E. Dahl is President and Chief Executive Officer of Alaska
Federal. He has been employed by Alaska Federal since 1992, and is the former
president of the B.M. Behrends Banks in Juneau, Alaska.
Roger Grummett is retired. Previously, he was a Partner at Shattuck &
Grummett, Inc., an insurance agency, for 32 years.
72
<PAGE>
Hugh N. Grant has been self-employed as a contractor and real estate
developer since 1961. He is also the owner of Western Auto.
Avrum M. Gross is an attorney and has been a Partner in the law firm of
Gross & Burke, Juneau, Alaska, since 1982.
Deborah Marshall is the owner of MacDonnah's Ltd. dba The Fiddlehead, a
restaurant and bakery established in 1978.
D. Eric McDowell is President and majority stockholder of McDowell,
Inc., an economic, market and business research and consulting group,
established in 1972.
William J. Schmitz is a Certified Public Accountant and has been a
Partner in the accounting firm of Schmitz & Buck, Juneau, Alaska, since 1961.
Lisa Corrigan Bell is Senior Vice President and Chief Operating Officer
of Alaska Federal, positions she has held since 1996. Ms. Bell served in various
positions of increasing responsibility at Alaska Federal since 1992.
Roger K. White is Senior Vice President and Chief Financial Officer of
Alaska Federal, positions he has held since 1995. Prior to that time, Mr. White
served as Vice President and Controller of Puget Sound Bancorp, Tacoma,
Washington .
Directors' Compensation
All directors, other than the Chairman of the Board, receive a monthly
fee of $775 per Board meeting attended and $100 per committee meeting attended.
The Chairman of the Board receives a monthly fee of $900 and $100 per committee
meeting attended. Total fees paid to directors during the year ended December
31, 1998 were $67,350. Following consummation of the conversion, directors' fees
will continue to be paid by Alaska Federal and, initially, no separate fees are
expected to be paid for service on Alaska Pacific Bancshares' Board of
Directors.
Meetings and Committees of the Board of Directors
Alaska Federal's Board of Directors meets monthly and has additional
special meetings as needed. During the year ended December 31, 1998, the Board
of Directors met 14 times. No director attended fewer than 75% in the aggregate
of the total number of Board meetings held and the total number of committee
meetings on which he served during the fiscal year ended December 31, 1998.
The Human Resources Committee (which also serves as a Compensation
Committee) consists of Messrs. McDowell (Chairman), Gross and Schmitz and Ms.
Marshall. This Committee meets on an as-needed basis and is responsible for
reviewing Alaska Federal's personnel to determine if and when additional
personnel are needed. This Committee met four times during fiscal 1998.
The full Board of Directors appoints a Nominating Committee consisting
of members of Alaska Federal for the annual selection of management's nominees
for election as directors. The Nominating Committee met once during the year
ended December 31, 1998.
The Board of Directors also has a standing Audit Committee, Loan and
Investment Committee, and a Strategic Planning and Marketing Committee.
73
<PAGE>
Executive Compensation
Summary Compensation Table. The following information is furnished for
Messrs. Dahl and White. No other executive officer of Alaska Federal received
salary and bonus in excess of $100,000 during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation(1)
---------------------------------------------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation(3)
- -------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Craig E. Dahl 1998 $110,000 $22,000 $ -- $6,887
President and Chief
Executive Officer
Roger K. White 1998 90,000 14,000 -- 6,748
Chief Financial Officer
</TABLE>
- ------------
(1) Compensation information for fiscal years ended December 31, 1997 and 1996
has been omitted as Alaska Federal was neither a public company nor a
subsidiary thereof at such time.
(2) Consists of directors' fees. The aggregate amount of perquisites and other
personal benefits was less than 10% of the total annual salary and bonus
reported.
(3) Consists of 401(k) contributions, automobile allowance and racquet club
dues.
Employment Agreement for Executive Officer. In connection with the
conversion, Alaska Federal intends to enter into a three-year employment
agreement with Craig E. Dahl. Under the employment agreement, the initial salary
level for Mr. Dahl will be $110,000, which amount will be paid by Alaska Federal
and may be increased at the discretion of the Board of Directors or an
authorized committee of the Board. On each anniversary of the initial date of
the employment agreement, the term of the agreement may be extended for an
additional year at the discretion of the Board. The agreement may be terminated
by Alaska Federal at any time, by the executive if he is assigned duties
inconsistent with his initial position, duties, responsibilities and status, or
upon the occurrence of certain events specified by federal regulations. In the
event that the executive's employment is terminated without cause or upon the
executive's voluntary termination following the occurrence of an event described
in the preceding sentence, Alaska Federal would be required to honor the terms
of the agreement through the expiration of the current term, including payment
of then current cash compensation and continuation of employee benefits.
The employment agreement also provides for a severance payment and
other benefits if the executive is involuntarily terminated because of a change
in control of Alaska Pacific Bancshares and Alaska Federal. The agreement
authorizes severance payments on a similar basis if the executive voluntarily
terminates his employment following a change in control because he is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The agreement defines the term
"change in control" as having occurred when, among other things, a person other
than Alaska Pacific Bancshares purchases shares of Alaska Pacific Bancshares'
common stock under a tender or exchange offer for the shares; any person, as
such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, is or becomes the beneficial owner, directly or indirectly, of
securities of Alaska Pacific Bancshares representing 25% or more of the combined
voting power of Alaska Pacific Bancshares' then outstanding securities; the
membership of the Board of Directors changes as the result of a contested
election; or shareholders of Alaska Pacific Bancshares approve a merger,
consolidation, sale or disposition of all or substantially all of Alaska Pacific
Bancshares' assets, or a plan of partial or complete liquidation.
The maximum value of the severance benefits under the employment
agreement is 2.99 times the executive's average annual compensation during the
five-year period prior to the effective date of the change in control. The
employment agreement provides that the value of the maximum benefit may be
distributed, at the executive's election,
74
<PAGE>
in the form of a lump sum cash payment equal to 2.99 times the executive's base
amount, or a combination of a cash payment and continued coverage under Alaska
Pacific Bancshares' and Alaska Federal's health, life and disability programs
for a 36-month period following the change in control, the total value of which
does not exceed 2.99 times the executive's base amount. Assuming that a change
in control had occurred at December 31, 1998 and that Mr. Dahl elected to
receive a lump sum cash payment, he would be entitled to a payment of
approximately $343,605. Section 280G of the Internal Revenue Code provides that
severance payments that equal or exceed three times the individual's base amount
are deemed to be "excess parachute payments" if they are conditioned upon a
change in control. Individuals receiving parachute payments in excess of 2.99
times of their base amount are subject to a 20% excise tax on the amount of such
excess payments. If excess parachute payments are made, Alaska Pacific
Bancshares and Alaska Federal would not be entitled to deduct the amount of such
excess payments. The employment agreement provides that severance and other
payments that are subject to a change in control will be reduced as much as
necessary to ensure that no amounts payable to the executive will be considered
excess parachute payments.
The employment agreement restricts Mr. Dahl's right to compete against
Alaska Federal for a period of one year from the date of termination of the
agreement if Mr. Dahl voluntarily terminates employment except in the event of a
change in control.
Severance Agreements for Executive Officers. In connection with the
conversion, Alaska Federal intends to enter into three-year severance agreements
with Lisa Corrigan Bell and Roger K. White. On each anniversary of the initial
date of the severance agreements, the term of each agreement may be extended for
an additional year at the discretion of the Board. The agreement may be
terminated by Alaska Federal at any time, by the executive if he is assigned
duties inconsistent with his initial position, duties, responsibilities and
status, or upon the occurrence of certain events specified by federal
regulations.
The severance agreements also provide for a severance payment and other
benefits if the executive is involuntarily terminated because of a change in
control of Alaska Pacific Bancshares and Alaska Federal. The agreement
authorizes severance payments on a similar basis where an executive voluntarily
terminates his employment following a change in control because he is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The agreement defines the term
"change in control" as having occurred when, among other things, a person other
than Alaska Pacific Bancshares purchases shares of Alaska Pacific Bancshares'
common stock under a tender or exchange offer for the shares; any person, as
such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, is or becomes the beneficial owner, directly or indirectly, of
securities of Alaska Pacific Bancshares representing 25% or more of the combined
voting power of Alaska Pacific Bancshares' then outstanding securities; the
membership of the Board of Directors changes as the result of a contested
election; or shareholders of Alaska Pacific Bancshares approve a merger,
consolidation, sale or disposition of all or substantially all of Alaska Pacific
Bancshares' assets, or a plan of partial or complete liquidation.
The maximum value of the severance benefits under the severance
agreements is 2.99 times the executive's average annual compensation during the
five-year period prior to the effective date of the change in control. The
severance agreements provide that the value of the maximum benefit may be
distributed, at the executive's election, in the form of a lump sum cash payment
equal to 2.99 times the executive's base amount, or a combination of a cash
payment and continued coverage under Alaska Pacific Bancshares' and Alaska
Federal's health, life and disability programs for a 36-month period following
the change in control, the total value of which does not exceed 2.99 times the
executive's base amount. Assuming that a change in control had occurred at
December 31, 1998 and that each executive elected to receive a lump sum cash
payment, Lisa Corrigan Bell and Roger K. White would be entitled to payments of
approximately $220,970 and $310,368, respectively. Section 280G of the Internal
Revenue Code provides that severance payments that equal or exceed three times
the individual's base amount are deemed to be "excess parachute payments" if
they are conditioned upon a change in control. Individuals
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receiving parachute payments in excess of 2.99 times their base amount are
subject to a 20% excise tax on the amount of such excess payments. If excess
parachute payments are made, Alaska Pacific Bancshares and Alaska Federal would
not be entitled to deduct the amount of such excess payments. The severance
agreements provide that severance and other payments that are conditioned on a
change in control will be reduced as much as necessary to ensure that no amounts
payable to the executive will be considered excess parachute payments.
Severance Agreements for Senior Officers. In connection with the
conversion, Alaska Federal intends to enter into one-year severance agreements
with five senior officers of Alaska Federal. This group of senior officers is
made up of officers other than Messrs. Dahl and White and Ms. Bell, whose
employment or severance agreements have previously been described. On each
anniversary of the initial date of the severance agreements, the term of each
agreement may be extended for an additional year at the discretion of the Board
of Directors. It is anticipated that the severance agreements will have an
initial term of 12 months.
The severance agreements will provide for severance payments and
continuation of other benefits if the executive's employment is involuntarily
terminated because of a change in control of Alaska Pacific Bancshares and
Alaska Federal. Severance payments and benefits also will be provided on a
similar basis where an executive voluntarily terminates his employment following
a change in control because he is assigned duties inconsistent with his
position, duties, responsibilities and status immediately prior to such change
in control. The agreement defines the term "change in control" as having
occurred when, among other things, a person other than Alaska Pacific Bancshares
purchases shares of Alaska Pacific Bancshares' common stock under a tender or
exchange offer for such shares; any person, as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act, is or becomes the beneficial
owner, directly or indirectly, of securities of Alaska Pacific Bancshares
representing 25% or more of the combined voting power of Alaska Pacific
Bancshares' then outstanding securities: the membership of the Board of
Directors changes as the result of a contested election; or shareholders of
Alaska Pacific Bancshares approve a merger, consolidation, sale or disposition
of all or substantially all of Alaska Pacific Bancshares' assets, or a plan of
partial or complete liquidation.
The maximum value of the severance benefits under the severance
agreements is 1.0 times the executive's average annual compensation during the
five-year period prior to the effective date of the change in control. In
addition, the executive will receive 12 months of medical benefits following the
effective date of the change in control. Assuming that a change in control had
occurred at December 31, 1998, and excluding any other benefits due under the
severance agreements, the aggregate amount payable to the five senior officers
would have been approximately $272,229.
Employee Severance Compensation Plan. Alaska Federal's Board of
Directors intends to, upon conversion, establish the Alaska Pacific Bank
Employee Severance Compensation Plan which will provide eligible employees with
severance pay benefits in the event of a change in control of Alaska Federal or
Alaska Pacific Bancshares following the conversion. Management personnel with
employment agreements or change in control agreements are not eligible to
participate in the severance plan. Generally, employees are eligible to
participate in the severance plan if they have completed at least one year of
service with Alaska Federal. The severance plan vests in each participant a
contractual right to the benefits the participant is entitled to thereunder.
Under the severance plan, in the event of a change in control of Alaska Federal,
or Alaska Pacific Bancshares, eligible employees who are terminated from or
terminate their employment within one year, for reasons specified under the
severance plan, will be entitled to receive a severance payment. If the
participant, whose employment has terminated, has completed at least one year of
service, the participant will be entitled to a cash severance payment equal to
3.846% of annual compensation for each year of service up to a maximum of 100%
of annual compensation. Such payments may tend to discourage takeover attempts
by increasing costs to be incurred by Alaska Federal in the event of a takeover.
In the event the provisions of the severance plan are triggered, the total
amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $130,000. However, it is management's
belief that substantially all of Alaska
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Federal's employees would be retained in their current positions in the event of
a change in control, and that any amount payable under the severance plan would
be considerably less than the total amount that could be possibly be paid under
the severance plan.
Benefits
General. Alaska Federal currently provides health, life and disability
insurance benefits for all full-time employees, after the employees pay certain
deductibles.
401(k) Savings Plan. Alaska Federal maintains the Alaska Federal
Savings Bank 401(k) Savings Plan for the benefit of eligible employees of Alaska
Federal. The plan is intended to be a tax-qualified plan under Sections 401(a)
and 401(k) of the Internal Revenue Code. Employees of Alaska Federal who have
completed three months of service and who have attained age 18 are eligible to
participate in the plan. Participants may contribute from 1% to 17% of their
annual compensation to the plan through a salary reduction election. Alaska
Federal matches participant contributions equal to 75% of the participant's
contribution. However, Alaska Federal makes no matching contribution with
respect to a participant's contribution in excess of $2,667. In addition to
Alaska Federal's matching contributions, Alaska Federal may contribute a
discretionary amount to the plan in any plan year which is allocated to
individual participants in the proportion that their annual compensation bears
to the total compensation of all participants during the plan year. To be
eligible to receive a discretionary contribution from Alaska Federal, the
participant must complete 1,000 hours of service during the plan year and remain
employed by Alaska Federal on the last day of the plan year. Participants are at
all times 100% vested in salary reduction contributions. With respect to
matching and discretionary contributions made by Alaska Federal, participants
vest in such contributions at the rate of 20% per year beginning with the
completion of their first year of service with full vesting occurring after five
years of service. For the year ended December 31, 1998, Alaska Federal incurred
total contribution-related expenses of $47,000 in connection with the plan.
Generally, plan participants direct the investment of plan assets. In
connection with the conversion, the investment options available to participants
will be expanded to include the opportunity to direct the investment of their
plan account balance to purchase shares of the common stock. A participant in
the plan who elects to purchase common stock through the plan will receive the
same subscription priority and be subject to the same individual purchase
limitations as if the participant had elected to make such purchase using other
funds. See "Alaska Federal's Conversion -- Limitations on Purchases of Shares."
Performance Incentive Plan. Alaska Federal implemented the Alaska
Federal Savings Bank Performance Incentive Plan for the benefit of its officers
in 1999. The purpose of the plan is to reward officers based upon both the
overall performance of Alaska Federal and the achievements of the individual.
Employees designated as officers of Alaska Federal as of July 1, the beginning
of the current fiscal year, are eligible to participate in the plan. Officers
hired, or employees promoted to officer status during the first quarter of the
fiscal year will be eligible to participate at 50% of the eligible distribution.
Other officers promoted or hired during the remaining three quarters of the year
will not be eligible for a distribution under the plan. Alaska Federal did not
achieve performance targets during fiscal 1998, so no bonus pool was established
or paid out under the plan.
Employee Stock Ownership Plan. The Board of Directors has authorized
the adoption by Alaska Pacific Bancshares of an employee stock ownership plan
for employees of Alaska Pacific Bancshares and Alaska Federal to become
effective upon the completion of the conversion. The purpose of the employee
stock ownership plan is d to satisfy the requirements for an employee stock
ownership plan under the Internal Revenue Code and the Employee Retirement
Income Security Act of 1974, as amended. Employees of Alaska Pacific Bancshares
and Alaska Federal who have been credited with at least 1,000 hours of service
during a designated 12-month period and who have attained age 18 will be
eligible to participate in the employee stock ownership plan.
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The employee stock ownership plan intends to purchase 8% of the shares
issued in the conversion. This would range between 47,600 shares, assuming
595,000 shares are issued in the conversion, and 64,400 shares, assuming 805,000
shares are issued in the conversion. It is anticipated that the employee stock
ownership plan will borrow funds from Alaska Pacific Bancshares. Such loan will
equal 100% of the aggregate purchase price of the common stock. The employee
stock ownership plan will repay the loan principally from Alaska Pacific
Bancshares' contributions to the employee stock ownership plan and dividends
payable on common stock held by the employee stock ownership plan over the
anticipated 10-year term of the loan. The interest rate for the employee stock
ownership plan loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the conversion. See "Pro Forma Data." To
the extent that the employee stock ownership plan is unable to acquire 8% of the
common stock sold in the offering, it is anticipated that it may acquire
additional shares following the conversion through open market purchases.
In any plan year, Alaska Pacific Bancshares' may make additional
discretionary contributions to the employee stock ownership plan for the benefit
of plan participants in either cash or shares of common stock, which may be
acquired through the purchase of outstanding shares in the market or from
individual stockholders or which constitute authorized but unissued shares or
shares held in treasury by Alaska Pacific Bancshares. Several factors will
affect the timing, amount, and manner of such discretionary contributions,
including applicable regulatory policies, the requirements of applicable laws
and regulations, and market conditions.
Alaska Pacific Bancshares will hold shares purchased by the employee
stock ownership plan with the proceeds of the loan will be held in a suspense
account and release them on a pro rata basis as the loan is repaid.
Discretionary contributions to the employee stock ownership plan and shares
released from the suspense account will be allocated among participants on the
basis of each participant's proportional share of total compensation.
Forfeitures will be reallocated among the remaining plan participants.
Participants will vest in their accrued benefits under the employee
stock ownership plan at the rate of 20% per year, beginning upon the completion
of three years of service. A participant is fully vested at retirement, in the
event of death or disability or upon termination of the employee stock ownership
plan. Benefits are distributable upon a participant's retirement, early
retirement, death, disability, or termination of employment. Alaska Pacific
Bancshares' contributions to the employee stock ownership plan are not fixed, so
benefits payable under the employee stock ownership plan cannot be estimated.
It is anticipated the Board of Directors will select an institutional
trustee to serve as trustee of the employee stock ownership plan. The trustee
must vote all allocated shares held in the employee stock ownership plan in
accordance with the instructions of plan participants and unallocated shares
must be voted in the same ratio on any matter as those shares for which
instructions are given. The trustee will vote, in his discretion, allocated
shares for which no instructions are received .
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan will meet the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
of the Internal Revenue Service and the Department of Labor issued thereunder.
Alaska Pacific Bancshares intends to request a determination letter from the
Internal Revenue Service regarding the tax-qualified status of the employee
stock ownership plan. Alaska Pacific Bancshares expects, but cannot guarantee,
that a favorable determination letter will be received by the employee stock
ownership plan.
1999 Stock Option Plan. The Board of Directors of Alaska Pacific
Bancshares intends to adopt the stock option plan and to submit the stock option
plan to the stockholders for approval at a meeting held no earlier than six
months following the conversion. Under current Office of Thrift Supervision
regulations, the approval of a majority
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vote of Alaska Pacific Bancshares' outstanding shares is required for the
implementation of the stock option plan within one year after the conversion.
The stock option plan will comply with all applicable regulatory requirements.
However, the stock option plan will not be approved or endorsed by the Office of
Thrift Supervision.
Alaska Federal will design the stock option plan to attract and retain
qualified management personnel and nonemployee directors, to provide such
officers, key employees and nonemployee directors with a proprietary interest in
Alaska Pacific Bancshares as an incentive to contribute to the success of Alaska
Pacific Bancshares and Alaska Federal, and to reward officers and key employees
for outstanding performance. The stock option plan will provide for the grant of
incentive stock options intended to comply with the requirements of the Internal
Revenue Code and for nonqualified stock options. Upon receipt of stockholder
approval of the stock option plan, Alaska Federal may grant stock options to key
employees of Alaska Pacific Bancshares and its subsidiaries, including Alaska
Federal. The stock option plan will continue in effect for a period of ten years
from the date the stock option plan is approved by stockholders, unless
terminated earlier.
A number of authorized shares of common stock equal to 10% of the
number of shares of common stock issued in connection with the conversion will
be reserved for future issuance under the stock option plan. This would range
from 59,500 shares, assuming 595,000 shares are issued in the conversion, to
80,500, assuming 805,000 shares are issued in the conversion. Shares acquired
upon exercise of options will be authorized but unissued shares or treasury
shares. If a stock split, reverse stock split, stock dividend, or similar event
occurs, the number of shares of common stock under the stock option plan, the
number of shares to which any award relates and the exercise price per share
under any option may be adjusted by the compensation committee to reflect the
increase or decrease in the total number of shares of common stock outstanding.
The compensation committee of the Board of Directors of Alaska Pacific
Bancshares will administer and interpret the stock option plan. According to
applicable Office of Thrift Supervision regulations, the compensation committee
will determine which nonemployee directors, officers and key employees will be
granted options, whether, in the case of officers and employees the number of
shares represented by each option, and the exercisability of options. All
options granted to nonemployee directors will be nonqualified stock options. The
per share exercise price of all options will equal at least 100% of the fair
market value of a share of common stock on the date the option is granted.
Under current Office of Thrift Supervision regulations, if the stock
option plan is implemented within one year of the conversion, no officer or
employee could receive an award of options covering in excess of 25%, no
nonemployee director could receive in excess of 5%, and nonemployee directors,
as a group, could not receive in excess of 30% of the number of shares reserved
for issuance under the stock option plan.
Alaska Federal anticipates that it will grantall options under the
stock option plan subject to a vesting schedule so that the options become
exercisable over a specified period following the date of grant. Under Office of
Thrift Supervision regulations, if the stock option plan is implemented within
the first year following the conversion the minimum vesting period will be five
years. All unvested options will be immediately exercisable upon the recipient's
death or disability.
Each incentive stock option that is awarded to an officer or key
employee will remain exercisable at any time on or after the date it vests
through the earlier to occur of the tenth anniversary of the date of grant or
three months after the date on which the optionee terminates employment, or one
year if the optionee's termination results from death or disability, unless the
compensation committee extends the time period. Each nonqualified stock option
that is awarded to an officer, key employee or nonemployee director will remain
exercisable through the earlier to occur of the tenth anniversary of the date of
grant or one year or two years following the grantee's death, disability or
termination of service. All incentive stock options are nontransferable except
by will or the laws of descent or distribution.
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Under current provisions of the Internal Revenue Code, the federal tax
treatment of incentive stock options and non-qualified stock options is
different. With respect to incentive stock options, an optionee who satisfies
certain holding period requirements will not recognize compensation income at
the time the option is granted or at the time the option is exercised. If the
holding period requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares of common stock
received upon the exercise of a stock option. If the holding period requirements
are not satisfied, the difference between the fair market value of the common
stock on the date of exercise and the option exercise price, if any, will be
taxable to the optionee at ordinary income tax rates. A federal income tax
deduction generally will not be available to Alaska Pacific Bancshares as a
result of the grant or exercise of an incentive stock option, unless the
optionee fails to satisfy the holding period requirements. For non-qualified
stock options, the grant generally is not a taxable event for the optionee and
no tax deduction will be available to Alaska Pacific Bancshares. However, upon
exercise, the difference between the fair market value of the common stock on
the date of exercise and the option exercise price generally will be treated as
compensation to the optionee upon exercise, and Alaska Pacific Bancshares will
be entitled to a compensation expense deduction in the amount of income
recognized by the optionee.
Although no specific award determinations have been made at this time,
Alaska Pacific Bancshares and Alaska Federal anticipate that if stockholder
approval is obtained it would provide awards to its directors, officers and
employees to the extent and under terms and conditions permitted by applicable
regulations.
Management Recognition and Development Plan. The Board of Directors of
Alaska Pacific Bancshares intends to adopt the Alaska Pacific Bancshares'
Management Recognition and Development Plan, a restricted stock plan, for
officers, employees, and nonemployee directors of Alaska Pacific Bancshares and
Alaska Federal and to submit it to the stockholders for approval at a meeting
held no earlier than six months following the conversion. The plan will enable
Alaska Pacific Bancshares and Alaska Federal to provide participants with a
proprietary interest in Alaska Pacific Bancshares as an incentive to contribute
to the success of Alaska Pacific Bancshares and Alaska Federal. Persons who are
awarded stock under the plan will not have to pay for the stock. Furthermore,
some or all of the persons who receive awards under the management development
and recognition plan will also be granted options under the stock option plan.
The plan will comply with all applicable regulatory requirements. The Office of
Thrift Supervision will not approve or endorse the plan. Under current Office of
Thrift Supervision regulations, a majority of Alaska Pacific Bancshares'
outstanding shares must vote to approve the implementation of the plan within
one year after the conversion.
The plan intends to acquire a number of shares of Alaska Pacific
Bancshares' common stock equal to 4% of the common stock issued in the
conversion. This would range from 23,800 shares, assuming 595,000 shares are
issued in the conversion, to 32,200 shares, assuming 805,000 shares are issued
in the conversion. The plan will acquire the shares on the open market, if
available, with funds contributed by Alaska Pacific Bancshares or Alaska Federal
to a trust which Alaska Pacific Bancshares may establish in conjunction with the
plan or from authorized but unissued shares or treasury shares of Alaska Pacific
Bancshares.
The compensation committee of the Board of Directors of Alaska Pacific
Bancshares will administer the management development and recognition plan , the
members of which will also serve as trustees for the plan, if a trust is formed.
The trustees will be responsible for the investment of all funds contributed by
Alaska Pacific Bancshares or Alaska Federal to the trust. The Board of Directors
of Alaska Pacific Bancshares may terminate the plan at any time and, upon
termination, all unallocated shares of common stock will revert to Alaska
Pacific Bancshares.
Shares of common stock granted under the plan will be in the form of
restricted stock which will become unrestricted ratably over a specified vesting
period following the date of grant. During the period of restriction, Alaska
Pacific Bancshares or the plan will hold all shares in escrow. Under Office of
Thrift Supervision regulations, if the management development and recognition
plan is implemented within the first year
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following the conversion, the minimum vesting period will be five years. All
unvested awards will vest upon the recipient's death or disability.
A recipient of a plan award in the form of restricted stock generally
will not recognize income upon an award of shares of common stock, and Alaska
Pacific Bancshares will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon termination of the restrictions,, the
recipient will recognize ordinary income in an amount equal to the fair market
value of the common stock at the time and Alaska Pacific Bancshares will be
entitled to a deduction in the same amount after satisfying federal income tax
reporting requirements. However, the recipient may elect to recognize ordinary
income in the year the restricted stock is granted in an amount equal to the
fair market value of the shares at that time, determined without regard to the
restrictions. In that event, Alaska Pacific Bancshares will be entitled to a
deduction in that year and in the same amount. Any gain or loss recognized by
the recipient upon subsequent disposition of the stock will be either a capital
gain or capital loss.
Although no specific award determinations have been made at this time,
Alaska Pacific Bancshares and Alaska Federal anticipate that if stockholder
approval is obtained it would provide awards to its directors, officers and
employees to the extent and under terms and conditions permitted by applicable
regulations. Under current Office of Thrift Supervision regulations, if the plan
is implemented within one year after the conversion, no officer or employees
could receive an award covering in excess of 25%, no nonemployee director could
receive in excess of 5% and nonemployee directors, as a group, could not receive
in excess of 30% of the number of shares reserved for issuance under the plan.
Transactions with Alaska Federal
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
employees and does not give preference to any insider over any other employee,
and must not involve more than the normal risk of repayment or present other
unfavorable features. Alaska Federal has adopted a policy to this effect. In
addition, loans made to a director or executive officer in an amount that, when
aggregated with the amount of all other loans to such director or executive
officer and his or her related interests are in excess of the greater of
$25,000, or 5% of Alaska Federal's capital and surplus, up to a maximum of
$500,000, must be approved in advance by a majority of the disinterested members
of the Board of Directors. See "Regulation -- Federal Regulation of Savings
Associations -- Transactions with Affiliates." The aggregate amount of loans by
Alaska Federal to its executive officers and directors and their affiliates was
$967,000 at December 31, 1998, or approximately 7.0% of pro forma stockholders'
equity assuming that 805,000 shares are issued in the conversion. These loans
were performing according to their original terms at December 31, 1998.
REGULATION
General
Alaska Federal is subject to extensive regulation, examination and
supervision by the Office of Thrift Supervision as its chartering agency, and
the Federal Deposit Insurance Corporation, as the insurer of its deposits. The
activities of federal savings institutions are governed by the Home Owners' Loan
Act, as amended, and, in certain respects, the Federal Deposit Insurance Act,
and the regulations issued by the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in which federal
savings associations may engage. Lending activities and other investments must
comply with various statutory and regulatory capital requirements. In addition,
Alaska Federal's relationship with its depositors and borrowers is also
regulated to a great extent, especially in such matters as the ownership of
deposit accounts and the form and content of Alaska Federal's mortgage
documents. Alaska Federal must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial
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condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation to review Alaska
Federal's compliance with various regulatory requirements. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or Congress, could have a material adverse
impact on Alaska Pacific Bancshares, Alaska Federal and their operations. Alaska
Pacific Bancshares, as a savings and loan holding company, will also be required
to file certain reports with, and otherwise comply with the rules and
regulations of, the Office of Thrift Supervision.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The Office of Thrift Supervision is an
office in the Department of the Treasury subject to the general oversight of the
Secretary of the Treasury. The Office of Thrift Supervision generally possesses
the supervisory and regulatory duties and responsibilities formerly vested in
the Federal Home Loan Bank Board. Among other functions, the Office of Thrift
Supervision issues and enforces regulations affecting federally insured savings
associations and regularly examines these institutions.
Federal Home Loan Bank System. The Federal Home Loan Bank System,
consisting of 12 Federal Home Loan Banks, is under the jurisdiction of the
Federal Housing Finance Board. The designated duties of the Federal Housing
Finance Board are to: supervise the Federal Home Loan Banks; ensure that the
Federal Home Loan Banks carry out their housing finance mission; ensure that the
Federal Home Loan Banks remain adequately capitalized and able to raise funds in
the capital markets; and ensure that the Federal Home Loan Banks operate in a
safe and sound manner.
Alaska Federal, as a member of the Federal Home Loan Bank of Seattle,
is required to acquire and hold shares of capital stock in the Federal Home Loan
Bank of Seattle in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20 of its
advances (borrowings) from the Federal Home Loan Bank of Seattle. Alaska Federal
is in compliance with this requirement with an investment in Federal Home Loan
Bank of Seattle stock of $1.3 million at December 31, 1998.
Among other benefits, the Federal Home Loan Bank provides a central
credit facility primarily for member institutions. Proceeds derived from the
sale of consolidated obligations of the Federal Home Loan Bank System is the
primary source of funding. It makes advances to members in accordance with
policies and procedures established by the Federal Housing Finance Board and the
Board of Directors of the Federal Home Loan Bank of Seattle.
Federal Deposit Insurance Corporation. The Federal Deposit Insurance
Corporation is an independent federal agency established originally to insure
the deposits, up to prescribed statutory limits, of federally insured banks and
to preserve the safety and soundness of the banking industry. The Federal
Deposit Insurance Corporation maintains two separate insurance funds: the Bank
Insurance Fund and the Savings Association Insurance Fund. Alaska Federal's
deposit accounts are insured by the Federal Deposit Insurance Corporation under
the Savings Association Insurance Fund to the maximum extent permitted by law.
As insurer of Alaska Federal's deposits, the Federal Deposit Insurance
Corporation has examination, supervisory and enforcement authority over all
savings associations.
Under applicable regulations, the Federal Deposit Insurance Corporation
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. The capital categories are:
well-capitalized, adequately capitalized, or undercapitalized. The Federal
Deposit Insurance Corporation also places an institution in one of three
supervisory
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subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
Federal Deposit Insurance Corporation by the institution's primary federal
regulator and information that the Federal Deposit Insurance Corporation
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned with
the most well-capitalized, healthy institutions receiving the lowest rates.
On September 30, 1996, the Deposit Insurance Funds Act was enacted,
which, among other things, imposed a special one-time assessment on Savings
Association Insurance Fund member institutions, including Alaska Federal, to
recapitalize the Savings Association Insurance Fund. As a result of the Deposit
Insurance Funds Act and the special one-time assessment, the Federal Deposit
Insurance Corporation reduced the assessment schedule for Savings Association
Insurance Fund members, effective January 1, 1997, to a range of 0% to 0.27%,
with most institutions, including Alaska Federal, paying 0%. This assessment
schedule is the same as that for the Bank Insurance Fund, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, Savings
Association Insurance Fund members are charged an assessment of 0.065% of
Savings Association Insurance Fund-assessable deposits for the purpose of paying
interest on the obligations issued by the Financing Corporation in the 1980s to
help fund the thrift industry cleanup. Bank Insurance Fund-assessable deposits
are charged an assessment to help pay interest on the Financing Corporation
bonds at a rate of approximately .013%. Full pro rata sharing of the Financing
Corporation payments between Bank Insurance Fund and Savings Association
Insurance Fund members will occur until the earlier of December 31, 1999,or the
date the Bank Insurance Fund and Savings Association Insurance Fund are merged.
The Federal Deposit Insurance Corporation is authorized to raise the
assessment rates in certain circumstances. The Federal Deposit Insurance
Corporation has exercised this authority several times in the past and may raise
insurance premiums in the future. If such action is taken by the Federal Deposit
Insurance Corporation, it could have an adverse effect on the earnings of Alaska
Federal.
Under the Federal Deposit Insurance Act, the Federal Deposit Insurance
Corporation may terminate insurance of deposits 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 Federal Deposit Insurance
Corporation or the Office of Thrift Supervision. Management of Alaska Federal
does not know of any practice, condition or violation that might lead to
termination of deposit insurance.
Liquidity Requirements. Under Office of Thrift Supervision regulations,
each savings institution is required to maintain an average daily balance of
liquid assets, which consist of cash, certain time deposits and savings
accounts, bankers' acceptances, and specified U.S. Government, state or federal
agency obligations and certain other investments, equal to a monthly average of
not less than 4.0% of its net withdrawable accounts plus short-term borrowings.
Office of Thrift Supervision regulations also require each savings institution
to maintain an average daily balance of short-term liquid assets at 1.0% of the
total of its net withdrawable savings accounts and borrowings payable in one
year or less. The Office of Thrift Supervision may impose monetary penalties for
failure to meet liquidity requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Prompt Corrective Action. Under Section 38 of the Federal Deposit
Insurance Act, as added by the Federal Deposit Insurance Corporation Improvement
Act of 1991, each federal banking agency is required to implement a system of
prompt corrective action for institutions that it regulates. The federal banking
agencies have promulgated substantially similar regulations to implement this
system of prompt corrective action. Under the regulations, an institution shall
be deemed to be "well capitalized" if it has a total risk-based capital ratio of
10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
leverage ratio of 5.0% or more and is not subject to specified requirements to
meet and maintain a specific capital level for any capital measure; "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0% or more and a leverage ratio of
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4.0% or more, or 3.0% under certain circumstances, and does not meet the
definition of "well capitalized;" "undercapitalized" if it has a total
risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital
ratio that is less than 4.0% or a leverage ratio that is less than 4.0%, or 3.0%
under certain circumstances; "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a leverage ratio that is less than 3.0%; and
"critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
Section 38 of the Federal Deposit Insurance Act and the implementing
regulations also provide that a federal banking agency may, after notice and an
opportunity for a hearing, reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the next lower category if the institution is in an unsafe or unsound
condition or has received in its most recent examination, and has not corrected,
a less than satisfactory rating for asset quality, management, earnings or
liquidity. The Office of Thrift Supervision may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the provisions of
Section 38 of the Federal Deposit Insurance Act, which sets forth various
mandatory and discretionary restrictions on its operations.
At December 31, 1998, Alaska Federal was categorized as "well
capitalized" under the prompt corrective action regulations of the Office of
Thrift Supervision.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions to use as guidelines relating to: internal controls, information
systems and internal audit systems; loan documentation; credit underwriting;
interest rate risk exposure; asset growth; asset quality; earnings; and
compensation, fees and benefits. The guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the Office of Thrift Supervision determines that Alaska Federal
fails to meet any standard prescribed by the guidelines, the agency may require
Alaska Federal to submit to the agency an acceptable plan to achieve compliance
with the standard. Management is aware of no conditions relating to these safety
and soundness standards which would require submission of a plan of compliance.
Qualified Thrift Lender Test. All savings associations, including
Alaska Federal, are required to meet a qualified thrift lender test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio asset, as defined by
regulation, in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code. Under either test, such assets primarily consist
of residential housing related loans and investments. At December 31, 1998,
Alaska Federal met the test and its qualified thrift lender percentage was
69.1%.
Any savings association that fails to meet the qualified thrift lender
test must convert to a national bank charter, unless it requalifies as a
qualified thrift lender and thereafter remains a qualified thrift lender. If an
association does not requalify and converts to a national bank charter, it must
remain Savings Association Insurance Fund-insured until the Federal Deposit
Insurance Corporation permits it to transfer to the Bank Insurance Fund. If such
an association has not yet requalified or converted to a national bnak, its new
investments and activities are limited to those permissible for both a savings
association and a national bank, and it is limited to national bank branching
rights in its home state. In addition, Alaska Federal is immediately ineligible
to receive any new Federal Home Loan Bank borrowings and is subject to national
bank limits for payment of dividends. If such association has not requalified or
converted to a
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national bank within three years after the failure, it must divest of all
investments and cease all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding Federal Home Loan Bank
borrowings, which may result in prepayment penalties. If any association that
fails the qualified thrift lender test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies.
Capital Requirements. Under Office of Thrift Supervision regulations a
savings association must satisfy three minimum capital requirements: core
capital, tangible capital and risk-based capital. Savings associations must meet
all of the standards in order to comply with the capital requirements. Alaska
Pacific Bancshares is not subject to any minimum capital requirements.
Office of Thrift Supervision capital regulations establish a 3% core
capital or leverage ratio, which is defined as the ratio of core capital to
adjusted total assets. Core capital is defined to include common stockholders'
equity, noncumulative perpetual preferred stock and any related surplus, and
minority interests in equity accounts of consolidated subsidiaries, less any
intangible assets, except for certain qualifying intangible assets; certain
mortgage servicing rights; and equity and debt investments in subsidiaries that
are not "includable subsidiaries," which is defined as subsidiaries engaged
solely in activities not impermissible for a national bank, engaged in
activities impermissible for a national bank but only as an agent for its
customers, or engaged solely in mortgage-banking activities. In calculating
adjusted total assets, adjustments are made to total assets to give effect to
the exclusion of certain assets from capital and to account appropriately for
the investments in and assets of both includable and nonincludable subsidiaries.
Institutions that fail to meet the core capital requirement would be required to
file with the Office of Thrift Supervision a capital plan that details the steps
they will take to reach compliance. In addition, the Office of Thrift
Supervision' prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4%, or 3% for institutions
receiving the highest CAMEL examination rating, will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "-- Federal
Regulation of Alaska Federal -- Prompt Corrective Action."
As required by federal law, the Office of Thrift Supervision has
proposed a rule revising its minimum core capital requirement to be no less
stringent than that imposed on national banks. The Office of Thrift Supervision
has proposed that it will permit only those savings associations rated a
composite one, the highest rating, under the CAMEL rating system for savings
associations to operate at or near the regulatory minimum leverage ratio of 3%.
It will require all other savings associations to maintain a minimum leverage
ratio of 4% to 5%. The Office of Thrift Supervision will assess each individual
savings association through the supervisory process on a case-by-case basis to
determine the applicable requirement. No assurance can be given as to the final
form of any such regulation, the date of its effectiveness or the requirement
applicable to Alaska Federal.
Savings associations also must maintain "tangible capital" of not less
than 1.5% of Alaska Federal's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal
to at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes permanent capital instruments such as cumulative perpetual preferred
stock, perpetual subordinated debt and mandatory convertible subordinated debt,
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, and general
valuation loan and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans,
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including multi-family mortgage loans, are assigned a 50% risk weight. Consumer,
commercial, home equity and residential construction loans are assigned a 100%
risk weight, as are nonqualifying residential mortgage loans and that portion of
land loans and nonresidential construction loans that do not exceed an 80%
loan-to-value ratio. The book value of assets in each category is multiplied by
the weighing factor, which ranges from 0% to 100%, assigned to that category.
These products are then totaled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk-weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included as risk- weighted
assets.
The Office of Thrift Supervision has incorporated an interest rate risk
component into its regulatory capital rule. Under the rule, savings associations
with "above normal" interest rate risk exposure would be subject to a deduction
from total capital for purposes of calculating their risk-based capital
requirements. A savings association's interest rate risk is measured by the
decline in the net portfolio value of its assets, which is the difference
between incoming and outgoing discounted cash flows from assets, liabilities and
off-balance sheet contracts, that would result from a hypothetical 200 basis
point increase or decrease in market interest rates divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the Office of Thrift Supervision. A savings association
whose measured interest rate risk exposure exceeds 2% must deduct an interest
rate risk component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. The
rule also provides that the Director of the Office of Thrift Supervision may
waive or defer an association's interest rate risk component on a case-by-case
basis. Under certain circumstances, a savings association may request an
adjustment to its interest rate risk component if it believes that the Office of
Thrift Supervision-calculated interest rate risk component overstates its
interest rate risk exposure. In addition, certain "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to calculate their interest rate risk component in lieu of the Office of Thrift
Supervision-calculated amount. The Office of Thrift Supervision has postponed
the date that the component will first be deducted from an institution's total
capital until savings associations become familiar with the process for
requesting an adjustment to its interest rate risk component.
See "Historical and Pro Forma Capital Compliance" for a table that sets
forth in terms of dollars and percentages the Office of Thrift Supervision
tangible, core and risk-based capital requirements, Alaska Federal's historical
amounts and percentages at December 31, 1998, and pro forma amounts and
percentages based upon the assumptions stated therein.
Limitations on Capital Distributions. Office of Thrift Supervision
regulations impose various restrictions on savings institutions with respect to
their ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account.
Generally, savings institutions, such as Alaska Federal, that before
and after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the institution's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of their net income for the most recent four quarter
period. However, an institution deemed to be in need of more than normal
supervision by the Office of Thrift Supervision may have its dividend authority
restricted by the Office of Thrift Supervision. Alaska Federal may pay dividends
in accordance with this general authority.
Savings institutions proposing to make any capital distribution need
only submit written notice to the Office of Thrift Supervision 30 days prior to
such distribution. Savings institutions that do not, or would not meet their
current minimum capital requirements following a proposed capital distribution,
however, must obtain Office of Thrift
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Supervision approval prior to making such distribution. The Office of Thrift
Supervision may object to the distribution during that 30-day period based on
safety and soundness concerns. See "-- Capital Requirements."
The Office of Thrift Supervision has proposed regulations that would
revise the current capital distribution restrictions. Under the proposal, a
savings institution may make a capital distribution without notice to the Office
of Thrift Supervision, unless it is a subsidiary of a holding company, provided
that it has a regulatory rating in the two top categories, is not of supervisory
concern, and would remain adequately capitalized, as defined in the Office of
Thrift Supervision prompt corrective action regulations, following the proposed
distribution. Savings institutions that would remain adequately capitalized
following the proposed distribution but do not meet the other noted requirements
must notify the Office of Thrift Supervision 30 days prior to declaring a
capital distribution. The Office of Thrift Supervision stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings institution may not make a capital
distribution without prior approval of the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation if it is undercapitalized before, or as a
result of, such a distribution. As under the current rule, the Office of Thrift
Supervision may object to a capital distribution if it would constitute an
unsafe or unsound practice. No assurance may be given as to whether or in what
form the regulations may be adopted.
At December 31, 1998, Alaska Federal met the criteria to be designated
a Tier 1 association and, consequently, could at its option, after prior notice
to, and no objection made by, the Office of Thrift Supervision, distribute up to
100% of its net income during the calendar year plus 50% of its surplus capital
ratio at the beginning of the calendar year less any distributions previously
paid during the year.
Loans to One Borrower. Under the Home Owners' Loan Act, savings
institutions are generally subject to the national bank limit on loans to one
borrower. Generally, this limit is 15% of Alaska Federal's unimpaired capital
and surplus, plus an additional 10% of unimpaired capital and surplus, if such
loan is secured by readily-marketable collateral, which is defined to include
certain financial instruments and bullion. The Office of Thrift Supervision by
regulation has amended the loans to one borrower rule to permit savings
associations meeting certain requirements, including capital requirements, to
extend loans to one borrower in additional amounts under circumstances limited
essentially to loans to develop or complete residential housing units with the
prior consent of the Office of Thrift Supervision. At December 31, 1998, Alaska
Federal's limit on loans to one borrower was $1.2 million. At December 31, 1998,
Alaska Federal's largest aggregate amount of loans to one borrower was $1.5
million, all of which were performing according to their original terms.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the Federal Deposit Insurance Corporation and the Office
of Thrift Supervision 30 days in advance and provide the information each agency
may, by regulation, require. Savings associations also must conduct the
activities of subsidiaries in accordance with existing regulations and orders.
The Office of Thrift Supervision may determine that the continuation by
a savings association of its ownership control of, or its relationship to, the
subsidiary constitutes a serious risk to the safety, soundness or stability of
the association or is inconsistent with sound banking practices or with the
purposes of the Federal Deposit Insurance Act. Based upon that determination,
the Federal Deposit Insurance Corporation or the Office of Thrift Supervision
has the authority to order the savings association to divest itself of control
of the subsidiary. The Federal Deposit Insurance Corporation also may determine
by regulation or order that any specific activity poses a serious threat to the
Savings Association Insurance Fund. If so, it may require that no Savings
Association Insurance Fund member engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries
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and any other company under common control are considered affiliates of the
subsidiary savings association under the Home Owners' Loan Act. Generally,
Sections 23A and 23B: limit the extent to which the insured association or its
subsidiaries may engage in certain covered transactions with an affiliate to an
amount equal to 10% of such institution's capital and surplus and place an
aggregate limit on all such transactions with affiliates to an amount equal to
20% of such capital and surplus, and require that all such transactions be on
terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, the purchase of assets, the issuance of a guaranty
and similar types of transactions.
Three additional rules apply to savings associations: a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; a savings association may not purchase or invest in securities issued
by an affiliate, other than securities of a subsidiary; and the Office of Thrift
Supervision may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be
granted only by the Federal Reserve Board, as is currently the case with respect
to all Federal Deposit Insurance Corporation-insured banks. Alaska Federal has
not been significantly affected by the rules regarding transactions with
affiliates.
Alaska Federal's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals, unless the loan or extension of credit is
made under a benefit program generally available to all employees and does not
give preference to any insider over any other employee, and not involve more
than the normal risk of repayment. Regulation O also places individual and
aggregate limits on the amount of loans Alaska Federal may make to such persons
based, in part, on Alaska Federal's capital position, and requires certain board
approval procedures to be followed. The Office of Thrift Supervision
regulations, with certain minor variances, apply Regulation O to savings
institutions.
Community Reinvestment Act. Under the Community Reinvestment Act, a
federal statute, all federally-insured financial institutions have a continuing
and affirmative obligation consistent with safe and sound operations to help
meet all the credit needs of its delineated community. The Community
Reinvestment Act does not establish specific lending requirements or programs
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to meet all the credit needs of
its delineated community. The Community Reinvestment Act requires the federal
banking agencies, in connection with regulatory examinations, to assess an
institution's record of meeting the credit needs of its delineated community and
to take such record into account in evaluating certain regulatory applications
filed by an institution. The Community Reinvestment Act requires public
disclosure of an institution's Community Reinvestment Act rating. Alaska Federal
received a "outstanding" rating as a result of its latest evaluation.
Regulatory and Criminal Enforcement Provisions. Under the Federal
Deposit Insurance Act, the Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $27,500 per day, or $1.1 million per
day in especially egregious cases. Under the Federal Deposit Insurance Act, the
Federal Deposit Insurance Corporation has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
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Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The Home Owners' Loan Act and Office of
Thrift Supervision regulations issued thereunder generally prohibit a savings
and loan holding company, without prior Office of Thrift Supervision approval,
from acquiring more than 5% of the voting stock of any other savings association
or savings and loan holding company or controlling the assets thereof. They also
prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the Office of Thrift Supervision.
Holding Company Activities. As a unitary savings and loan holding
company, Alaska Pacific Bancshares generally is not subject to activity
restrictions. If Alaska Pacific Bancshares acquires control of another savings
association as a separate subsidiary other than in a supervisory acquisition, it
would become a multiple savings and loan holding company. There generally are
more restrictions on the activities of a multiple savings and loan holding
company than on those of a unitary savings and loan holding company. The Home
Owners' Loan Act provides that, among other things, no multiple savings and loan
holding company or subsidiary thereof which is not an insured association shall
commence or continue for more than two years after becoming a multiple savings
and loan association holding company or subsidiary thereof, any business
activity other than: furnishing or performing management services for a
subsidiary insured institution, conducting an insurance agency or escrow
business, holding, managing, or liquidating assets owned by or acquired from a
subsidiary insured institution, holding or managing properties used or occupied
by a subsidiary insured institution, acting as trustee under deeds of trust,
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or those activities
authorized by the Federal Reserve as permissible for bank holding companies,
unless the Office of Thrift Supervision by regulation, prohibits or limits such
activities for savings and loan holding companies. Those activities authorized
by the Federal Reserve for bank holding companies, which are described above,
also must be approved by the Office of Thrift Supervision prior to being engaged
in by a multiple holding company.
Qualified Thrift Lender Test. The Home Owners' Loan Act requires any
savings and loan holding company that controls a savings association that fails
the qualified thrift lender test, as explained under "-- Federal Regulation of
Savings Associations -- Qualified Thrift Lender Test," must, within one year
after the date on which the association ceases to be a qualified thrift lender,
register as and be deemed a bank holding company subject to all applicable laws
and regulations.
Federal Securities Laws
Alaska Pacific Bancshares has filed a Registration Statement with the
Securities and Exchange Commission under the Securities Act of 1933 for the
registration of the common stock to be issued in the conversion. Upon completion
of the conversion, the common stock will be registered with the Securities and
Exchange Commission under the Securities Exchange Act and, under Office of
Thrift Supervision regulations, generally may not be deregistered for at least
three years thereafter. Alaska Pacific Bancshares will then be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the Securities Exchange Act.
The registration under the Securities Act of the common stock to be
issued in the conversion does not cover the resale of such shares. Shares of the
common stock purchased by persons who are not affiliates of Alaska Pacific
Bancshares may be resold without registration. Shares purchased by an affiliate
of Alaska Pacific Bancshares may only be sold in compliance with the resale
restrictions of Rule 144 under the Securities Act. For purposes of Rule 144,
affiliates are considered to be executive officers and directors of Alaska
Pacific Bancshares, since they are presumed to have "the power to direct or
cause the direction of the management and policies of [a company], whether
through the ownership of voting securities or otherwise."
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TAXATION
Federal Taxation
The following discussion summarizes certain federal income tax
provisions applicable to Alaska Federal as a thrift institution and discusses
all material terms of the federal tax law as it applies to Alaska Federal. This
summary is based on the Internal Revenue Code, Internal Revenue Code
regulations, rulings and decisions currently in effect, all of which are subject
to change. For a discussion of the Federal income tax consequences of the plan
of conversion to Alaska Federal, the account holders and the holders of common
stock, see "Alaska Federal's Conversion -- Effects of Conversion to Stock Form
on Depositors and Borrowers of Alaska Federal -- Tax Effects." For further
information regarding federal and state taxes, see Note 11 of the Notes to the
Financial Statements included at the back of this prospectus.
Net Operating Loss Carryforwards. Alaska Federal has a federal tax
operating loss carryforwards aggregating approximately $3.9 million at December
31, 1998 which ultimately expire in 2012. In addition, as of December 31, 1998
Alaska Federal had a financial statement allowance for loan losses of
approximately $674,000 which had been previously recognized for financial
statement purposes. The majority of the allowance for loan losses is anticipated
to give rise to deductible tax losses in future years. Losses which Alaska
Federal has not yet recognized for tax purposes that may be utilized to offset
taxable income in the current or a past or future year are sometimes referred to
as "Built-in Losses".
An ownership change can result from either an owner shift or an equity
structure shift. An owner shift is nearly any transfer of an equity interest. An
equity structure shift is any tax-free reorganization except for reorganizations
defined under Internal Revenue Code Section 368(a)(1)F, a mere change in
corporate identity, form or place of organization, certain reorganizations
defined under Section 368 (a)(1)(D), a transfer by a corporation of all or part
of its assets to another corporation in which the transfer by a corporation of
all or part of its assets to another corporation in which the transferor, or one
or more of its shareholders, is in immediate control of the transferee, or
certain reorganizations defined under Section 368(a)(1)(G), a transfer by a
corporation of all or a part of its assets to another corporation in a title 11
bankruptcy or similar case. Although an owner shift or an equity structure shift
is necessary for an ownership change, not every shift constitutes an ownership
change to which Section 382 applies.
If an "ownership change", discussed below, occurs with respect to
Alaska Pacific Bancshares and its subsidiaries, either in connection with this
transaction or in the future years as a result of transactions unrelated to this
transaction, Alaska Federal would become subject to the limitation on their
ability to use their net operating loss carryforwards and other tax benefit
items to offset taxable income. Such limitation, were it to become applicable,
would also limit the recognition for tax purposes of Built-in Losses, if the
excess of any Built-in Losses of Alaska Federal over any gains which they have
not yet recognized for tax purposes (the "Net Unrealized Built-in Losses" of
Alaska Federal) exceeds the lesser of:
(i) 15 percent of the fair market value of the assets of Alaska
Federal immediately before the ownership change, or
(ii) $10 million.
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The determination whether an ownership change has occurred is made by:
(i) determining in the case of any 5% stockholder, the number of
percentage points by which such 5% stockholder's interest has
increased at the end of the three-year testing period relative to
such stockholder's lowest percentage ownership at time during
such testing period, and
(ii) aggregating such percentage point increases for all 5%
stockholders during the applicable testing period.
For purposes of the preceding sentence, any direct or indirect holder,
taking into account certain attribution rules, of 5% or more of Alaska Pacific
Bancshares stock is a 5% stockholder, and all holders of less than 5%
collectively are generally treated as a single 5% stockholder. An ownership
change will occur at the end of any three-year testing period if the aggregate
percentage point increases for all 5% stockholders for such testing period
exceeds 50 percentage points. For these purposes, Alaska Federal expects to
treat the depositors as stockholders. Potential purchasers are cautioned,
however, that there can be no assurance that the IRS will agree with such
treatment, or that such treatment would be sustained if challenged.
Under certain "segregation rules," stockholders who individually
acquire and own less than 5% of a corporation's stock pursuant to an offering of
such stock are treated as a single 5% stockholder (the "New Public Group") which
is separate and apart from the group of less than 5% stockholders that existed
prior to the offering (the "Pre-Issuance Public Group", in this instance the
"Depositor Group"). In general, a member of the New Public Group is presumed not
to have owned any of the corporation's stock prior to the offering except to the
extent that the corporation has actual knowledge that such person is also a
member of the Pre-Issuance Public Group. Thus, unless a substantial portion of
the stock of Alaska Pacific Bancshares is purchased by the Depositor Group,
under the general operation of the segregation rules there is a substantial risk
that an ownership change will occur. However, regulations of the IRS now create
a presumption that Alaska Federal's pre-conversion owners (i.e. its depositors)
will have purchased a significant percentage of the stock now offered. The
regulations provide that if a corporation with a net built-in loss or net
operating loss carryforward issues stock for cash, an amount of the stock issued
equal to the lesser of:
(i) one-half of the percentage ownership of the Pre-Issuance Public
Group, or
(ii) the total amount of stock issued in the transaction less the
amount of issued stock owned by 5% stockholders (other than a
direct public group) immediately after the issuance, will not be
subject to the segregation rules.
Under the regulations, this cash issuance exception is not applicable
to shares acquired upon the exercise of an option that was not issued solely for
cash or was not distributed with respect to stock. Alaska Pacific Bancshares
believes that stock acquired pursuant to the exercise of subscription rights
will qualify as stock issued for cash under the regulations, but there can be no
assurance that such position would be sustained if challenged by the Internal
Revenue Service. If the cash issuance exception to the segregation rules is
available to Alaska Pacific Bancshares, it will reduce the likelihood that the
proposed transaction would result in an ownership change of Alaska Pacific
Bancshares and its subsidiaries. Potential investors should be aware, however,
that even if Alaska Pacific Bancshares is able to apply the cash issuance
exception to prevent this transaction from causing an ownership change under
Section 382, increases in percentage ownership by 5% stockholders subsequent to
this transaction could nevertheless give rise to an ownership change.
If an ownership change occurs with respect to Alaska Pacific Bancshares
and its subsidiaries, an annual limitation (the "Section 382 limitation") would
be imposed pursuant to Section 382 of the Internal Revenue Code on the rate at
which its net operating loss carryforward (and any Built-In Losses) could be
deducted against taxable income. Although the computation of the Section 382
limitation in the case of mutual-to-stock bank conversions is not entirely
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clear, it would probably be computed by multiplying the estimated value of
Alaska Pacific Bancshares immediately prior to the ownership change by the
then-applicable long-term tax exempt rate published by the Internal Revenue
Service for this purpose (the long-term tax exempt rate was 4.8% for the month
of December 1998, per Internal Revenue Service tables). The limitation on the
use of Built-In Losses would apply with respect to Built-In Losses recognized in
any taxable year any portion of which falls within the 5-year period beginning
on the date of the ownership change. Accordingly, if the Section 382 Limitations
were to apply to Alaska Pacific Bancshares and its subsidiaries to the limit the
rate of utilization of such losses, it is uncertain whether Alaska Pacific
Bancshares and its subsidiaries would be able to utilize their net operating
loss carryforwards and Built-In-Losses.
As noted above, only if the proposed transaction does not result in an
ownership change, transactions in shares of Stock subsequent to consummation of
the conversion, which generally are beyond the control of Alaska Pacific
Bancshares, could result in an unanticipated increase in the ownership of the
stock of Alaska Pacific Bancshares by one or more 5% stockholders. If a
sufficient number of shares of stock of Alaska Pacific Bancshares were sold or
purchased by an applicable stockholder group in the current or future years, an
ownership change could occur and the Section 382 limitation might then be
applicable to Alaska Pacific Bancshares and its subsidiaries. In such
circumstances, the determination of whether Alaska Pacific Bancshares and its
subsidiaries have Net Unrealized Build-in Losses in excess of the threshold
amounts would be made as of the date of such a future ownership change.
In order to reduce the likelihood that an ownership change will occur
in the proposed transaction the plan of conversion provides that the maximum
number of shares which may be purchased by any person in the conversion,
excluding the employee stock ownership plan, is $125,000.
Options to purchase the stock of Alaska Pacific Bancshares, including
the subscription rights, must also be considered to determine if an ownership
change occurs. Under Section 382(1)(3)(A) of the Internal Revenue Code, except
as provided in regulations an option to acquire stock is treated as exercised if
such exercise results in an ownership change. However, under the regulations an
option to acquire stock is not treated as exercised unless its issuance or
transfer satisfies an ownership test, a control test or an income test. Whether
an option satisfies one or more of these tests depends on all relevant facts and
circumstances, but each of these tests requires that a principal purpose of the
issuance, transfer or structuring of the option is to avoid or ameliorate the
impact of an ownership change under Section 382. Assuming that a principal
purpose of the issuance of the subscription rights is not to avoid or ameliorate
the impact of an ownership change under Section 382, the subscription rights
should not be treated as exercised for purposes of testing whether an ownership
change has occurred under Section 382. In addition, the regulations provide
certain safe harbors pursuant to which certain options are not treated as
exercised pursuant to the ownership, control or income tests. One such safe
harbor applies to compensatory options. Accordingly, the options to be issued
under the proposed stock option plan of Alaska Pacific Bancshares described
below under "Management of Alaska Federal -- Benefits -- 1999 Stock Option Plan"
should not be treated as exercised even if such exercise would result in an
ownership change.
Section 383 of the Internal Revenue Code provides rules that restrict a
corporation's ability to utilize tax credit carryforwards and net operating loss
carryforwards after an ownership change. These rules are similar to and work in
conjunction with the Section 382 limitation described above. As of December 31,
1998, Alaska Federal had $18,000 of tax credit carryforwards which would become
subject to the limitations of Section 383 if an ownership change occurred.
Bad Debt Reserve. Historically, savings institutions such as Alaska
Federal which met certain definitional tests primarily related to their assets
and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. Alaska Federal's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on Alaska Federal's actual loss experience, or a percentage equal
to 8% of Alaska Federal's taxable income, computed with certain modifications
and reduced by the
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amount of any permitted additions to the non-qualifying reserve. Due to Alaska
Federal's loss experience, Alaska Federal generally recognized a bad debt
deduction equal to 8% of taxable income.
Distributions. To the extent that Alaska Federal makes "nondividend
distributions" to Alaska Pacific Bancshares that are considered as made: (i)
from the reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; or (ii) from the supplemental reserve for losses on loans
("Excess Distributions"), then an amount based on the amount distributed will be
included in Alaska Federal's taxable income. Nondividend distributions include
distributions in excess of Alaska Federal's current and accumulated earnings and
profits, distributions in redemption of stock, and distributions in partial or
complete liquidation. Dividends paid out of Alaska Federal's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from Alaska Federal's bad
debt reserve. However, any dividends to Alaska Pacific Bancshares that would
reduce amounts appropriated to Alaska Federal's bad debt reserve and deducted
for federal income tax purposes would create a tax liability for Alaska Federal.
The amount of additional taxable income attributable to an Excess Distribution
is an amount that, when reduced by the tax attributable to the income, is equal
to the amount of the distribution. See "Regulation -- Federal Regulation of
Savings Associations -- Limitations on Capital Distributions" and "Alaska
Pacific Bancshares' Dividend Policy -- Current Restrictions" for limits on the
payment of dividends by Alaska Federal. Alaska Federal does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a
tax on alternative minimum taxable income at a rate of 20%. Only 90% of
alternative minimum taxable income can be offset by net operating loss
carryovers. Alternative minimum taxable income is increased by an amount equal
to 75% of the amount by which Alaska Federal's adjusted current earnings exceeds
its alternative minimum taxable income (determined without regard to this
preference and prior to reduction for net operating losses).
Dividends-Received Deduction and Other Matters. Alaska Pacific
Bancshares may exclude from its income 100% of dividends received from Alaska
Federal as a member of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which Alaska Pacific Bancshares and Alaska
Federal will not file a consolidated tax return, except that if Alaska Pacific
Bancshares or Alaska Federal owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
Audits. There have not been any Internal Revenue Service audits of
Alaska Federal's federal income tax returns during the past five years.
State Taxation
The Alaska state income tax applicable to Alaska Federal is based on a
graduated tax rate schedule, with a maximum rate of 9.4% on income over $90,000.
There have not been any audits of Alaska Federal's state tax returns during the
past five years.
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ALASKA FEDERAL'S CONVERSION
The Office of Thrift Supervision has approved the plan of conversion
with the condition that it is approved by the members of Alaska Federal entitled
to vote and to the satisfaction of certain other conditions imposed by the
Office of Thrift Supervision in its approval. Office of Thrift Supervision
approval is not a recommendation or endorsement of the plan of conversion.
General
On February 19, 1999, the Board of Directors of Alaska Federal
unanimously adopted, and on April 16, 1999 subsequently amended, the plan of
conversion, under which Alaska Federal will be converted from a federally
chartered mutual savings bank to a federally chartered stock savings bank to be
held as a wholly-owned subsidiary of Alaska Pacific Bancshares, a newly formed
Alaska corporation. The following discussion of the plan of conversion contains
all material terms about the conversion. Nevertheless, readers are urged to read
carefully the plan of conversion, which is attached as Exhibit A to Alaska
Federal's Proxy Statement and is available to members of Alaska Federal upon
request. The plan of conversion is also filed as an exhibit to the Registration
Statement. See "Where You Can Find More Information." A special meeting of
Alaska Federal's members entitled to vote on the conversion has been called for
that purpose to be held on _________ __, 1999.
As part of the conversion, Alaska Federal will adopt a Federal stock
charter and bylaws to authorize the issuance of capital stock by Alaska Federal.
As part of the conversion, Alaska Federal will issue all of its newly issued
common stock, 1,000 shares of common stock, to Alaska Pacific Bancshares in
exchange for 50% of the net proceeds from the sale of common stock by Alaska
Pacific Bancshares.
The plan of conversion provides generally that:
o Alaska Federal will convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank;
o the common stock will be offered by Alaska Pacific Bancshares in
the subscription offering to persons having subscription rights
and in a direct community offering to certain members of the
general public, with preference given to natural persons residing
in the communities of Juneau, Ketchikan, Sitka and Wrangell, and
then to natural persons residing in counties contiguous to the
local community;
o if necessary, shares of common stock not subscribed for in the
subscription and direct community offering will be offered to
certain members of the general public in a syndicated community
offering through a syndicate of registered broker-dealers under
selected dealers agreements; and
o Alaska Pacific Bancshares will purchase all of the capital stock
of Alaska Federal to be issued in connection with the conversion.
The conversion will be completed only upon the sale of at least
$5,950,000 of common stock to be issued pursuant to the plan of
conversion.
As part of the conversion, Alaska Pacific Bancshares is making a
subscription offering of its common stock to holders of subscription rights in
the following order of priority:
(i) depositors of Alaska Federal with $50.00 or more on deposit as of
December 31, 1997;
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(ii) Alaska Pacific Bancshares' employee stock ownership plan;
(iii) depositors of Alaska Federal with $50.00 or more on deposit as
of March 31, 1999; and
(iv) depositors of Alaska Federal as of April 30, 1999 and borrowers
of Alaska Federal with loans outstanding as of October 20, 1993,
which continue to be outstanding as of April 30, 1999.
Shares of common stock not subscribed for in the subscription and
direct community offering may be offered for sale in the syndicated community
offering. Regulations require that the syndicated community offering be
completed within 45 days after completion of the fully extended subscription
offering unless extended by Alaska Federal or Alaska Pacific Bancshares with the
approval of the regulatory authorities. If the syndicated community offering is
determined not to be feasible, the Board of Directors of Alaska Federal will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock. The plan of
conversion provides that the conversion must be completed within 24 months after
the date of the approval of the plan of conversion by the members of Alaska
Federal.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Alaska Federal.
The completion of the offerings, however, depends on market conditions
and other factors beyond Alaska Federal's control. No assurance can be given as
to the length of time after approval of the plan of conversion at the special
meeting that will be required to complete the direct community or syndicated
community offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of Alaska Pacific Bancshares and Alaska Federal, as converted, together
with corresponding changes in the net proceeds realized by Alaska Pacific
Bancshares from the sale of the common stock. In the event the conversion is
terminated, Alaska Federal would be required to charge all conversion expenses
against current income.
Orders for shares of common stock will not be filled until at least
595,000 shares of common stock have been subscribed for or sold and the Office
of Thrift Supervision approves the final valuation and the conversion closes. If
the conversion is not completed within 45 days after the last day of the fully
extended subscription offering and the Office of Thrift Supervision consents to
an extension of time to complete the conversion, subscribers will be given the
right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Alaska Federal's passbook rate) from the date payment is
received until the funds are returned to the subscriber. If such period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at Alaska Federal's passbook rate from the date
payment is received until the conversion is terminated.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in
the best interests of Alaska Federal, its members and the communities it serves.
Alaska Federal's Board of Directors has formed Alaska Pacific Bancshares to
serve as a holding company, with Alaska Federal as its subsidiary, after the
conversion. By converting to the stock form of organization, Alaska Pacific
Bancshares and Alaska Federal will be structured in the form used by holding
companies of commercial banks and by a growing number of savings institutions.
Management of Alaska Federal believes that the conversion offers a number of
advantages which will be important to the future growth and performance of
Alaska Federal. The capital raised in the conversion is intended to support
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Alaska Federal's current lending and investment activities and may also support
possible future expansion and diversification of operations, although there are
no current specific plans, arrangements or understandings, written or oral,
regarding any such expansion or diversification. The conversion is also expected
to afford Alaska Federal's management, members and others the opportunity to
become stockholders of Alaska Pacific Bancshares and participate more directly
in, and contribute to, any future growth of Alaska Pacific Bancshares and Alaska
Federal. The conversion will also enable Alaska Pacific Bancshares and Alaska
Federal to raise additional capital in the public equity or debt markets should
the need arise, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any such financing activities.
Effects of Conversion to Stock Form on Depositors and Borrowers of Alaska
Federal
Voting Rights. Savings members and borrowers will have no voting rights
in Alaska Federal, as converted, or Alaska Pacific Bancshares and therefore will
not be able to elect directors of Alaska Federal or Alaska Pacific Bancshares or
to control their affairs. Currently, these rights are accorded to savings
members of Alaska Federal. After to the conversion, voting rights will be vested
exclusively in Alaska Pacific Bancshares with respect to Alaska Federal and the
holders of the common stock as to matters pertaining to Alaska Pacific
Bancshares. Each holder of common stock shall be entitled to vote on any matter
to be considered by the stockholders of Alaska Pacific Bancshares. A stockholder
will be entitled to one vote for each share of common stock owned.
Deposit Accounts and Loans. Alaska Federal's deposit accounts, account
balances and existing Federal Deposit Insurance Corporation insurance coverage
of deposit accounts will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, loan balances or obligations of
borrowers under their individual contractual arrangements with Alaska Federal.
Tax Effects. Alaska Federal has received an opinion from Breyer &
Associates PC, Washington, D.C., that the conversion will constitute a
nontaxable reorganization under Section 368(a)(1)(F) of the Internal Revenue
Code. Among other things, the opinion states that:
1. no gain or loss will be recognized to Alaska Federal in its
mutual or stock form by reason of the conversion;
2. no gain or loss will be recognized to its account holders upon
the issuance to them of accounts in Alaska Federal immediately
after the conversion, in the same dollar amounts and on the same
terms and conditions as their accounts at Alaska Federal in its
mutual form plus interest in the liquidation account;
3. the tax basis of account holders' accounts in Alaska Federal
immediately after the conversion will be the same as the tax
basis of their accounts immediately prior to conversion;
4. the tax basis of each account holder's interest in the
liquidation account will be equal to the value, if any, of that
interest;
5. the tax basis of the common stock purchased in the conversion
will be the amount paid and the holding period for the stock will
begin at the date of purchase; and
6. no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion,
except to the extent subscription rights are deemed to have value
as discussed below.
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Unlike a private letter ruling issued by the Internal Revenue Service,
an opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached therein. If
there is a disagreement, no assurance can be given that the conclusions reached
in an opinion of counsel would be sustained by a court if contested by the
Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the
opinion provides that the receipt of subscription rights by certain persons
under the plan of conversion will be taxable to the extent, if any, that the
subscription rights are deemed to have a fair market value. RP Financial, a
financial consulting firm retained by Alaska Federal, whose findings are not
binding on the Internal Revenue Service, has issued a letter indicating that the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
common stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the direct community offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of the rights may only be taxable to those
persons who exercise their subscription rights. Alaska Federal could also
recognize a gain on the distribution of such subscription rights. Holders of
subscription rights are encouraged to consult with their own tax advisors as to
the tax consequences in the event the subscription rights are deemed to have a
fair market value.
Alaska Federal has also received an opinion from Deloitte & Touche LLP,
Anchorage, Alaska, that, assuming the conversion does not result in any federal
income tax liability to Alaska Federal, its account holders, or Alaska Pacific
Bancshares, implementation of the plan of conversion will not result in any
Alaska income tax liability to such entities or persons.
The opinions of Breyer & Associates PC and Deloitte & Touche LLP and
the letter from RP Financial are filed as exhibits to the Registration
Statement. See "Where You Can Find More Information."
Prospective Investors Are Urged to Consult With Their Own Tax Advisors
Regarding The Tax Consequences of The Conversion Particular to Them.
Liquidation Account. In the unlikely event of a complete liquidation of
Alaska Federal in its present mutual form, each depositor in Alaska Federal
would receive a pro rata share of any assets of Alaska Federal remaining after
payment of claims of all creditors, including the claims of all depositors up to
the withdrawal value of their accounts. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account to the total value of all deposit accounts in Alaska Federal at the time
of liquidation.
After the conversion, holders of withdrawable deposit(s) in Alaska
Federal, including certificates of deposit, shall not be entitled to share in
any residual assets in the event of liquidation of Alaska Federal. However,
under Office of Thrift Supervision regulations, Alaska Federal shall, at the
time of the conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained in the final prospectus relating to the conversion.
The liquidation account shall be maintained by Alaska Federal
subsequent to the conversion for the benefit of eligible account holders and
supplemental eligible account holders who retain their savings accounts in
Alaska Federal. Each eligible account holder and supplemental eligible account
holder shall, with respect to each savings account held, have a related inchoate
interest in a subaccount portion of the liquidation account balance .
The initial subaccount balance for a savings account held by an
eligible account holder or a supplemental eligible account holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the savings account and the denominator is the total amount of the
"qualifying deposits" of all eligible account holders. The initial subaccount
balance shall not be increased, and it shall be decreased as provided below.
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If the deposit balance in any savings account of an eligible account
holder or supplemental eligible account holder at the close of business on any
annual closing day of Alaska Federal subsequent to December 31, 1997 or March
31, 1999 is less than the lesser of the deposit balance in a savings account at
the close of business on any other annual closing date subsequent to December
31, 1997 or March 31, 1999, or the amount of the "qualifying deposit" in a
savings account on December 31, 1997 or March 31, 1999, then the subaccount
balance for a savings account shall be adjusted by reducing the subaccount
balance in an amount proportionate to the reduction in the deposit balance. Once
reduced, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related savings
account. If any savings account is closed, the related subaccount balance shall
be reduced to zero.
Only upon a complete liquidation of Alaska Federal, each eligible
account holder and supplemental eligible account holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for savings account(s) then held
by the holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of savings
accounts and other liabilities or similar transactions with another federally
insured institution in which Alaska Federal is not the surviving institution
shall be considered to be a complete liquidation. In any of these transactions
the liquidation account shall be assumed by the surviving institution.
In the unlikely event Alaska Federal is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to Alaska Pacific Bancshares as the sole
stockholder of Alaska Federal.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories set forth in
the plan of conversion. Subscription priorities have been established for the
allocation of stock to the extent that the common stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at Alaska Federal as of December 31, 1997 will receive
nontransferable subscription rights to subscribe for up to the greater of 12,500
shares of common stock, one-tenth of one percent of the total offering of common
stock or 15 times the product, rounded down to the next whole number, obtained
by multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposit of the
eligible account holder and the denominator is the total amount of qualifying
deposits of all eligible account holders. If the exercise of subscription rights
in this category results in an oversubscription, shares of common stock will be
allocated among subscribing eligible account holders so as to permit each one,
to the extent possible, to purchase a number of shares sufficient to make the
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated proportionately, based on the amount of their respective qualifying
deposits as compared to total qualifying deposits of all subscribing eligible
account holders. Subscription rights received by officers and directors in this
category based on their increased deposits in Alaska Federal in the one year
period preceding December 31, 1997 are subordinated to the subscription rights
of other eligible account holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion
provides that the employee stock ownership plan shall receive nontransferable
subscription rights to purchase up to 10% of the shares of common stock issued
in the conversion. The plan intends to purchase 8% of the shares of common stock
issued in the conversion. In the event the number of shares offered in the
conversion is increased, the plan shall have a priority right to purchase any
shares exceeding that amount up to 8% of the common stock. If the plan's
subscription is not
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filled in its entirety, the plan may purchase shares in the open market or may
purchase shares directly from Alaska Pacific Bancshares.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of March 31, 1999 will receive nontransferable
subscription rights to subscribe for up to the greater of 12,500 shares of
common stock, one-tenth of one percent of the total offering of common stock or
15 times the product, rounded down to the next whole number, obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
supplemental eligible account holder and the denominator is the total amount of
qualifying deposits of all supplemental eligible account holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing supplemental eligible
account holders so as to permit each one, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing supplemental eligible
account holders proportionately, based on the amount of their respective
qualifying deposits as compared to total qualifying deposits of all supplemental
eligible account holders.
Category 4: Other Members. Each depositor of Alaska Federal as of April
30, 1999 and each borrower with a loan outstanding on October 20, 1993, which
continues to be outstanding as of April 30, 1999,will receive nontransferable
subscription rights to purchase up to 12,500 shares of common stock in the
conversion to the extent shares are available following subscriptions by
eligible account holders, Alaska Pacific Bancshares' employee stock ownership
plan and supplemental eligible account holders. If there is an oversubscription
in this category, the available shares will be allocated proportionately based
on the amount of the respective subscriptions.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the Office of Thrift Supervision or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of the shares. Once tendered, subscription orders cannot be revoked without the
consent of Alaska Federal and Alaska Pacific Bancshares.
Alaska Pacific Bancshares and Alaska Federal will make reasonable
attempts to provide a prospectus and related offering materials to holders of
subscription rights. However, the subscription offering and all subscription
rights under the plan of conversion will expire at Noon, Alaska Time, on
____________ __, 1999, whether or not Alaska Federal has been able to locate
each person entitled to such subscription rights. Orders for common stock in the
subscription offering received in hand by Alaska Federal after that time will
not be accepted. The subscription offering may be extended by Alaska Pacific
Bancshares and Alaska Federal up to_______, 1999 without the Office of Thrift
Supervision's approval. Office of Thrift Supervision regulations require that
Alaska Pacific Bancshares complete the sale of common stock within 45 days after
the close of the subscription offering. If the direct community offering and the
syndicated community offerings are not completed within that period, all funds
received will be promptly returned with interest at Alaska Federal's passbook
rate and all withdrawal authorizations will be canceled. If regulatory approval
of an extension of the time period has been granted, all subscribers will be
notified of the extension and of the duration of any extension that has been
granted, and will be given the right to increase, decrease or rescind their
orders. If an affirmative response to any resolicitation is not received by
Alaska Pacific Bancshares from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest, or
withdrawal authorizations will be canceled. No single extension can exceed 90
days.
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Direct Community Offering. Concurrently with the subscription offering,
Alaska Pacific Bancshares is offering shares of the common stock to certain
members of the general public in a direct community offering, with preference
given to natural persons residing in the communities of Juneau, Ketchikan, Sitka
and Wrangell and then to natural persons residing in counties contiguous to the
local community. Purchasers in the direct community offering are eligible to
purchase up to $125,000 of common stock in the conversion, which equals 12,500
shares. If not enough shares are available to fill orders in the direct
community offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders. Orders for the common stock
in the direct community offering will be filled to the extent such shares remain
available after the satisfaction of all orders received in the subscription
offering. The direct community offering may terminate on or at any time
subsequent to Noon, Alaska Time, on _____________ __, 1999, but no later than 45
days after the close of the subscription offering, unless extended by Alaska
Pacific Bancshares and Alaska Federal, with approval of the Office of Thrift
Supervision. If regulatory approval of an extension of the time period has been
granted, all subscribers will be notified of the extension and of the duration
of any extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response is not received by
Alaska Pacific Bancshares from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest. Alaska
Pacific Bancshares and Alaska Federal have the absolute right to accept or
reject in whole or in part any orders to purchase shares in the direct community
offering. If an order is rejected in part, the purchaser does not have the right
to cancel the remainder of the order. Alaska Pacific Bancshares presently
intends to terminate the direct community offering as soon as it has received
orders for all shares available for purchase in the conversion.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The plan of conversion provides that all
shares of common stock not purchased in the subscription and direct community
offering, if any, may be offered for sale to certain members of the general
public in a syndicated community offering through a syndicate of registered
broker-dealers to be managed by Charles Webb acting as agent of Alaska Pacific
Bancshares. Alaska Pacific Bancshares and Alaska Federal have the right to
reject orders, in whole or part, in their sole discretion in the syndicated
community offering. If an order is rejected in part, the purchaser does not have
the right to cancel the remainder of the order. Neither Charles Webb nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the syndicated community offering; however,
Charles Webb has agreed to use its best efforts in the sale of shares in the
syndicated community offering.
Stock sold in the syndicated community offering will be sold at the
$10.00 purchase price, the same price as all other shares in the offering. See
"-- Stock Pricing and Number of Shares to be Issued." No person, together with
any associate or group of persons acting in concert, will be permitted to
subscribe in the syndicated community offering for shares of common stock with
an aggregate purchase price of more than $250,000, or 25,000 shares of common
stock. See "-- Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings" for a description of the commission to be paid
to any selected dealers and to Charles Webb.
Charles Webb may enter into agreements with selected dealers to assist
in the sale of shares in the syndicated community offering. During the
syndicated community offering, selected dealers may only solicit indications of
interest from their customers to place orders with Alaska Pacific Bancshares as
of a certain date for the purchase of shares. When and if Charles Webb and
Alaska Pacific Bancshares believe that enough indications of interest and orders
have been received in the subscription offering, the direct community offering
and the syndicated community offering to complete the conversion, Charles Webb
will request, as of that certain date, selected dealers to submit orders to
purchase shares for which they have received indications of interest from their
customers. Selected dealers will send confirmations to such customers on the
next business day after that certain date. Selected dealers may settle the trade
by debiting the accounts of their customers on a date which will be three
business days from that certain date). Customers who authorize selected dealers
to debit their brokerage accounts
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are required to have the funds for payment in their account on but not before
the settlement date. On the settlement date, selected dealers will remit funds
to the account that Alaska Pacific Bancshares established for each selected
dealer. Each customer's funds so forwarded to Alaska Pacific Bancshares, along
with all other accounts held in the same title, will be insured by the Federal
Deposit Insurance Corporation up to the applicable $100,000 legal limit. After
payment has been received by Alaska Pacific Bancshares from selected dealers,
funds will earn interest at Alaska Federal's passbook rate until the completion
of the offering. At the consummation of the conversion, the funds received will
be used to purchase the shares of common stock ordered. The shares of common
stock issued in the conversion cannot and will not be insured by the Federal
Deposit Insurance Corporation or any other government agency. If the conversion
is not completed, funds with interest will be returned promptly to the selected
dealers, who, in turn, will promptly credit their customers' brokerage accounts.
The syndicated community offering may close as early as Noon, Alaska
Time, on ____________, 1999, __________ __, 1999, or any date thereafter at the
discretion of Alaska Pacific Bancshares. The syndicated community offering will
terminate no more than 45 days following _____________ __, 1999, unless extended
by Alaska Pacific Bancshares, with approval from the Office of Thrift
Supervision, but in no case later than _________, 1999. The syndicated community
offering may run concurrent to the subscription and direct community offering,
or subsequent thereto.
If Alaska Federal is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of Alaska Federal, if feasible. Any other arrangements must
be approved by the Office of Thrift Supervision. The Office of Thrift
Supervision may grant one or more extensions of the offering period, provided
that no single extension exceeds 90 days, subscribers are given the right to
increase, decrease or rescind their subscriptions during the extension period,
and the extensions do not go more than two years beyond the date on which the
members approved the plan of conversion. If the conversion is not completed
within 45 days after the close of the subscription offering, either all funds
received will be returned with interest, and withdrawal authorizations canceled,
or, if the Office of Thrift Supervision has granted an extension of time, all
subscribers will be given the right to increase, decrease or rescind their
subscriptions at any time prior to 20 days before the end of the extension
period. If an extension of time is obtained, all subscribers will be notified of
the extension and of their rights to modify their orders. If an affirmative
response to any resolicitation is not received by Alaska Pacific Bancshares from
a subscriber, the subscriber's order will be rescinded and all funds received
will be promptly returned with interest, or withdrawal authorizations will be
canceled. No single extension can exceed 90 days.
Persons in Non-Qualified States. Alaska Pacific Bancshares and Alaska
Federal will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
under the plan of conversion reside. Under certain circumstances, however,
Alaska Pacific Bancshares and Alaska Federal are not required to offer stock in
the subscription offering to any person who resides in a foreign country or who
resides in a state of the United States, even though the person may be an
eligible subscriber. Generally, these circumstances occur in states where a
small number of persons otherwise eligible to subscribe for shares of common
stock reside, or Alaska Pacific Bancshares or Alaska Federal determines that
compliance with the securities laws of such state is impracticable for reasons
of cost or otherwise. Many states request or require that Alaska Pacific
Bancshares and Alaska Federal, or their officers, directors or trustees,
register as a broker, dealer, salesman or selling agent, under the securities
laws of the state. This registration may be an expensive and time consuming
effort that may not be completed by the time the offering begins. States may
also request or require Alaska Pacific Bancshares to register or otherwise
qualify the subscription rights or common stock for sale or submit additional
filings regarding the sale of the stock. Where a state has only a small number
of persons eligible to subscribe for shares, Alaska Pacific Bancshares and
Alaska Federal will base their decision as to whether or not to offer the common
stock in the state on a number of factors. Some of these factors include the
size of accounts held by account holders in the state, the cost of reviewing the
registration and qualification requirements of the state, and of actually
registering or qualifying the shares, or the need to register Alaska Pacific
Bancshares, its officers, directors or employees as brokers, dealers or
salesmen.
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Eligible account holders, or supplemental eligible account holders, who
reside in these states will receive a letter from Charles Webb that indicates
they will not be eligible to purchase shares of common stock in the offering
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
Alaska Pacific Bancshares and Alaska Federal have retained Charles Webb
to consult with and to advise Alaska Federal and Alaska Pacific Bancshares, and
to assist Alaska Pacific Bancshares on a best efforts basis, in the distribution
of the shares of common stock in the offering. The services that Charles Webb
will provide include, but are not limited to training the employees of Alaska
Federal who will perform certain ministerial functions in the subscription
offering and direct community offering regarding the mechanics and regulatory
requirements of the stock offering process, managing the stock information
center by assisting interested stock subscribers and by keeping records of all
stock orders, preparing marketing materials, and assisting in the solicitation
of proxies from Alaska Federal's members for use at the special meeting.
For its services, Charles Webb will receive a management fee of $25,000
and a success fee of 1.5% of the aggregate purchase price of the shares of
common stock sold in the subscription offering and direct community offerings
excluding shares purchased by the employee stock ownership plan and officers and
directors of Alaska Federal. If selected dealers are used to assist in the sale
of shares of common stock in the direct community offering, those dealers will
be paid a fee of up to 5.5% of the aggregate purchase price of the shares sold
by such dealers. Alaska Pacific Bancshares and Alaska Federal have agreed to
reimburse Charles Webb for its out-of-pocket expenses, and its legal fees up to
a total of $35,000, and to indemnify Charles Webb against certain claims or
liabilities, including certain liabilities under the Securities Act, and will
contribute to payments Charles Webb may be required to make in connection with
any such claims or liabilities.
Sales of shares of common stock will be made primarily by registered
representatives affiliated with Charles Webb or by the broker-dealers managed by
Charles Webb. A stock information center will be established at the main office
of Alaska Federal. Alaska Pacific Bancshares will rely on Rule 3a4-1 of the
Securities Exchange Act and sales of common stock will be conducted within the
requirements of such Rule, so as to permit officers, directors and employees to
participate in the sale of the common stock in those states where the law so
permits. No officer, director or employee of Alaska Pacific Bancshares or Alaska
Federal will be compensated directly or indirectly by the payment of commissions
or other remuneration in connection with his or her participation in the sale of
common stock.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offering
To purchase shares in the subscription and direct community offering,
an executed stock order form along with the required full payment for each share
subscribed, or with appropriate authorization for withdrawal of full payment
from the subscriber's deposit account with Alaska Federal, must be received by
Alaska Federal by Noon, Alaska Time, on ______________ __, 1999. Stock order
forms will be provided to each accountholder, regardless
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of the number of accounts held. Stock order forms that are not received by that
time or are executed defectively or are received without full payment, or
without appropriate withdrawal instructions, are not required to be accepted.
Alaska Pacific Bancshares and Alaska Federal have the right to waive or permit
the correction of incomplete or improperly executed stock order forms, but do
not represent that they will do so. Under the plan of conversion, the
interpretation by Alaska Pacific Bancshares and Alaska Federal of the terms and
conditions of the plan of conversion and of the stock order form will be final.
Once received, an executed stock order form may not be modified, amended or
rescinded without the consent of Alaska Federal, unless the conversion has not
been completed within 45 days after the end of the subscription offering, unless
such period has been extended.
In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, they must list all accounts on
the stock order form giving all names in each account, the account number and
the approximate account balance as of the appropriate eligibility date. Failure
to list an account could result in fewer shares allocated if there is an
over-subscription than if all accounts had been disclosed.
Full payment for subscriptions may be made in cash only if delivered in
person at an office of Alaska Federal, by check, bank draft, or money order, or
by authorization of withdrawal from deposit accounts maintained with Alaska
Federal. Appropriate means by which such withdrawals may be authorized are
provided on the stock order form. No wire transfers will be accepted and full
payment is required. Interest will be paid on payments made by cash, check, bank
draft or money order at Alaska Federal's passbook rate from the date payment is
received until the completion or termination of the conversion. If payment is
made by authorization of withdrawal from deposit accounts, the funds authorized
to be withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the conversion, unless the
certificate matures after the date of receipt of the stock order form but prior
to closing, in which case funds will earn interest at the passbook rate from the
date of maturity until of the conversion is completed or terminated, but a hold
will be placed on such funds, thereby making them unavailable to the depositor
until completion or termination of the conversion. When the conversion is
completed, the funds received in the offering will be used to purchase the
shares of common stock ordered. The shares of common stock issued in the
conversion cannot and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency. If the conversion is not consummated
for any reason, all funds submitted will be promptly refunded with interest as
described above.
If a subscriber authorizes Alaska Federal to withdraw the amount of the
aggregate purchase price from his or her deposit account, Alaska Federal will do
so as of the effective date of the conversion, though the account must contain
the full amount necessary for payment at the time the subscription order is
received. Alaska Federal will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at Alaska Federal's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for the
shares of common stock subscribed for at the $10.00 purchase price after the
conversion, provided that there is in force from the time of its subscription
until that time, a loan commitment from an unrelated financial institution or
Alaska Pacific Bancshares to lend to the employee stock ownership plan, at that
time, the aggregate purchase price of the shares for which it subscribed.
Individual retirement accounts maintained in Alaska Federal do not
permit investment in the common stock. A depositor interested in using his or
her individual retirement account funds to purchase common stock must do so
through a self-directed individual retirement account. Since Alaska Federal does
not offer such accounts, it will allow a depositor to make a trustee-to-trustee
transfer of the individual retirement account funds to a trustee offering a
self-directed individual retirement account program with the agreement that the
funds will be used to purchase Alaska Pacific Bancshares' common stock in the
offering. There will be no early withdrawal or Internal Revenue Service interest
penalties for such transfers. The new trustee would hold the common stock in a
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self-directed account in the same manner as Alaska Federal now holds the
depositor's individual retirement account funds. An annual administrative fee
may be payable to the new trustee. Depositors interested in using funds in an
individual retirement account at Alaska Federal to purchase common stock should
contact the stock information center as soon as possible so that the necessary
forms may be forwarded for execution and returned prior to _____________ __,
1999. In addition, federal laws and regulations require that officers, directors
and 10% shareholders who use self-directed individual retirement account funds
to purchase shares of common stock in the subscription and direct community
offering make purchases for the exclusive benefit of individual retirement
accounts.
Certificates representing shares of common stock purchased, and any
refund due, will be mailed to purchasers at the address that is specified in a
properly completed stock order form or to the last address of the person
appearing on the records of Alaska Federal as soon as practicable following
completion of the sale of all shares of common stock. Any certificates returned
as undeliverable will be disposed of in accordance with applicable law.
Purchasers may not be able to sell the shares of common stock which they
purchased until certificates for the common stock are available and delivered to
them, even though trading of the common stock may have begun .
To ensure that each purchaser receives a prospectus at least 48 hours
prior to ___________ __, 1999 in accordance with Rule 15c2-8 under the
Securities Exchange Act, no prospectus will be mailed any later than five days
prior to such date or hand delivered any later than two days prior to that date.
Signing the stock order form will confirm receipt or delivery in accordance with
Rule 15c2-8. Stock order forms will only be distributed with a prospectus.
Alaska Federal will accept for processing only orders submitted on original
stock order forms. Alaska Federal is not obligated to accept orders submitted on
photocopied or telecopied stock order forms. Orders cannot and will not be
accepted without the execution of the certification appearing on the reverse
side of the stock order form.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Alaska Pacific Bancshares and Alaska Federal, as converted as
determined by an independent appraisal. Alaska Federal and Alaska Pacific
Bancshares have retained RP Financial to prepare an appraisal of the pro forma
market value of Alaska Pacific Bancshares and Alaska Federal, as converted, as
well as a business plan. RP Financial will receive a fee expected to total
approximately $30,000 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. Alaska Federal has agreed to indemnify RP
Financial under certain circumstances against liabilities and expenses,
including legal fees, arising out of, related to, or based upon the conversion.
RP Financial has prepared an appraisal of the estimated pro forma
market value of Alaska Pacific Bancshares and Alaska Federal, as converted,
taking into account the formation of Alaska Pacific Bancshares as the holding
company for Alaska Federal. For its analysis, RP Financial undertook substantial
investigations to learn about Alaska Federal's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, RP Financial reviewed
Alaska Federal's Form AC Application for Approval of Conversion and Alaska
Pacific Bancshares' Form SB-2 Registration Statement. Furthermore, RP Financial
visited Alaska Federal's facilities and had discussions with Alaska Federal's
management and its special conversion legal counsel, Breyer & Associates PC. No
detailed individual analysis of the separate components of Alaska Pacific
Bancshares' or Alaska Federal's assets and liabilities was performed in
connection with the evaluation.
In estimating the pro forma market value of Alaska Pacific Bancshares
and Alaska Federal, as converted, as required by applicable regulatory
guidelines, RP Financial's analysis utilized three selected valuation
procedures,
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the Price/Book method, the Price/Earnings method, and Price/Assets method, all
of which are described in its report. RP Financial placed the greatest emphasis
on the Price/Earnings and Price/Book methods in estimating pro forma market
value. In applying these procedures, RP Financial reviewed, among other factors,
the economic make-up of Alaska Federal's primary market area, Alaska Federal's
financial performance and condition in relation to publicly-traded institutions
that RP Financial deemed comparable to Alaska Federal, the specific terms of the
offering of Alaska Pacific Bancshares' common stock, the pro forma impact of the
additional capital raised in the conversion, conditions of securities markets in
general, and the market for thrift institution common stock in particular. RP
Financial's analysis provides an approximation of the pro forma market value of
Alaska Pacific Bancshares and Alaska Federal, as converted, based on the
valuation methods applied and the assumptions outlined in its report. Included
in its report were certain assumptions as to the pro forma earnings of Alaska
Pacific Bancshares after the conversion that were utilized in determining the
appraised value. These assumptions included estimated expenses and an assumed
after-tax rate of return on the net conversion proceeds as described under "Pro
Forma Data," purchases by the employee stock ownership plan of 8% of the common
stock sold in the conversion and purchases in the open market by the management
recognition and development plan of a number of shares equal to 4% of the common
stock sold in the conversion at the purchase price. See "Pro Forma Data" for
additional information concerning these assumptions. The use of different
assumptions may yield different results.
On the basis of the foregoing, RP Financial has advised Alaska Pacific
Bancshares and Alaska Federal that, in its opinion, as of April 16, 1999, the
aggregate estimated pro forma market value of Alaska Pacific Bancshares and
Alaska Federal, as converted, and, therefore, the common stock was within the
valuation range of $5,950,000 to $8,050,000 with a midpoint of $7,000,000. After
reviewing the methodology and the assumptions used by RP Financial in the
preparation of the appraisal, the Board of Directors established the estimated
valuation range which is equal to the valuation range of $5,950,000 to
$8,050,000 with a midpoint of $7,000,000. Assuming that the shares are sold at
$10.00 per share in the conversion, the estimated number of shares would be
between 595,000 and 805,000 with a midpoint of 700,000. The purchase price of
$10.00 was determined by discussion among the Boards of Directors of Alaska
Federal and Alaska Pacific Bancshares and Charles Webb, taking into account,
among other factors the requirement under Office of Thrift Supervision
regulations that the common stock be offered in a manner that will achieve the
widest distribution of the stock, the desired liquidity in the common stock
subsequent to the conversion, and the expense of issuing shares for purposes of
Alaska franchise taxes. Since the outcome of the Offerings relate in large
measure to market conditions at the time of sale, it is not possible to
determine the exact number of shares that will be issued by Alaska Pacific
Bancshares at this time. The estimated valuation range may be amended, with the
approval of the Office of Thrift Supervision, if necessitated by developments
following the date of such appraisal in, among other things, market conditions,
the financial condition or operating results of Alaska Federal, regulatory
guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the
Registration Statement. See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of Alaska Pacific Bancshares and Alaska
Federal, as converted, as of the close of the subscription offering.
No sale of the shares will take place unless RP Financial confirms to
the Office of Thrift Supervision that, to the best of RP Financial's knowledge
and judgment, nothing of a material nature has occurred that would cause it to
conclude that the actual total purchase price on an aggregate basis was
incompatible with its estimate of the total pro forma market value of Alaska
Pacific Bancshares and Alaska Federal, as converted, at the time of the sale.
If, however, the facts do not justify that statement, the offering or other sale
may be canceled, a new estimated valuation range and price per share set and new
subscription, direct community and syndicated community offerings
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held. Under such circumstances, subscribers would have the right to modify or
rescind their subscriptions and to have their subscription funds returned
promptly with interest and holds on funds authorized for withdrawal from deposit
accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares
issued may be more than 925,750 shares or less than 595,000 shares. If the total
amount of shares issued is less than 595,000 or more than 925,750, 15% above the
maximum of the estimated valuation range, for aggregate gross proceeds of less
than $5,950,000 or more than $9,257,500, subscription funds will be returned
promptly with interest to each subscriber unless he indicates otherwise. If RP
Financial establishes a new valuation range, it must be approved by the Office
of Thrift Supervision.
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase arrangements will be
made by the Boards of Directors of Alaska Federal and Alaska Pacific Bancshares,
if possible. Other purchase arrangements must be approved by the Office of
Thrift Supervision and may provide for purchases for investment purposes by
directors, officers, their associates and other persons in excess of the
limitations provided in the plan of conversion and in excess of the proposed
director purchases discussed earlier, although no such purchases are currently
intended. If such other purchase arrangements cannot be made, the plan of
conversion will terminate.
In formulating its appraisal, RP Financial relied upon the
truthfulness, accuracy and completeness of all documents Alaska Federal
furnished to it. RP Financial also considered financial and other information
from regulatory agencies, other financial institutions, and other public
sources, as appropriate. While RP Financial believes this information to be
reliable, RP Financial does not guarantee the accuracy or completeness of the
information and did not independently verify the financial statements and other
data provided by Alaska Federal and Alaska Pacific Bancshares or independently
value the assets or liabilities of Alaska Pacific Bancshares and Alaska Federal.
The appraisal by RP Financial is not intended to be, and must not be interpreted
as, a recommendation of any kind as to the advisability of voting to approve the
plan of conversion or of purchasing shares of common stock. Moreover, because
the appraisal is necessarily based on many factors which change from time to
time, there is no assurance that persons who purchase shares in the conversion
will later be able to sell shares after the conversion at prices at or above the
purchase price.
Limitations on Purchases of Shares
The plan of conversion provides for certain limitations to be placed
upon the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The plan
of conversion provides for the following purchase limitations:
1. The maximum purchase in the subscription offering by any person
or group of persons through a single account is $125,000, which
equals 12,500 shares;
2. No person may purchase more than $125,000, which equals 12,500
shares, in the direct community offering; and
3. The maximum purchase in the conversion by any person, related
persons or persons acting in concert is $250,000, which equals
25,000 shares.
For purposes of the plan of conversion, the directors are not deemed to
be acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitations are exceeded.
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Alaska Federal's and Alaska Pacific Bancshares' Boards of Directors
may, in their sole discretion, increase the maximum purchase limitation up to
9.99% of the shares of common stock sold in the conversion, provided that orders
for shares which exceed 5% of the shares of common stock sold in the conversion
may not exceed, in the aggregate, 10% of the shares sold in the conversion.
Alaska Federal and Alaska Pacific Bancshares do not intend to increase the
maximum purchase limitation unless market conditions justify an increase in the
maximum purchase limitation is necessary to sell a number of shares in excess of
the minimum of the estimated valuation range. If the Boards of Directors decide
to increase the purchase limitation set forth above, persons who subscribed for
the maximum number of shares of common stock will be, and other large
subscribers in the discretion of Alaska Pacific Bancshares and Alaska Federal
may be, given the opportunity to increase their subscriptions accordingly, based
on the rights and preferences of any person who has priority subscription
rights.
The term "acting in concert" is defined in the plan of conversion to
mean knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not by to an express agreement;
or a combination or pooling of voting or other interests in the securities of an
issuer for a common purpose under any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. In general, a
person who acts in concert with another party shall also be deemed to be acting
in concert with any person who is also acting in concert with that other party.
Alaska Pacific Bancshares and Alaska Federal may presume that certain persons
are acting in concert based upon, among other things, joint account
relationships and the fact that persons may have filed joint Schedules 13D with
the Securities And Exchange Commission with respect to other companies.
The term "associate" of a person is defined in the plan of conversion
to mean any corporation or organization, other than Alaska Federal or a
majority-owned subsidiary of Alaska Federal, 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; any trust or other estate in which a person has
a substantial beneficial interest or as to which such person serves as trustee
or in a similar fiduciary capacity; and any relative or spouse of a person, or
any relative of a spouse, who either has the same home as a person or who is a
director or officer of Alaska Federal or any of its parents or subsidiaries. For
example, a corporation of which a person serves as an officer would be an
associate of a person and, therefore, all shares purchased by the corporation
would be included with the number of shares which a person could purchase
individually under the above limitations.
The term "officer" is defined in the plan of conversion to mean an
executive officer of Alaska Federal, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Alaska Federal and
Alaska Pacific Bancshares and by NASD members. See "-- Restrictions on
Transferability by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Under Office of Thrift Supervision regulations, Office of Thrift
Supervision-regulated savings associations, and their holding companies, may not
for a period of three years from the date of an institution's mutual-to-stock
conversion repurchase any of its common stock from any person, except if an
offer made to all of its stockholders to repurchase the common stock on a pro
rata basis, approved by the Office of Thrift Supervision, or the repurchase of
qualifying shares of a director. Furthermore, repurchases of any common stock
are prohibited if the effect thereof would cause the association's regulatory
capital to be reduced below the amount required for the liquidation account or
the regulatory capital requirements imposed by the Office of Thrift Supervision.
Repurchases are generally prohibited during the first year following conversion.
Upon ten days' written notice to the Office of Thrift Supervision, and if the
Office of Thrift Supervision does not object, an institution may make open
market repurchases of its outstanding common stock during years two and three
following the conversion, provided that
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certain regulatory conditions are met and that the repurchase would not
adversely affect the financial condition of the institution. Any repurchases of
common stock by Alaska Pacific Bancshares must meet these regulatory
restrictions unless the Office of Thrift Supervision would provide otherwise.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased in the offering by directors and
officers of Alaska Pacific Bancshares may not be sold for a period of one year
following consummation of the conversion, except in the event of the death of
the stockholder or in any exchange of the common stock in connection with a
merger or acquisition of Alaska Pacific Bancshares. Shares of common stock
received by directors or officers through the employee stock ownership plan or
the management recognition and development plan or upon exercise of options
issued under the stock option plan or purchased after the conversion free of
restriction. Accordingly, shares of common stock issued by Alaska Pacific
Bancshares to directors and officers shall bear a legend giving appropriate
notice of the restriction and, in addition, Alaska Pacific Bancshares will give
appropriate instructions to the transfer agent for Alaska Pacific Bancshares'
common stock with respect to the restriction on transfers. Any shares issued to
directors and officers as a stock dividend, stock split or otherwise with
respect to restricted common stock shall also be restricted.
Purchases of outstanding shares of common stock of Alaska Pacific
Bancshares by directors, executive officers, or any person who was an executive
officer or director of Alaska Federal after adoption of the plan of conversion,
and their associates during the three-year period following conversion may be
made only through a broker or dealer registered with the Securities and Exchange
Commission, except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to negotiated
transactions involving more than 1% of Alaska Pacific Bancshares' outstanding
common stock or to the purchase of stock pursuant to the stock option plan.
Alaska Pacific Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. The
registration under the Securities Act of shares of the common stock to be issued
in the conversion does not cover the resale of the shares. Shares of common
stock purchased by persons who are not affiliates of Alaska Pacific Bancshares
may be resold without registration. Shares purchased by an affiliate of Alaska
Pacific Bancshares will be subject to the resale restrictions under Rule 144 of
the Securities Act. If Alaska Pacific Bancshares meets the current public
information requirements of Rule 144 under the Securities Act, each affiliate of
Alaska Pacific Bancshares who complies with the other conditions of Rule 144,
including those that require the affiliate's sale to be aggregated with those of
certain other persons, would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of 1% of the outstanding shares of Alaska Pacific Bancshares or the
average weekly volume of trading in the shares during the preceding four
calendar weeks. Provision may be made in the future by Alaska Pacific Bancshares
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates
face to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of the securities.
RESTRICTIONS ON ACQUISITION OF ALASKA PACIFIC BANCSHARES
The following discussion is a summary of certain provisions of federal
law and regulations and Alaska corporate law, as well as the Articles of
Incorporation and Bylaws of Alaska Pacific Bancshares, relating to stock
ownership and transfers, the Board of Directors and business combinations, all
of which may be deemed to have "anti-takeover" effects. The description of these
provisions is necessarily general and reference should be made to the actual law
and regulations and to the Articles of Incorporation and Bylaws of Alaska
Pacific Bancshares. See "Where You Can Find More Information" as to how to
obtain a copy of these documents.
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Conversion Regulations
Office of Thrift Supervision regulations prohibit any person from
making an offer, announcing an intent to make an offer or participating in any
other arrangement to purchase stock or acquiring stock or subscription rights in
a converting institution (or its holding company) from another person prior to
completion of its conversion. Further, without the prior written approval of the
Office of Thrift Supervision, no person may make such an offer or announcement
of an offer to purchase shares or actually acquire shares in the converting
institution (or its holding company) for a period of three years from the date
of the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution (or its holding
company). The Office of Thrift Supervision has defined "person" to include any
individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to Alaska Federal (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
Change of Control
Under the Change in Bank Control Act, no person may acquire control of
an insured federal savings and loan association or its parent holding company
unless the Office of Thrift Supervision has been given 60 days' prior written
notice and has not issued a notice disapproving the proposed acquisition. In
addition, Office of Thrift Supervision regulations provide that no company may
acquire control of a savings association without the prior approval of the
Office of Thrift Supervision. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the Office of Thrift Supervision.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the Office of Thrift Supervision
that the acquiror has the power to direct, or directly or indirectly to exercise
a controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of any class of a savings association's voting
stock, if the acquiror also is subject to any one of eight "control factors,"
constitutes a rebuttable determination of control under the regulations. Such
control factors include the acquiror being one of the two largest stockholders.
The determination of control may be rebutted by submission to the Office of
Thrift Supervision, prior to the acquisition of stock or the occurrence of any
other circumstances giving rise to such determination, of a statement setting
forth facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock must file with the
Office of Thrift Supervision a certification form that the holder is not in
control of such institution, is not subject to a rebuttable determination of
control and will take no action which would result in a determination or
rebuttable determination of control without prior notice to or approval of the
Office of Thrift Supervision, as applicable. There are also rebuttable
presumptions in the regulations concerning whether a group "acting in concert"
exists, including presumed action in concert among members of an "immediate
family."
The Office of Thrift Supervision may prohibit an acquisition of control
if it finds, among other things, that (i) the acquisition would result in a
monopoly or substantially lessen competition, (ii) the financial condition of
the acquiring person might jeopardize the financial stability of the
institution, or (iii) the competence, experience or
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integrity of the acquiring person indicates that it would not be in the interest
of the depositors or the public to permit the acquisition of control by such
person.
Anti-takeover Provisions in Alaska Pacific Bancshares' Articles of Incorporation
and Bylaws and in Alaska Law
A number of provisions of Alaska Pacific Bancshares' Articles of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of certain
provisions of Alaska Pacific Bancshares' Articles of Incorporation and Bylaws
and regulatory provisions relating to stock ownership and transfers, the Board
of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Alaska Pacific Bancshares stockholders may deem
to be in their best interests or in which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. The following description of certain of the provisions
of the Articles of Incorporation and Bylaws of Alaska Pacific Bancshares is
necessarily general and reference should be made in each case to such Articles
of Incorporation and Bylaws, which are incorporated herein by reference. See
"Where You Can Find More Information" as to where to obtain a copy of these
documents.
Board of Directors. The Articles of Incorporation provide that the
number of directors shall not be less than five nor more than 15. The initial
number of directors is seven, but such number may be changed by resolution of
the Board of Directors. These provisions have the effect of enabling the Board
of Directors to elect directors friendly to management in the event of a
non-negotiated takeover attempt and may make it more difficult for a person
seeking to acquire control of Alaska Pacific Bancshares to gain majority
representation on the Board of Directors in a relatively short period of time.
Alaska Pacific Bancshares believes these provisions to be important to
continuity in the composition and policies of the Board of Directors.
The Articles of Incorporation provide that there will be staggered
elections of directors so that the directors will each be initially elected to
one, two or three-year terms, and thereafter all directors will be elected to
terms of three years each. This provision also has the effect of making it more
difficult for a person seeking to acquire control of Alaska Pacific Bancshares
to gain majority representation on the Board of Directors.
Cumulative Voting. The Articles of Incorporation do not provide for
cumulative voting in an election of directors. Cumulative voting in election of
directors entitles a stockholder to cast a total number of votes equal to the
number of directors to be elected multiplied by the number of his or her shares
and to distribute that number of votes among such number of nominees as the
stockholder chooses. The absence of cumulative voting for directors limits the
ability of a minority stockholder to elect directors. Because the holder of less
than a majority of Alaska Pacific Bancshares' shares cannot be assured
representation on the Board of Directors, the absence of cumulative voting may
discourage accumulations of Alaska Pacific Bancshares' shares or proxy contests
that would result in changes in Alaska Pacific Bancshares' management. The Board
of Directors believes that (i) elimination of cumulative voting will help to
assure continuity and stability of management and policies; (ii) directors
should be elected by a majority of the stockholders to represent the interests
of the stockholders as a whole rather than be the special representatives of
particular minority interests; and (iii) efforts to elect directors representing
specific minority interests are potentially divisive and could impair the
operations of Alaska Pacific Bancshares.
Special Meetings. The Articles of Incorporation of Alaska Pacific
Bancshares provide that special meetings of stockholders of Alaska Pacific
Bancshares may be called by the President or by the Board of Directors. If a
special meeting is not called by such person or entity, stockholder proposals
cannot be presented to the stockholders for action until the next annual
meeting. Stockholders are not permitted to call special meetings under Alaska
Pacific Bancshares' Articles of Incorporation.
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Authorized Capital Stock. The Articles of Incorporation of Alaska
Pacific Bancshares authorize the issuance of 20,000,000 shares of common stock
and 1,000,000 shares of preferred stock. The shares of Common Stock and
Preferred Stock were authorized in an amount greater than that to be issued in
the Conversion to provide Alaska Pacific Bancshares' Board of Directors with
flexibility to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of Alaska Pacific
Bancshares. The Board of Directors also has sole authority to determine the
terms of any one or more series of Preferred Stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of Preferred Stock
to persons friendly to management in order to attempt to block a post tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. Alaska Pacific Bancshares'
Board currently has no plan for the issuance of additional shares, other than
the issuance of additional shares pursuant to stock benefit plans.
Director Nominations. The Articles of Incorporation of Alaska Pacific
Bancshares require a stockholder who intends to nominate a candidate for
election to the Board of Directors at a stockholders' meeting to give written
notice to the Secretary of Alaska Pacific Bancshares at least 30 days (but not
more than 60 days) in advance of the date of the meeting at which such
nominations will be made. The nomination notice is also required to include
specified information concerning the nominee and the proposing stockholder. The
Board of Directors of Alaska Pacific Bancshares believes that it is in the best
interests of Alaska Pacific Bancshares and its stockholders to provide
sufficient time for the Board of Directors to study all nominations and to
determine whether to recommend to the stockholders that such nominees be
considered.
Supermajority Voting Provisions. Alaska Pacific Bancshares' Articles of
Incorporation require the affirmative vote of 80% of the outstanding shares
entitled to vote to approve a merger, consolidation, or other business
combination, unless the transaction is approved, prior to consummation, by the
vote of at least 80% of the number of the Continuing Directors (as defined in
the Articles of Incorporation) on Alaska Pacific Bancshares' Board of Directors.
"Continuing Directors" generally includes all members of the Board of Directors
who are not affiliated with any individual, partnership, trust or other person
or entity (or the affiliates and associates of such person or entity) which is a
beneficial owner of 10% or more of the voting shares of Alaska Pacific
Bancshares. This provision could tend to make the acquisition of Alaska Pacific
Bancshares more difficult to accomplish without the cooperation or favorable
recommendation of Alaska Pacific Bancshares' Board of Directors.
Amendment of Articles of Incorporation and Bylaws. Alaska Pacific
Bancshares' Articles of Incorporation may be amended by the vote of the holders
of a majority of the outstanding shares of Holding Company Common Stock, except
that the provisions of the Articles of Incorporation governing (i) the duration
of the corporation, (ii) the purpose and powers of the corporation, (iii)
authorized capital stock, (iv) denial of preemptive rights, (v) the number and
staggered terms of directors, (vi) notice for shareholder nominations and
proposals, (vii) approval of certain business combinations, (viii) the
evaluation of certain business combinations, (ix) limitation of directors'
liability, (x) indemnification of officers and directors, (xi) calling of
special meetings of shareholders, (xii) the authority to repurchase shares and
(xiii) the manner of amending the Articles of Incorporation may not be repealed,
altered, amended or rescinded except by the vote of the holders of at least 80%
of the outstanding shares of Alaska Pacific Bancshares. This provision is
intended to prevent the holders of a lesser percentage of the outstanding stock
of Alaska Pacific Bancshares from circumventing any of the foregoing provisions
by amending the Articles of Incorporation to delete or modify one of such
provisions.
Alaska Pacific Bancshares' Bylaws may only be amended by a majority
vote of the Board of Directors of Alaska Pacific Bancshares or by the holders of
at least 80% of the outstanding stock by Alaska Pacific Bancshares.
Board Consideration of Certain Nonmonetary Factors in the Event of an
Offer by Another Party. The Articles of Incorporation of Alaska Pacific
Bancshares directs the Board of Directors, in evaluating a Business
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Combination or a tender or exchange offer, to consider, in addition to the
adequacy of the amount to be paid in connection with any such transaction,
certain specified factors and any other factors the Board deems relevant,
including (i) the social and economic effects of the transaction on Alaska
Pacific Bancshares and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which Alaska
Pacific Bancshares and its subsidiaries operate or are located; (ii) the
business and financial condition and earnings prospects of the acquiring party
or parties; and (iii) the competence, experience and integrity of the acquiring
party or parties and its or their management. By having the standards in the
Articles of Incorporation of Alaska Pacific Bancshares, the Board of Directors
may be in a stronger position to oppose any proposed business combination,
tender or exchange offer if the Board concludes that the transaction would not
be in the best interest of Alaska Pacific Bancshares, even if the price offered
is significantly greater than the then market price of any equity security of
Alaska Pacific Bancshares.
Purpose and Takeover Defensive Effects of Alaska Pacific Bancshares'
Articles of Incorporation and Bylaws. The Board of Directors of Alaska Federal
believes that the provisions described above are prudent and will reduce Alaska
Pacific Bancshares' vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist Alaska Federal in the orderly
deployment of the conversion proceeds into productive assets during the initial
period after the conversion. The Board of Directors believes these provisions
are in the best interest of Alaska Federal and Alaska Pacific Bancshares and its
stockholders. In the judgment of the Board of Directors, Alaska Pacific
Bancshares' Board will be in the best position to determine the true value of
Alaska Pacific Bancshares and to negotiate more effectively for what may be in
the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interest of Alaska Pacific Bancshares and its
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of Alaska Pacific Bancshares and that these provisions will
encourage such negotiations and discourage hostile takeover attempts. It is also
the view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at a price reflective of
the true value of Alaska Pacific Bancshares and which is in the best interest of
all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of Alaska
Pacific Bancshares and its stockholders, with due consideration given to matters
such as the management and business of the acquiring corporation and maximum
strategic development of Alaska Pacific Bancshares' assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objective may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive Alaska
Pacific Bancshares' remaining stockholders of benefits of certain protective
provisions of the Securities Exchange Act, if the number of beneficial owners
became less than the 300 thereby allowing for Securities Exchange Act
deregistration.
Despite the belief of Alaska Federal and Alaska Pacific Bancshares as
to the benefits to stockholders of these provisions of Alaska Pacific
Bancshares' Articles of Incorporation and Bylaws, these provisions may also have
the effect of discouraging a future takeover attempt which would not be approved
by Alaska Pacific Bancshares' Board, but pursuant to which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have
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any opportunity to do so. Such provisions will also render the removal of Alaska
Pacific Bancshares' Board of Directors and of management more difficult. The
Board of Directors of Alaska Federal and Alaska Pacific Bancshares, however,
have concluded that the potential benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the conversion, Alaska Pacific Bancshares may adopt
additional provisions to Alaska Pacific Bancshares' Articles of Incorporation or
Bylaws regarding the acquisition of its equity securities that would be
permitted for an Alaska business corporation. Alaska Pacific Bancshares and
Alaska Federal do not presently intend to propose the adoption of further
restrictions on the acquisition of Alaska Pacific Bancshares' equity securities.
The cumulative effect of the restriction on acquisition of Alaska
Pacific Bancshares contained in the Articles of Incorporation and Bylaws of
Alaska Pacific Bancshares, federal law and Alaska law may be to discourage
potential takeover attempts and perpetuate incumbent management, even though
certain stockholders of Alaska Pacific Bancshares may deem a potential
acquisition to be in their best interests, or deem existing management not to be
acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF ALASKA PACIFIC BANCSHARES
General
Alaska Pacific Bancshares is authorized to issue 20,000,000 shares of
common stock having a par value of $.01 per share and 1,000,000 shares of
preferred stock having a par value of $.01 per share. Alaska Pacific Bancshares
currently expects to issue up to 805,000 shares of common stock and no shares of
preferred stock in the conversion. Each share of Alaska Pacific Bancshares'
common stock will have the same rights as, and will be identical in all respects
with, each other share of common stock. Upon payment of the $10.00 purchase
price for the common stock, as provided for in the plan of conversion, all such
stock will be duly authorized, fully paid and nonassessable.
The common stock of Alaska Pacific Bancshares will represent
nonwithdrawable capital, will not be an account of an insurable type, and will
not be insured by the Federal Deposit Insurance Corporation.
Common Stock
Dividends. Alaska Pacific Bancshares can pay dividends profits if, as
and when declared by its Board of Directors. The payment of dividends by Alaska
Pacific Bancshares is subject to limitations which are imposed by law. See
"Alaska Pacific Bancshares' Dividend Policy" and "Regulation -- Federal
Regulation of Savings Associations -- Limitation on Capital Distributions." The
holders of common stock of Alaska Pacific Bancshares will be entitled to receive
and share equally in the dividends that may be declared by the Board of
Directors of Alaska Pacific Bancshares. If Alaska Pacific Bancshares issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock with respect to dividends.
Stock Repurchases. The plan of conversion and Office of Thrift
Supervision regulations place certain limitations on the repurchase of Alaska
Pacific Bancshares' capital stock. See "Alaska Federal's Conversion --
Restrictions on Repurchase of Stock" and "How Alaska Pacific Bancshares Intends
to Use the Conversion Offering Proceeds."
Voting Rights. Upon the effective date of the conversion, the holders
of common stock of Alaska Pacific Bancshares will possess exclusive voting
rights in Alaska Pacific Bancshares. They will elect Alaska Pacific Bancshares'
Board of Directors and act on such other matters as are required to be presented
to them under Alaska law or as are otherwise presented to them by the Board of
Directors. Except as discussed in "Restrictions on
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Acquisition of Alaska Pacific Bancshares," each holder of common stock will be
entitled to one vote per share and will not have any right to cumulate votes in
the election of directors. If Alaska Pacific Bancshares issues preferred stock,
holders of the preferred stock may also possess voting rights. Certain matters
require a vote of 80% of the outstanding shares entitled to vote thereon. See
"Restrictions on Acquisition of Alaska Pacific Bancshares."
As a federally chartered mutual savings bank, corporate powers and
control of Alaska Federal are vested in its Board of Directors, who elect the
officers of Alaska Federal and who fill any vacancies on the Board of Directors.
After the conversion, voting rights will be vested exclusively in the owners of
the shares of capital stock of Alaska Federal, all of which will be owned by
Alaska Pacific Bancshares, and voted at the direction of Alaska Pacific
Bancshares' Board of Directors. Consequently, the holders of the common stock
will not have direct control of Alaska Federal.
Liquidation. In the event of any liquidation, dissolution or winding up
of Alaska Federal, Alaska Pacific Bancshares, as holder of Alaska Federal's
capital stock would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Alaska Federal, including all deposit
accounts and accrued interest thereon, all assets of Alaska Federal available
for distribution. In the event of liquidation, dissolution or winding up of
Alaska Pacific Bancshares, the holders of its common stock would be entitled to
receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Alaska Pacific Bancshares available for
distribution. If Alaska Pacific Bancshares issues preferred stock, the holders
thereof may have a priority over the holders of the common stock in the event of
liquidation or dissolution.
Preemptive Rights. Holders of the common stock of Alaska Pacific
Bancshares will not be entitled to preemptive rights with respect to any shares
which may be issued. The common stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Alaska Pacific Bancshares
preferred stock will be issued in the conversion and there are no plans to issue
preferred stock. The preferred stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
Restrictions on Acquisition
Acquisitions of Alaska Pacific Bancshares are restricted by provisions
in its Articles of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "Regulation" and "Restrictions on Acquisition
of Alaska Pacific Bancshares."
REGISTRATION REQUIREMENTS
Alaska Pacific Bancshares will register the common stock with the
Securities and Exchange Commission pursuant to Section 12(g) of the Securities
Exchange Act upon the completion of the conversion and will not deregister its
common stock for a period of at least three years following the completion of
the conversion. Upon the registration of the common stock, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Securities Exchange Act will be
applicable.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for Alaska
Pacific Bancshares by Breyer & Associates PC, Washington, D.C. The federal tax
consequences of the offering have been opined upon by Breyer &
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Associates PC and the Alaska tax consequences of the offering have been opined
upon by Deloitte & Touche LLP, Anchorage, Alaska. Breyer & Associates PC and
Deloitte & Touche LLP have consented to the references herein to their opinions.
Certain legal matters will be passed upon for Charles Webb by Elias, Matz,
Tiernan & Herrick LLP, Washington, D.C.
EXPERTS
The financial statements of Alaska Federal Savings Bank as of December
31, 1998 and 1997, and for each of the years then ended, included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing at the back of this prospectus, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
RP Financial has consented to the publication in this prospectus of the
summary of its report to Alaska Federal setting forth its opinion as to the
estimated pro forma market value of Alaska Pacific Bancshares and Alaska
Federal, as converted, and its letter with respect to subscription rights and to
the use of its name and statements with respect to it appearing in this
prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Alaska Pacific Bancshares has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-74827) under the
Securities Act with respect to the common stock offered in the conversion. This
prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. Such information may be
inspected at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at its regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies may be obtained at prescribed rates from the Public Reference Section of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Registration Statement also is available through the Securities
and Exchange Commission's World Wide Web site on the Internet
(http://www.sec.gov).
Alaska Federal has filed with the Office of Thrift Supervision an
Application for Approval of Conversion, which includes proxy materials for
Alaska Federal's special meeting of members and certain other information. This
prospectus omits certain information contained in the Application for Approval
of Conversion. The Application, including the proxy materials, exhibits and
certain other information that are a part of the Application for Approval of
Conversion, may be inspected, without charge, at the offices of the Office of
Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552 and at the
office of the Regional Director at the West Regional Office of the Office of
Thrift Supervision, Pacific Telesis Tower, 1 Montgomery Street, Suite 400, San
Francisco, California 94104.
Copies of Alaska Pacific Bancshares' Articles of Incorporation and
Bylaws may be obtained by written request to Alaska Federal.
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Index To Financial Statements
Alaska Federal Savings Bank
Page
----
Independent Auditors' Report - Deloitte & Touche LLP ..................... F-1
Balance Sheets as of December 31, 1998 and 1997 .......................... F-2
Statements of Income for the Years Ended December 31, 1998 and 1997 ...... 22
Statements of Changes in Equity Capital for the Years Ended
December 31, 1998 and 1997 .............................................. F-3
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 .. F-4
Notes to Financial Statements ............................................ F-5
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Financial Statements or related Notes.
Separate financial statements for Alaska Pacific Bancshares have not
been included herein because Alaska Pacific Bancshares, which has engaged in
only organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
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[LETTER HEAD FOR DELOITTE & TOUCHE]
Independent Auditors' Report
Board of Directors
Alaska Federal Savings Bank
Juneau, Alaska
We have audited the accompanying balance sheets of Alaska Federal Savings Bank
(the Bank) as of December 31, 1998 and 1997, and the related statements of
income, changes in equity capital, and cash flows for the years then ended.
These financial statements are the responsibility of the Bank'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, such financial statements present fairly, in all material
respects, the financial position of the Bank as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- ---------------------
February 19, 1999
F-1
<PAGE>
Alaska Federal Savings Bank
Balance Sheets
================================================================================
(in thousands) December 31, 1998 1997
- --------------------------- ---- ----
Assets
Cash and due from banks ............................ $ 3,201 $ 2,648
Interest-bearing deposits with banks ............... 11,383 7,482
--------- ---------
Total cash and cash equivalents .................. 14,584 10,130
Investment securities available for sale, 18,176 13,334
at fair value (amortized cost: 1998
$18,474; 1997 - $13,306)
Investment securities held to maturity,
at amortized cost (fair value: 1997 - $5,953) ..... -- 6,196
Federal Home Loan Bank stock ....................... 1,265 1,173
Loans held for sale ................................ 899 440
Loans .............................................. 71,510 79,471
Less allowance for loan losses ................... 674 751
--------- ---------
Loans, net ..................................... 70,836 78,720
Accrued interest receivable ........................ 593 698
Premises and equipment ............................. 3,306 3,227
Foreclosed properties .............................. 311 --
Other assets ....................................... 836 558
--------- ---------
Total Assets ....................................... $ 110,636 $ 114,476
========= =========
Liabilities and Equity Capital
Deposits:
Noninterest-bearing demand ....................... $ 5,046 $ 3,892
Interest-bearing demand .......................... 25,570 23,939
Money market ..................................... 15,872 13,298
Savings .......................................... 18,674 18,691
Certificates of deposit .......................... 36,783 37,139
--------- ---------
Total deposits ................................. 101,945 96,959
Federal Home Loan Bank advances .................... -- 9,000
Advance payments by borrowers for taxes
and insurance ..................................... 866 932
Accounts payable and accrued expenses .............. 240 122
Accrued interest payable ........................... 389 195
Other liabilities .................................. 116 128
--------- ---------
Total liabilities ................................ 103,556 107,336
Commitments and contingencies (Notes 10 and 12)
Equity capital:
Retained earnings ................................ 7,548 7,212
Accumulated other comprehensive
income (loss) .................................. (298) (72)
--------- ---------
Total equity capital ........................... 7,250 7,140
--------- ---------
Total Liabilities and Equity Capital ............... $ 110,806 $ 114,476
========= =========
See notes to financial statements.
F-2
<PAGE>
Alaska Federal Savings Bank
Statements of Changes in Equity Capital
================================================================================
Accumulated
Other Total
Retained Comprehensive Equity
(in thousands) Earnings Income (Loss) Capital
- -------------- -------- ------------- -------
Balance, January 1, 1997 ................ $ 6,513 $ (155) $ 6,358
Net income .............................. 699 -- 699
Other comprehensive income:
Net change in unrealized losses
on securities available for sale ....... -- 83 83
-------
Other comprehensive income ............ 83
-------
Comprehensive income ........... 782
Balance, December 31, 1997 .............. 7,212 (72) 7,140
Net income .............................. 336 -- 336
Other comprehensive income:
Net change in unrealized losses
on securities available for sale -- (68) (68)
Cumulative effect of change in
accounting principle (Note 3) (158) (158)
-------
Other comprehensive income (loss) ..... (226)
-------
Comprehensive income (loss) ..... 110
Balance, December 31, 1998 .............. $ 7,548 $ (298) $ 7,250
======= ======= =======
See notes to financial statements.
F-3
<PAGE>
Alaska Federal Savings Bank
Statements of Cash Flows
================================================================================
(in thousands) Years ended December 31, 1998 1997
- --------------------------------------- ---- ----
Operating Activities
Net income ........................................... $ 336 $ 699
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ........................ 60 25
Depreciation and amortization .................... 351 366
Income tax benefit ............................... -- (100)
Federal Home Loan Bank stock dividends ........... (92) (86)
Amortization of fees, discounts, and
premiums, net ................................... (3) 29
Cash provided by changes in operating
assets and liabilities:
Accrued interest receivable .................. 105 (13)
Loans held for sale .......................... (459) (259)
Other assets ................................. (278) (75)
Advance payments by borrowers for
taxes and insurance ......................... (66) 21
Accrued interest payable ..................... 194 50
Accounts payable and accrued expenses ........ 118 9
Other liabilities ............................ (12) (22)
-------- --------
Net cash provided by operating
activities ................................. 254 644
Investing Activities
Purchase of investment securities available
for sale .......................................... (6,000) --
Maturities and principal repayments of:
Investment securities available for sale ......... 6,540 3,613
Investment securities held to maturity ........... 464 642
Loan originations, net of principal repayments ..... 7,642 (2,049)
Purchase of premises and equipment ................. (432) (264)
-------- --------
Net cash provided by investing activities ........ 8,214 1,942
Financing Activities
Net increase (decrease) in Federal Home
Loan Bank advances ................................ (9,000) 4,200
Net increase (decrease) in demand and
savings deposits .................................. 5,342 (3,482)
Net increase (decrease) in certificates
of deposit ........................................ (356) 3,631
-------- --------
Net cash provided (used) by financing
activities ...................................... (4,014) 4,349
-------- --------
Increase in cash and cash equivalents ................ 4,454 6,935
Cash and cash equivalents at beginning of year ....... 10,130 3,195
-------- --------
Cash and cash equivalents at end of year ............. $ 14,584 $ 10,130
======== ========
Supplemental information:
Cash paid for interest ............................. $ 3,613 $ 3,981
Loans foreclosed and transferred to
foreclosed properties ............................. 311 --
Net change in unrealized loss on securities
available
for sale ......................................... (68) 83
Investment securities transferred from
held to maturity
to available for sale ............................ 5,732 --
======== ========
See notes to financial statements.
F-4
<PAGE>
Alaska Federal Savings Bank
Notes to Financial Statements
December 31, 1998 and 1997
================================================================================
Note 1 - Summary of Significant Accounting Policies
GENERAL: Alaska Federal Savings Bank ("the Bank") is a federal mutual savings
bank that provides a range of financial services to individuals and small
businesses in Southeast Alaska. The Bank operates for the mutual benefit of its
depositors and borrowers. The Bank's financial services include accepting
deposits from the general public and making residential and commercial real
estate loans, consumer loans, and commercial loans. The Bank also originates,
sells and services residential mortgage loans under several federal and state
mortgage-lending programs.
Subsequent to December 31, 1998, the Board of Directors of the Bank adopted a
Plan of Conversion to change the Bank's legal form of organization to a stock
savings bank (Note 14).
INVESTMENT SECURITIES: Securities available for sale, including mortgage-backed
and related securities, are carried at fair value with unrealized gains and
losses excluded from earnings and reported in a separate component of equity.
Any security that management determines may not be held to maturity is
classified as available for sale at the time the security is acquired. Any gains
and losses realized on the sale of these securities are based on the specific
identification method and included in earnings.
Securities held to maturity, including mortgage-backed and related securities,
are carried at amortized cost. Investments are adjusted to the lower of cost or
fair value when other-than-temporary declines in value occur. Management intends
and has the ability to hold such securities until maturity and any differences
between fair value and amortized cost are considered temporary.
Purchase discounts and premiums on investment securities are amortized using a
method that approximates the level yield method.
LOANS: Loans are reported at the principal amount outstanding, adjusted for net
deferred loan fees and costs and other unamortized premiums or discounts.
Interest is accrued as earned unless management doubts the collectibility of the
loan or the unpaid interest. Interest accrual is generally discontinued and
loans are transferred to nonaccrual status when they become 90 days past due.
All previously accrued but uncollected interest is deducted from interest income
upon transfer to nonaccrual status. Income from nonaccrual loans is recorded
only when interest payments are received.
Loan origination fees and direct loan origination costs are deferred and
recognized as an adjustment to interest income over the life of the loan using
the level yield method. When loans are sold, the related net unamortized loan
fees and costs are included in the determination of the gain on sale of loans.
LOANS HELD FOR SALE: Loans held for sale consist primarily of residential
mortgage loans and are valued at the lower of cost or market.
F-5
<PAGE>
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level believed to be sufficient to absorb probable losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on a number
of factors, including the level of nonperforming loans, loan loss experience,
collateral values, a review of the credit quality of the loan portfolio, and
current economic conditions. Loans categorized as either pass graded or problem
graded based on periodic reviews of the loan portfolio. The allowance is
evaluated quarterly, and is comprised of three elements:
General component The general allowance component is calculated by loan
category by applying various loss factor to pass-graded outstanding loans.
The loss factors are based on the Bank's historical loss experience and
industry loss statistics, adjusted for significant factors, that, in
management's judgement, affect the collectibility of the portfolio as of
the evaluation date.
Specific component The specific allowance component is established in cases
where management has identified conditions or circumstances related to a
loan that management believes indicate a higher probability of loss
(problem-graded loans). Depending on the circumstances related to both
performing and nonperforming loans in this category, a specific allowance
is calculated either by applying various loss factors or by establishing an
allowance for impairment.
Loan impairment is measured in accordance with Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". Under these
standards, loans are deemed to be impaired when management determines that
it is probable that all amounts due under the contractual terms of the loan
agreements will not be collectable. All loans except for loans grouped as
small and homogeneous are evaluated for impairment. Management groups all
small income property loans and all one-to-four-family residential mortgage
loans as small and homogeneous. Impairment is measured by comparing the
fair value of the collateral or present value of future cash flows to the
recorded investment in the loan.
Unallocated component The unallocated allowance component is established to
recognize the estimation risk inherent in the general and specific
components, and management's evaluation of various conditions that are not
directly measured in the determination of the general and specific
components. The conditions evaluated in connection with the unallocated
allowance may include existing general economic and business conditions
affecting key lending areas of the Bank, credit quality trends, collateral
values, loan volumes and concentrations, specific industry conditions
within portfolio segments, recent loss experience in particular segments of
the portfolio, Bank regulatory examinations and findings of the Bank's
internal loan reviewers.
MORTGAGE SERVICING RIGHTS: Mortgage servicing rights are stated at amortized
cost. Cost is amortized in proportion to, and over the period of, future
expected net servicing income. Mortgage servicing rights are assessed for
impairment based on the fair value of those rights and any impairment is
recognized through a valuation allowance. In assessing impairment, the mortgage
servicing rights are stratified based on the nature and risk characteristics of
the underlying loans, which at December 31, 1998 and 1997, consisted entirely of
one-to-four-family residential mortgage loans.
F-6
<PAGE>
PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed on the
straight-line method over estimated useful lives of the assets: 20 to 30 years
for buildings, 5 to 10 years for leasehold improvements, and 3 to 10 years for
furniture and equipment. Expenditures for improvements and major renewals are
capitalized and ordinary maintenance and repairs are charged to operations as
incurred.
Long-lived assets are assessed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, estimated future cash
flows expected to result from the use of the asset and its eventual disposition
are compared with the carrying value, and a direct writedown is recorded for the
amount of impairment, if any.
FORECLOSED PROPERTIES: Real estate acquired in satisfaction of a loan is
initially recorded in foreclosed properties at the lower of cost or estimated
fair value less estimated selling costs, with any difference from the loan
balance charged to the allowance for loan losses. Subsequent changes in
estimated fair value result in writing down the properties, directly or through
valuation accounts. Such writedowns and gains and losses on disposal, as well as
operating income and costs incurred during the period of ownership, are
recognized currently in noninterest expense.
FEDERAL HOME LOAN BANK STOCK: The Bank's investment in Federal Home Loan Bank
(FHLB) stock is carried at cost, which approximates its fair value. As a member
of the FHLB system, the Bank is required to maintain a minimum level of
investments in FHLB stock based on specified percentages of its outstanding
mortgages, total assets or FHLB advances. At December 31, 1998, the Bank's
minimum investment requirement was approximately $510,000. The Bank may request
redemption at par value or any stock in excess of the amount the Bank is
required to hold. Stock redemptions are granted at the discretion of the FHLB.
INCOME TAX: The Bank accounts for income tax using the liability method. The
liability method recognizes the amount of tax payable at the date of the
financial statements as a result of all events that have been recognized in the
financial statements, as measured by the provisions of current enacted tax laws
and rates. Net deferred tax assets are evaluated and reduced through a valuation
allowance to the extent that it is more likely than not that such assets will
not be fully recovered in the future.
STATEMENT OF CASH FLOWS: The statement of cash flows has been prepared using the
"indirect" method for presenting cash flows from operating activities. For
purposes of this statement, cash and cash equivalents include cash and due from
banks and interest-bearing deposits with banks.
CHANGES IN ACCOUNTING PRINCIPLES: Changes in accounting principles were the
result of adopting Statements of Financial Accounting Standards (SFAS). The
significant statements and the impact of their adoption are described below.
SFAS NO. 125: Effective January 1 1997, the Bank adopted Financial
Accounting Standards Board (FASB) SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities. This
statement provides guidance for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. The
statement also supercedes SFAS No. 122 to eliminate the distinction between
normal and excess servicing rights. The adoption of SFAS No. 125 did not
significantly affect the Bank's earnings, liquidity, or capital resources.
F-7
<PAGE>
SFAS NO. 130: In 1998, the Bank adopted FASB SFAS No. 130, Reporting
Comprehensive Income. This Statement establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements.
This Statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. Adoption of this statement
resulted in the addition of a new section in the statements of changes in
equity capital. Adoption did not impact on the Bank's earnings, liquidity,
or capital resources.
SFAS 131: In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which establishes
standards for reporting information regarding an entity's operating
activities. SFAS No. 131 requires that operating segments be defined at the
same level and in a similar manner as management evaluates operating
performance. Currently, the Bank is operating as a single segment.
SFAS 133: Effective October 1, 1998, the Bank adopted FASB SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
Statement 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. Adoption of this statement did not result in a material impact
on the Bank's earnings, capital resources or liquidity. See Note 3.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS: In October 1998,
the FASB issued SFAS No. 134, Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise (an amendment of FASB Statement No. 65). This statement is effective
for the first fiscal quarter beginning after December 31, 1998. This statement
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 nonmortgage banking enterprise. The adoption of this
statement is not expected to have a material impact on the Bank's financial
position.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents
is estimated to be equal to the carrying value, due to their short term nature.
The fair value of investment securities is based upon estimated market prices
obtained from independent safekeeping agents. The fair value of Federal Home
Loan Bank stock is considered to be equal to its carrying value, since it may be
redeemed at that value. The fair value of loans is estimated using present value
methods which discount the estimated cash flows, including prepayments as well
as contractual principal and interest, using current interest rates appropriate
for the type and maturity of the loans.
For demand and savings deposits, fair value is considered to be carrying value.
The fair values of fixed-rate certificates of deposit and FHLB advances are
estimated using present value methods and current offering rates for such
deposits and advances.
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. Material estimates that are particularly susceptible to change
in the near term relate to the determination of the allowance for loan losses.
Actual results could differ from these estimates.
F-8
<PAGE>
Note 2 - Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action ("PCA"), the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures have been established by regulation to ensure capital
adequacy and require the Bank to maintain minimum capital amounts and ratios
(set forth in the table below). The Bank's primary regulatory agency, the Office
of Thrift Supervision ("the OTS"), requires that the Bank maintain minimum
amounts and ratios of tangible capital (as defined in the regulations) of 1.5%,
core capital (as defined) of 3%, and total risk-based capital (as defined) of
8%. The Bank is also subject to PCA capital requirement regulations set forth by
the Federal Deposit Insurance Corporation ("FDIC"). The FDIC requires the Bank
to maintain minimum amounts and ratios of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes that, as of
December 31, 1998 and 1997, the Bank meets all capital adequacy requirements to
which it is subject. The Bank was categorized as "well capitalized in the most
recent notification by the OTS. There have been no events or conditions since
that notification that management believes would change the Bank's capital
category.
<TABLE>
<CAPTION>
Minimum Capital Required
----------------------------------------------
To Be Categorized as
For Capital "Well Capitalized"
Adequacy Under PCA
(dollars in thousands) Actual Purposes Provisions
- ---------------------- ------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Tangible capital (to total assets) $7,548 6.85% $1,652 1.50% N/A N/A
Core capital (to total assets) 7,548 6.85% 3,304 3.00% N/A N/A
Total risk-based capital (to risk
weighted assets) 8,022 12.35% 5,325 8.00% $6,656 10.00%
Tier I risk-based capital (to risk
weighted assets) 7,548 11.34% N/A N/A 3,994 6.00%
Tier I leverage capital (to average
assets) 7,548 6.86% N/A N/A 5,503 5.00%
===================================================================================================================
As of December 31, 1997:
Tangible capital (to total assets) $ 7,212 6.32% $ 1,711 1.50% N/A N/A
Core capital (to total assets) 7,212 6.32% 3,422 3.00% N/A N/A
Total risk-based capital (to risk
weighted assets) 7,963 11.79% 5,405 8.00% $6,756 10.00%
Tier I risk-based capital (to risk
weighted assets) 7,212 10.67% N/A N/A 4,054 6.00%
Tier I leverage capital (to average
assets) 7,212 6.47% N/A N/A 5,571 5.00%
===================================================================================================================
</TABLE>
F-9
<PAGE>
Note 3 - Investment Securities
Amortized cost and fair values of investment securities available for sale and
held to maturity, including mortgage-backed securities, are summarized as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------- ---- ----- ------ -----
December 31, 1998
Available for sale:
Mortgage-backed securities:
FNMA ............................. $ 3,801 $ 3 $ (103) $ 3,701
FHLMC ............................ 5,269 (174) 5,095
GNMA ............................. 1,638 (16) 1,622
Collateralized mortgage
obligations ....................... 767 (6) 761
U.S. agencies and corporations:
Callable debentures:
FHLMC .......................... 3,000 (3) 2,997
FHLB ........................... 3,000 1 3,001
SBA pools ........................ 999 7 (7) 999
------- ------- ------- -------
Total available for sale ....... 18,474 11 (309) 18,176
------- ------- ------- -------
Total ........................ $18,474 $ 11 $ (309) $18,176
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------- ---- ----- ------ -----
December 31, 1997
Available for sale:
Mortgage-backed securities:
FNMA ............................. $ 4,696 $ 10 $ (102) $ 4,604
GNMA ............................. 2,319 21 2,340
Collateralized mortgage obligations 1,214 (22) 1,192
U.S. agencies and corporations:
FHLMC callable debentures ........ 4,000 (6) 3,994
SBA pools ........................ 1,177 27 1,204
------- ------- ------- -------
Total available for sale ....... 13,406 58 (130) 13,334
Held to maturity:
Mortgage-backed securities:
FNMA ............................. 145 2 147
FHLMC ............................ 6,051 (245) 5,806
------- ------- ------- -------
Total held to maturity ......... 6,196 2 (245) 5,953
------- ------- ------- -------
Total ........................ $19,602 $ 60 $ (375) $19,287
======= ======= ======= =======
F-10
<PAGE>
As discussed in Note 1, effective October 1, 1998, the Bank adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." Adoption of
the statement had no significant effect on the Bank's financial position or net
income. Concurrent with the adoption of SFAS No. 133, however, investment
securities totaling approximately $5,732,000, amortized cost, which were
previously classified as "held to maturity" were reclassified as "available for
sale." These securities were then marked to market through the unrealized losses
on securities available for sale account in the equity capital section. This
resulted in a transition adjustment of approximately $158,000. This adjustment
is presented in the statement of changes in equity capital for the year ended
December 31, 1998, as a cumulative effect of change in accounting principle. The
action did not indicate an intention to sell these specific securities, but
rather was done to provide more flexibility in managing the entire portfolio,
consistent with the intent of the statement.
The following table summarizes the amortized cost and fair values of investment
securities by maturity group at December 31, 1998:
(in thousands) Amortized Cost Fair Value
- -------------- -------------- ----------
Amount with final maturity:
Within one year $ 6,000 $ 5,998
After five but within ten years 354 354
After ten years 12,120 11,824
------- ------
Total $18,474 $18,176
======= =======
Maturities of mortgage backed securities are classified based on their final
contractual maturities. Actual maturities may vary due to prepayment of the
underlying loans.
There were no sales of securities during 1998 or 1997. The Bank does not have a
trading security portfolio.
F-11
<PAGE>
Note 4 - Loans
Loans are summarized as follows:
(in thousands) December 31, 1998 1997
- --------------------------- ---- ----
Real estate:
Permanent:
One-to-four-family residential ............... $34,252 $40,891
Multifamily residential ...................... 2,485 2,281
Commercial nonresidential .................... 10,683 13,751
Land ........................................... 2,589 1,093
Construction:
One-to-four-family residential ............... 957 1,513
Multifamily residential ...................... 1,079 1,980
Commercial nonresidential .................... 439 --
Commercial business ............................ 4,282 2,618
Consumer:
Home equity .................................. 8,401 8,435
Boat ......................................... 5,058 5,547
Automobile ................................... 978 959
Other ........................................ 307 403
------- -------
Loans ........................................ $71,510 $79,471
======= =======
Loans held for sale ............................ $ 899 $ 440
======= =======
Loans are net of deferred loan fees and other discounts amounting to $315,000
and $331,000 at December 31, 1998 and 1997, respectively.
Interest income from tax-exempt loans was $101,000 and $105,000 in 1998 and
1997, respectively.
Real estate loans are secured primarily by properties located in southeast
Alaska. Commercial real estate loans are generally secured by warehouse, retail,
and other improved commercial properties. Other commercial loans are generally
secured by equipment, inventory, accounts receivable, or other business assets.
At December 31, 1998, the Bank had no impaired loans.
MORTGAGE LOAN SERVICING: The Bank services one-to-four-family residential
mortgage loans for Alaska Housing Finance Corporation ("AHFC"), U.S. Government
agencies, and institutional and private investors totaling $83,437,000 and
$82,034,000 as of December 31, 1998 and 1997, respectively. These loans are the
assets of the investors and, accordingly, are not included in the accompanying
balance sheets. Related servicing income, net of amortization of mortgage
servicing rights, amounted to $232,000 and $259,000 for 1998 and 1997,
respectively.
The amortized cost of mortgage servicing rights, which approximates fair value,
is $237,000 and $96,000 at December 31, 1998 and 1997, respectively. The amount
of servicing assets recognized during 1998 was $164,000 and amortization was
$23,000 for the year. The amount of servicing assets recognized during 1997 was
$102,000 and amortization was $6,000 for the year. It has been determined that a
valuation allowance for impairment is not required at December 31, 1998 or 1997.
F-12
<PAGE>
Included in loans serviced for others at December 31, 1998 are 48 loans with
current balances totaling $3,133,000 for which the Bank is subservicer under
agreements with AHFC. Of these, 24 loans totaling $1,846,000 are owned by the
Government National Mortgage Association ("GNMA") and 24 loans totaling
$1,287,000 are owned by the Federal National Mortgage Association ("FNMA").
RELATED PARTY LOANS: In the ordinary course of business, the Bank makes loans to
executive officers and directors of the Bank and to their associated companies.
Such loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions. The
aggregate dollar amount of these loans was $967,000 and $1,593,000 at December
31, 1998 and 1997, respectively. During the year ended December 31, 1998, new
loans of this type were $160,000 and repayments were $786,000.
Note 5 - Allowance for Loan Losses
Following is an analysis of the changes in the allowance for loan losses:
(in thousands) Years ended December 31, 1998 1997
- --------------------------------------- ---- ----
Balance at beginning of year ................... $ 751 $ 723
Provision for loan losses ...................... 60 25
Loans charged off .............................. (141) (2)
Recoveries ..................................... 4 5
----- -----
Balance at end of year ......................... $ 674 $ 751
===== =====
Note 6 - Premises and Equipment
The following is a summary of premises and equipment:
(in thousands) December 31, 1998 1997
- --------------------------- ---- ----
Land ........................................... $ 676 $ 676
Buildings ...................................... 3,852 3,777
Leasehold improvements ......................... 1,354 1,323
Furniture, fixtures and equipment .............. 1,990 1,666
------- -------
7,872 7,442
Less accumulated depreciation .................. (4,566) (4,215)
------- -------
$ 3,306 $ 3,227
======= =======
Depreciation and amortization expense for the years ended December 31, 1998 and
1997 amounted to $351,000 and $366,000, respectively.
F-13
<PAGE>
Note 7 - Deposits
Certificates of deposit in excess of $100,000 amounted to $5,420,000 and
$5,488,000 at December 31, 1998 and 1997, respectively.
The scheduled maturities of certificates of deposit as of December 31, 1998, are
as follows:
(in thousands) Year ending December 31,
- ---------------------------------------
1999 $28,969
2000 4,149
2001 2,948
2002 226
2003 and thereafter 491
-------
$36,783
=======
Note 8 - Federal Home Loan Bank Advances
FHLB Advances at December 31, 1997 consisted of $9,000,000 of one-year advances
at interest rates ranging from 6.02% to 6.13%. No advances were outstanding at
December 31, 1998. Under a blanket pledge agreement, all funds on deposit at
FHLB, as well as all unencumbered qualifying loans and investment securities,
are available to collateralize FHLB advances.
Note 9 - Retirement Plan
The bank has a salary deferral 401(k) plan. Employees who are at least 18 years
of age and have completed three months of service are eligible to participate in
the plan. Employees may contribute on a pretax basis up to 17% of their annual
salary up to a maximum limit under the law. The Bank matches 75% of the first
$2,667 of employee contribution. For the years ended December 31, 1998 and 1997,
the Bank contributed $47,000 and $39,000, respectively, to the plan.
Note 10 - Operating Leases
The Bank leases certain of its premises and equipment under noncancellable
operating leases with terms in excess of one year. Future minimum lease payments
under these leases are summarized as follows:
(in thousands) Year ending December 31,
- ---------------------------------------
1999 $ 364
2000 375
2001 376
2002 376
2003 306
2004 and thereafter 1,370
------
$3,167
======
Rent expense was $363,000 and $333,000 for the years ended December 31, 1998 and
1997, respectively. Rental income on owned premises amounted to $97,000 and
$116,000 for the years ended December 31, 1998 and 1997, respectively.
F-14
<PAGE>
Note 11 - Income Tax
The provision for income tax consisted of the following:
(in thousands) Years ended December 31, 1998 1997
- --------------------------------------- ---- ----
Taxes paid or currently payable .................. $ -- $ --
Change in deferred taxes ......................... 110 196
Adjustment of valuation allowance ................ (110) (296)
----- -----
Income tax benefit ............................. $ -- $(100)
===== =====
A reconciliation of taxes computed at statutory corporate tax rates to tax
expense, as shown in the accompanying statements of income and changes in equity
capital, is as follows:
(in thousands) Years ended December 31, 1998 1997
- --------------------------------------- ---- ----
Income tax expense at statutory rate ....................... $ 114 $ 204
Income tax effect of:
Interest on municipal obligations ........................ (34) (36)
Other .................................................... 7 28
Reduction of valuation allowance for deferred taxes ........ (87) (296)
----- -----
Income tax benefit ..................................... $ -- $(100)
===== =====
Deferred federal income tax is provided for the temporary differences between
the tax basis and financial statement carrying amounts of assets and
liabilities. Components of the Bank's net deferred tax assets consisted of the
following:
(in thousands) Years ended December 31, 1998 1997
- --------------------------------------- ---- ----
Deferred tax assets:
Net operating loss carryforward .................... $ 1,706 $ 1,733
Bad debt reserves .................................. 293 326
Writedown for impairment of property ............... 74 --
Discount on loans .................................. 27 31
Depreciation ....................................... 25 27
Accrued vacation ................................... 31 32
Other .............................................. 27 27
------- -------
Gross deferred tax assets ................... 2,109 2,176
Deferred tax liabilities:
Deferred loan fees ................................. (110) (103)
FHLB stock dividends ............................... (381) (340)
Other .............................................. (15) (20)
------- -------
Gross deferred tax liabilities .............. (506) (463)
------- -------
Deferred tax asset, before valuation allowance ...... 1,603 1,713
Valuation allowance ................................ (1,303) (1,413)
------- -------
Net deferred tax assets .......................... $ 300 $ 300
======= =======
F-15
<PAGE>
In August 1996, the Small Business Job Protection Act of 1996 (the Act) was
signed into law. Under the Act, the percentage taxable income method of
accounting for tax basis bad debts is no longer available effective for the
years ending after December 31, 1995. As a result, the Bank is required to use
the experience method of accounting for tax basis bad debts for 1997 and later
years. The tax deduction under this method was approximately $122,000 for 1998.
There was no tax deduction under this method for 1997. In addition, the Act
requires the recapture of post-1987 (the base year) additions to the tax bad
debt reserves made pursuant to the percentage of taxable income method. The Bank
is not be subject to this recapture in 1998 or 1997, as its tax bad debt
reserves do not exceed its base year reserve. As a result of the bad debt
deductions, equity capital as of December 31, 1998, includes accumulated
earnings of approximately $1,759,000 for which federal income tax has not been
provided. If, in the future, this portion of retained earnings is used for any
purpose other than to absorb losses on loans or on property acquired through
foreclosure, federal income tax may be imposed at then-applicable rates.
For federal income tax purposes, the Bank had net operating loss carryforwards
at December 31, 1998, which expire as follows:
(in thousands) Year ending December 31,
- ---------------------------------------
2002 $ 505
2003 23
2005 1,267
2006 766
2007 227
2008 836
2009 203
2011 81
2012 29
------
$3,937
======
Note 12 - Commitments and Contingencies
COMMITMENTS: Commitments to extend credit in the form of lines of credit total
$1,492,000 and $810,000 at December 31, 1998 and 1997, respectively. Commitments
to extend credit are arrangements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee by the customer. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates creditworthiness for
commitments on an individual customer basis.
Undisbursed loan proceeds, primarily for real estate construction loans, total
$949,000 and $865,000 at December 31, 1998 and 1997, respectively. These amounts
are excluded from the balance of loans receivable at year end.
CONCENTRATIONS: Greater than 75% of all loans in the Bank's portfolio are
secured by properties located in communities of southeast Alaska.
F-16
<PAGE>
Note 13 - Fair Value of Financial Instruments
The following information is presented in accordance with the requirements of
SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The
estimated fair value amounts have been determined by the Bank using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Bank could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
(in thousands) December 31, 1998 1997
- -------------------------- ------------------ ------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial Assets
Cash and cash equivalents .............. $14,584 $14,584 $10,130 $10,130
Investment securities available for sale 18,176 18,176 13,334 13,334
Investment securities held to maturity . -- -- 6,196 5,953
Federal Home Loan Bank stock ........... 1,265 1,265 1,173 1,173
Loans, including held for sale ......... 72,409 72,807 79,911 79,686
Accrued interest receivable .......... 593 593 698 698
Financial Liabilities
Demand and savings deposits ............ 65,162 65,162 59,820 59,820
Certificates of deposit ................ 36,783 36,970 37,139 37,258
Federal Home Loan Bank Advances ........ -- -- 9,000 9,005
Line of credit commitments.............. -- 1,492 -- 810
Although management is not aware of any subsequent events that would
significantly affect the estimated fair value amounts as of December 31, 1998,
such amounts have not been comprehensively revalued since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
F-17
<PAGE>
Note 14 - Subsequent Events
Conversion to Capital Stock Form of Ownership. The Board of Directors of the
Bank adopted a Plan of Conversion on February 19, 1999, to convert from a
federal chartered mutual savings bank to a federal capital stock savings bank,
subject to approval by the regulatory authorities and members of the Bank. The
conversion is expected to be accomplished through amendment of the Bank's
federal mutual charter and the sale of the Bank's stock in an amount equal to
the pro forma market value of the Bank after giving effect to the conversion. A
subscription of the shares of common stock will be offered initially to the
Bank's depositors, employee benefit plans and to certain other eligible
subscribers. It is anticipated that any shares not purchased in the subscription
offering will be offered in a community offering, and then any remaining shares
offered to the general public in a syndicated community offering.
At the time of the conversion, the Bank will establish a liquidation account in
an amount equal to its capital as of the last date of the consolidated statement
of financial condition appearing in the final prospectus. The liquidation
account will be maintained for the benefit of eligible account holders who
continue to maintain their accounts at the Bank after the conversion. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation of the Bank,
each eligible account holder will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
There were no significant costs of conversion incurred as of December 31, 1998.
Resolution to sell building: In January 1999, the Board of Directors of the bank
adopted a resolution to sell the building that houses the Ketchikan branch of
the Bank.
F-18
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Alaska Pacific Bancshares, Inc. or Alaska Federal Savings Bank.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby to any person or in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of Alaska Pacific Bancshares, Inc. or Alaska Federal
Savings Bank since any of the dates as of which information is furnished herein
or since the date hereof.
[Logo for Alaska Pacific Bancshares, Inc.]
(Proposed Holding Company for
Alaska Federal Savings Bank)
595,000 to 925,750 Shares of
Common Stock
----------
Prospectus
----------
CHARLES WEBB & COMPANY, INC.
A Division of Keefe, Bruyette & Woods, Inc.
______ __, 1999
Until the later of _______, 1999, or 25 days after commencement of the
syndicated community offering of common stock, if any, all dealers that buy,
sell or trade these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
In accordance with the Alaska Corporations Code, Article XIII of the
Registrant's Articles of Incorporation provides as follows:
"ARTICLE XIII. Indemnification. The corporation shall indemnify and
advance expenses to its directors, officers, agents and employees as follows:
A. Directors and Officers. In all circumstances and to the full extent
permitted by the Alaska Corporations Code now or hereafter in force, the
corporation shall indemnify any person who is or was a director, officer or
agent of the corporation and who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal (including an action by or in the right of the
corporation), by reason of the fact that he is or was an agent of the
corporation, against expenses, judgments, fines, and amounts paid in
settlement and incurred by him in connection with such action, suit or
proceeding. However, such indemnity shall not apply on account of: (a) acts
or omissions of the director and officer finally adjudged to be in
violation of law; (b) conduct of the director and officer finally adjudged
to be in violation of Section 10.06.490, or (c) any transaction with
respect to which it was finally adjudged that such director and officer
personally received a benefit in money, property, or services to which the
director was not legally entitled. The corporation shall advance expenses
incurred in a proceeding for such persons pursuant to the terms set forth
in a separate directors' resolution or contract.
B. Implementation. The Board of Directors may take such action as is
necessary to carry out these indemnification and expense advancement
provisions. It is expressly empowered to adopt, approve and amend from time
to time such Bylaws, resolutions, contracts or further indemnification and
expense advancement arrangements as may be permitted by law, implementing
these provisions. Such Bylaws, resolutions, contracts, or further
arrangements shall include, but not be limited to, implementing the manner
in which determinations as to any indemnity or advancement of expenses
shall be made.
C. Survival of Indemnification Rights. No amendment or repeal of this
Article shall apply to or have any effect on any right to indemnification
provided hereunder with respect to acts or omissions occurring prior to
such amendment or repeal.
D. Service for Other Entities. The indemnification and advancement of
expenses provided under this Article shall apply to directors, officers,
employees, or agents of the corporation for both (a) service in such
capacities for the corporation, and (b) service at the corporations's
request as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. A person is considered to be
serving an employee benefit plan at the corporation's request if such
person's duties to the corporation also impose duties on, or otherwise
involve services by, the director to the plan or to participants in or
beneficiaries of the plan.
E. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against liability
asserted against him and incurred by him in such capacity or arising out of
his status as such, whether or not the corporation would have had the power
to indemnify him against such liability under the provisions of this bylaw
and Alaska law.
F. Other Rights. The indemnification provided by this section shall
not be deemed exclusive of any other right to which those indemnified may
be entitled under any other bylaw, agreement, vote of stockholders, or
II-1
<PAGE>
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such an office,
and shall continue as to a person who has ceased to be a director, trustee,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person."
Alaska Federal Savings Bank
Section 545.121 of the Regulations for Federal Savings Associations
provides that any person against whom any action is brought or threatened by
reason of the fact that such person is or was a director or officer of the
Savings Bank shall be indemnified by such Savings Bank for reasonable costs and
expenses, including reasonable attorney's fees, actually paid or incurred by
such person in connection with proceedings related to the defense or settlement
of such action; any amount of which such person becomes liable by reason of any
judgment in such action; and reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred in any action to enforce his rights
under this section, which results in a final judgment on the merits in favor of
the director or officer, the Savings Bank may make the indemnification provided
in the preceding sentence if a majority of the directors of the Savings Bank
determine that such director or officer was acting in good faith within what he
was reasonably entitled to believe under the circumstances was the best
interests of the Savings Bank or its stockholders or members. In which event,
regulations require a 60 day notice to the OTS. Additionally, Section 545.121(d)
authorizes the obtaining of insurance to protect against such losses.
Item 25. Other Expenses of Issuance and Distribution(1)
Legal fees and expenses................................ $125,000
Securities marketing legal fees........................ 35,000
EDGAR, copying, printing, postage and mailing.......... 100,000
Appraisal and business plan preparation................ 30,000
Accounting fees........................................ 60,000
Securities marketing fees and expenses................. 117,060
Data processing fees and expenses...................... 20,000
SEC registration fee................................... 2,942
Blue Sky filing fees and expenses...................... 10,000
OTS filing fees........................................ 8,400
Other expenses......................................... 16,598
----------
Total............................................ $525,000
- -------------
(1) Assumes all of the Common Stock will be sold at the maximum estimated
valuation range ($7,000,000, or 700,000 shares) in the Subscription and
Direct Community Offerings.
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits.
The exhibits filed as part of this Registration Statement are as
follows:
1.1-- Form of proposed Agency Agreement among Alaska Pacific Bancshares,
Inc., Alaska Federal Savings Bank and Charles Webb & Company, a
division of Keefe, Bruyette & Woods, Inc.
1.2-- Engagement Letter between Alaska Federal Savings Bank and Charles Webb
& Company, a division of Keefe, Bruyette & Woods, Inc. (a)
II-2
<PAGE>
2 -- Plan of Conversion of Alaska Federal Savings Bank (attached as an
exhibit to the Proxy Statement included as Exhibit 99.5)
3.1 -- Articles of Incorporation of Alaska Pacific Bancshares, Inc. (a)
3.2 -- Bylaws of Alaska Pacific Bancshares, Inc. (a)
4 -- Form of Certificate for Common Stock (a)
5 -- Opinion of Breyer & Associates PC regarding legality of securities
registered (a)
8.1 -- Federal Tax Opinion of Breyer & Associates PC
8.2 -- State Tax Opinion of Deloitte & Touche LLP
8.3 -- Opinion of RP Financial, LC. as to the value of subscription rights (a)
10.1 -- Proposed Form of Employment Agreement for Craig E. Dahl
10.2 -- Proposed Form of Change in Control Severance Agreement for Lisa
Corrigan Bell
10.3 -- Proposed Form of Change in Control Severance Agreement for Roger K.
White
10.4 -- Proposed Form of Change in Control Severance Agreement for Tammy Knight
10.5 -- Proposed Form of Change in Control Severance Agreement for Thomas
Sullivan
10.6 -- Proposed Form of Change in Control Severance Agreement for Sheri Vidic
10.7 -- Proposed Form of Change in Control Severance Agreement for Patrick
Wonser
10.8 -- Proposed Form of Change in Control Severance Agreement for Cheryl
Crawford
10.9 -- Proposed Form of Employee Stock Ownership Plan
10.10 -- Proposed Form of Employee Severance Compensation Plan
10.11 -- Alaska Federal Savings Bank 401(k) Savings Plan
21 -- Subsidiaries of Alaska Pacific Bancshares, Inc. (a)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Breyer & Associates PC (contained in opinion included as
Exhibit 5) (a)
23.3 -- Consent of Breyer & Associates PC as to its Federal Tax Opinion
(contained in opinion included as Exhibit 8.1)
23.4 -- Consent of RP Financial, LC. (a)
24 -- Power of Attorney (see signature page) (a)
99.1 -- Order and Acknowledgement Form (see Exhibit 99.2)
II-3
<PAGE>
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with RP Financial, LC. (a)
99.4(a) -- Appraisal Report of RP Financial, LC. dated March 12, 1999 (b)
99.4(b) -- Updated Appraisal Report of RP Financial, LC. dated April 16, 1999
(b)
99.5 -- Proxy Statement for Special Meeting of Members of Alaska Federal
Savings Bank
- ------------
(a) Previously filed.
(b) In accordance with Rule 202 of Regulation S-T, the Appraisal Report of
RP Financial, LC. is being filed in paper pursuant to a continuing
hardship exemption.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and 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 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant 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 Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions 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.
II-5
<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 statement to be
signed on its behalf by the undersigned in the city of Juneau, state of Alaska,
on May 5, 1999.
ALASKA PACIFIC BANCSHARES INC.
By: /s/ Craig E. Dahl
-----------------------------------
Craig E. Dahl
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amended Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Craig E. Dahl President, Chief Executive Officer May 5, 1999
- ------------------------ and Director (Principal Executive Officer)
Craig E. Dahl
/s/ Roger K. White* Senior Vice President and Chief May 5, 1999
- ------------------------ Financial Officer
Roger K. White (Principal Financial and Accounting Officer)
/s/ Avrum M. Gross* Chairman of the Board May 5, 1999
- ------------------------
Avrum M. Gross
/s/ Roger Grummett* Director May 5, 1999
- ------------------------
Roger Grummett
/s/ Deborah Marshall* Director May 5, 1999
- ------------------------
Deborah Marshall
/s/ D. Eric McDowell* Director May 5, 1999
- ------------------------
D. Eric McDowell
/s/ William J. Schmitz* Director May 5, 1999
- ------------------------
William J. Schmitz
/s/ Hugh N. Grant* Director May 5, 1999
- ------------------------
Hugh N. Grant
</TABLE>
- ---------------
* By power of attorney dated March 22, 1999.
<PAGE>
As filed with the Securities and Exchange Commission on May 5, 1999
Registration No. 333-74827
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ALASKA PACIFIC BANCSHARES, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Alaska 6035 92-0167101
------ ---- ----------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
2094 Jordan Avenue
Jureau, Alaska 99801
(907) 789-4844
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire Beth A. Freedman, Esquire
BREYER & ASSOCIATES PC SILVER, FREEDMAN & TAFF, L.L.P.
Suite 700 East Suite 700 East
1100 New York Avenue, N.W. 1100 New York Avenue, N.W.
Washington, D.C. 20005 Washington, D.C. 20005
---------------------------- --------------------------------
(Name and address of agent for service)
<PAGE>
INDEX TO EXHIBITS
1.1-- Form of proposed Agency Agreement among Alaska Pacific Bancshares,
Inc., Alaska Federal Savings Bank and Charles Webb & Company, a
division of Keefe, Bruyette & Woods, Inc.
1.2-- Engagement Letter between Alaska Federal Savings Bank and Charles
Webb & Company, a division of Keefe, Bruyette & Woods, Inc. (a)
2-- Plan of Conversion of Alaska Federal Savings Bank (attached as an
exhibit to the Proxy Statement included as Exhibit 99.5)
3.1-- Articles of Incorporation of Alaska Pacific Bancshares, Inc. (a)
3.2-- Bylaws of Alaska Pacific Bancshares, Inc. (a)
4-- Form of Certificate for Common Stock (a)
5-- Opinion of Breyer & Associates PC regarding legality of securities
registered (a)
8.1-- Federal Tax Opinion of Breyer & Associates PC
8.2-- State Tax Opinion of Deloitte & Touche LLP
8.3-- Opinion of RP Financial, LC. as to the value of subscription rights
(a)
10.1-- Proposed Form of Employment Agreement for Craig E. Dahl
10.2-- Proposed Form of Change in Control Severance Agreement for Lisa
Corrigan Bell
10.3-- Proposed Form of Change in Control Severance Agreement for Roger K.
White
10.4-- Proposed Form of Change in Control Severance Agreement for Tammy
Knight
10.5-- Proposed Form of Change in Control Severance Agreement for Thomas
Sullivan
10.6-- Proposed Form of Change in Control Severance Agreement for Sheri
Vidic
10.7-- Proposed Form of Change in Control Severance Agreement for Patrick
Wonser
10.8-- Proposed Form of Change in Control Severance Agreement for Cheryl
Crawford
10.9-- Proposed Form of Employee Stock Ownership Plan
10.10-- Proposed Form of Employee Severance Compensation Plan
10.11-- Alaska Federal Savings Bank 401(k) Savings Plan
21-- Subsidiaries of Alaska Pacific Bancshares, Inc. (a)
23.1-- Consent of Deloitte & Touche LLP
23.2-- Consent of Breyer & Associates PC (contained in opinion included as
Exhibit 5) (a)
<PAGE>
23.3-- Consent of Breyer & Associates PC as to its Federal Tax Opinion
(contained in opinion included as Exhibit 8.1)
23.4-- Consent of RP Financial, LC. (a)
24-- Power of Attorney (see signature page) (a)
99.1-- Order and Acknowledgement Form (see Exhibit 99.2)
99.2-- Solicitation and Marketing Materials
99.3-- Appraisal Agreement with RP Financial, LC. (a)
99.4(a)-- Appraisal Report of RP Financial, LC. dated March 12, 1999 (b)
99.4(b)-- Updated Appraisal Report of RP Financial, LC. dated April 16, 1999
(b)
99.5-- Proxy Statement for Special Meeting of Members of Alaska Federal
Savings Bank
- ---------------
(a) Previously filed.
(b) In accordance with Rule 202 of Regulation S-T, the Appraisal Report of RP
Financial, LC. is being filed in paper pursuant to a continuing hardship
exemption.
EXHIBIT 1.1
Form of proposed Agency Agreement among Alaska Pacific Bancshares,
Inc., Alaska Federal Savings Bank and Charles Webb & Company, a division of
Keefe, Bruyette & Woods, Inc.
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
Up to 1,058,000 Shares
COMMON STOCK
($0.01 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
May ___, 1999
Charles Webb & Company, a Division
of Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Alaska Pacific Bancshares, Inc., an Alaska corporation (the "Company"),
and Alaska Federal Savings Bank, a federally chartered mutual savings bank
(references to the "Bank" include the Bank in the mutual or stock form, as
indicated by the context), with its deposit accounts insured by the Savings
Association Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC"), hereby confirm their agreement with Charles Webb
& Company, a division of Keefe, Bruyette & Woods, Inc. ("Webb") as follows:
Section 1. The Offering. The Bank, in accordance with its plan of
conversion adopted by its Board of Directors (the "Plan"), intends to convert
from a federally chartered mutual savings bank to a federally chartered stock
savings bank, and to issue all of its issued and outstanding capital stock to
the Company. In addition, pursuant to the Plan, the Company will offer and sell
up to 1,058,000 shares of its common stock, par value $0.01 per share (the
"Shares" or "Common Stock"), in a subscription offering (the "Subscription
Offering") to (1) depositors of the Bank with savings accounts of $50 or more as
of December 31, 1997 ("Eligible Account Holders"), (2) the Bank's Employee Stock
Ownership Plan ("ESOP"), (3) depositors of the Bank with savings accounts of $50
or more as of March 31, 1999 ("Supplemental Eligible Account Holders") and (4)
depositors of the Bank as of [March 31], 1999 (other than Eligible Account
Holders and Supplemental Eligible Account Holders) ("Other Members"). Subject to
the prior subscription rights of the above-listed parties, the Company is
offering for sale in a community offering (the "Community Offering" and, when
referred to together with the Subscription Offering, the
<PAGE>
"Subscription and Community Offering") conducted concurrently with the
Subscription Offering, the Shares not so subscribed for or ordered in the
Subscription Offering to certain members of the general public to whom a copy of
the Prospectus (as hereinafter defined) is delivered, with a preference given to
natural persons and trusts of natural persons who are permanent residents of the
communities of Juneau, Ketchikan, Sitka and Wrangell, Alaska and then to such
persons who are residents of counties contiguous to those communities (the
"Local Community") ("Other Subscribers") (all such offerees being referred to in
the aggregate as "Eligible Offerees"). It is anticipated that shares not
subscribed for in the Subscription and Community Offering will be offered to
members of the general public on a best efforts basis through a selected dealers
arrangement (the "Syndicated Community Offering") (the Subscription Offering,
Community Offering and Syndicated Community Offering are collectively referred
to as the "Offering"). It is acknowledged that the purchase of Shares in the
Offering is subject to the maximum and minimum purchase limitations as described
in the Plan and that the Company and the Bank may reject, in whole or in part,
any orders received in the Community Offering or Syndicated Community Offering.
Collectively, these transactions are referred to herein as the "Conversion."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No. 333-_____) (the
"Registration Statement") containing a prospectus relating to the Offering for
the registration of the Shares under the Securities Act of 1933 (the "1933
Act"), and has filed such amendments thereof, if any, and such amended
prospectuses as may have been required to the date hereof. The prospectus, as
amended, on file with the Commission at the time the Registration Statement
initially became effective is hereinafter called the "Prospectus," except that
if any prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") differing from the prospectus on file at the time the Registration
Statement initially becomes effective, the term "Prospectus" shall refer to the
prospectus filed pursuant to Rule 424(b) or (c) from and after the time said
prospectus is filed with the Commission.
In accordance with 12 C.F.R. Part 563b (the "Conversion Regulations"),
the Bank has filed with the Office of Thrift Supervision (the "OTS") an
Application for Conversion (the "Conversion Application"), including the
Prospectus, and has filed such amendments thereto, if any, as may have been
required by the OTS. The Conversion Application has been approved by the OTS and
the related Prospectus has been authorized for use by the OTS. In addition, the
Company has filed with the OTS an Application H-(e)1-S (the "Holding Company
Application") to become a registered savings and loan holding company under
Section 10 of the Home Owners' Loan Act, as amended ("SLHCA").
Section 2. Retention of Webb; Compensation; Sale and Delivery of the
Shares. Subject to the terms and conditions herein set forth, the Company and
the Bank hereby appoint Webb (i) as their exclusive financial advisory and
marketing agent to utilize its best efforts to solicit subscriptions for Shares
of the Common Stock and to advise and assist the Company and the Bank
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<PAGE>
with respect to the Company's sale of the Shares in the Offering and (ii) to
participate in the Offering in the areas of market making, research coverage and
syndicate formation (if necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Webb
accepts such appointment and agree to consult with and advise the Company and
the Bank as to the matters set forth in the letter agreement ("Letter
Agreement"), dated January 12, 1999, between the Bank and Webb (a copy of which
is attached hereto as Exhibit A). It is acknowledged by the Company and the Bank
that Webb shall not be required to purchase any Shares and shall not be
obligated to take any action which is inconsistent with all applicable laws,
regulations, decisions or orders. In the event of the Syndicated Community
Offering, Webb will assemble and manage a selling group of broker-dealers which
are members of the National Association of Securities Dealers, Inc. (the "NASD")
to participate in the solicitation of purchase orders for shares under a
selected dealers' agreement ("Selected Dealers' Agreement"), the form of which
is set forth as Exhibit B to this Agreement.
The obligations of Webb pursuant to this Agreement shall terminate upon
the completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than December 31,1999 (the
"End Date"). All fees or expenses due to Webb but unpaid will be payable to Webb
in next day funds at the earlier of the Closing Date (as hereinafter defined) or
the End Date. In the event the Offering is extended beyond the End Date, the
Company, the Bank and Webb may agree to renew this Agreement under mutually
acceptable terms.
In the event the Company is unable to sell a minimum of 680,000 Shares
(or such lesser amount approved by the OTS) within the period herein provided,
this Agreement shall terminate and the Company shall refund to any persons who
have subscribed for any of the Shares, the full amount which it may have
received from them plus accrued interest as set forth in the Prospectus; and
none of the parties to this Agreement shall have any obligation to the other
parties hereunder, except as otherwise set forth in this Section 2 and in
Sections 6, 8 and 9 hereof.
In the event the Offering is terminated for any reason not attributable
to the action or inaction of Webb, Webb shall be paid the fees and expenses due
to the date of such termination pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan: provided however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of Webb and its counsel. The
release of Shares against payment therefor shall be made at [10:00 a.m., Alaska
Time,] on a date and at a place acceptable to the Company, the Bank and Webb (it
being understood that such date shall not be more than ten business days after
the
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<PAGE>
acceptance of the updated appraisal by the OTS) or such other time or place as
shall be agreed upon by the Company, the Bank and Webb. Certificates for shares
shall be delivered directly to the purchasers in accordance with their
directions. The date upon which the Company shall release or deliver, or have
released or delivered, the Shares sold in the Offering, in accordance with the
terms herein, is called the "Closing Date."
Webb shall receive from the Company the following compensation for their
services hereunder:
(a) A management fee to Webb in the amount of $25,000. Such fees
shall be deemed to be earned when due. Should the Conversion be
terminated for any reason not attributable to the action or
inaction of Webb, Webb shall have earned and be entitled to be
paid fees accruing through the stage at which point the
termination occurred.
(b) A success fee of 1.5% of the dollar amount of Common Stock sold
in the Subscription and Community Offering, excluding Common
Stock purchased by directors, officers and employees (and members
of their immediate families) of the Bank and by the ESOP and any
tax-qualified or stock-based compensation plan (excluding
individual retirement plans ("IRAs")) and any similar plan
created by the Bank for some or all of its directors or
employees, payable on the Closing Date. The management fee
described in subsection (a) shall be applied against such success
fee.
(c) If any shares of the Company's stock remain available after the
Subscription and Community Offering, at the request of the Bank,
Webb will seek to form a syndicate of registered broker-dealers
to assist in the sale of such shares of Common Stock on a best
efforts basis, subject to the terms and conditions set forth in
the Selected Dealers' Agreement. Webb will endeavor to distribute
the Common Stock among dealers in a fashion which best meets the
distribution objectives of the Bank and the Plan of Conversion.
Webb will be paid a fee not to exceed 5.5% of the aggregate
purchase price of the shares of Common Stock sold pursuant to the
Selected Dealers' Agreement and then will pass onto selected
broker-dealers who assist in the syndicated community an amount
competitive with gross underwriting discounts charged at such
time for comparable amounts of stock sold at a comparable price
per share in a similar market environment. Fees with respect to
purchases affected with the assistance of a broker/dealer shall
be transmitted by Webb to such broker/dealer. The decision to
utilize selected broker-dealers will be made by the Bank upon
consultation with Webb. In the event, with respect to any stock
purchases, fees are paid pursuant to this subparagraph 2(c), such
fees shall be in lieu of, and not in addition to, payment
pursuant to subparagraphs 2(a) and 2(b).
(d) The Bank and the Company hereby agree to reimburse Webb, from
time to time upon Webb's request, for its reasonable
out-of-pocket expenses and the reasonable fees and expenses of
its counsel (such fees of counsel will not be incurred without
the prior
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<PAGE>
approval of the Bank). Such reimbursement of legal fees shall not
exceed $35,000. The Bank will bear the expenses of the Offering
customarily borne by issuers including, without limitation, OTS,
the Commission, "Blue Sky," and NASD filing and registration
fees; the fees of the Bank's accountants, conversion agent,
attorneys, appraiser, transfer agent and registrar, printing,
mailing and marketing expenses associated with the Conversion.
Full payment of Webb's actual and accountable expenses, advisory fees
and compensation shall be made in next day funds on the earlier of the Closing
Date or a determination by the Bank to terminate or abandon the Plan.
Webb will provide financial advisory assistance for a period of one year
following completion of the Conversion as set forth in the Letter Agreement.
Following this initial one-year term, if Webb and the Company wish to continue
the relationship, a fee will be negotiated and an agreement entered into at that
time. Nothing in this Agreement shall require the Company and the Bank to obtain
such financial advisory services from Webb.
Section 3. Prospectus; Offering. The Shares are to be initially offered
in the Offering at the Purchase Price as defined and set forth on the cover page
of the Prospectus.
Section 4. Representations and Warranties. The Company and the Bank
jointly and severally represent and warrant to Webb on the date hereof as
follows:
(a) The Registration Statement was declared effective by the Commission
on _________, 1999. At the time the Registration Statement, including the
Prospectus contained therein (including any amendment or supplement thereto),
became effective, the Registration Statement complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations and
the Registration Statement, including the Prospectus contained therein
(including any amendment or supplement thereto), and any information regarding
the Company or the Bank contained in Sales Information (as such term is defined
in Section 8 hereof) authorized by the Company or the Bank for use in connection
with the Offering, did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and at the time any Rule 424(b) or (c) Prospectus was
filed with the Commission; provided, however, that the representations and
warranties in this Section 4(a) shall not apply to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company or the Bank by Webb expressly regarding Webb (or Keefe, Bruyette &
Woods, Inc.) for use in the Prospectus under the captions "Market for Alaska
Pacific Bancshares's Common Stock" and "Alaska Federal's Conversion" or
statements in or omissions from any Sales Information or information filed
pursuant to state securities or blue sky laws or regulations regarding Webb.
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<PAGE>
(b) The Conversion Application was approved by the OTS on _______, 1999
and the related Prospectus was authorized for use by the OTS on _________, 1999.
At the time of the approval of the Conversion Application, including the
Prospectus (including any amendment or supplement thereto), by the OTS, the
Conversion Application, including the Prospectus (including any amendment or
supplement thereto), complied as to form in all material respects with the
Conversion Regulations except to the extent waived by the OTS. The Conversion
Application, including the Prospectus (including any amendment or supplement
thereto), does not include any untrue statement of a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section 4(b) shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company or the Bank by Webb expressly regarding
Webb (or Keefe, Bruyette & Woods, Inc.) for use in the Prospectus contained in
the Conversion Application under the captions "Market for Alaska Pacific
Bancshares's Common Stock" and "Alaska Federal's Conversion" or statements in or
omissions from any sales information or information filed pursuant to state
securities or blue sky laws or regulations regarding Webb.
(c) No order has been issued by the OTS or the Commission preventing or
suspending the use of the Prospectus and no action by or before any such
government entity to revoke any approval, authorization or order of
effectiveness related to the Conversion is, to the best knowledge of the Company
or the Bank, pending or threatened.
(d) To the best knowledge of the Company, no person has sought to obtain
review of the final action of the OTS in approving the Plan or in approving the
Conversion or the Holding Company Application pursuant to the Home Owners' Loan
Act, as amended, ("HOLA"), the Conversion Regulations or regulations promulgated
under the SLHCA.
(e) The Bank has been organized and is a validly existing federally
chartered savings bank in mutual form of organization and upon consummation of
the Conversion will become an organized and validly existing federally chartered
savings bank 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 Prospectus; the Bank has obtained all material
licenses, permits and other governmental authorizations currently required for
the conduct of its business; all such licenses, permits and governmental
authorizations are in full force and effect, and the Bank is in all material
respects complying with all laws, rules, regulations and orders applicable to
the operation of its business; the Bank is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which its ownership of property or leasing of property or the conduct of its
business requires such qualification, unless the failure to be so qualified in
one or more of such jurisdictions would not have a material adverse effect on
the financial condition, or the business, operations or income of the Bank. The
Bank does not own equity securities or any equity interest in any other business
enterprise except as described in the Prospectus.
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<PAGE>
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Alaska with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and the Company is qualified to do business as a foreign corporation
in each jurisdiction in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the financial condition, or the business, operations or income
of the Company. The Company has obtained all material licenses, permits and
other governmental authorizations currently required for the conduct of its
business; all such licenses, permits and governmental authorizations are in full
force and effect, and the Company is in all material respects complying with all
laws, rules, regulations and orders applicable to the operation of its business.
(g) The Bank is a member of the Federal Home Loan Bank of Seattle
("FHLB-Seattle"). The deposit accounts of the Bank are insured by the FDIC up to
the applicable limits; and no proceedings for the termination or revocation of
such insurance are pending or, to the best knowledge of the Bank, threatened.
(h) The Company and the Bank have good and marketable title to all real
property and other assets material to the business of the Company and the Bank
and to those properties and assets described in the Registration Statement and
Prospectus as owned by them, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the Registration Statement and
Prospectus or are not material to the business of the Company and the Bank,
taken as a whole; and all of the leases and subleases material to the business
of the Company and the Bank under which the Company or the Bank hold properties,
including those described in the Registration Statement and Prospectus, are in
full force and effect.
(i) The Company and the Bank have received an opinion from Breyer &
Associates, PC, Washington, D.C. with respect to the federal tax consequences of
the Conversion and an opinion from Deloitte & Touche LLP, Anchorage, Alaska,
with respect to the Alaska state tax consequences of the Conversion; all
material aspects of each of those tax opinions are accurately summarized in the
Prospectus; and the facts and representations upon which such opinions are based
are truthful, accurate and complete.
(j) The Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell (i) the capital stock of the Bank to the Company and (ii) the Shares to be
sold by the Company as provided herein and as described in the Prospectus.
(k) The Company and the Bank are not in violation of any directive
received from the OTS or the FDIC 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 and the FDIC), and, except as set
forth in the Registration Statement and the Prospectus, there is no suit or
proceeding or
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<PAGE>
charge or action before or by any court, regulatory authority or governmental
agency or body, pending or, to the knowledge of the Company and the Bank,
threatened, which would materially and adversely affect the Conversion, the
performance of this Agreement or the consummation of the transactions
contemplated in the Plan and as described in the Registration Statement and the
Prospectus or which would result in any material adverse change in the financial
condition, earnings, capital or properties of the Company, or the Bank.
(l) The consolidated financial statements which are included in the
Prospectus fairly present the financial condition, results of operations,
retained earnings and cash flows of the Bank at the respective dates thereof and
for the respective periods covered thereby and comply as to form in all material
respects with the applicable accounting requirements of the Regulations of the
Commission, Title 12 of the Code of Federal Regulations, and generally accepted
accounting principles consistently applied through the periods involved except
as noted therein. Such financial statements are consistent with the most recent
financial statements and other reports filed by the Bank with the OTS, except
that accounting principles employed in such regulatory filings conform to the
requirements of such authorities and not necessarily to generally accepted
accounting principles. The other financial, statistical and pro forma
information and related notes (except the appraisal data) included in the
Prospectus present fairly the information shown therein on a basis consistent
with the audited and unaudited consolidated financial statements of the Bank
included in the Prospectus, and as to the pro forma adjustments, the adjustments
made therein have been properly applied on the basis described therein.
(m) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus: (i) there has not been any material
adverse change, in the financial condition of the Company and the Bank
considered as on enterprise or in the earnings, capital or properties of the
Company or the Bank, whether or not arising in the ordinary course of business;
(ii) there has been no incurrence of any material long-term debt by the Bank or
any material increase in loans past due 90 days or more or real estate acquired
by foreclosure, by deed-in-lieu of foreclosure or deemed in-substance
foreclosure or any material decrease in surplus and reserves or total assets of
the Bank nor has the Company or the Bank issued any securities (other than as
contemplated by this Agreement) or incurred any liability or obligation for
borrowing other than in the ordinary course of business and (iii) there have not
been any material transactions entered into by the Company or the Bank, except
with respect to those transactions entered into in the ordinary course of
business.
(n) The capitalization, liabilities, assets, properties and business of
the Company and the Bank conform in all material respects to the descriptions
thereof contained in the Prospectus.
(o) Neither the Company nor the Bank has any material contingent
liabilities, except as set forth in the Prospectus.
(p) As of the date hereof, neither the Company nor the Bank is in
violation of its articles of incorporation or bylaws or charter or bylaws, as
applicable (and the Bank will not be in
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<PAGE>
violation of its charter or bylaws in capital stock form at the time of
consummation of the Conversion), or in default in the performance or observance
of any material obligation, agreement, covenant, or condition contained in any
material contract, lease, loan agreement, indenture or other instrument to which
it is a party or by which it or any other instrument to which it is a party or
by which it or any of its property may be bound; the consummation of the
Conversion, the execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated have been duly and validly
authorized by all necessary corporate action on the part of the Company and the
Bank and this Agreement has been validly executed and delivered by the Company
and the Bank and, assuming valid execution and delivery by Webb, is the valid,
legal and binding Agreement of the Company and the Bank enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium, conservatorship,
receivership or other similar laws now or hereafter in effect relating to or
affecting the enforcement of creditors' rights generally or the rights of
creditors of Federal savings associations and their holding companies, (ii)
general equitable principles, (iii) laws relating to the safety and soundness of
insured depository institutions, and (iv) applicable law (including Section 23A
of the Federal Reserve Act, as amended) or public policy with respect to the
indemnification and/or contribution provisions contained herein, and except that
no representation or warranty need be made as to the effect or availability of
equitable remedies or injunctive relief (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The
consummation of the transaction herein contemplated will not: (i) conflict with
or constitute a breach of, or default under, the articles of incorporation and
bylaws of the Company or the charter and bylaws of the Bank (in either mutual or
capital stock form), or any material contract, lease or other instrument to
which the Company or the Bank is a party, or any applicable law, rule,
regulation or order to which the Company or the Bank is subject; (ii) violate
any authorization, approval, judgement, decree, order, statute, rule or
regulation applicable to the Company or the Bank, except for such violation
which would not have a material adverse effect on the financial condition and
results of operations of the Company and the Bank on a consolidated basis; or
(iii) with the exception of the liquidation account established in the
Conversion, result in the creation of any material lien, charge or encumbrance
upon any property of the Company or the Bank.
(q) 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 Bank, in the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, note, bank loan or credit
agreement or any other instrument of agreement to which the Company or the Bank
is a party or by which any of them or any of their property is bound or affected
except such defaults which would not have a material adverse effect on the
financial condition or results of operations of the Company and the Bank on a
consolidated basis; such agreements are in full force and effect; and no other
party to any such agreements has instituted or, to the best knowledge of the
Company and the Bank, threatened any action or proceeding wherein the Company or
the Bank would be alleged to be in default thereunder under circumstances where
such action or proceeding, if determined adversely to the Company or the Bank
would have a material adverse effect on the Company and the Bank, taken as a
whole.
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<PAGE>
(r) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be within the range set forth in
the Prospectus under the caption "Capitalization," and no shares of Common Stock
have been or will be issued and outstanding prior to the Closing Date referred
to in Section 2; the Shares will have been duly and validly authorized for
issuance and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan and in
the Prospectus, will be duly and validly issued, fully paid and non-assessable;
no preemptive rights exist with respect to the Shares (except for subscription
rights granted under the Plan); 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 Prospectus. To the best knowledge of the Company
and the Bank, 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.
(s) The Company or the Bank is not required to obtain any approval of
any regulatory or supervisory or other public authority in connection with the
execution and delivery of this Agreement or the issuance of the Shares, except
for the approval of the Commission, the OTS and any necessary qualification,
notification, registration or exemption under the securities or blue sky laws of
the various states in which the Shares are to be offered, and except as may be
required under the rules and regulations of the NASD and/or the Nasdaq National
Market.
(t) Deloitte & Touche, LLP, which has certified the financial statements
of the Bank included in the Prospectus as of December 31, 1998 and 1997, has
advised the Company and the Bank in writing that they are, with respect to the
Company and the Bank, 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 and Section
571.2(c)(3).
(u) RP Financial, LC, which has prepared the Bank's Conversion Valuation
Appraisal Report as of March 12, 1999 (as amended or supplemented, if so amended
or supplemented) (the "Appraisal"), has advised the Company in writing that it
is independent of the Company and the Bank within the meaning of the Conversion
Regulations.
(v) The Company and the Bank have timely filed all required federal,
state and local tax returns; the Company and the Bank have paid all taxes that
have become due and payable in respect of such returns, except where permitted
to be extended; to the best knowledge of the Bank adequate reserves have been
made for similar future tax liabilities and no deficiency has been asserted with
respect thereto by any taxing authority.
(w) The Company and the Bank are in compliance in all material respects
with the applicable financial recordkeeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended, and the
regulations and rules thereunder.
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<PAGE>
(x) To the knowledge of the Company and the Bank, neither the Company
(except for the loan to the ESOP), the Bank nor employees of the Company or the
Bank have made any payment of funds of the Company or the Bank as a loan for the
purchase of the Shares.
(y) Prior to the Conversion, the Bank was not authorized to issue shares
of capital stock and neither the Company nor the Bank has: (i) issued any
securities within the last 18 months (except for notes to evidence other bank
loans and reverse repurchase agreements or other liabilities in the ordinary
course of business or as described in the Prospectus); (ii) had any material
dealings within the 12 months prior to the date hereof with any member of the
NASD, or any person related to or associated with such member, other than
discussions and meetings relating to the proposed Offering and routine purchases
and sales of United States government and agency securities; (iii) entered into
a financial or management consulting agreement except as contemplated hereunder
and except for the Letter Agreement set forth in Exhibit A; and (iv) engaged any
intermediary between Webb and the Company and the Bank in connection with the
offering of the Shares, and no person is being compensated in any manner for
such service.
(z) The Company and the Bank have not relied upon Webb or Webb's counsel
for any legal, tax or accounting advice in connection with the Conversion.
(aa) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
Any certificates signed by an officer of the Company or the Bank
pursuant to the conditions of this Agreement and delivered to Webb or its
counsel that refers to this Agreement shall be deemed to be a representation and
warranty by the Company or the Bank to Webb as to the matters covered thereby
with the same effect as if such representation and warranty were set forth
herein.
Section 5. Representations and Warranties of Webb.
(a) Webb represents and warrants to the Company and the Bank that:
(i) Webb is a corporation and is validly existing in good standing
under the laws of the State of Ohio with full power and authority to
provide the services to be furnished to the Bank and the Company hereunder.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of Webb, and this Agreement
has been duly and validly executed and delivered by Webb and is the legal,
valid and binding agreement of Webb, enforceable in accordance with its
terms.
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<PAGE>
(iii) Each of Webb and its employees, agents and representatives who
shall perform any of the services hereunder shall be duly authorized and
empowered, and shall have all licenses, approvals and permits necessary to
perform such services.
(iv) The execution and delivery of this Agreement by Webb, the
consummation of the transactions contemplated hereby and compliance with
the terms and provisions hereof will not conflict with, or result in a
breach of, any of the terms, provisions or conditions of, or constitute a
default (or event which with notice or lapse of time or both would
constitute a default) under, the articles of incorporation of Webb or any
agreement, indenture or other instrument to which Webb is a party or by
which it or its property is bound.
(v) No approval of any regulatory or supervisory or other public
authority is required in connection with Webb's execution and delivery of
this Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before or by
any court, regulatory authority or government agency or body or, to the
best knowledge of Webb, pending or threatened, which might materially
adversely affect Webb's performance under this Agreement.
Section 5.1 Covenants of the Company and the Bank. The Company and the
Bank hereby jointly and severally covenant with Webb as follows:
(a) The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing Webb and its counsel an opportunity to
review such amendment or supplement or file any amendment or supplement to which
amendment or supplement Webb or its counsel shall reasonably object.
(b) The Bank will not, at any time after the Conversion Application is
approved by the OTS, file any amendment or supplement to such Conversion
Application without providing Webb and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement Webb or its counsel shall reasonably object.
(c) The Company will not, at any time before the Holding Company
Application is approved by the OTS, file any amendment or supplement to such
Holding Company Application without providing Webb and its counsel an
opportunity to review such amendment or supplement or file any amendment or
supplement to which amendment or supplement Webb or its counsel shall reasonably
object. The Company and the Bank will not consummate the Conversion prior to the
approval of the Holding Company Application by the OTS.
(d) The Company and the Bank 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
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immediately upon receipt of any information concerning the events listed below
notify Webb: (i) when the Registration Statement, as amended, has become
effective; (ii) when the Conversion Application, as amended, has been approved
by the OTS; (iii) when the Holding Company Application, as amended, has been
approved by the OTS; (iv) of any comments from the Commission, the OTS or any
other governmental entity with respect to the Conversion or the transactions
contemplated by this Agreement; (v) of the request by the Commission, the OTS or
any other governmental entity for any amendment or supplement to the
Registration Statement, the Conversion Application or the Holding Company
Application or for additional information; (vi) of the issuance by the
Commission, the OTS or any other governmental entity of any order or other
action suspending the Offering or the use of the Registration Statement or the
Prospectus or any other filing of the Company or the Bank under the Conversion
Regulations, or other applicable law, or the threat of any such action; (vii)
the issuance by the Commission, the OTS or any state authority of any stop order
suspending the effectiveness of the Registration Statement or the approval of
the Conversion Application or Holding Company Application, or of the initiation
or threat of initiation or threat of any proceedings for any such purpose; or
(viii) of the occurrence of any event mentioned in paragraph (h) below. The
Company and the Bank will make every reasonable effort (i) to prevent the
issuance by the Commission, the OTS or any state authority of any such order
and, if any such order shall at any time be issued, (ii) to obtain the lifting
thereof at the earliest possible time.
(e) The Company and the Bank will deliver to Webb and to its counsel two
conformed copies of the Registration Statement, the Conversion Application and
the Holding Company Application, as originally filed and of each amendment or
supplement thereto, including all exhibits. Further, the Company and the Bank
will deliver such additional copies of the foregoing documents to counsel to
Webb as may be required for any NASD filings.
(f) The Company and the Bank will furnish to Webb, from time to time
during the period when the Prospectus (or any later prospectus related to this
offering) is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934, (the "1934 Act"), such number of copies of such Prospectus
(as amended or supplemented) as Webb may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the
rules and regulations promulgated under the 1934 Act (the "1934 Act
Regulations"). The Company authorizes Webb to use the Prospectus (as amended or
supplemented, if amended or supplemented) in any lawful manner contemplated by
the Plan in connection with the sale of the Shares by Webb.
(g) The Company and the Bank will comply with any and all material
terms, conditions, requirements and provisions with respect to the Conversion
imposed by the Commission, the OTS, the Conversion Regulations or the SLHCA, and
by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations to be complied with prior to or subsequent to the Closing Date.
(h) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered, any event relating to or affecting the
Company or the Bank shall occur, as a result
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<PAGE>
of which it is necessary or appropriate, in the opinion of counsel for the
Company and the Bank to amend or supplement the Registration Statement or
Prospectus in order to make the Registration Statement or Prospectus not
misleading in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, the Company and the Bank will, at their expense,
prepare and file with the Commission and the OTS and furnish to Webb a
reasonable number of copies of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement and Prospectus (in form and substance
satisfactory to Webb and its counsel after a reasonable time for review) which
will amend or supplement the Registration Statement and Prospectus so that as
amended or supplemented it will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading. For the purpose of this Agreement, the
Company and the Bank each will timely furnish to Webb such information with
respect to itself as Webb may from time to time reasonably request.
(i) At the Closing Date referred to in Section 2, the Plan will have
been adopted by the Boards of Directors of both the Company and the Bank 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 precedent to the Conversion imposed upon
the Company or the Bank by the OTS, the Commission or any other regulatory
authority and in the manner described in the Prospectus.
(j) Upon completion of the sale by the Company of the Shares
contemplated by the Prospectus, (i) the Bank will be converted pursuant to the
Plan to a federally chartered stock savings bank, (ii) all of the authorized and
outstanding capital stock of the Bank will be owned by the Company, and (iii)
the Company will have no direct subsidiaries other than the Bank. 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 letters of approval, all
terms, conditions, requirements and provisions with respect to the Conversion
(except those that are conditions subsequent) imposed by the Commission and the
OTS, if any, will have been complied with by the Company and the Bank in all
material respects or appropriate waivers will have been obtained and all
material notice and waiting periods will have been satisfied, waived or elapsed.
(k) The Company and the Bank will take all necessary actions, in
cooperation with Webb, and furnish to whomever Webb, the Company and the Bank
may mutually agree, such information as may be required to qualify or register
the Shares for offering and sale by the Company or to exempt such Shares from
registration, or to exempt the Company as a broker-dealer and its officers,
directors and employees as broker-dealers or agents under the applicable
securities or blue sky laws of such jurisdictions in which the Shares are to be
offered and sold as Webb and the Company and the Bank may reasonably agree upon;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify to do business in any
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<PAGE>
jurisdiction in which it is not so qualified. In each jurisdiction where any of
the Shares shall have been qualified or registered as above provided, the
Company will make and file such statements and reports in each fiscal period as
are or may be required by the laws of such jurisdiction.
(l) The liquidation account for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders will be duly established and
maintained in accordance with the requirements of the OTS, and such Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain their savings accounts in the Bank will have an inchoate interest in
their pro rata portion of the liquidation account which shall have a priority
superior to that of the holders of shares of Common Stock in the event of a
complete liquidation of the Bank.
(m) The Company and the Bank will not sell or issue, contract to sell or
otherwise dispose of, for a period of 90 days after the Closing Date, without
Webb's prior written consent, any shares of Common Stock other than the Shares
or other than in connection with any plan or arrangement described in the
Prospectus.
(n) The Company has registered its Common Stock under Section 12(g) of
the 1934 Act concurrent with the Offering pursuant to the Plan and such
registration became effective concurrent with the effectiveness of the
Registration Statement. The Company shall maintain the effectiveness of such
registration for not less than three (3) years or such shorter period as may be
required by the OTS.
(o) During the period during which the Company's Common Stock is
registered under the 1934 Act or for three years from the date hereof, whichever
period is greater, the Company will furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report of the Company
(including a consolidated balance sheet and statements of consolidated income,
stockholders' equity and cash flows of the Company and its subsidiaries as at
the end of and for such year, certified by independent public accountants in
accordance with Regulation S-X under the 1933 Act and the 1934 Act).
(p) During the period of three years from the date hereof, the Company
will furnish to Webb: (i) as soon as practicable after such information is
publicly available, a copy of each report of the Company furnished to or filed
with the Commission under the 1934 Act or any national securities exchange or
system on which any class of securities of the Company is listed or quoted
(including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and all
proxy statements and annual reports to stockholders), (ii) a copy of each other
non-confidential report of the Company mailed to its stockholders or filed with
the Commission, the OTS or any other supervisory or regulatory authority or any
national securities exchange or system on which any class of securities of the
Company is listed or quoted, each press release and material news items and
additional documents and information with respect to the Company or the Bank as
Webb may reasonably request; and (iii) from time to time, such other
nonconfidential information concerning the Company or the Bank as Webb may
reasonably request.
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<PAGE>
(q) The Company and the Bank will use the net proceeds from the sale of
the Shares in the manner set forth in the Prospectus under the caption "How
Alaska Pacific Bancshares Intends to Use the Conversion Offering Proceeds."
(r) Other than as permitted by the Conversion Regulations, the SLHCA,
the 1933 Act, the 1933 Act Regulations, and the laws of any state in which the
Shares are registered or qualified for sale or exempt from registration, neither
the Company nor the Bank will distribute any prospectus, offering circular or
other offering material in connection with the offer and sale of the Shares.
(s) The Company will use its best efforts to (i) encourage and assist
three market makers to establish and maintain a market for the Shares and (ii)
list the Shares through the OTC Bulletin Board or the National Daily Quotations
System "Pink Sheets" published by the National Quotation Bureau, Inc. effective
on or prior to the Closing Date.
(t) The Bank will maintain appropriate arrangements for depositing all
funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offering on an interest bearing basis at the rate described in the
Prospectus until the Closing Date and satisfaction of all conditions precedent
to the release of the Bank's obligation to refund payments received from persons
subscribing for or ordering Shares in the Offering in accordance with the Plan
and as described in the Prospectus or until refunds of such funds have been made
to the persons entitled thereto or withdrawal authorizations cancelled in
accordance with the Plan and as described in the Prospectus. The Bank 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 Bank to make the appropriate refunds of such funds
in the event that such refunds are required to be made in accordance with the
Plan and as described in the Prospectus.
(u) Prior to the Closing Date, the Holding Company Application shall
have been approved by the OTS. The Company will promptly take all necessary
action to register as a savings and loan holding company under the SLHCA within
90 days of the Closing Date.
(v) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by Webb in order for Webb to ensure
compliance with the NASD's "Interpretation Relating to Free Riding and
Withholding."
(w) The Bank will not amend the Plan without notifying Webb prior
thereto.
(x) The Company shall assist Webb, if necessary, in connection with the
allocation of the Shares in the event of an oversubscription and shall provide
Webb with any information necessary in allocating the Shares in such event.
(y) Prior to the Closing Date, the Company and the Bank will inform Webb
of any event or circumstances of which it is aware as a result of which the
Registration Statement, the
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<PAGE>
Conversion Application and/or Prospectus, as then amended or supplemented, would
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading.
Section 5.2 Covenants of Webb. Webb hereby covenants with the Company
and the Bank as follows:
(a) During the period when the Prospectus is used, Webb will comply, in
all material respects and at its own expense, with all requirements imposed upon
it by the OTS and the NASD and, to the extent applicable, by the 1933 Act and
the 1934 Act and the rules and regulations promulgated thereunder.
(b) Webb shall return unused copies of the Prospectus, if any, to the
Company promptly upon the completion of the Conversion.
(c) Webb will distribute copies of the Prospectus and Sales Information
in connection with the sales of the common stock only in accordance with NASD
and OTS regulations, the 1933 Act and the rules and regulations promulgated
thereunder.
(d) Webb shall assist the Bank in maintaining arrangements for the
deposit of funds and the making of refunds, as appropriate (as described in
Section 5.1(t)), and shall perform the allocation of shares in the event of an
oversubscription, in conformance with the Plan and applicable regulations and
based upon information furnished to Webb by the Bank (as described in Section
5.1(x)).
(e) Webb shall use its best efforts to assist the Company in obtaining
at least three market makers for the shares of Common Stock.
Section 6. Payment of Expenses. Whether or not the Conversion is
completed or the sale of the Shares by the Company is consummated, the Company
and the Bank jointly and severally agree to pay or reimburse Webb for: (a) all
filing fees in connection with all filings with the NASD; (b) any stock issue or
transfer taxes which may be payable with respect to the sale of the Shares; (c)
all reasonable expenses of the Conversion, including but not limited to, the
Company's and the Bank's attorneys' fees, transfer agent, registrar and other
agent charges, fees relating to auditing and accounting or other advisors and
costs of printing all documents necessary in connection with the Conversion; and
(d) all reasonable out-of-pocket expenses incurred by Webb. Such out-of-pocket
expenses include, but are not limited to, travel, communications and postage and
reasonable fees of counsel (such fees of counsel will not be incurred without
the prior approval of the Bank). However, such out-of-pocket expenses do not
include expenses incurred with respect to the matters set forth in (a) and (b)
above. In the event the Company is unable to sell a minimum of 680,000 Shares or
the Conversion is terminated or otherwise abandoned, the Company and the Bank
shall reimburse Webb in accordance with Section 2 hereof.
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<PAGE>
Section 7. Conditions to Webb's Obligations. Webb's obligations
hereunder, as to the Shares to be issued at the Closing Date, are subject, to
the extent not waived by Webb, to the condition that all representations and
warranties of the Company and the Bank 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 Bank shall have
performed all of their obligations hereunder to be performed on or before such
dates, and to the following further conditions:
(a) At the Closing Date, the Company and the Bank 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, the Conversion Application approved by the OTS, and the Holding
Company Application approved by the OTS not later than 5:30 p.m. on the date of
this Agreement, or with Webb's consent at a later time and date; and at the
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefore
initiated or threatened by the Commission, or any state authority and no order
or other action suspending the authorization of the Prospectus or the
consummation of the Conversion shall have been issued or proceedings therefore
initiated or, to the Company's or the Bank's knowledge threatened by the
Commission, the OTS or any state authority.
(c) At the Closing Date, Webb shall have received:
(1) The favorable opinion, dated as of the Closing Date and addressed
to Webb and for its benefit, of Breyer & Associates, PC, special counsel
for the Company and the Bank, in form and substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Alaska and 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 Prospectus.
(ii) The Bank is organized and is validly existing as a federally
chartered savings bank in mutual form of organization and upon the
Conversion will become a duly organized and validly existing federally
chartered savings bank in capital stock form of organization, in both
instances duly authorized to conduct its business and own its property
as described in the Registration Statement and Prospectus. All of the
outstanding capital stock of the Bank will be duly authorized and,
upon payment therefor as set forth in the Plan, will be validly
issued, fully paid and non-assessable and, to such counsel's Actual
Knowledge, will be owned by the Company, free and clear of any liens,
encumbrances, claims or other restrictions.
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<PAGE>
(iii) The Bank is a member of the FHLB-Seattle. The Bank is an
insured depository institution under the provisions of Section 4(a) of
the Federal Deposit Insurance Act, as amended, and no proceedings for
the termination or revocation of such insurance are pending or, to
such counsel's Actual Knowledge, threatened; the description of the
liquidation account as set forth in the Prospectus under the caption
"Alaska Federal's Conversion-Effects of Conversion to Stock Form on
Depositors and Borrowers of Alaska Federal-Liquidation Account," to
the extent that such information constitutes matters of law and legal
conclusions, has been reviewed by such counsel and is accurate in all
material respects.
(iv) Upon consummation of the Conversion, the authorized, issued
and outstanding capital stock of the Company will be within the range
set forth in the Prospectus under the caption "Capitalization," and no
shares of Common Stock have been issued prior to the Closing Date; at
the time of the Conversion, the Shares to be sold in the Offering 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 as set forth in the Plan and the Prospectus, will be
duly and validly issued and fully paid and non-assessable; except for
subscription rights granted pursuant to the Plan, the issuance of the
Shares is not subject to statutory preemptive rights and the terms and
provisions of the Shares conform in all material respects to the
description thereof contained in the Prospectus. To such counsel's
Actual Knowledge, 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.
(v) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part
of the Company and the Bank; and this Agreement is a valid and binding
obligation of the Company and the Bank, enforceable in accordance with
its terms, except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws now or hereafter in effect relating
to or affecting the enforcement of creditors' rights generally or the
rights of creditors of savings associations and their holding
companies, (ii) general principles of equity, (iii) laws relating to
the safety and soundness of insured depository institutions, and (iv)
applicable law or public policy with respect to the indemnification
and/or contribution provisions contained herein, and except that no
opinion need to be expressed as to the effect or availability of
equitable remedies or injunctive relief (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(vi) The Conversion Application has been approved by the OTS and
the Prospectus has been authorized for use by the OTS. The OTS has
approved the Holding Company Application and issued its letter of
approval under the SLHCA, and no action has been taken, and to such
counsel's Actual Knowledge, none is pending or threatened, to revoke
any such authorization or approval.
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<PAGE>
(vii) The Plan has been duly adopted by the required vote of the
directors of the Company and the Bank and, based upon the certificate
of the inspector of election, by the members of the Bank.
(viii) Subject to the satisfaction of the conditions to the OTS
approval of the Conversion, the Company and the Bank are not required
to receive any further approval, authorization, consent or other order
of, register with, or submit a notice to any other federal agency 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 securities or blue sky laws of various
jurisdictions (as to which no opinion need be rendered), except as may
be required under the rules and regulations of the NASD and/or the OTC
Bulletin Board or National Daily Quotations System (as to which no
opinion need be rendered).
(ix) The Registration Statement is effective under the 1933 Act
and no stop order suspending the effectiveness has been issued under
the 1933 Act or proceedings therefor initiated or, to such counsel's
Actual Knowledge, threatened by the Commission.
(x) At the time the Conversion Application, including the
Prospectus contained therein, was approved by the OTS, the Conversion
Application, including the Prospectus contained therein, complied as
to form in all material respects with the requirements of the HOLA and
the Conversion Regulations (other than the financial statements, the
notes thereto, and other tabular, financial, statistical and appraisal
data included therein or omitted therefrom, as to which no opinion
need be rendered).
(xi) At the time that the Registration Statement became
effective, the Registration Statement (as amended or supplemented, if
so amended or supplemented) (other than the financial statements, the
notes thereto and other tabular, financial, statistical and appraisal
data included therein or omitted therefrom, as to which no opinion
need be rendered) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations.
(xii) The terms and provisions of the Shares of the Company
conform, in all material respects, to the description thereof
contained in the Registration Statement and Prospectus, and the form
of certificate used to evidence the Shares complies with Alaska law.
(xiii) The descriptions in the Conversion Application, the
Registration Statement and the Prospectus of the contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments filed as exhibits thereto are accurate in all material
respects and fairly present the information required to be shown.
(xiv) To such counsel's Actual Knowledge, the Company and the
Bank have conducted the Conversion, in all material respects, in
accordance with all applicable requirements of the Plan, the
Conversion Regulations and the HOLA; the Plan complies in all material
respects with, the Conversion Regulations and the HOLA, and all
decisions and orders issued thereunder
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(except where a written waiver has been received); no order has been
issued by the OTS, the Commission or any state authority to suspend
the Offering or the use of the Prospectus, and no action for such
purposes has been instituted or, to such counsel's Actual Knowledge,
threatened by the OTS or the Commission or any state authority and, to
such counsel's Actual Knowledge, no person has sought to obtain
regulatory or judicial review of the final action of the OTS approving
the Plan, the Conversion Application or the Holding Company
Application.
(xv) To such counsel's Actual Knowledge, the Company and the Bank
have obtained all material federal licenses, permits and other
governmental authorizations currently required under the HOLA and all
applicable rules and regulations promulgated thereunder for the
conduct of their businesses and to such counsel's Actual Knowledge all
such licenses, permits and other governmental authorizations are in
full force and effect.
(xvi) To such counsel's Actual Knowledge, neither the Company nor
the Bank is in violation of its articles of incorporation, or charter,
as applicable; neither the Company nor the Bank is in default or
violation of any obligation, agreement, covenant or condition
contained in any contract, indenture, loan agreement, note, lease or
other instrument described in the Prospectus or filed as an exhibit to
the Registration Statement to which it is a party or by which it or
its property may be bound, except for such defaults or violations
which would not have a material adverse impact on the financial
condition or results of operations of the Company and the Bank on a
consolidated basis; the execution and delivery of this Agreement, the
occurrence of the obligations herein set forth and the consummation of
the transactions contemplated herein will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or the Bank pursuant to any contract, indenture,
loan agreement, note, lease or other instrument filed as an exhibit to
the Registration Statement to which the Company or the Bank 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 Bank is subject (other than the
establishment of a liquidation account), and such action will not
result in any violation of the provisions of the articles of
incorporation, or charter, as applicable, of the Company or the Bank
or any applicable federal law, act, regulation (except that no opinion
need be rendered with respect to the securities or blue sky laws of
various jurisdictions or the rules and regulations of the NASD and/or
the OTC Bulletin Board or National Daily Quotation System) or order or
court order, writ, injunction or decree naming the Company or the
Bank.
(xvii) The Company' articles of incorporation and bylaws comply
in all material respects with the Alaska Corporation Code of the State
of Alaska ("Alaska Law"). The Bank's charter and bylaws in mutual form
and, upon the completion of the Conversion, in stock form, comply in
all material respects with the HOLA and the rules and regulations of
the OTS.
(xviii)To such counsel's Actual Knowledge, neither the Company
nor the Bank is in violation of any written directive from the OTS or
the FDIC to make any material change in the method of conducting its
respective business.
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(xix) The information in the Prospectus under the captions
"Regulation," "Alaska Federal's Conversion," "Restrictions on
Acquisition of Alaska Pacific Bancshares" and "Description of Capital
Stock of Alaska Pacific Bancshares," to the extent that such
information constitutes matters of law, summaries of legal matters,
documents or proceedings, or legal conclusions, has been reviewed by
such counsel and is correct in all material respects. The description
of the Conversion process under the caption "Alaska Federal's
Conversion" in the Prospectus has been reviewed by such counsel and is
in all material respects correct. The discussion of federal statutes
and Alaska law or regulations promulgated thereunder described or
referred to in the Prospectus are accurate summaries. The information
regarding the federal tax opinion under the caption "Alaska Federal's
Conversion-Effects of Conversion to Stock Form on Depositors and
Borrowers of Alaska Federal- Tax Effects" has been reviewed by such
counsel and constitutes an accurate summary of the opinion rendered by
such counsel to the Company and the Bank with respect to such matters
subject to the qualifications and limitations noted therein.
In giving such opinion, such counsel may rely as to all matters of fact
on certificates of officers or directors of the Company and the Bank and
certificates of public officials. Such counsel's opinion shall be limited to
matters governed by federal laws and by Alaska Law. The opinion of Breyer &
Associates, PC shall be governed by and subject to the qualifications contained
in the Legal Opinion Accord ("Accord") of the American Bar Bank Section of
Business Law (1991). The term "Actual Knowledge" as used herein shall have the
meaning set forth in the Accord. For purposes of such opinion, no proceedings
shall be deemed to be pending, no order or stop order shall be deemed to be
issued, and no action shall be deemed to be instituted unless, in each case, a
director or executive officer of the Company or the Bank shall have received a
copy of such proceedings, order, stop order or action. In addition, such opinion
may be limited to current statutes, regulations and judicial interpretations and
to facts as they currently exist; in rendering such opinion, such counsel need
assume no obligation to revise or supplement it should the current laws be
changed by legislative or regulatory action, judicial decision or otherwise; and
such counsel need express no view, opinion or belief with respect to whether any
proposed or pending legislation, if enacted, or any proposed or pending
regulations or policy statements issued by any regulatory agency, whether or not
promulgated pursuant to any such legislation, would affect the validity of the
Conversion or any aspect thereof. 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 Bank.
In addition, such counsel shall provide a letter stating that during the
preparation of the Registration Statement and the Prospectus, they participated
in conferences with certain officers of, the independent public accountants for,
and other representatives of the Company and the Bank, and on February __ and
March 3, 1999, Webb and its counsel, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, while such counsel has not confirmed the accuracy or completeness of or
otherwise verified the information contained in the Registration Statement or
the Prospectus, and does not assume any responsibility for such information,
based upon such conferences and a review of documents deemed relevant for the
purpose of issuing their letter (relying as to materiality as to factual
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matters on certificates of officers and other factual representations by the
Company and the Bank), nothing has come to their attention that would lead them
to believe that the Registration Statement, or any amendment or supplement
thereto (other than the financial statements, the notes thereto, and other
tabular, financial, statistical and appraisal data included therein or omitted
therefrom as to which no statement need be made), as of the date of
effectiveness, and the Prospectus, as of its date and as of the Closing Date,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(2) The favorable opinion, dated as of the Closing Date and addressed to
Webb and for its benefit, of ____________________________, the Bank's local
counsel, in form and substance to the effect that, to the best of such counsel's
knowledge, (i) the Company and the Bank have good and marketable title to all
properties and assets which are material to the business of the Company and the
Bank and to those properties and assets described in the Registration Statement
and Prospectus, as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and Prospectus, or are not material in relation to the business of the
Company and the Bank considered as one enterprise; (ii) all of the leases and
subleases material to the business of the Company and the Bank under which the
Company and the Bank hold properties, as described in the Registration Statement
and Prospectus, are in full force and effect; (iii) the Bank is duly qualified
to transact business in each jurisdiction in which its ownership of property or
leasing of property or the conduct of its business requires such qualification,
unless the failure to be so qualified in one or more of such jurisdictions would
not have a material adverse effect on the financial condition, or the business,
operations or income of the Bank; (iv) the information regarding the Alaska tax
opinion under the caption "Alaska Federal's Conversion-Effects of Conversion to
Stock Form on Deposits and Borrowers of the Alaska Federal- Tax Effects" has
been reviewed by such counsel and constitutes a correct summary of the opinion
rendered by Deloitte & Touche LLP to the Company and the Bank with respect to
such matters; (v) the Company and the Bank are not required to receive any
further approval, authorization, consent or other order of, register with or
submit a notice to any Alaska regulatory agency 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 securities or blue sky
laws of various jurisdictions (as to which a separate opinion will need be
rendered); (vi) to such counsel's Actual Knowledge, the Company and the Bank
have obtained all material Alaska licenses, permits and other governmental
authorizations currently required for the conduct of their businesses and to
such counsel's Actual Knowledge all such licenses, permits and other
governmental authorizations are in full force and effect, and the Company and
the Bank are in all material respects complying therewith, except where the
failure to have such licenses, permits and other governmental authorizations or
the failure to be in compliance therewith would not have a material adverse
affect on the business or operations of the Bank and the Company, taken as a
whole; and (vii) there are no legal or governmental proceedings pending or to
such counsel's Actual Knowledge, threatened which are required to be disclosed
in the Registration Statement and Prospectus, other than those disclosed
therein, and to such counsel's Actual Knowledge, all pending legal and
governmental proceedings to which the Company or the Bank
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is a party or of which any of their property is the subject, which are not
described in the Registration Statement and the Prospectus, including ordinary
routine litigation incidental to the Company's or the Bank's business, are,
considered in the aggregate, not material.
(3) The favorable opinion, dated as of the Closing Date, of Elias, Matz,
Tiernan & Herrick L.L.P., Webb's counsel, with respect to such matters as Webb
may reasonably require. Such opinion may rely upon the opinions of counsel to
the Company and the Bank, and as to matters of fact, upon certificates of
officers and directors of the Company and the Bank delivered pursuant hereto or
as such counsel shall reasonably request.
(d) At the Closing Date, Webb shall receive a certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company and a
certificate of the Chief Executive Officer and the Chief Financial Officer of
the Bank, both dated as of such Closing Date, to the effect that: (i) they have
reviewed the Prospectus and, in their opinion, at the time the Prospectus became
authorized for final use, the Prospectus did not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has been no material adverse
change in the financial condition, or in the earnings, capital properties or
business of the Company or the Bank independently, or of the Company and the
Bank considered as one enterprise, whether or not arising in the ordinary course
of business; and, to their knowledge, no other event has occurred, which should
have been set forth in an amendment or supplement to the Prospectus which has
not been so set forth, and the conditions set forth in this Section 7 have been
satisfied; (iii) the representations and warranties in Section 4 are true and
correct with the same force and effect a though expressly made at and as of the
Closing Date; (iv) the Company and the Bank have complied in all material
respects with all agreements and satisfied all conditions on their part to be
performed or satisfied at or prior to the Closing Date and will comply in all
material respects with all obligations to be satisfied by them after Conversion;
(v) no stop order suspending the effectiveness of the Registration Statement has
been initiated or, to the best knowledge of the Company or the Bank, threatened
by the Commission; (vi) no order suspending the Offering, the Conversion, the
acquisition of all of the shares of the Bank by the Company or the effectiveness
of the Prospectus has been issued and no proceedings for that purpose are
pending or, to the best knowledge of the Company or the Bank, threatened by the
OTS, the Commission or any state authority; and (viii) to the best knowledge of
the Company or the Bank, no person has sought to obtain review of the final
action of the OTS approving the Plan.
(e) Prior to and at the Closing Date: (i) in the reasonable opinion of
Webb, there shall have been no material adverse change in the financial
condition, or in the earnings or business of the Bank independently, or of the
Company and the Bank considered as one enterprise, from that as of the latest
dates as of which such condition is set forth in the Prospectus other than
transactions referred to or contemplated therein; (iii) the Company or the Bank
shall not have received from the OTS 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
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been disclosed to Webb) or which materially and adversely would affect the
business, operations or financial condition or income of the Company and the
Bank considered as one enterprise; (iv) the Company and the Bank shall not have
been in material default (nor shall an event have occurred which, with notice or
lapse of time or both, would constitute a default) under any material provision
of any agreement or instrument relating to any outstanding indebtedness; (v) no
action, suit or proceedings, at law or in equity or before or by any federal or
state commission, board or other administrative agency, shall be pending or, to
the knowledge of the Company or the Bank, threatened against the Company or the
Bank or affecting any of their properties wherein an unfavorable decision,
ruling or finding would materially and adversely affect the business operations,
financially condition or income of the Company and the Bank considered as one
enterprise; and (vi) the Shares have been qualified or registered for offering
and sale or exempted therefore under the securities or blue sky laws of the
jurisdictions as Webb shall have requested and as agreed to by the Company and
the Bank.
(f) Concurrently with the execution of this Agreement, Webb shall
receive a letter from Deloitte & Touche LLP, dated as of the date of the
Prospectus and addressed to Webb: (i) confirming that Deloitte & Touche LLP is a
firm of independent public accountants within the meaning of Rule 101 of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants and applicable regulations of the OTS and stating in effect that in
Deloitte & Touche LLP's opinion the financial statements of the Bank as of
December 31, 1998 and 1997, as are included in the Prospectus and covered by its
opinion included therein, comply as to form in all material respects with the
applicable accounting requirements and related published rules and regulations
of the OTS and the 1933 Act; (ii) a statement from Deloitte & Touche LLP in
effect that, on the basis of certain agreed upon procedures (but not an audit in
accordance with generally accepted auditing standards) consisting of a reading
of the latest available unaudited interim financial statements of the Bank
prepared by the Bank, a reading of the minutes of the meetings of the Board of
Directors and members of the Bank and consultations with officers of the Bank
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that: (A) the unaudited financial
statements included in the Prospectus, are not in conformity with the 1933 Act,
applicable accounting requirements of the OTS and generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements included in the Prospectus; or (B) during the period from
the date of the latest unaudited financial statements included in the Prospectus
to a specified date not more than three business days prior to the date of the
Prospectus, except as has been described in the Prospectus, there was any
material increase in borrowings, other than normal deposit fluctuations, by the
Bank; or (C) there was any decrease in net assets of the Bank at the date of
such letter as compared with amounts shown in the latest unaudited statement of
condition included in the Prospectus; and (iii) a statement from Deloitte &
Touche LLP that, in addition to the audit referred to in their opinion included
in the Prospectus and the performance of the procedures referred to in clause
(ii) of this subsection (f), they have compared with the general accounting
records of the Bank, which are subject to the internal controls of the Bank, the
accounting system and other data prepared by the Bank, directly from such
accounting records, to the extent specified in such letter, such
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amounts and/or percentages set forth in the Prospectus as Webb may reasonably
request; and they have reported on the results of such comparisons.
(g) At the Closing Date, Webb shall receive a letter from Deloitte &
Touche LLP, dated the Closing Date, addressed to Webb, confirming the statements
made by them in the letter delivered by it pursuant to subsection (f)(i) of this
Section 7, the "specified date" referred to in clause (ii) of subsection (f)
thereof to be a date specified in such letter, which shall not be more than
three business days prior to the Closing Date.
(h) At the Closing Date, Webb shall receive a letter from RP Financial,
LC, dated the date thereof and addressed to counsel for Webb, (i) confirming
that said firm is independent of the Company and the Bank and is experienced and
expert in the area of corporate appraisals within the meaning of Title 12 of the
Code of Federal Regulations, Part 563b, (ii) stating in effect that the
Appraisal prepared by such firm complies in all material respects with the
applicable requirements of Title 12 of the Code of Federal Regulations, and
(iii) further stating that its opinion of the aggregate pro forma market value
of the Company and the Bank expressed in its Appraisal dated as of March 12,
1999, and most recently updated, remains in effect.
(i) The Company and the Bank shall not have sustained since the date of
the latest audited financial statements included in the Prospectus any material
loss or interference with their businesses from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Registration Statement and Prospectus.
(j) At or prior to the Closing Date, Webb shall receive: (i) a copy of
the letter from the OTS approving the Conversion Application and authorizing the
use of the Prospectus; (ii) a copy of the order from the Commission declaring
the Registration Statement effective; (iii) a certificate from the OTS
evidencing the existence of the Bank; (iv) certificates of good standing from
the State of Alaska evidencing the good standing of the Company; (v) a
certificate from the FDIC evidencing the Bank's insurance of accounts; and (vi)
a letter of the FHLB-Seattle evidencing the Bank's membership thereof; and (vii)
a copy of the letter from the OTS approving the Company's Holding Company
Application.
(k) As soon as available after the Closing Date, Webb shall receive,
upon request, a copy of the Bank's federal stock charter.
(l) Subsequent to the date hereof, there shall not have occurred any of
the following: (i) a suspension or limitation in trading in securities generally
on the New York Stock Exchange or in the over-the-counter market, or quotations
halted generally on the Nasdaq National Market, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required by either of such exchanges or the NASD or by order of the Commission
or any other governmental authority; (ii) a general moratorium on the operations
of commercial banks or federal savings associations or a general moratorium on
the withdrawal of
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deposits from commercial banks or federal savings associations declared by
federal or Alaska authorities; (iii) the engagement by the United States in
hostilities which have resulted in the declaration, on or after the date hereof,
of a national emergency or war; or (iv) a material decline in the price of
equity or debt securities if the effect of such a decline, in Webb's reasonable
judgment, makes it impracticable or inadvisable to proceed with the Offering or
the delivery of the shares on the terms and in the manner contemplated in the
Registration Statement and Prospectus.
Section 8. Indemnification.
(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless Webb, its officers, directors, agents, servants and employees
and each person, if any, who controls Webb within the meaning of Section 15 of
the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage or expense whatsoever (including but not limited to
reasonable and documented settlement expenses), joint or several, that Webb or
any of them may suffer or to which Webb and any such persons may become subject
under all applicable federal or state laws or otherwise, and to promptly
reimburse Webb and any such persons upon written demand for any expense
(including reasonable and documented fees and disbursements of counsel) incurred
by Webb or any of them in connection with investigating, preparing or defending
any actions, proceedings or claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities or actions: (i) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any amendment or supplement thereto),
the Holding Company Application or any blue sky application or other instrument
or document executed by the Company or the Bank or based upon written
information supplied by the Company or the Bank filed in any state or
jurisdiction to register or qualify any or all of the Shares or to claim an
exemption therefrom, or provided to any state or jurisdiction to exempt the
Company as a broker-dealer or its officers, directors and employees as
broker-dealers or agents, under the securities laws thereof (collectively, the
"Blue Sky Application"), or any application or other document, advertisement,
oral statement or communication ("Sales Information") prepared, made or executed
by or on behalf of the Company or the Bank with their consent or based upon
written or oral information furnished by or on behalf of the Company or the
Bank, whether or not filed in any jurisdiction, in order to qualify or register
the Shares or to claim an exemption therefrom under the securities laws thereof;
(ii) arise out of or based upon the omission or alleged omission to state in any
of the foregoing documents or information, a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) arise from
any theory of liability whatsoever relating to or arising from or based upon the
Registration Statement (or any amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto), any Blue Sky Application
or Sales Information or other documentation distributed in connection with the
Conversion; provided, however, that no indemnification is required under this
paragraph (a) to the extent such losses,
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claims, damages, liabilities or actions arise out of or are based upon Webb's
gross negligence, bad faith or willful misconduct (as determined in a final
judgment by a court of competent jurisdiction) or upon any untrue material
statement or alleged untrue material statements in, or material omission or
alleged material omission from, the Registration Statement (or any amendment or
supplement thereto), preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application, any Blue Sky Application or
Sales Information made in reliance upon and in conformity with information
furnished in writing to the Company or the Bank by Webb regarding Webb or
statistical information regarding national averages provided by Webb for the
Sales Information and provided further that such indemnification shall be to the
extent permitted by the OTS.
(b) Webb agrees to indemnify and hold harmless the Company and the Bank,
their directors and officers and each person, if any, who controls the Company
or the Bank within the meaning of Section 15 of the 1933 Act or Section 20(a) of
the 1934 Act against any and all loss, liability, claim, damage or expense
whatsoever (including but not limited to reasonable and documented settlement
expenses), joint or several, which it, or any of them, may suffer or to which
it, or any of them may become subject under all applicable federal and state
laws or otherwise, and to promptly reimburse the Company, the Bank, and any such
persons upon written demand for any expenses (including reasonable and
documented fees and disbursements of counsel) incurred by it, or any of them, in
connection with investigating, preparing or defending any actions, proceedings
or claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto) or the preliminary or final
Prospectus (or any amendment or supplement thereto), or are based upon the
omission or alleged omission to state in any of the foregoing documents a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that Webb's obligations under this Section 8(b)
shall exist only if and only to the extent that such untrue statement or alleged
untrue statement was made in, or such material fact or alleged material fact was
omitted from, the Registration Statement (or any amendment or supplement
thereto), the preliminary or final Prospectus (or any amendment or supplement
thereto) or the Conversion Application (or any amendment or supplement thereto),
any Blue Sky Application or Sales Information in reliance upon and in conformity
with information furnished in writing to the Company or the Bank by Webb
regarding Webb or statistical information regarding national averages provided
by Webb for the Sales Information.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 8 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an
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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 each indemnified party
in connection with any one action, proceeding or claim or separate but similar
or related actions, proceeding or claim or separate but similar or related
actions, proceedings or claims in the same jurisdiction arising out of the same
general allegations or circumstances.
(d) The agreements contained in this Section 8 and in Section 9 hereof
and the representations and warranties of the Company and the Bank set forth in
this Agreement shall remain operative and in full force and effect regardless
of: (i) any investigation made by or on behalf of Webb or its officers,
directors or controlling persons, agents or employees or by or on behalf of the
Company or the Bank or any officers, directors or controlling persons, agents or
employees of the Company or the Bank; (ii) delivery of and payment hereunder for
the Shares; or (iii) any termination of this Agreement.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Bank or Webb, the Company, the
Bank and Webb shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company, the Bank or Webb from persons other than the other party
thereto, who may also be liable for contribution) in such proportion so that
Webb is responsible for that portion represented by the percentage that the fees
paid to Webb pursuant to Section 2 of this Agreement (not including expenses)
bears to the gross proceeds received by the Company from the sale of the Shares
in the Offering and the Company and the Bank shall be responsible for the
balance. If, however, the allocation provided above is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 8 above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the Company and the Bank
on the one hand and Webb on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions, proceedings or claims in respect thereto), but also the relative
benefits received by the Company and the Bank on the one hand and Webb on the
other from the Offering (before deducting expenses). The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
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state a material fact relates to information supplied by the Company and/or the
Bank on the one hand or Webb on the other and the parties' relative intent, good
faith, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Bank and Webb agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro-rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above in
this Section 9. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions, proceedings or claims
in respect thereof) referred to above in this Section 9 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action, proceeding
or claim. It is expressly agreed that Webb shall not be required to contribute
any amount which in the aggregate exceeds the amount paid (excluding
reimbursable expenses) to Webb under this Agreement. It is understood that the
above stated limitation on Webb's liability for contribution is essential to
Webb and that Webb would not have entered into this Agreement if such limitation
had not been agreed to by the parties to this Agreement. No person found guilty
of any fraudulent misrepresentation (within the meaning of Section 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 Bank under this Section 9 and under Section 8 shall be in addition to any
liability which the Company and the Bank may otherwise have. For purposes of
this Section 9, each of Webb's, the Company's or the Bank's officers and
directors and each person, if any, who controls Webb or the Company or the Bank
within the meaning of the 1933 Act and the 1934 Act shall have the same rights
to contribution as Webb, the Company or the Bank. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 9, will notify
such party from whom contribution may be sought, but the omission to so notify
such party shall not relieve the party from whom contribution may be sought from
any other obligation it may have hereunder or otherwise than under this Section
9.
Section 10. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company, the Bank and Webb and the representations
and warranties and other statements of the Company, the Bank and Webb set forth
in or made pursuant to this Agreement shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Webb, the Company, the Bank or any
controlling person referred to in Section 8 hereof, and shall survive the
issuance of the Shares, and any legal representative, successor or assign of
Webb, the Company, the Bank, and any such controlling person shall be entitled
to the benefit of the respective agreements, indemnities, warranties and
representations.
Section 11. Termination. Webb may terminate its obligations under this
Agreement by giving the notice indicated below in this Section 11 at any time
after this Agreement becomes effective as follows:
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(a) In the event the Company fails to sell all of the Shares by December
31, 1999, and in accordance with the provisions of the Plan or as required by
the Conversion Regulations, and applicable law, this Agreement shall terminate
upon refund by the Bank to each person who has subscribed for or ordered any of
the Shares the full amount which it may have received from such person, together
with interest as provided in the Prospectus, and no party to this Agreement
shall have any obligation to the other hereunder, except for payment by the
Company and/or the Bank as set forth in Sections 2(a) and (d), 6, 8 and 9
hereof.
(b) If any of the conditions specified in Section 7 shall not have been
fulfilled when and as required by this Agreement, unless waived in writing, by
the Closing Date, this Agreement and all of Webb's obligations hereunder may be
cancelled by Webb by notifying the Company and the Bank of such cancellation in
writing at any time at or prior to the Closing Date, and any such cancellation
shall be without liability of any party to any other party except as otherwise
provided in Sections 2, 6, 8 and 9 hereof.
(c) If Webb elects to terminate this Agreement with respect to it as
provided in this Section, the Company and the Bank shall be notified promptly by
such Agent by telephone or telegram, confirmed by letter.
The Company and the Bank may terminate this Agreement with respect to
Webb in the event Webb is in material breach of the representations and
warranties or covenants contained in Section 5.2 and such breach has not been
cured after the Company and the Bank have provided Webb with notice of such
breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
Section 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to Webb
shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, 211 Bradenton, Dublin, Ohio 43017-5034, Attention: Patricia A. McJoynt
(with a copy to Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street, N.W.,
12th Floor, Washington, D.C. 20005 Attention: John P. Soukenik, Esq.) and, if
sent to the Company and the Bank, shall be mailed, delivered or telegraphed and
confirmed to the Company and the Bank at Alaska Pacific Bancshares, Inc., Nugget
Mall Branch, 2094 Jordan Avenue, Juneau, Alaska 99801-4844, Attention: Craig E.
Dahl, President and Chief Executive Officer (with a copy to Breyer & Associates
PC, 1100 New York Avenue, N.W., Suite 700 East, Washington, D.C. 20005,
Attention: John F. Breyer, Jr., Esq.).
Section 13. Parties. The Company and the Bank shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly given
on behalf of Webb when the same shall have been given by the undersigned. Webb
shall be entitled to act and rely on any request, notice, consent, waiver or
agreement purportedly given on behalf of the Company or the Bank, when the same
shall have been given by the undersigned or any other officer of the Company or
the Bank. This Agreement shall inure solely to the benefit of, and shall be
binding upon, Webb,
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the Company, the Bank, and their respective successors, legal representatives
and assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained. It is understood and agreed that
this Agreement, including Exhibit A thereto, is the exclusive agreement among
the parties hereto, and supersedes any prior agreement among the parties and may
not be varied except in writing signed by all the parties.
Section 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by Webb and
the Company and the Bank. At the closing, the Company and the Bank shall deliver
to Webb in next day funds the commissions, fees and expenses due and owing to
Webb as set forth in Sections 2 and 6 hereof and the opinions and certificates
required hereby and other documents deemed reasonably necessary by Webb shall be
executed and delivered to effect the sale of the Shares as contemplated hereby
and pursuant to the terms of the Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision or
covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be construed in
accordance with the laws of the State of Ohio.
Section 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the Company,
the Bank and Webb, please indicate acceptance thereof in the space provided
below for that purpose, whereupon this letter and Webb's acceptance shall
constitute a binding agreement.
Very truly yours,
ALASKA PACIFIC BANCSHARES, INC. ALASKA FEDERAL SAVINGS BANK
By: /s/ Craig E. Dahl By: /s/ Craig E. Dahl
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Craig E. Dahl Craig E. Dahl
President and Chief President and Chief
Executive Officer Executive Officer
<PAGE>
Accepted as of the date first above written
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/ Patricia A. McJoynt
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Patricia A. McJoynt
Executive Vice President
EXHIBIT 8.1
Federal Tax Opinion of Breyer & Associates PC
<PAGE>
[Breyer & Associates Letterhead]
April 22, 1999
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Re: Certain Federal Income Tax Consequences Relating to Proposed
Holding Company Conversion of Alaska Federal Savings Bank
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To the Board of Directors:
In accordance with your request, set forth herein is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of Alaska Federal Savings Bank (the "Savings Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank, to be known as "Alaska Pacific Bank") (the "Converted Savings Bank") (the
"Stock Conversion") and (ii) the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Savings Bank by a parent holding
company formed at the direction of the Board of Directors of the Savings Bank
and to be known as Alaska Pacific Bancshares, Inc. (the "Holding Company").
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to, the Plan of Conversion as adopted by the Savings Bank's Board of
Directors on February 19, 1999 (the "Plan"); the federal mutual charter and
bylaws of the Savings Bank; the certificate of incorporation and bylaws of
Holding Company; the Affidavit of Representations dated April 21, 1999 provided
to us by the Savings Bank and the Holding Company (the "Affidavit"), and the
Prospectus (the "Prospectus") included in the Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission ("SEC") on March 22, 1999
(the "Registration Statement"). In such examination, we have assumed, and have
not independently verified, the genuineness of all signatures on original
documents where due execution and delivery are requirements to the effectiveness
thereof. Terms used but not defined herein, whether capitalized or not, shall
have the same meaning as defined in the Plan.
<PAGE>
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
April 22, 1999
Page 2
BACKGROUND
Based solely upon our review of such documents, and upon such
information as the Savings Bank has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we set forth herein a general summary of the relevant facts and proposed
transactions, qualified in its entirety by reference to the documents cited
above.
The Savings Bank is a federally-chartered mutual savings bank which is
in the process of converting to a federally-chartered stock savings bank. The
Savings Bank was founded as "Alaska Federal Savings and Loan Association of
Juneau" in 1935 and changed its name to "Alaska Federal Savings Bank" in October
1993. The Savings Bank is regulated by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation. Alaska Federal's deposits have been
federally-insured since 1937 and are currently insured by the Federal Deposit
Insurance Corporation under the Savings Association Insurance Fund ("SAIF").
Alaska Federal has been a member of the Federal Home Loan Bank System since
1937. The Savings Bank operates out of its main office in Juneau, Alaska and
five branch offices in neighboring communities.
The Savings Bank's principal business is attracting retail deposits
from the general public and using those funds to originate residential mortgage
loans. At December 31, 1998, the Savings Bank had total assets of $110.6
million, deposits of $101.9 million and total equity of $7.1 million.
As a federally-chartered mutual savings bank, the Savings Bank has no
authorized capital stock. Instead, the Savings Bank, in mutual form, has a
unique equity structure. A savings depositor of the Savings Bank is entitled to
payment of interest on his account balance as declared and paid by the Savings
Bank, but has no right to a distribution of any earnings of the Savings Bank
except for interest paid on his deposit. Rather, such earnings become retained
earnings of the Savings Bank.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Savings Bank is ever liquidated. Savings
depositors and certain borrowers are members of the Savings Bank and thereby
have voting rights in the Savings Bank. Each savings depositor is entitled to
cast votes in proportion to the size of their account balances or fraction
thereof held in a withdrawable deposit account of the Savings Bank, and each
borrower member (hereinafter "borrower") is entitled to one vote in addition to
the votes (if any) to which such person is entitled in such borrower's capacity
as a savings depositor of the Savings Bank. All of the interests held by a
savings depositor in the Savings Bank cease when such depositor closes his
accounts with the Savings Bank.
<PAGE>
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
April 22, 1999
Page 3
The Holding Company was incorporated in March 1999 under the laws of
the State of Alaska as a general business corporation in order to act as a
savings institution holding company. The Holding Company has an authorized
capital structure of 20 million shares of common stock and one million shares of
preferred stock.
PROPOSED TRANSACTION
Management of the Savings Bank believes that the Stock Conversion
offers a number of advantages which will be important to the future growth and
performance of the Converted Savings Bank in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Savings Bank; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Savings Bank and thereby participate more directly
in any future growth of the Converted Savings Bank.
Accordingly, pursuant to the Plan, the Savings Bank will undergo the
Stock Conversion whereby it will be converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank to be known as Alaska
Pacific Bank. As part of the Stock Conversion, the Savings Bank will amend its
existing mutual savings bank charter and bylaws to read in the form of a Federal
Stock Charter and Bylaws. The Converted Savings Bank will then issue to the
Holding Company shares of the Converted Savings Bank's common stock,
representing all of the shares of capital stock to be issued by the Converted
Savings Bank in the Conversion, in exchange for payment by the Holding Company
of 50% of the net proceeds realized by the Holding Company from such sale of its
Common Stock, less amounts necessary to fund the Employee Stock Ownership Plan
of the Savings Bank, or such other percentage as the Office of Thrift
Supervision ("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares
of Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Savings Bank and the Holding Company on the basis of
the estimated pro forma market value of the Converted Savings Bank as a
subsidiary of the Holding Company. The estimated pro forma market value will be
determined by an independent appraiser. Pursuant to the Plan, all such shares
will be issued and sold at a uniform price per share. The Stock Conversion,
including the sale of newly issued shares of the stock of the Converted Savings
Bank to the Holding Company, will be deemed effective concurrently with the
closing of the sale of the Common Stock.
<PAGE>
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
April 22, 1999
Page 4
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to nontransferable subscription rights on the basis of preference
categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Savings Bank;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered in the Direct Community Offering in the following order
of priority:
(a) Natural persons and trust of natural persons who are residing in
the Local Community, consisting of the residents of the
communities of Juneau, Ketchikan, Sitka and Wrangell, Alaska; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account
by the Converted Savings Bank for the benefit of all Eligible Account Holders
and any Supplemental Eligible Account Holders in an amount equal to the net
worth of the Savings Bank as of the date of the latest statement of financial
condition contained in the final prospectus issued in connection with 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
Converted Savings Bank. The account holders will have an inchoate interest in a
proportionate amount of the Liquidation Account with respect to each savings
account held and will be paid by the Converted Savings Bank in event of
liquidation prior to any liquidation distribution being made with respect to
capital stock.
Following the Stock Conversion, voting rights in the Converted Savings
Bank shall be vested in the sole holder of stock in the Converted Savings Bank,
which will be the Holding Company.
<PAGE>
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
April 22, 1999
Page 5
Voting rights in the Holding Company after the Stock Conversion will be vested
in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of the Savings
Bank. The Converted Savings Bank will continue to engage in the same business as
the Savings Bank immediately prior to the Stock Conversion, and the Converted
Savings Bank will continue to have its savings accounts insured by the SAIF.
Each depositor will retain a withdrawable savings account or accounts equal in
dollar amount to, and on the same terms and conditions as, the withdrawable
account or accounts at the time of Stock Conversion except to the extent funds
on deposit are used to pay for Common Stock purchased in the Stock Conversion.
All loans of the Savings Bank will remain unchanged and retain their same
characteristics in the Converted Savings Bank.
The Plan must be approved by the OTS and by an affirmative vote of at
least a majority of the total votes eligible to be cast at a meeting of the
Savings Bank's members called to vote on the Plan.
Immediately prior to the Conversion, the Savings Bank will have a
positive net worth determined in accordance with generally accepted accounting
principles.
OPINION
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended (the "Code"), and no gain or loss will be
recognized to either the Savings Bank or the Converted Savings
Bank as a result of the Stock Conversion (see Rev. Rul. 80-105,
1980-1 C.B. 78).
2. The assets of the Savings Bank will have the same basis in the
hands of the Converted Savings Bank as in the hands of the
Savings Bank immediately prior to the Stock Conversion (Section
362(b) of the Code).
3. The holding period of the assets of the Savings Bank to be
received by the Converted Savings Bank will include the period
during which the assets were held by the Savings Bank prior to
the Stock Conversion (Section 1223(2) of the Code).
<PAGE>
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
April 22, 1999
Page 6
4. No gain or loss will be recognized by the Converted Savings Bank
on the receipt of money from the Holding Company in exchange for
shares of common stock of the Converted Savings Bank (Section
1032(a) of the Code). The Holding Company will be transferring
solely cash to the Converted Savings Bank in exchange for all the
outstanding capital stock of the Converted Savings Bank and
therefore will not recognize any gain or loss upon such transfer.
(Section 351(a) of the Code; see Rev. Rul. 69-357, 1969-1 C.B.
101).
5. No gain or loss will be recognized by the Holding Company upon
receipt of money from stockholders in exchange for shares of
Common Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders and Supplemental Eligible Account Holders of the Savings
Bank upon the issuance to them of deposit accounts in the
Converted Savings Bank in the same dollar amount and on the same
terms and conditions in exchange for their deposit accounts in
the Savings Bank held immediately prior to the Stock Conversion
(Section 1001(a) of the Code; Treas. Reg. ss.1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted
Savings Bank received as part of the Stock Conversion will equal
the tax basis of such account holders' corresponding deposit
accounts in the Savings Bank surrendered in exchange therefor
(Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit account
holders of the Savings Bank upon the constructive receipt of
their interest in the liquidation account of the Converted
Savings Bank and on the nontransferable subscription rights to
purchase stock of the Holding Company in exchange for their
proprietary rights in the Savings Bank. Any such gain will be
recognized by the Savings Bank deposit account holders, but only
in an amount not in excess of the fair market value of the
liquidation account and subscription rights received. (Section
1001 of the Code; Paulsen v. Commissioner, 469 U.S. 131 (1985);
Rev. Rul. 69-646, 1969-2 C.B. 54.)
9. The basis of each account holder's interest in the Liquidation
Account received in the Stock Conversion and to be established by
the Converted Savings Bank pursuant to the Stock Conversion will
be equal to the value, if any, of that interest.
<PAGE>
Boards of Directors
Alaska Pacific Bancshares, Inc.
Alaska Federal Savings Bank
April 22, 1999
Page 7
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Stock Conversion. (Rev. Rul. 56-572,
1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion
will be equal to the purchase price of such stock, increased, in
the case of such stock acquired pursuant to the exercise of
subscription rights, by the fair market value, if any, of the
subscription rights exercised (Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are
exercised (Section 1223(6) of the Code). The holding period of
the Common Stock acquired in the Community Offering will commence
on the date following the date on which such stock is purchased
(Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1 C.B.
190).
SCOPE OF OPINION
No opinion is expressed as to the tax treatment of the transaction
under the provisions of any of the other sections of the Code and Income Tax
Regulations which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
which are not specifically covered by the items set forth above. No opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the confirmed existence of, the net operating loss carryforwards,
or the limitation on, any federal or state net operating losses of the Savings
Bank or the Savings Bank under the Code. We also specifically disclaim an
opinion as to the treatment of the Savings Bank's net unrealized built-in losses
as a result of the Conversion.
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
federal, state, local, foreign or other tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of
<PAGE>
the positions reflected in the foregoing opinion, or that our opinion will be
upheld by the courts if challenged by the Internal Revenue Service.
Regarding the valuation of subscription rights, we understand that the
Savings Bank has received the opinion of RP Financial, LC. dated March 22, 1999
to the effect that the subscription rights have no ascertainable market value.
We express no opinion regarding the valuation of the subscription rights.
CONSENTS
We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and the Savings Bank's
Application for Conversion on Form AC ("Form AC"), respectively, and the
reference on our firm in the Prospectus, which is a part of both the
Registration Statement and the Form AC, under the headings "ALASKA FEDERAL'S
CONVERSION -- Effect of Conversion to Stock Form on Depositors and Borrowers of
the Savings Bank -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
/s/ BREYER & ASSOCIATES PC
---------------------------
BREYER & ASSOCIATES PC
EXHIBIT 8.2
State Income Tax Opinion of Deloitte & Touche LLP
<PAGE>
[Letterhead of Deloitte & Touche LLP]
April 22, 1999
Board of Directors
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Re: State of Alaska Income Tax Opinion regarding the conversion of Alaska
Federal Savings Bank from a federally-chartered mutual savings bank to
a federally-chartered stock savings bank
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Gentlemen and Lady:
In accordance with your request, set forth herein is the opinion of this firm
relating to certain Alaska income tax consequences of (i) the proposed
conversion of Alaska Federal Savings Bank (the "Savings Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank, to be known as "Alaska Pacific Bank" (the "Converted Savings Bank") (the
"Stock Conversion") and (ii) the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Savings Bank by a parent holding
company formed at the direction of the Board of Directors of the Savings Bank
and to be known as Alaska Pacific Bancshares, Inc. (the "Holding Company").
Facts
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For purposes of our opinion, we have relied on: (1) the facts and assumptions
set forth in and the opinion rendered in the federal income tax opinion relating
to the conversion of Savings Bank from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank under section 368(a)(1)(F) of the
Internal Revenue Code1 (the "Code") dated April 22, 1999 as prepared by the law
firm of Breyer & Associates PC, Washington, D.C. including the Affidavit of
Representation dated April 21, 1999, as referenced therein (the "Federal Income
Tax Opinion"); (2) the Plan of Conversion as adopted by the Savings Bank's Board
of Directors on February 19, 1999 (the "Plan") and (3) the Prospectus included
in the Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission ("SEC") on March 22, 1999 (the "Registration Statement").
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1 Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended.
<PAGE>
Analysis
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Chapter 20 of Title 43 of the Alaska Statutes imposes an income tax on
Subchapter C corporations. With respect to such taxation, section 43.20.021(a)
provides:
Sections 26 U.S.C. 1-1399 and 6001-7872 of the Internal Revenue Code of
1986 (the "Code"), as amended, are adopted by reference as a part of
this chapter. These portions of the Internal Revenue Code have full
force and effect under this chapter unless excepted to or modified by
other provisions of this chapter.
Chapter 20 of Title 43 of the Alaska Statutes does not contain specific sections
that are identical to the Code but merely adopts entire sections of it with
certain adjustments thereto (a "conforming state"). As a conforming state, the
income tax treatment of any reorganization transaction is the same for Alaska
income tax purposes as it is for federal income tax purposes, absent a specific
modifying provision in the Alaska Income Tax Statutes which alters the income
tax treatment. None of the Code sections relied upon in the Federal Income Tax
Opinion are modified by Chapter 20 of Title 43 Code of the Alaska Statutes.
Therefore the Alaska income tax treatment for Subchapter C corporations will be
the same as the federal income tax treatment.
Because Alaska has adopted portions of the Code in its entirety, income from
pass-through entities such as Subchapter S corporations, partnerships and
limited liability companies taxed as partnerships for federal purposes, is
passed through to the respective owners of such entities. However, if a
partnership (or other flow-through entity, e.g., limited liability company) is
not subject to the Alaska income tax, any Subchapter C corporate partner (or
member)(directly or indirectly) of the partnership (limited liability company)
will be taxed on the partnership's (limited liability company's) income.
Section 43.20.012 of the Alaska Statutes provides that:
The tax imposed by Chapter 20 of Title 43 of the Alaska Statutes does
not apply to individuals or to fiduciaries.
Accordingly, no tax from a reorganization transaction will be imposed on
individuals or fiduciaries for Alaska income tax purposes.
Opinion
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Based on the facts and assumptions set forth in and the opinions rendered in the
Federal Income Tax Opinion, all of which are incorporated herein by reference,2
and our review and analysis of Alaska Statutes, the Plan, and the Registration
Statement, it is our opinion that, provided the transaction is undertaken in
accordance with the Plan, the following will be the result for Alaska income tax
purposes:
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2 All capitalized terms not defined herein have the same meaning as in the
Federal Income Tax Opinion letter.
<PAGE>
1. Because the conversion of Savings Bank from a mutual to a stock form in the
Stock Conversion will constitute a reorganization within the meaning of
section 368(a)(1)(F) and no gain or loss will be recognized to either the
Savings Bank or the Converted Savings Bank as a result of the Stock
conversion for federal income tax purposes, the Stock Conversion will
constitute a reorganization for Alaska income tax purposes and no gain or
loss will be recognized to either Savings Bank or the Converted Savings
Bank for Alaska income tax purposes.
2. Because the assets of the Savings Bank will have the same basis in the
hands of the Converted Savings Bank as in the hands of the Savings Bank
immediately prior to the Stock Conversion for federal income tax purposes,
the assets of the Savings Bank will have the same basis in the hands of the
Converted Savings Bank for Alaska income tax purposes.
3. Because the holding period for federal income tax purposes of the assets of
the Savings Bank to be received by the Converted Savings Bank will include
the period during which the assets were held by the Savings Bank prior to
the Stock Conversion, the holding period of the assets of the Savings Bank
to be received by the Converted Savings Bank will include the period during
which the assets were held by the Savings Bank prior to the Stock
Conversion for Alaska income tax purposes.
4. Because no gain or loss will be recognized for federal income tax purposes
by the Converted Savings Bank on the receipt of money from the Holding
Company in exchange for shares of common stock of the Converted Savings
Bank, no gain or loss will be recognized for Alaska income tax purposes by
the Converted Savings Bank. Because the Holding Company will be
transferring solely cash to the Converted Savings Bank and therefore will
not recognize any gain or loss for federal income tax purposes upon such
transfer, the Holding Company will recognize no gain or loss for Alaska
income tax purposes upon such transfer.
5. Because no gain or loss will be recognized for federal income tax purposes
by the Holding Company upon receipt of money from stockholders in exchange
for shares of Common Stock, no gain or loss will be recognized for Alaska
income tax purposes.
6. Because no gain or loss will be recognized for federal income tax purposes
by the Eligible Account Holders and Supplemental Eligible Account Holders
of the Savings Bank upon the issuance to them of deposit accounts in the
Converted Savings Bank in the same dollar amount and on the same terms and
conditions in exchange for their deposit accounts in the Savings Bank held
immediately prior to the Stock Conversion, no gain or loss will be
recognized for Alaska income tax purposes to the Eligible Account Holders
and Supplemental Eligible Account Holders. As discussed earlier, Alaska
imposes no income tax on individuals, fiduciaries, Subchapter S
corporations, partnerships or limited liability companies which are taxed
as partnerships for federal income tax purposes. Accordingly, this
paragraph and paragraphs 7 through 12 below apply only to Eligible Account
Holders and Supplemental Eligible Account Holders which are Subchapter C
corporations for federal income tax purposes. For purposes of the preceding
sentence, a Subchapter C corporation is considered an Eligible Account
Holder or Supplemental Eligible Account Holder if it is a
<PAGE>
partner (member)(directly or indirectly) in a partnership (limited
liability company) which is an Eligible Account Holder or Supplemental
Eligible Account Holder.
7. Because the tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted Savings Bank
received as part of the Stock Conversion will equal the tax basis of such
account holders' corresponding deposit accounts in the Savings Bank
surrendered in exchange therefor for federal income tax purposes, the tax
basis of the Eligible Account Holders' and Supplemental Eligible Account
Holders' savings accounts in the Converted Savings Bank will equal the tax
basis of such account holders' corresponding deposit accounts in the
Savings Bank for Alaska income tax purposes.
8. Because the deposit account holders of the Savings Bank will realize gain
or loss, if any, upon the constructive receipt of their interest in the
liquidation account of the Converted Savings Bank and on the
nontransferable subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in the Savings Bank and
because any such gain will be recognized for federal income tax purposes by
the Savings Bank deposit account holders, but only in an amount not in
excess of the fair market value of the liquidation account and subscription
rights received, any such gain recognized for federal income tax purposes
will be recognized for Alaska income tax purposes by the Savings Bank
deposit account holders.
9. Because the basis for federal income tax purposes of each account holder's
interest in the liquidation account received in the Stock Conversion and to
be established by the Converted Savings Bank pursuant to the Stock
Conversion will be equal to the value, if any, of that interest, the basis
for Alaska income tax purposes will be equal to such value.
10. Because no gain or loss will be recognized for federal income tax purposes
upon the exercise of a subscription right in the Stock Conversion, no gain
or loss will be recognized for Alaska income tax purposes.
11. Because the basis for federal income tax purposes of the Common Stock
acquired in the Stock Conversion will be equal to the purchase price of
such stock, increased, in the case of such stock acquired pursuant to the
exercise of subscription rights, by the fair market value, if any, of the
subscription rights exercised, the basis for Alaska income tax purposes of
the Common Stock acquired in the Stock Conversion will be equal to the
purchase price of such stock, increased, in the case of such stock acquired
pursuant to the exercise of subscription rights, by the fair market value,
at the time of distribution, of the subscription rights exercised.
12. Because the holding period for federal income tax purposes of the Common
Stock acquired in the Stock Conversion pursuant to the exercise of
subscription rights will commence on the date on which the subscription
rights are exercised, the holding period for Alaska income tax purposes
will commence on the date on which the subscription rights are exercised.
Because the holding period for federal income tax purposes of the Common
Stock acquired in the Community Offering will commence on the date
following the date on which such stock is
<PAGE>
purchased, the holding period for Alaska income tax purposes of the Common
Stock acquired in the Community Offering will commence on the date
following the date on which such stock is purchased.
Our opinion is based solely upon:
a) The representations, information, documents, and facts ("representations")
that we have included or referenced in this opinion letter;
b) Our assumption (without independent investigation or review) that all of
the representations and all of the original, copies, and signatures of
documents are accurate, true and authentic;
c) Our assumption (without independent investigation or review) that there
will be timely execution, delivery, and performance as required by the
representations and documents;
d) The law, regulations, cases, rulings and other tax authority in effect as
of the date of this letter.
Our opinion is limited to those expressed above and we express no opinion with
regard to any sections of the Alaska Statutes other than those referred to
above. We express no opinion with regard to the taxation of the proposed
transaction described herein with regard to the federal income tax consequences
or under the laws of any local, foreign or other state jurisdiction. We express
the opinions contained herein as of the date of this letter only.
Our opinion is also based on, and is conditioned on the continued applicability
of, the provisions of the Alaska Statutes at the date hereof. If there are any
significant changes to the foregoing tax authorities (for which we have no
responsibility to advise you), it may result in our opinion being rendered
invalid, or necessitate (upon your request) a reconsideration of the opinion.
While this opinion represents our considered judgment as to the proper tax
treatment for Alaska income tax purposes to the parties involved, it is not
binding on Alaska or the state or federal courts.
This opinion letter is solely for your information, for the information of your
shareholders and for inclusion in certain filings with regard to the transaction
described herein as follows: (a) with the OTS as an exhibit to Application
H-(e)1-S filed by the Holding Company; (b) with the SEC as an exhibit to the
Registration Statement; and (c) with the OTS as an exhibit to the Bank's
Application for Conversion. Other than the uses indicated in the preceding
sentence, our opinion may not be relied upon, distributed, or disclosed by
anyone without the prior written consent of Deloitte & Touche LLP.
Yours truly,
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
EXHIBIT 10.1
Proposed Form of Employment Agreement for Craig E. Dahl
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this ___ day of __________, 1999 by and between Alaska Pacific Bancshares,
Inc. (the "Company"), and its wholly owned subsidiary, Alaska Federal Savings
Bank (the "Bank"), and Craig E. Dahl (the "Employee").
WHEREAS, the Employee is currently serving as the President and Chief
Executive Officer of the Company and of the Bank;
WHEREAS, the Employee has made and will continue to make a major
contribution to the success of the Company and the Bank in the position of
President and Chief Executive Officer;
WHEREAS, the board of directors of the Company and the board of
directors of the Bank (collectively, the "Board of Directors") recognize that
the possibility of a change in control of the Bank or the Company may exist and
that such possibility, and the uncertainty and questions which may arise among
management, may result in the departure or distraction of key management to the
detriment of the Company, the Bank and their respective stockholders;
WHEREAS, the Board of Directors believes that it is in the best
interests of the Company and the Bank for the Company and the Bank to enter into
this Agreement with the Employee in order to assure continuity of management of
the Company and its subsidiaries; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who are
members of the board of directors of the Bank immediately following the
Effective Date (in each case, the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequently whose election was approved by a vote of at least
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three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's or the Bank's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (5) consummation of a plan of
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Company or a similar transaction in which the Company is not the
resulting entity, or a transaction at the completion of which the former
stockholders of the acquired corporation become the holders of more than 40% of
the outstanding common stock of the Company and the Company is the resulting
entity of such transaction; provided that the term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Company.
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(c) The term "Date of Termination" means the date upon which the
Employee's employment with the Company or the Bank or both ceases, as specified
in a notice of termination pursuant to Section 8 of this Agreement.
(d) The term "Effective Date" means the date of this Agreement.
(e) The term "Involuntary Termination" means the termination of the
employment of Employee (i) by either the Company or the Bank or both without his
express written consent; or (ii) by the Employee by reason of a material
diminution of or interference with his duties, responsibilities or benefits,
including (without limitation) any of the following actions unless consented to
in writing by the Employee: (1) a requirement that the Employee be based at any
place other than Juneau, Alaska, or within a radius of 35 miles from the
location of the Company's administrative offices as of the date of this
Agreement, except for reasonable travel on Company or Bank business; (2) a
material demotion of the Employee; (3) a material reduction in the number or
seniority of personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to which such
personnel are to report to the Employee, other than as part of a Bank- or
Company-wide reduction in staff; (4) a reduction in the Employee's salary or a
material adverse change in the Employee's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall program applied uniformly
and with equitable effect to all members of the senior management of the Bank or
the Company; (5) a material permanent increase in the required hours of work or
the workload of the Employee; or (6) the failure of the board of directors of
the Company (or a board of directors of a successor of the Company) to elect him
as President and Chief Executive Officer of the Company (or a successor of the
Company) or any action by the board of directors of the Company (or a board of
directors of a successor of the Company) removing him from such office, or the
failure of the board of directors of the Bank (or any successor of the Bank) to
elect him as President and Chief Executive Officer of the Bank (or any successor
of the Bank) or any action by such board (or a board of a successor of the Bank)
removing him from such office. The term "Involuntary Termination" does not
include Termination for Cause, termination of employment due to death or
permanent disability pursuant to Section 7(f) of this Agreement, retirement or
suspension or temporary or permanent prohibition from participation in the
conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance
Act.
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(f) The terms "Termination for Cause" and "Terminated For Cause"
mean termination of the employment of the Employee with either the Company or
the Bank, as the case may be, because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a 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 (except as provided below) material breach of
any provision of this Agreement. No act or failure to act by the Employee shall
be considered willful unless the Employee acted or failed to act with an absence
of good faith and without a reasonable belief that his action or failure to act
was in the best interest of the Company or the Bank. The Employee shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board of Directors at a meeting of the Board duly called and held for such
purpose (after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board),
stating that in the good faith opinion of the Board of Directors the Employee
has engaged in conduct described in the preceding sentence and specifying the
particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Effective Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Effective Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (i)
neither the Employee nor the Company has given notice to the other in writing at
least 90 days prior to such anniversary that the term of this Agreement shall
not be extended further; and (ii) prior to such anniversary, the Board of
Directors explicitly reviews and approves the extension. Reference herein to the
term of this Agreement shall refer to both such initial term and such extended
terms.
3. Employment. The Employee shall be employed as the President and
Chief Executive Officer of the Company and as the President and Chief Executive
Officer of the Bank. As such, the Employee shall have supervision and control
over the daily operations of the Company and the Bank, shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties as the Board of Directors may prescribe from time to time. The Employee
shall also render services to any subsidiary or subsidiaries of the Company or
the Bank as requested by the Company or the Bank from time to time consistent
with his executive position. The Employee shall devote his best efforts and
reasonable time and attention to the business and affairs of the Company and the
Bank to the extent necessary to discharge his responsibilities hereunder. The
Employee may (i) serve on charitable boards or committees and, in addition, on
such corporate boards as are approved in a resolution adopted by a majority of
the Board of Directors, which approval shall not be withheld unreasonably and
(ii) manage personal investments, so long as such activities do not interfere
materially with performance of his responsibilities hereunder.
4. Cash Compensation.
(a) Salary. The Company and the Bank jointly agree to pay the
Employee during the term of this Agreement a base salary (the "Salary") the
annualized amount of which shall be not less
than the annualized aggregate amount of the Employee's base salary from the
Company and any Consolidated Subsidiaries in effect at the Effective Date;
provided that any amounts of salary
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actually paid to the Employee by any Consolidated Subsidiaries shall reduce the
amount to be paid by the Company and the Bank to the Employee. The Salary shall
be paid no less frequently than monthly and shall be subject to customary tax
withholding. The amount of the Employee's Salary shall be increased (but shall
not be decreased) from time to time in accordance with the amounts of salary
approved by the Board of Directors or the board of directors of any of the
Consolidated Subsidiaries after the Effective Date. The amount of the Salary
shall be reviewed by the Board of Directors at least annually during the term of
this Agreement.
(b) Bonuses. The Employee shall be entitled to participate in an
equitable manner with all other executive officers of the Company and the Bank
in such performance-based and discretionary bonuses, if any, as are authorized
and declared by the Board of Directors for executive officers.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Company and the Bank, provided that
the Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
(a) Participation in Benefit Plans. The Employee shall be entitled
to participate, to the same extent as executive officers of the Company and the
Bank generally, in all plans of the Company and the Bank relating to pension,
retirement, thrift, profit-sharing, savings, group or other life insurance,
hospitalization, medical and dental coverage, travel and accident insurance,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof. In addition, the Employee shall be entitled to be
considered for benefits under all of the stock and stock option related plans in
which the Company's or the Bank's executive officers are eligible or become
eligible to participate.
(b) Fringe Benefits. The Employee shall be eligible to participate
in, and receive benefits under, any other fringe benefit plans or perquisites
which are or may become generally available to the Company's or the Bank's
executive officers, including but not limited to supplemental retirement,
incentive compensation, supplemental medical or life insurance plans, company
cars, club dues, physical examinations, financial planning and tax preparation
services.
6. Vacations; Leave. The Employee shall be entitled (i) to annual paid
vacation in accordance with the policies established by the Board of Directors
for executive officers, and (ii) to voluntary leaves of absence, with or without
pay, from time to time at such times and upon such conditions as the Board of
Directors may determine in its discretion.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate
the Employee's employment at any time, but, except in the case of Termination
for Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. In the event of Involuntary
Termination other than after a Change in Control which
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occurs during the term of this Agreement, the Company and the Bank jointly shall
(i) pay to the Employee during the remaining term of this Agreement the Salary
at the rate in effect immediately prior to the Date of Termination, payable in
such manner and at such times as the Salary would have been payable to the
Employee under Section 4(a) if the Employee had continued to be employed by the
Company and the Bank, and (ii) provide to the Employee during the remaining term
of this Agreement substantially the same group life insurance, hospitalization,
medical, dental, prescription drug and other health benefits, and long-term
disability insurance (if any) for the benefit of the Employee and his dependents
and beneficiaries who would have been eligible for such benefits if the Employee
had not suffered Involuntary Termination, on terms substantially as favorable to
the Employee, including amounts of coverage and deductibles and other costs to
him, as if he had not suffered Involuntary Termination.
(b) Termination for Cause. In the event of Termination for Cause,
the Company and the Bank shall pay to the Employee the Salary and provide
benefits under this Agreement only through the Date of Termination, and shall
have no further obligation to the Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written notice
to the Company and the Bank or such shorter period as may be agreed upon between
the Employee and the Board of Directors. In the event of such voluntary
termination, the Company and the Bank shall be obligated jointly to continue to
pay to the Employee the Salary and provide benefits under this Agreement only
through the Date of Termination, at the time such payments are due, and shall
have no further obligation to the Employee under this Agreement.
(d) Change in Control. In the event of Involuntary Termination after
a Change in Control which occurs at any time following the Effective Date while
the Employee is employed under this Agreement, the Company and the Bank jointly
shall (i) pay to the Employee in a lump sum in cash within 25 business days
after the Date of Termination an amount equal to 299% of the Employee's "base
amount" as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"); and (ii) provide to the Employee during the remaining term
of this Agreement substantially the same group life insurance, hospitalization,
medical, dental, prescription drug and other health benefits, and long-term
disability insurance (if any) for the benefit of the Employee and his dependents
and beneficiaries who would have been eligible for such benefits if the Employee
had not suffered Involuntary Termination, on terms substantially as favorable to
the Employee, including amounts of coverage and deductibles and other costs to
him, as if he had not suffered Involuntary Termination.
(e) Death. In the event of the death of the Employee while employed
under this Agreement and prior to any termination of employment, the Company and
the Bank jointly shall pay to the Employee's estate, or such person as the
Employee may have previously designated in writing, the Salary which was not
previously paid to the Employee and which he would have earned if he had
continued to be employed under this Agreement through the last day of the
calendar month in which the Employee died, together with the benefits provided
hereunder through such date.
(f) Disability. If the Employee becomes entitled to benefits under
the terms of the then-current disability plan, if any, of the Company or the
Bank (the "Disability Plan") or becomes
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otherwise unable to fulfill his duties under this Agreement, he shall be
entitled to receive such group and other disability benefits, if any, as are
then provided by the Company or the Bank for executive employees. In the event
of such disability, this Agreement shall not be suspended, except that (i) the
obligation to pay the Salary to the Employee shall be reduced in accordance with
the amount of disability income benefits received by the Employee, if any,
pursuant to this paragraph such that, on an after-tax basis, the Employee shall
realize from the sum of disability income benefits and the Salary the same
amount as he would realize on an after-tax basis from the Salary if the
obligation to pay the Salary were not reduced pursuant to this Section 7(f); and
(ii) upon a resolution adopted by a majority of the disinterested members of the
Board of Directors, the Company and the Bank may discontinue payment of the
Salary beginning six months following a determination that the Employee has
become entitled to benefits under the Disability Plan or otherwise unable to
fulfill his duties under this Agreement.
(g) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA,
12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (1) pay the Employee all or part of the compensation withheld while
its obligations under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.
(h) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12
U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(i) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(j) Termination by Regulators. 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 Bank: (1) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (2) by the Director or his or her
designee, at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
(k) Reductions of Benefits. Notwithstanding any other
provision of this Agreement, if payments and the value of benefits received or
to be received under this Agreement, together with any other amounts and the
value of benefits received or to be received by the Employee, would cause any
amount to be nondeductible by the Company or any of the Consolidated
Subsidiaries for federal income tax purposes pursuant to or by reason of Section
280G of the Code, then payments and
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benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to be
received by the Employee without causing any amount to become nondeductible
pursuant to or by reason of Section 280G of the Code. The Employee shall
determine the allocation of such reduction among payments and benefits to the
Employee.
(l) Further Reductions. Any payments made to the Executive pursuant
to this Agreement, or otherwise, are subject to and conditioned upon their
compliance with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
8. Notice of Termination. In the event that the Company or the Bank, or
both, desire to terminate the employment of the Employee during the term of this
Agreement, the Company or the Bank, or both, shall deliver to the Employee a
written notice of termination, stating whether such termination constitutes
Termination for Cause or Involuntary Termination, setting forth in reasonable
detail the facts and circumstances that are the basis for the termination, and
specifying the date upon which employment shall terminate, which date shall be
at least 30 days after the date upon which the notice is delivered, except in
the case of Termination for Cause. In the event that the Employee determines in
good faith that he has experienced an Involuntary Termination of his employment,
he shall send a written notice to the Company and the Bank stating the
circumstances that constitute such Involuntary Termination and the date upon
which his employment shall have ceased due to such Involuntary Termination. In
the event that the Employee desires to effect a Voluntary Termination, he shall
deliver a written notice to the Company and the Bank, stating the date upon
which employment shall terminate, which date shall be at least 90 days after the
date upon which the notice is delivered, unless the parties agree to a date
sooner.
9. Attorneys' Fees. The Company and the Bank jointly shall pay all
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred by the Employee as a result of (i) the Employee's contesting
or disputing any termination of employment, or (ii) the Employee's seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Company or the Bank (or a successor)
or the Consolidated Subsidiaries under which the Employee is or may be entitled
to receive benefits; provided that the Company's and the Bank's obligation to
pay such fees and expenses is subject to the Employee's prevailing with respect
to the matters in dispute in any action initiated by the Employee or the
Employee's having been determined to have acted reasonably and in good faith
with respect to any action initiated by the Company or the Bank.
10. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and no
party may assign or delegate any of its rights or obligations hereunder without
first obtaining the written consent of the other parties; provided, however,
that the Company and the Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company and/or the Bank would be required to perform it
if no such succession or assignment had taken place. Failure to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Employee to
compensation and
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benefits from the Company and the Bank in the same amount and on the same terms
as the compensation pursuant to Section 7(d) of this Agreement. For purposes of
implementing the provisions of this Section 10(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Company and Bank at
their home offices, to the attention of the Board of Directors with a copy to
the Secretary of the Company and the Secretary of the Bank, or, if to the
Employee, to such home or other address as the Employee has most recently
provided in writing to the Company or the Bank.
12. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
13. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska.
16. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
17. Deferral of Non-Deductible Compensation. In the event that the
Employee's aggregate compensation (including compensatory benefits which are
deemed remuneration for purposes of Section 162(m) of the Code) from the Company
and the Consolidated Subsidiaries for any calendar year exceeds the maximum
amount of compensation deductible by the Company or any of the Consolidated
Subsidiaries in any calendar year under Section 162(m) of the Code (the "maximum
allowable amount"), then any such amount in excess of the maximum allowable
amount shall be mandatorily deferred with interest thereon at 8% per annum to a
calendar year such that the amount to be paid to the Employee in such calendar
year, including deferred amounts and interest thereon, does not exceed the
maximum allowable amount. Subject to the foregoing, deferred amounts including
interest thereon shall be payable at the earliest time permissible.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Alaska Pacific Bancshares, Inc.
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Roger K. White, Secretary By:
Its:
Attest: Alaska Federal Savings Bank
- --------------------- -------------------------------
Roger K. White, Secretary By:
Its:
Employee
-------------------------------
Craig E. Dahl
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EXHIBIT 10.2
Proposed Form of Change in Control Severance Agreement for Lisa Corrigan Bell
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ______________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Lisa Corrigan Bell (the "Executive").
WHEREAS, the Executive is currently serving as Senior Vice President
and Chief Operating Officer; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who
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are members of the board of directors of the Bank immediately following the
Effective Date (in each case, the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequently whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's or the Bank's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (5) consummation of a plan of
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Company or a similar transaction in which the Company is not the
resulting entity, or a transaction at the completion of which the former
stockholders of the acquired corporation become the holders of more than 40% of
the outstanding common stock of the Company and the Company is the resulting
entity of such transaction; provided that the term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
2
<PAGE>
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that she
substantially increase her travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-
wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that her action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
her employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive her salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 36 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and her eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 299% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate her employment and determines in
good faith that she has experienced Good Reason to terminate her employment, she
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate her employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties
hereto, and neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent of the other
party; provided, however, that the Bank shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation, operation of
law or otherwise) to all or substantially all of the business and/or assets of
the Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the
Executive to compensation and benefits from the Bank in the same amount and on
the same terms that she would be entitled to hereunder if she terminated her
employment for Good Reason, in addition to any payments and benefits to which
the Executive is entitled under Section 3 hereof. For purposes of implementing
the provisions of this Section 5(a), the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Lisa Corrigan Bell
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of her rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------ ---------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
---------------------------------
8
EXHIBIT 10.3
Proposed Form of Change in Control Severance Agreement for Roger K. White
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ____________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Roger K. White (the "Executive").
WHEREAS, the Executive is currently serving as Senior Vice President
and Chief Financial Officer; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein, it is AGREED as
follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who are
members of the board of directors of the Bank immediately following the
Effective Date (in each case, the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided
<PAGE>
that any person becoming a director subsequently whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's or the Bank's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (5) consummation
of a plan of reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Company or a similar transaction in which the Company
is not the resulting entity, or a transaction at the completion of which the
former stockholders of the acquired corporation become the holders of more than
40% of the outstanding common stock of the Company and the Company is the
resulting entity of such transaction; provided that the term "Change in Control"
shall not include an acquisition of securities by an employee benefit plan of
the Bank or the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that he
substantially increase his travel on Company or Bank
business;
2
<PAGE>
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-
wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that his action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of three years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
his employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive his salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 36 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and his eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 299% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate his employment and determines in
good faith that he has experienced Good Reason to terminate his employment, he
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate his employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise) to
all or substantially all of the business and/or assets of the Bank, by an
assumption agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Executive
to compensation and benefits from the Bank in the same amount and on the same
terms that he would be entitled to hereunder if he terminated his employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(a), the date on which any such succession becomes effective shall
be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Roger K. White
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of his rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------- --------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
--------------------------------
8
EXHIBIT 10.4
Proposed Form of Change in Control Severance Agreement for Tammy Knight
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ______________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Tammy Knight (the "Executive").
WHEREAS, the Executive is currently serving as Assistant Vice President
& Loan Services Manager; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who
<PAGE>
are members of the board of directors of the Bank immediately following the
Effective Date (in each case, the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequently whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's or the Bank's stockholders was approved
by the nominating committee serving under an Incumbent Board, shall be
considered a member of the Incumbent Board; or (5) consummation of a plan of
reorganization, merger, consolidation, sale of all or substantially all of the
assets of the Company or a similar transaction in which the Company is not the
resulting entity, or a transaction at the completion of which the former
stockholders of the acquired corporation become the holders of more than 40% of
the outstanding common stock of the Company and the Company is the resulting
entity of such transaction; provided that the term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
2
<PAGE>
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that she
substantially increase her travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-
wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that her action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of one year
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
her employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive her salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 12 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and her eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 100% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate her employment and determines in
good faith that she has experienced Good Reason to terminate her employment, she
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate her employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise) to
all or substantially all of the business and/or assets of the Bank, by an
assumption agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Executive
to compensation and benefits from the Bank in the same amount and on the same
terms that she would be entitled to hereunder if she terminated her employment
for Good Reason, in addition to any payments and benefits to which the Executive
is entitled under Section 3 hereof. For purposes of implementing the provisions
of this Section 5(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Tammy Knight
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of her rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------ -------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
-------------------------------
8
EXHIBIT 10.5
Proposed Form of Change in Control Severance Agreement for Thomas Sullivan
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ____________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Thomas Sullivan (the "Executive").
WHEREAS, the Executive is currently serving as Vice President and
Manager-Real Estate Lending; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who are
members of the board of directors of the Bank immediately following the
Effective Date (in each case, the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided
<PAGE>
that any person becoming a director subsequently whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's or the Bank's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (5) consummation
of a plan of reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Company or a similar transaction in which the Company
is not the resulting entity, or a transaction at the completion of which the
former stockholders of the acquired corporation become the holders of more than
40% of the outstanding common stock of the Company and the Company is the
resulting entity of such transaction; provided that the term "Change in Control"
shall not include an acquisition of securities by an employee benefit plan of
the Bank or the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that he
substantially increase his travel on Company or Bank
business;
2
<PAGE>
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-
wide reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that his action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of one year
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
his employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive his salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 12 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and his eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 100% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate his employment and determines in
good faith that he has experienced Good Reason to terminate his employment, he
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate his employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise) to
all or substantially all of the business and/or assets of the Bank, by an
assumption agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Executive
to compensation and benefits from the Bank in the same amount and on the same
terms that he would be entitled to hereunder if he terminated his employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(a), the date on which any such succession becomes effective shall
be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Thomas Sullivan
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of his rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------ --------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
--------------------------------
8
EXHIBIT 10.6
Proposed Form of Change in Control Severance Agreement for Sheri Vidic
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ______________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Sheri Vidic (the "Executive").
WHEREAS, the Executive is currently serving as Vice President & Senior
Underwriter; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who are
members of the board of directors of the Bank immediately following the
Effective Date (in each
<PAGE>
case, the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequently
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's or the Bank's stockholders was approved by the nominating
committee serving under an Incumbent Board, shall be considered a member of the
Incumbent Board; or (5) consummation of a plan of reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Company or
a similar transaction in which the Company is not the resulting entity, or a
transaction at the completion of which the former stockholders of the acquired
corporation become the holders of more than 40% of the outstanding common stock
of the Company and the Company is the resulting entity of such transaction;
provided that the term "Change in Control" shall not include an acquisition of
securities by an employee benefit plan of the Bank or the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that she
substantially increase her travel on Company or Bank
business;
2
<PAGE>
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-wide
reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that her action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of one year
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
her employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive her salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 12 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and her eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 100% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate her employment and determines in
good faith that she has experienced Good Reason to terminate her employment, she
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate her employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise) to
all or substantially all of the business and/or assets of the Bank, by an
assumption agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Executive
to compensation and benefits from the Bank in the same amount and on the same
terms that she would be entitled to hereunder if she terminated her employment
for Good Reason, in addition to any payments and benefits to which the Executive
is entitled under Section 3 hereof. For purposes of implementing the provisions
of this Section 5(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Sheri Vidic
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of her rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------ --------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
--------------------------------
8
EXHIBIT 10.7
Proposed Form of Change in Control Severance Agreement for Patrick Wonser
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ____________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Patrick Wonser (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of
Commercial Lending; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are members of the board of
directors of the Company immediately following the Effective Date or who are
members of the board of directors of the Bank immediately following the
Effective Date (in each case, the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided
<PAGE>
that any person becoming a director subsequently whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's or the Bank's
stockholders was approved by the nominating committee serving under an Incumbent
Board, shall be considered a member of the Incumbent Board; or (5) consummation
of a plan of reorganization, merger, consolidation, sale of all or substantially
all of the assets of the Company or a similar transaction in which the Company
is not the resulting entity, or a transaction at the completion of which the
former stockholders of the acquired corporation become the holders of more than
40% of the outstanding common stock of the Company and the Company is the
resulting entity of such transaction; provided that the term "Change in Control"
shall not include an acquisition of securities by an employee benefit plan of
the Bank or the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that he
substantially increase his travel on Company or Bank
business;
2
<PAGE>
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-wide
reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that his action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of one year
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
his employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive his salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 12 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and his eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 100% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate his employment and determines in
good faith that he has experienced Good Reason to terminate his employment, he
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate his employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise) to
all or substantially all of the business and/or assets of the Bank, by an
assumption agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Executive
to compensation and benefits from the Bank in the same amount and on the same
terms that he would be entitled to hereunder if he terminated his employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(a), the date on which any such succession becomes effective shall
be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Patrick Wonser
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of his rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------ ----------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
----------------------------------
8
EXHIBIT 10.8
Proposed Form of Change in Control Severance Agreement for Cheryl Crawford
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of ______________, 1999 (the "Commencement
Date"), by and between Alaska Federal Savings Bank (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 5(a) hereof or which otherwise becomes bound by all of the terms
and provisions of this Agreement by operation of law, is hereinafter referred to
as the "Bank"), and Cheryl Crawford (the "Executive").
WHEREAS, the Executive is currently serving as Vice
President/Controller; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Alaska Pacific
Bancshares, Inc. (the "Company"), may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Bank,
the Company and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (1) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section
1467a and 12 C.F.R. Part 574 (or any successor statute or regulation) or
requires the filing of a notice with the Federal Deposit Insurance Corporation
under 12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (3) any
person (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly of securities of the Company or the Bank
representing 25% or more of the combined voting power of the Company's or the
Bank's outstanding securities; (4) individuals who are
members of the board of directors of the Company immediately following the
Effective Date or who are members of the board of directors of the Bank
immediately following the Effective Date (in each
<PAGE>
case, the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequently
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's or the Bank's stockholders was approved by the nominating
committee serving under an Incumbent Board, shall be considered a member of the
Incumbent Board; or (5) consummation of a plan of reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Company or
a similar transaction in which the Company is not the resulting entity, or a
transaction at the completion of which the former stockholders of the acquired
corporation become the holders of more than 40% of the outstanding common stock
of the Company and the Company is the resulting entity of such transaction;
provided that the term "Change in Control" shall not include an acquisition of
securities by an employee benefit plan of the Bank or the Company.
(b) The term "Commencement Date" means the date of this Agreement.
(c) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to subsection (b) thereof) that includes
the Bank, including but not limited to the Company.
(d) The term "Date of Termination" means the date specified in the
Notice of Termination (which, in the case of a Termination for Cause shall not
be less than 30 days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
(i) a requirement that the Executive be based at any location
not within 35 miles of Juneau, Alaska, or that she
substantially increase her travel on Company or Bank
business;
2
<PAGE>
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive or a material reduction
in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the
Executive, other than as part of a Company-wide or Bank-wide
reduction in staff;
(iv) a reduction in the Executive's salary or a material adverse
change in the Executive's perquisites, benefits, contingent
benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all
members of the senior management of the Company or the Bank;
(v) a material and extended increase in the required hours of
work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory agreement
from any successor to assume the obligations and liabilities
under this Agreement, as contemplated in Section 5(a)
hereof; or
(vii) any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4 hereof (and, if
applicable, the requirements of Section 1(g) hereof), which
purported termination shall not be effective for purposes of
this Agreement.
(f) The term "Notice of Termination" means a notice of termination
of the Executive's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Executive because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that her action or failure to act was in
the best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
3
<PAGE>
2. Term.
(a) The term of this Agreement shall be a period of one year
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one additional year,
provided that (i) neither the Executive nor the Company has given notice to the
other in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (ii) prior to such
anniversary, the Board of Directors explicitly reviews and approves the
extension. Reference herein to the term of this Agreement shall refer to both
such initial term and such extended terms.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Executive's employment during the term of this
Agreement with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
(d) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Executive all or part
of the remuneration withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(f) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
(g) 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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
4
<PAGE>
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
her employment for Good Reason, within 12 months following a Change in Control,
the Bank shall (i) pay the Executive her salary through the Date of Termination
at the rate in effect at the time the Notice of Termination is given, at the
time such payments are due; (ii) continue to pay, for a period of 12 months
following the Date of Termination, for the life, health and disability coverage
that is in effect with respect to the Executive and her eligible dependents at
the time the Notice of Termination is given; and (iii) pay to the Executive in a
lump sum in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 100% of the Executive's
"base amount" as determined under Section 280G of the Code, less the aggregate
present value of the payments or benefits, if any, in the nature of compensation
for the benefit of the Executive, arising under any other plans or arrangements
(i.e., not this Agreement) between the Company or any of the Consolidated
Subsidiaries and the Executive, which constitute "parachute payments" under
Section 280G of the Code.
Notwithstanding any other provision of this Agreement, if payments and
the value of benefits received or to be received under this Agreement, together
with any other amounts and the value of benefits received or to be received by
the Executive, would cause any amount to be nondeductible by the Company or any
of the Consolidated Subsidiaries for federal income tax purposes pursuant to or
by reason of Section 280G of the Code, then payments and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to be received by the Executive
without causing any amount to become nondeductible pursuant to or by reason of
Section 280G of the Code. The Executive shall determine the allocation of such
reduction among payments and benefits to the Executive.
(b) The Executive shall not be required to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate her employment and determines in
good faith that she has experienced Good Reason to terminate her employment, she
shall send a written notice to the Bank stating the circumstances that
constitute Good Reason and the Date of Termination.
The Executive's right to terminate her employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
under this Agreement.
5
<PAGE>
5. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise) to
all or substantially all of the business and/or assets of the Bank, by an
assumption agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform it if no such
succession or assignment had taken place. Failure of the Bank to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Executive
to compensation and benefits from the Bank in the same amount and on the same
terms that she would be entitled to hereunder if she terminated her employment
for Good Reason, in addition to any payments and benefits to which the Executive
is entitled under Section 3 hereof. For purposes of implementing the provisions
of this Section 5(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. In the event of the death of the Executive, unless
otherwise provided herein, all amounts payable hereunder shall be paid to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 8.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Cheryl Crawford
At the address last appearing
on the personnel records of
the Executive
If to the Bank: Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
6
<PAGE>
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
State of Alaska to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of her rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
7
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: ALASKA FEDERAL SAVINGS BANK
- ------------------------ --------------------------------
________________________ By:
________________________ Its:
EXECUTIVE
--------------------------------
8
EXHIBIT 10.9
Proposed Form of Employee Stock Ownership Plan
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1999
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
PREAMBLE.......................................................................1
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION......................................2
1.1 Definitions...............................................2
(a) Account...................................................2
(b) Act.......................................................2
(c) Administrator.............................................2
(d) Annual Additions..........................................2
(e) Authorized Leave of Absence...............................2
(f) Beneficiary...............................................3
(g) Board of Directors........................................3
(h) Break.....................................................3
(i) Code......................................................3
(j) Compensation..............................................3
(k) Date of Hire..............................................3
(l) Disability................................................3
(m) Disability Retirement Date................................3
(n) Early Retirement Date.....................................4
(o) Effective Date............................................4
(p) Eligibility Period........................................4
(q) Employee..................................................4
(r) Employee Stock Ownership Account..........................4
(s) Employee Stock Ownership Contribution.....................4
(t) Employee Stock Ownership Suspense Account.................4
(u) Employer..................................................4
(v) Employer Securities.......................................4
(w) Entry Date................................................5
(x) Exempt Loan...............................................5
(y) Exempt Loan Suspense Account..............................5
(z) Financed Shares...........................................5
(aa) Former Participant........................................5
(bb) Fund......................................................5
(cc) Hour of Service...........................................5
(dd) Investment Adjustments....................................6
i
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(ee) Limitation Year...........................................6
(ff) Normal Retirement Date....................................6
(gg) Participant...............................................6
(hh) Plan......................................................6
(ii) Plan Year.................................................6
(jj) Qualified Domestic Relations Order........................6
(kk) Related Employer..........................................6
(ll) Retirement................................................7
(mm) Service...................................................7
(nn) Sponsor...................................................7
(oo) Trust Agreement...........................................7
(pp) Trustee...................................................7
(qq) Valuation Date............................................7
(rr) Year of Eligibility Service...............................7
(ss) Year of Vesting Service...................................7
1.2 Plurals and Gender................................................8
1.3 Incorporation of Trust Agreement..................................8
1.4 Headings..........................................................8
1.5 Severability......................................................8
1.6 References to Governmental Regulations............................8
1.7 Notices...........................................................8
1.8 Evidence..........................................................8
1.9 Action by Employer................................................9
ARTICLE II
PARTICIPATION............................................................10
2.1 Commencement of Participation....................................10
2.2 Termination of Participation.....................................10
2.3 Resumption of Participation......................................10
2.4 Determination of Eligibility.....................................11
2.5 Restricted Participation.........................................11
ii
<PAGE>
ARTICLE III
CREDITED SERVICE.........................................................12
3.1 Service Counted for Eligibility Purposes.........................12
3.2 Service Counted for Vesting Purposes.............................12
3.3 Credit for Pre-Break Service.....................................12
3.4 Service Credit During Authorized Leaves..........................12
3.5 Service Credit During Maternity or Paternity Leave...............13
3.6 Ineligible Employees.............................................13
ARTICLE IV
CONTRIBUTIONS............................................................14
4.1 Employee Stock Ownership Contribution............................14
4.2 Time and Manner of Employee Stock Ownership Contribution.........14
4.3 Records of Contributions.........................................15
4.4 Erroneous Contributions..........................................15
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS....................................17
5.1 Establishment of Separate Participant Accounts...................17
5.2 Establishment of Suspense Accounts...............................17
5.3 Allocation of Earnings, Losses and Expenses......................18
5.4 Allocation of Forfeitures........................................18
5.5 Allocation of Employee Stock Ownership Contribution..............18
5.6 Limitation on Annual Additions...................................19
iii
<PAGE>
5.7 Erroneous Allocations............................................22
5.8 Value of Participant's Account...................................22
5.9 Investment of Account Balances...................................22
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY.........................23
6.1 Normal Retirement................................................23
6.2 Early Retirement.................................................23
6.3 Disability Retirement............................................23
6.4 Death Benefits...................................................23
6.5 Designation of Beneficiary and Manner of Payment.................24
ARTICLE VII
VESTING AND FORFEITURES..................................................25
7.1 Vesting on Death, Disability and Normal Retirement...............25
7.2 Vesting on Termination of Participation..........................25
7.3 Disposition of Forfeitures.......................................25
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS......................................27
8.1 Right to Demand Employer Securities..............................27
8.2 Voting Rights....................................................27
8.3 Nondiscrimination in Employee Stock Ownership Contribution.......27
8.4 Dividends........................................................28
8.5 Exempt Loans.....................................................28
8.6 Exempt Loan Payments.............................................30
iv
<PAGE>
8.7 Put Option.......................................................31
8.8 Diversification Requirements.....................................31
8.9 Independent Appraiser............................................32
8.10 Nonterminable Rights.............................................32
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS...............................................33
9.1 Payments on Termination of Service - In General..................33
9.2 Commencement of Payments.........................................33
9.3 Mandatory Commencement of Benefits...............................33
9.4 Required Beginning Dates.........................................36
9.5 Form of Payment..................................................36
9.6 Payments Upon Termination of Plan................................36
9.7 Distributions Pursuant to Qualified Domestic Relations Orders....37
9.8 Cash-Out Distributions...........................................37
9.9 ESOP Distribution Rules..........................................37
9.10 Direct Rollover..................................................38
9.11 Waiver of 30-day Notice..........................................39
9.12 Re-employed Veterans.............................................39
9.13 Share Legend.....................................................39
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS...................................40
10.1 Top-Heavy Rules to Control.......................................40
v
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10.2 Top-Heavy Plan Definitions.......................................40
10.3 Calculation of Accrued Benefits..................................41
10.4 Determination of Top-Heavy Status................................43
10.5 Determination of Super Top-Heavy Status..........................43
10.6 Minimum Contribution.............................................43
10.7 Vesting..........................................................44
10.8 Maximum Benefit Limitation.......................................45
ARTICLE XI
ADMINISTRATION...........................................................46
11.1 Appointment of Administrator.....................................46
11.2 Resignation or Removal of Administrator..........................46
11.3 Appointment of Successors: Terms of Office, Etc.................46
11.4 Powers and Duties of Administrator...............................46
11.5 Action by Administrator..........................................48
11.6 Participation by Administrator...................................48
11.7 Agents...........................................................48
11.8 Allocation of Duties.............................................48
11.9 Delegation of Duties.............................................48
11.10 Administrator's Action Conclusive................................49
11.11 Compensation and Expenses of Administrator.......................49
11.12 Records and Reports..............................................49
11.13 Reports of Fund Open to Participants.............................49
11.14 Named Fiduciary..................................................49
vi
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11.15 Information from Employer........................................50
11.16 Responsibilities of Directors....................................50
11.17 Liability and Indemnification....................................50
ARTICLE XII
CLAIMS PROCEDURE.........................................................51
12.1 Notice of Denial.................................................51
12.2 Right to Reconsideration.........................................51
12.3 Review of Documents..............................................51
12.4 Decision by Administrator........................................51
12.5 Notice by Administrator..........................................51
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER.......................................53
13.1 Amendments.......................................................53
13.2 Effect of Change In Control......................................53
13.3 Consolidation or Merger of Trust.................................55
13.4 Bankruptcy or Insolvency of Employer.............................55
13.5 Voluntary Termination............................................56
13.6 Partial Termination of Plan or Permanent Discontinuance
of Contributions................................................56
ARTICLE XIV
MISCELLANEOUS............................................................57
14.1 No Diversion of Funds............................................57
14.2 Liability Limited................................................57
vii
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14.3 Facility of Payment..............................................57
14.4 Spendthrift Clause...............................................57
14.5 Benefits Limited to Fund.........................................58
14.6 Cooperation of Parties...........................................58
14.7 Payments Due Missing Persons.....................................58
14.8 Governing Law....................................................58
14.9 Nonguarantee of Employment.......................................58
14.10 Counsel..........................................................59
viii
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1999, Alaska Pacific Bancshares, Inc., an
Alaska corporation (the "Sponsor"), has adopted the Alaska Pacific Bancshares,
Inc. Employee Stock Ownership Plan in order to enable Participants to share in
the growth and prosperity of the Sponsor and its wholly owned subsidiary, Alaska
Federal Savings Bank, and to provide Participants with an opportunity to
accumulate capital for their future economic security by accumulating funds to
provide retirement, death and disability benefits. The Plan is a stock bonus
plan designed to meet the applicable requirements of Section 409 of the Code and
of an employee stock ownership plan, as defined in Section 4975(e)(7) of the
Code and Section 407(d)(6) of the Act. The employee stock ownership plan is
intended to invest primarily in "qualifying employer securities" as defined in
Section 4975(e)(8) of the Code. The Sponsor intends that the Plan will qualify
under Sections 401(a) and 501(a) of the Code and will comply with the provisions
of the Act. The Plan has been drafted to comply with all applicable provisions
of law, including the Tax Reform Act of 1986, the Omnibus Budget Reconciliation
Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, the
Omnibus Budget Reconciliation Act of 1993, the Small Business Job Protection Act
of 1996, and the Taxpayer Relief Act of 1997.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after January 1, 1999.
<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Account" shall mean a Participant's or Former Participant's entire
accrued benefit under the Plan, including the balance credited to his Employee
Stock Ownership Account and any other account described in Section 5.1.
(b) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute, together with the
applicable regulations promulgated thereunder.
(c) "Administrator" shall mean the fiduciary provided for in Article
XI.
(d) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's Account under this Plan
and accounts under any other qualified defined contribution plan to which the
Employer or a Related Employer contributes for any Limitation Year, consisting
of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Employee contributions (if any).
Annual Additions shall not include any Investment Adjustment. Annual
Additions also shall not include employer contributions which are used by the
Trust to pay interest on an Exempt Loan nor any forfeitures of Employer
Securities purchased with the proceeds of an Exempt Loan, provided that not more
than one-third of the employer contributions are allocated to Participants who
are among the group of employees deemed "highly compensated employees" within
the meaning of Code Section 414(q), as further described in Section 8.3.
(e) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for up to
36 months, provided that the Employee resumes Service within 90 days after
discharge, or such longer period of time during which such Employee's
employment rights are protected by law; or
2
<PAGE>
(2) Any other absence or leave expressly approved and granted by the
Employer which does not exceed 24 months, provided that the Employee
resumes Service at or before the end of such approved leave period. In
approving such leaves of absence, the Employer shall treat all Employees on
a uniform and nondiscriminatory basis.
(f) "Beneficiary" shall mean such legal or natural persons, who may be
designated contingently or successively, as may be designated by the Participant
pursuant to Section 6.5 to receive benefits after the death of the Participant,
or in the absence of a valid designation, such persons specified in Section
6.5(b) to receive benefits after the death of the Participant.
(g) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
(h) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, together with the applicable
regulations promulgated thereunder.
(j) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, wages, bonuses, overtime pay, commissions (but only to the extent
provided in the currently applicable individual agreements between the Employer
and each Employee who receives remuneration in the form of a commission),
elective deferrals to a cash or deferred arrangement described in Code Section
401(k), and any amount contributed on a pre-tax salary reduction basis to a
cafeteria plan described in Section 125 of the Code, but excluding amounts paid
by the Employer or accrued with respect to this Plan or any other qualified or
non-qualified unfunded plan of deferred compensation or other employee welfare
plan to which the Employer contributes, reimbursement for expenses, and other
forms of extraordinary pay, and excluding amounts accrued for a prior Plan Year.
Notwithstanding anything herein to the contrary, the annual Compensation of each
Participant taken into account under the Plan for any purpose during any Plan
Year shall not exceed $160,000, as adjusted from time to time in accordance with
Section 415(d) of the Code.
(k) "Date of Hire" shall mean the date on which an Employee shall
perform his first Hour of Service. Notwithstanding the foregoing, in the event
that an Employee incurs one or more consecutive Breaks after his initial Date of
Hire which results in the forfeiture of his pre-Break Service pursuant to
Section 3.3, his "Date of Hire" shall thereafter be the date on which he
completes his first Hour of Service after such Break or Breaks.
(l) "Disability" shall mean a physical or mental impairment which
prevents a Participant from performing the duties assigned to him by the
Employer and which either has caused the Social Security Administration to
classify the individual as "disabled" for purposes of Social Security or has
been determined by a qualified physician selected by the Administrator.
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(m) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(n) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the later of the date on which a Participant
attains age 55 and completes 5 Years of Vesting Service.
(o) "Effective Date" shall mean January 1, 1999.
(p) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding Eligibility Periods after
the initial Eligibility Period shall be based on Plan Years, the first of which
shall include the first anniversary of an Employee's Date of Hire.
(q) "Employee" shall mean any person who is classified as an employee
by the Employer or a Related Employer, including officers, but excluding
directors in their capacity as such.
(r) "Employee Stock Ownership Account" shall mean the separate
bookkeeping account established for each Participant pursuant to Section 5.1(a).
(s) "Employee Stock Ownership Contribution" shall mean the cash,
Employer Securities, or both that are contributed to the Plan by the Employer
pursuant to Article IV.
(t) "Employee Stock Ownership Suspense Account" shall mean the
temporary account in which the Trustee may maintain any Employee Stock Ownership
Contribution that is made prior to the last day of the Plan Year for which it is
made, as described in Section 5.2.
(u) "Employer" shall mean Alaska Pacific Bancshares, Inc., an Alaska
corporation, and its wholly owned subsidiaries, Alaska Federal Savings Bank and
First Services Corporation, or any successors to the aforesaid corporations by
merger, consolidation or otherwise, which may agree to continue this Plan, or
any Related Employer or any other business organization which, with the consent
of the Sponsor, shall agree to become a party to this Plan. To the extent
required by the Code or the Act, references herein to the Employer shall also
include all Related Employers, whether or not they are participating in this
Plan.
(v) "Employer Securities" shall mean the common stock issued by Alaska
Pacific Bancshares, Inc., an Alaska corporation. Such term shall also mean, in
the discretion of the Board of Directors, any other common stock issued by the
Employer or any Related Employer having voting power and dividend rights equal
to or in excess of:
(1) that class of common stock of the Employer or a Related Employer
having the greatest voting power, and
(2) that class of common stock of the Employer or a Related Employer
having the greatest dividend rights.
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Non-callable preferred stock shall be treated as Employer Securities if such
stock is convertible at any time into stock which meets the requirements of (1)
and (2) next above and if such conversion is at a conversion price which (as of
the date of the acquisition by the Plan) is reasonable. For purposes of the last
preceding sentence, preferred stock shall be treated as non-callable if, after
the call, there will be a reasonable opportunity for a conversion which meets
the requirements of the last preceding sentence.
(w) "Entry Date" shall mean each January 1 and July 1.
(x) "Exempt Loan" shall mean a loan described at Section 4975(d)(3) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(y) "Exempt Loan Suspense Account" shall mean the account to which
Financed Shares are initially credited until they are released in accordance
with Section 8.5.
(z) "Financed Shares" shall mean the Employer Securities acquired by
the Trustee with the proceeds of an Exempt Loan and which are credited to the
Exempt Loan Suspense Account until they are released in accordance with Section
8.5.
(aa) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested Account in the Plan which has
not been distributed in full.
(bb) "Fund" shall mean the trust fund maintained by the Trustee
pursuant to the Trust Agreement in order to provide for the payment of the
benefits specified in the Plan.
(cc) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by the Employer or a Related
Employer for the performance of duties or for reasons other than the performance
of duties (such as vacation time, holidays, sickness, disability, paid lay-offs,
jury duty and similar periods of paid nonworking time). To the extent not
otherwise included, Hours of Service shall also include each hour for which back
pay, irrespective of mitigation of damages, is either awarded or agreed to by
the Employer or a Related Employer. Hours of working time shall be credited on
the basis of actual hours worked, even though compensated at a premium rate for
overtime or other reasons. In computing and crediting Hours of Service for an
Employee under this Plan, the rules set forth in Sections 2530.200b-2(b) and (c)
of the Department of Labor Regulations shall apply, said sections being herein
incorporated by reference. Hours of Service shall be credited to the Plan Year
or other relevant period during which the services were performed or the
nonworking time occurred, regardless of the time when compensation therefor may
be paid. Any Employee for whom no hourly employment records are kept by the
Employer or a Related Employer shall be credited with 45 Hours of Service for
each calendar week in which he would have been credited with a least one Hour or
Service under the foregoing provisions, if hourly records were available.
Effective January 1, 1985, for absences commencing on or after that date, solely
for purposes of determining whether a Break for
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participation and vesting purposes has occurred in an Eligibility Period or a
Plan Year, an individual who is absent from work for maternity or paternity
reasons shall receive credit for the Hours of Service which would otherwise have
been credited to such individual but for such absence, or in any case in which
such hours cannot be determined, 8 Hours of Service per day of such absence. For
purposes of this Section 1.1(cc), an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this provision shall be credited (1) in the
computation period in which the absence begins if the crediting is necessary to
prevent a Break in that period, or (2) in all other cases, in the following
computation period.
(dd) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's Account attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(ee) "Limitation Year" shall mean the Plan Year.
(ff) "Normal Retirement Date" shall mean the first day of the month
coincident with or next following the later of the date on which a Participant
attains age 65 or the fifth anniversary of the date he commenced participation
in the Plan.
(gg) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof; provided, however, that the term "Participant"
shall not include (1) leased Employees (as defined in Section 414(n)(2) of the
Code), (2) any Employee who is regularly employed outside the Employer's own
offices in connection with the operation and maintenance of buildings or other
properties acquired through foreclosure or deed, (3) any individual who is
employed by a Related Employer that has not adopted the Plan in accordance with
Section 1.1(u) hereof, (4) any Employee who is a non-resident alien individual
and who has no earned income from sources within the United States, or (5) any
Employee who is included in a unit of Employees covered by a collective-
bargaining agreement with the Employer or a Related Employer that does not
expressly provide for participation of such Employees in the Plan, where there
has been good-faith bargaining between the Employer or a Related Employer and
Employees' representatives on the subject of retirement benefits. To the extent
required by the Code or the Act, or appropriate based on the context, references
herein to Participant shall include Former Participant.
(hh) "Plan" shall mean the Alaska Pacific Bancshares, Inc. Employee
Stock Ownership Plan, as described herein or as hereafter amended from time to
time.
(ii) "Plan Year" shall mean any 12 consecutive month period commencing
on each January 1 and ending on the next following December 31.
(jj) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order that satisfies the requirements to be a "qualified domestic
relations order," as defined in Section 414(p) of the Code.
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(kk) "Related Employer" shall mean any entity that is:
(1) a member of a controlled group of corporations that includes the
Employer, while it is a member of such controlled group (within the meaning
of Section 414(b) of the Code);
(2) a member of a group of trades or businesses under common control
with the Employer, while it is under common control (within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group that includes the
Employer, while it is a member of such affiliated service group (within the
meaning of Section 414(m) of the Code); or
(4) a leasing or other organization that is required to be aggregated
with the Employer pursuant to the provisions of Section 414(n) or 414(o) of
the Code.
(ll) "Retirement" shall mean termination of employment which qualifies
as early, normal or Disability retirement as described in Article VI.
(mm) "Service" shall mean, for purposes of eligibility to participate
and vesting, employment with the Employer or any Related Employer, and for
purposes of allocation of the Employee Stock Ownership Contribution and
forfeitures, employment with the Employer.
(nn) "Sponsor" shall mean Alaska Pacific Bancshares, Inc., an Alaska
corporation.
(oo) "Trust Agreement" shall mean the agreement, dated ________, 1999,
by and between Alaska Pacific Bancshares, Inc., an Alaska corporation, and First
Bankers Trust Company, N.A., of Quincy, Illinois.
(pp) "Trustee" shall mean the trustee or trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(qq) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the direction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
(rr) "Year of Eligibility Service" shall mean an Eligibility Period
during which an Employee is credited with at least 1,000 Hours of Service,
except as otherwise specified in Article III.
(ss) "Year of Vesting Service" shall mean a Plan Year during which an
Employee is credited with at least 1,000 Hours of Service, except as otherwise
specified in Article III.
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1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan. All
contributions made under the Plan will be held, managed and controlled by the
Trustee pursuant to the terms and conditions of the Trust Agreement.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
1.7 Notices.
Any notice or document required to be filed with the Administrator or
Trustee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Administrator in care of the Sponsor or
to the Trustee, each at its principal business offices. Any notice required
under the Plan may be waived in writing by the person entitled to notice.
1.8 Evidence.
Evidence required of anyone under the Plan may be by certificate,
affidavit, document or other information which the person acting on it considers
pertinent and reliable, and signed, made or presented by the proper party or
parties.
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1.9 Action by Employer.
Any action required or permitted to be taken by any entity constituting
the Employer under the Plan shall be by resolution of its Board of Directors or
by a person or persons authorized by its Board of Directors.
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who is otherwise eligible to become a Participant in
accordance with Section 1.1(gg) hereof shall initially become a Participant on
the Entry Date coincident with or next following the later of the following
dates, provided he is employed by the Employer on that Entry Date:
(1) The date on which he completes a Year of Eligibility
Service; and
(2) The date on which he attains age 18.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12 consecutive month period prior to the Effective
Date shall become a Participant on the Effective Date, provided he is still
employed by the Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Eligibility Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new Employee and shall again be required to satisfy
the eligibility requirements contained in Section 2.1(a) before resuming
participation on the appropriate Entry Date, as specified in Section 2.1(a).
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2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating their Date
of Hire, their Hours of Service during their Eligibility Period, their date of
birth, the original date of their reemployment with the Employer, if any, and
any Breaks they may have incurred.
2.5 Restricted Participation
Subject to the terms and conditions of the Plan, during the period
between the Participant's date of termination of participation in the Plan (as
described in Section 2.2) and the distribution of his entire Account (as
described in Article IX), and during any period that a Participant does not meet
the requirements of Section 2.1(a) or is employed by a Related Employer that is
not participating in the Plan, the Participant or, in the event of the
Participant's death, the Beneficiary of the Participant, will be considered and
treated as a Participant for all purposes of the Plan, except as follows:
(a) the Participant will not share in the Employee Stock Ownership
Contribution and forfeitures (as described in Sections 7.2 and 7.3), except
as provided in Sections 5.4 and 5.5; and
(b) the Beneficiary of a deceased Participant cannot designate a
Beneficiary under Section 6.5.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Eligibility Service
completed by an Employee shall be counted in determining his eligibility to
become a Participant on and after the Effective Date, whether such Service was
completed before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Vesting Service completed by an Employee (including Years
of Vesting Service completed prior to the Effective Date) shall be counted in
determining his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3;
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for eligibility and vesting purposes only if either:
(a) He was vested in any portion of his accrued benefit at the time
the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of 5 or the number of his Years of Eligibility Service or Years of
Vesting Service, as the case may be, credited to him before the Breaks
began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he is
absent from Service for one or more Authorized Leaves of Absence, he shall be
credited with 45 Hours of Service for each week during
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any such leave period. Notwithstanding the foregoing, if an Employee fails to
return to Service on or before the end of a leave period, he shall be deemed to
have terminated Service as of the first day of such leave period and his credit
for Hours of Service, determined under this Section 3.4, shall be revoked.
Notwithstanding anything contained herein to the contrary, an Employee who is
absent by reason of military service as set forth in Section 1.1(e)(1) shall be
given Service credit under this Plan for such military leave period to the
extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(cc), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(cc).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(cc); and
(b) the number of days of such absence.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any
Employee who is ineligible to participate in this Plan either because of his
failure
(a) To meet the eligibility requirements contained in Article II; or
(b) To be a Participant, as defined in Section 1.1(gg),
shall, nevertheless, earn Years of Eligibility Service and Years of Vesting
Service pursuant to the rules contained in this Article III. However, such
Employee shall not be entitled to an allocation of any contributions or
forfeitures hereunder unless and until he becomes a Participant in this Plan,
and then, only during his period of participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contribution.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership Contribution to the Fund in such amount as may be
determined by resolution of the Board of Directors in its discretion; provided,
however, that the Employer shall contribute an amount in cash not less than the
amount required to enable the Trustee to discharge any indebtedness incurred
with respect to an Exempt Loan in accordance with Section 8.6(c). If any part of
the Employee Stock Ownership Contribution under this Section 4.1 for any Plan
Year is in cash in an amount exceeding the amount needed to pay the amount due
during or prior to such Plan Year with respect to an Exempt Loan, such cash
shall be applied by the Trustee, as directed by the Administrator in its sole
discretion, either to the purchase of Employer Securities or to repay an Exempt
Loan. Contributions hereunder shall be in the form of cash, Employer Securities
or any combination thereof. In determining the value of Employer Securities
transferred to the Fund as an Employee Stock Ownership Contribution, the
Administrator may determine the average of closing prices of such securities for
a period of up to 90 consecutive days immediately preceding the date on which
the securities are contributed to the Fund. In the event that the Employer
Securities are not readily tradable on an established securities market, the
value of the Employer Securities transferred to the Fund shall be determined by
an independent appraiser in accordance with Section 8.9.
(b) In no event shall the Employee Stock Ownership Contribution exceed
for any Plan Year the maximum amount that may be deducted by the Employer under
Section 404 of the Code, nor shall such contribution cause the Employer to
violate its regulatory capital requirements. Each Employee Stock Ownership
Contribution by the Employer shall be deemed to be made on the express condition
that the Plan, as then in effect, shall be qualified under Sections 401(a) and
501(a) of the Code and that the amount of such contribution shall be deductible
from the Employer's income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contribution.
(a) The Employee Stock Ownership Contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year; provided, however,
that the Employee Stock Ownership Contribution (if any) for a Plan Year shall be
made in a timely manner to make any required payment of principal and/or
interest on an Exempt Loan for such Plan Year. Any portion of the Employee Stock
Ownership Contribution for each Plan Year that may be made prior to the last day
of the Plan Year shall, if there is an Exempt Loan outstanding at such time, at
the election of the Administrator, either (i) be applied immediately to make
payments on such Exempt Loan or (ii) be maintained by the Trustee in the
Employee Stock Ownership Suspense Account described in Section 5.2 until the
last day of such Plan Year.
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(b) If an Employee Stock Ownership Contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
Contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by the Employer, which specifies that the Employee Stock Ownership
Contribution is made with respect to the Plan Year in which it is received by
the Trustee. Any Employee Stock Ownership Contribution paid by the Employer
during any Plan Year but after the due date (including any extensions) for
filing of its federal income tax return for the fiscal year of the Employer
ending on or before the last day of the preceding Plan Year shall be treated,
for allocation purposes, as an Employee Stock Ownership Contribution to the Fund
for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership Contribution shall be made for any Plan Year during
which a limitations account created pursuant to Section 5.6(c)(3) is in
existence until the balance of such limitations account has been reallocated in
accordance with Section 5.6(c)(3).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the Employee Stock Ownership Contribution contemplated in Section
4.1, a certificate of the Administrator, in such form as the Trustee shall
approve, setting forth:
(a) The aggregate amount of such contribution, if any, to the Fund for
such Plan Year;
(b) The names, Internal Revenue Service identifying numbers and
current residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each
such Participant; and
(d) Any other information reasonably required for the proper operation
of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section
401(a), or upon the deductibility of the contribution under Section 404 of the
Code, shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the Fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of
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this Plan to the contrary, the right or claim of any Participant or Beneficiary
to any asset of the Fund or any benefit under this Plan shall be subject to and
limited by this Section 4.4.
(b) In no event shall Employee contributions be accepted. Any such
Employee contributions (and any earnings attributable thereto) mistakenly
received by the Trustee shall promptly be returned to the Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain a separate Account for
each Participant in the Plan and for each Former Participant in accordance with
the provisions of this Article V. Such separate Account shall be for bookkeeping
purposes only and shall not require a segregation of the Fund, and no
Participant, Former Participant or Beneficiary shall acquire any right to or
interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock
Ownership Account in the Fund for each Participant. The Administrator
may establish subaccounts hereunder, an Employer Stock Account
reflecting a Participant's interest in Employer Securities held by the
Trust, and an Other Investments Account reflecting the Participant's
interest in his Employee Stock Ownership Account other than Employer
Securities. Each Participant's Employer Stock Account shall reflect
his share of any Employee Stock Ownership Contribution made in
Employer Securities, his allocable share of forfeitures (as described
in Section 5.4), and any Employer Securities attributable to earnings
on such stock. Each Participant's Other Investments Account shall
reflect any Employee Stock Ownership Contribution made in cash, any
cash dividends on Employer Securities allocated and credited to his
Employee Stock Ownership Account (other than currently distributable
dividends) and his share of corresponding cash forfeitures, and any
income, gains, losses, appreciation, or depreciation attributable
thereto.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's
vested Account is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in
his Employee Stock Ownership Account in the Plan shall be transferred
after such Participant incurs a Break. Unless the Former Participant's
distribution accounts are segregated for investment purposes pursuant
to Article IX, they shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts
for each Participant as may be necessary or desirable for the
convenient administration of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Suspense Account. There shall be credited to such account any Employee Stock
Ownership Contribution that may be made prior to the last day of the Plan Year
and that are allocable to the Employee Stock
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Ownership Suspense Account pursuant to Section 4.2(a). The Employee Stock
Ownership Suspense Account shall share proportionately as to time and amount in
any Investment Adjustments. As of the last day of each Plan Year, the balance of
the Employee Stock Ownership Suspense Account shall be added to the Employee
Stock Ownership Contribution and allocated to the Employee Stock Ownership
Accounts of Participants as provided in Section 5.5, except as provided herein.
In the event that the Plan takes an Exempt Loan, the Employer Securities
purchased thereby shall be allocated as Financed Shares to a separate Exempt
Loan Suspense Account, from which Employer Securities shall be released in
accordance with Section 8.5 and shall be allocated in accordance with Section
8.6(b).
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(3)) in the proportion that the
value of each such account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership Contribution and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
accounts and for the time such funds were in such accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership Contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Employee Stock Ownership Contribution.
As of the last day of each Plan Year for which the Employer shall make
an Employee Stock Ownership Contribution, the Administrator shall allocate the
Employee Stock Ownership Contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership Account of each Participant who
completed a Year of Vesting Service during that Plan Year, provided that he is
still employed by the Employer on the last day of the Plan Year. Such allocation
shall be made in the same proportion that each such Participant's Compensation
for such Plan Year bears to the total Compensation of all such Participants for
such Plan Year, subject to Section 5.6. Notwithstanding the foregoing, if a
Participant attains his Normal Retirement Date and terminates Service prior to
the last day of the Plan Year but after completing a Year of Vesting Service, he
shall be entitled to an allocation based on his Compensation earned prior to his
termination and during the Plan Year. Furthermore, if a Participant completes a
Year of Vesting Service and is on a Leave of Absence on the last day of the Plan
Year because of pregnancy or other medical reason, such a
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Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's Account under this Plan (and
accounts under any other defined contribution plan maintained by the Employer or
a Related Employer) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation (as defined below) for
such Limitation Year; or
(2) $30,000. Whenever otherwise allowed by law, the maximum
amount of $30,000 shall be automatically adjusted annually for
cost-of-living increases in accordance with Section 415(d) of the
Code, and the highest such increase effective at any time during the
Limitation Year shall be effective for the entire Limitation Year,
without any amendment to this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services, pre-tax
elective deferrals and salary reduction contributions under a plan described in
Section 401(k) or 125 of the Code, and other amounts received (without regard to
whether or not an amount is paid in cash) for personal services actually
rendered in the course of employment with the Employer or a Related Employer, to
the extent that the amounts are includable in gross income (including, but not
limited to, commissions paid to salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in Treas. Regs. Section 1.62-2(c)), and
excluding the following:
(1) Employer contributions by the Employer or a Related Employer
to a plan of deferred compensation (other than elective deferrals
under a plan described in Section 401(k) of the Code) which are not
includable in the Employee's gross income for the taxable year in
which contributed, or employer contributions by the Employer or a
Related Employer under a simplified employee pension plan to the
extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee
either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
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(4) Other amounts which received special tax benefits (other than
pre-tax salary reduction contributions under a plan described in
Section 125 of the Code), or contributions made by the employer
(whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in section 403(b) of the
Code (whether or not the contributions are actually excludable from
the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in
Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
Limitation Year shall be reduced to the minimum extent required by such
limitations, in the following order of priority:
(1) The Administrator shall determine to what extent the Annual
Additions to any Participant's Employee Stock Ownership Account must
be reduced in each Limitation Year. The Administrator shall reduce the
Annual Additions to all other qualified, tax-exempt retirement plans
maintained by the Employer or a Related Employer in accordance with
the terms contained therein for required reductions or reallocations
mandated by Section 415 of the Code before reducing any Annual
Additions in this Plan.
(2) If any further reductions in Annual Additions are necessary,
then the Employee Stock Ownership Contribution and forfeitures
allocated during such Limitation Year to the Participant's Employee
Stock Ownership Account shall be reduced. The amount of any such
reductions in the Employee Stock Ownership Contribution and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(3) Any amounts which cannot be reallocated to other Participants
in a current Limitation Year in accordance with Section 5.6(c)(2)
above because of the limitations contained in Sections 5.6(a) and (d)
shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4 and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership Contribution may be
made to this Plan for that Limitation Year.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c)(3) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
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(d) The Annual Additions credited to a Participant's Account for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer or Related
Employer, the sum of (1) and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the Participant
under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year of
service with the Employer or a Related Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year.
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(7) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceeds 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code. Notwithstanding the foregoing, the provisions of this Section 5.6(d)
shall expire with respect to all Limitation Years beginning after December 31,
1999.
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5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his Account in excess of those permitted under Sections 5.3, 5.4,
5.5, and 5.6. If it is determined at any time that the Administrator and/or
Trustee have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error. To the extent
applicable, such correction shall be made in accordance with the provisions of
IRS Revenue Procedure 98-22 (or any amendment or successor thereto).
5.8 Value of Participant's Account.
At any time, the value of a Participant's Account shall consist of the
aggregate value of his Employee Stock Ownership Account and his distribution
account, if any, determined as of the next-preceding Valuation Date. The
Administrator shall maintain adequate records of the cost basis of Employer
Securities allocated to each Participant's Employee Stock Ownership Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. All sales of Employer Securities by the Trustee
attributable to the Employee Stock Ownership Accounts of all Participants shall
be charged pro rata to the Employee Stock Ownership Accounts of all
Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his Account, payable pursuant to the provisions of Section 9.1. A
Participant who remains in Service after his Normal Retirement Date shall not be
entitled to any retirement benefits until his actual termination of Service
thereafter (except as provided in Section 9.4), and he shall meanwhile continue
to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the vested value of his Account, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his Account, payable pursuant to the provisions
of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his Account shall be payable pursuant to
the provisions of Section 9.1. The Administrator shall direct the Trustee to
distribute his Account to any surviving Beneficiary designated by the
Participant or, if none, to such persons specified in Section 6.5(b).
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his Account to any
surviving Beneficiary designated by him or, if none, to such persons specified
in Section 6.5(b).
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the balance credited to the
Account of a deceased Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death and of the right of
any person to receive payment shall be conclusive.
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6.5 Designation of Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary to
receive the sum or sums to which he may be entitled upon his death. The
Participant may also designate the manner in which any death benefits under this
Plan shall be payable to his Beneficiary, provided that such designation is in
accordance with Section 9.5. Such designation of Beneficiary and manner of
payment shall be in writing and delivered to the Administrator, and shall be
effective when received by the Administrator while the Participant is alive. The
Participant shall have the right to change such designation by notice in writing
to the Administrator while the Participant is alive. Such change of Beneficiary
or the manner of payment shall become effective upon its receipt by the
Administrator while the Participant is alive. Any such change shall be deemed to
revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary, or
if no designated Beneficiary survives the Participant, the balance credited to
his Account shall be paid to the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Participant: the Participant's (1) widow or widower, (2) natural-born or adopted
children, (3) natural-born or adoptive parents, and (4) estate. The
Administrator shall determine which Beneficiary, if any, shall have been validly
designated or entitled to receive the balance credited to the Participant's
Account in accordance with the foregoing order of preference, and its decision
shall be binding and conclusive on all persons.
(c) Notwithstanding the foregoing, if a Participant is married on the
date of his death, the sum or sums to which he may be entitled under this Plan
upon his death shall be paid to his spouse, unless the Participant's spouse
shall have consented to the election of another Beneficiary. Such a spousal
consent shall be in writing and shall be witnessed either by a representative of
the Administrator or by a notary public. Any designation by an unmarried
Participant shall be rendered ineffective by any subsequent marriage, and any
consent of a spouse shall be effective only as to that spouse. If it is
established to the satisfaction of the Administrator that spousal consent cannot
be obtained because there is no spouse, because the spouse cannot be located, or
other reasons prescribed by governmental regulations, the consent of the spouse
may be waived, and the Participant may designate a Beneficiary or Beneficiaries
other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or Normal Retirement Date
(whether or not he actually retires at that time) while he is still employed by
the Employer, the Participant's entire Account shall be fully vested and
nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentage to be
determined under the following table, based on the Years of Vesting Service
(including Years of Vesting Service prior to the Effective Date) credited to him
at the time of his termination of participation:
Years of Vesting Service Percentage Vested
------------------------ -----------------
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. In such event, Employer Securities shall be
forfeited only after other assets. Distribution of the vested portion of a
terminated Participant's interest in the Plan shall be payable in any manner
permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be
reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 Breaks, or in the event that a
Participant terminates Service and incurs at least 5 Breaks but has not received
a distribution, then the forfeitable portion of his Employee Stock Ownership
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Account, including Investment Adjustments, shall be reallocated to other
Participants, pursuant to Section 5.4, as of the date the Participant incurs
such Break or Breaks, as the case may be.
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal, in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Account shall be
entitled to demand that his interest in the Account be distributed to him in the
form of Employer Securities, all subject to Section 9.9. The Administrator shall
notify the Participant of his right to demand distribution of his vested Account
balance entirely in whole shares of Employer Securities (with the value of any
fractional share paid in cash). However, if the charter or by-laws of the
Employer restrict ownership of substantially all of the outstanding Employer
Securities to Employees and the Trust, then the distribution of a Participant's
vested Account shall be made entirely in the form of cash or other property, and
the Participant is not entitled to a distribution in the form of Employer
Securities.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer Securities
in such account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the same proportion as the Participants who directed the Trustee as to
the manner of voting their shares in the Employee Stock Ownership Accounts with
respect to such issue. Prior to the initial allocation of shares, the Trustee
shall be entitled to vote the shares in the Exempt Loan Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of Employer Securities that are allocated to his Employee Stock
Ownership Account, the Trustee shall vote such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contribution.
In the event that the amount of the Employee Stock Ownership
Contribution that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership Contribution for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who:
(a) Was at any time during the Plan Year or the preceding Plan Year a 5
percent owner of the Employer; or
(b) Received compensation (within the meaning of Section 415(c)(3) of
the Code) from the Employer for the preceding Plan Year in excess of $80,000, as
adjusted under Code
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Section 414(q), and, if the Employer so elects, was in the "top-paid group" of
Employees (as defined below) for such year.
An Employee shall be deemed a member of the "top-paid group" of
Employees for a given Plan Year if such Employee is in the group of the top 20%
of the Employees of the Employer when ranked on the basis of compensation (as
defined above).
A former Employee shall be included in the group of Employees described above if
either:
(c) Such former Employee was included in such group when such
Employee separated from Service, or
(d) Such former Employee was included in such group at any time
after attaining age 55.
The determination of who is included in the group of Employees
described above, including the determination of the number and identity of
Employees in the "top-paid group," will be made in accordance with Section
414(q) of the Code and the regulations thereunder.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership Account as of the record date for the
dividend payment may be allocated to the Participant's Employee Stock Ownership
Account, paid in cash to the Participant, or used by the Trustee to make
payments on an Exempt Loan, pursuant to the direction of the Administrator. If
the Administrator shall direct that the aforesaid dividends shall be paid
directly to Participants, the dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in cash
shall be made to the Participants with respect to the Employer Securities in
their Employee Stock Ownership Accounts within 90 days of the close of the Plan
Year in which the dividends were paid. If dividends on Employer Securities
already allocated to Participants' Employee Stock Ownership Accounts are used to
make payments on an Exempt Loan, the Employer Securities which are released from
the Exempt Loan Suspense Account shall first be allocated to each Employee Stock
Ownership Account in an amount equal to the amount of dividends that would have
been allocated to such Account if the dividends had not been used to make
payments on an Exempt Loan, and the remaining Employer Securities (if any) which
are released shall be allocated in the proportion that the value of each
Employee Stock Ownership Account bears to the value of all such Accounts, all in
accordance with Section 404(k) of the Code. Dividends on Employer Securities
obtained pursuant to an Exempt Loan and still held in the Exempt Loan Suspense
Account may be used to make payments on an Exempt Loan, as described in Section
8.6.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase
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Employer Securities (ii) a loan from the Employer to the Plan; or (iii) an
installment sale of Employer Securities to the Plan. The proceeds of any such
Exempt Loan shall be used, within a reasonable time after the Exempt Loan is
obtained, only to purchase Employer Securities, repay the Exempt Loan, or repay
any prior Exempt Loan. Any such Exempt Loan shall provide for no more than a
reasonable rate of interest and shall be without recourse against the Plan. The
number of years to maturity under the Exempt Loan must be definitely
ascertainable at all times. The only assets of the Plan that may be given as
collateral for an Exempt Loan are Financed Shares acquired with the proceeds of
the Exempt Loan and Financed Shares that were used as collateral for a prior
Exempt Loan repaid with the proceeds of the current Exempt Loan. Such Financed
Shares so pledged shall be placed in an Exempt Loan Suspense Account. No person
or institution entitled to payment under an Exempt Loan shall have recourse
against Trust assets other than the Financed Shares, the Employer Stock
Ownership Contribution (other than contributions of Employer Securities) that is
available under the Plan to meet obligations under the Exempt Loan, and earnings
attributable to such Financed Shares and the investment of such contribution.
Any Employee Stock Ownership Contribution paid during the Plan Year in which an
Exempt Loan is made (whether before or after the date the proceeds of the Exempt
Loan are received), any Employee Stock Ownership Contribution paid thereafter
until the Exempt Loan has been repaid in full, and all earnings from investment
of such Employee Stock Ownership Contribution, without regard to whether any
such Employee Stock Ownership Contribution and earnings have been allocated to
Participants' Employee Stock Ownership Accounts, shall be available to meet
obligations under the Exempt Loan as such obligations accrue, or prior to the
time such obligations accrue, unless otherwise provided by the Employer at the
time any such contribution is made. Any pledge of Employer Securities shall
provide for the release of Financed Shares upon the payment of any portion of
the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of Financed Shares released from such pledge shall equal the number of
Financed Shares held immediately before release for the current Plan Year
multiplied by a fraction. The numerator of the fraction is the sum of principal
and interest paid in such Plan Year. The denominator of the fraction is the sum
of the numerator plus the principal and interest to be paid for all future
years. Such years will be determined without taking into account any possible
extension or renewal periods. If interest on any Exempt Loan is variable, the
interest to be paid in future years under the Exempt Loan shall be computed by
using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may, in accordance with
the direction of the Administrator, obtain an Exempt Loan pursuant to the terms
of which the number of Financed Shares to be released from encumbrance shall be
determined with reference to principal payments only. In the event that such an
Exempt Loan is obtained, annual payments of principal and interest shall be at a
cumulative rate that is not less rapid at any time than level payments of such
amounts for not more than 10 years. The amount of interest in any such annual
loan repayment shall be disregarded only to the extent that it would be
determined to be interest under standard loan amortization tables. The
requirement set forth in the preceding sentence shall not be applicable from the
time that, by reason of a renewal, extension, or refinancing, the
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sum of the expired duration of the Exempt Loan, the renewal period, the
extension period, and the duration of a new Exempt Loan exceeds 10 years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) the Employee Stock Ownership Contribution to the Trust made to meet the
Plan's obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Financed Shares and
investments of such contributions (both received during or prior to the Plan
Year); (2) the proceeds of a subsequent Exempt Loan made to repay a prior Exempt
Loan; and (3) the proceeds of the sale of any Financed Shares. Such contribution
and earnings shall be accounted for separately by the Plan until the Exempt Loan
is repaid.
(b) Employer Securities released from the Exempt Loan Suspense Account
by reason of the payment of principal or interest on an Exempt Loan from amounts
allocated to Participants' Employee Stock Ownership Accounts shall immediately
upon release be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as they
are due, provided, however, that no such contribution shall exceed the
limitations in Section 5.6. In the event that such contributions by reason of
the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the
Administrator's direction the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Employer Securities released
from the pledge of the prior Exempt Loan shall be pledged as
collateral to secure the new Exempt Loan. Such Employer Securities
will be released from this new pledge and allocated to the Employee
Stock Ownership Accounts of the Participants in accordance with the
applicable provisions of the Plan;
(2) Purchase any Financed Shares in an amount necessary to
provide the Trustee with sufficient funds to meet the principal and
interest repayments. Any such sale by the Plan shall meet the
requirements of Section 408(e) of the Act; or
(3) Any combination of the foregoing.
However, the Employer shall not, pursuant to the provisions of this
subsection, do, fail to do or cause to be done any act or thing which would
result in a disqualification of the Plan as an employee stock ownership plan
under Section 4975(e)(7) of the Code.
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(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement, while such shares are held by the Plan or when such
shares are distributed from the Plan.
8.7 Put Option.
In the event that the Employer Securities distributed to a Participant
are not readily tradable on an established market, the Participant shall be
entitled to require that the Employer repurchase the Employer Securities under a
fair valuation formula, as provided by governmental regulations. The Participant
or Beneficiary shall be entitled to exercise the put option described in the
preceding sentence for a period of not more than 60 days following the date of
distribution of Employer Securities to him. If the put option is not exercised
within such 60-day period, the Participant or Beneficiary may exercise the put
option during an additional period of not more than 60 days after the beginning
of the first day of the first Plan Year following the Plan Year in which the
first put option period occurred, all as provided in regulations promulgated by
the Secretary of the Treasury.
If a Participant exercises the foregoing put option with respect to
Employer Securities that were distributed as part of a total distribution
pursuant to which a Participant's Employee Stock Ownership Account is
distributed to him in a single taxable year, the Employer or the Plan may elect
to pay the purchase price of the Employer Securities over a period not to exceed
5 years. Such payments shall be made in substantially equal installments not
less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price, and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, if permissible under Section
9.5, the amount to be paid for such securities shall be paid not later than 30
days after the exercise of the put option.
8.8 Diversification Requirements.
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25 percent of his Employee Stock Ownership Account
(to the extent such percentage exceeds the amount to which a prior election
under this Section 8.8 had been made). For purposes of this Section 8.8, the
term "qualified election period" shall mean the 5-Plan-Year period beginning
with the Plan Year after the Plan Year in which the Participant attains age 55
(or, if later, beginning with the Plan Year after the first Plan Year in which
the Employee first completes at least 10 years of participation in the Plan). In
the case of an Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other
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Participant who has met the minimum age and service requirements for
diversification can make his last election hereunder, he shall be entitled to
direct the Plan as to the investment of at least 50 percent of his Employee
Stock Ownership Account (to the extent such percentage exceeds the amount to
which a prior election under this Section 8.8 had been made). The Plan shall
make available at least 3 investment options (chosen by the Administrator in
accordance with regulations prescribed by the Department of Treasury) to each
Participant making an election hereunder. The Plan shall be deemed to have met
the requirements of this Section if the portion of the Participant's Employee
Stock Ownership Account covered by the election hereunder is distributed to the
Participant or his designated Beneficiary within 90 days after the period during
which the election may be made. In the absence of such a distribution, the
Trustee shall implement the Participant's election within 90 days following the
expiration of the qualified election period. Notwithstanding the foregoing, if
the fair market value of the Employer Securities allocated to the Employee Stock
Ownership Account of a Participant otherwise entitled to diversify hereunder is
$500 or less as of the Valuation Date immediately preceding the first day of any
election period, then such Participant shall not be entitled to an election
under this Section 8.8 for that qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of the regulations
promulgated under Code Section 170(a)(1) shall value the Employer Securities in
those Plan Years when such securities are not readily tradable on an established
securities market.
8.10 Nonterminable Rights.
The provisions of this Article VIII shall continue to be applicable to
Employer Securities held by the Trustee, whether or not allocated to
Participants' and Former Participants' Accounts, even if the Plan ceases to be
an employee stock ownership plan, as defined in Section 4975(e)(7) of the Code.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested Account in the Plan. As soon as practicable after a
Participant's Retirement, Disability, death or other termination of Service, the
Administrator shall ascertain the value of his vested Account, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement, Disability or Death. Upon a
Participant's Retirement, Disability or death, payment of benefits under this
Plan shall, unless the Participant otherwise elects (in accordance with Section
9.3), commence as soon as practicable after the Valuation Date next following
the date of the Participant's Retirement, Disability or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement,
Disability or death, he shall be accorded an opportunity to commence receipt of
benefits as soon as practicable after the Valuation Date next following the date
of his termination of Service. A Participant who terminates Service with a
vested Account balance shall be entitled to receive from the Administrator a
statement of his benefits. In the event that a Participant elects not to
commence receipt of distribution in accordance with this Section 9.2(b) after
the Participant incurs a Break, the Administrator shall transfer his vested
Account balance to a distribution account. If a Participant's vested Account
balance does not exceed (or at the time of any prior distribution did not
exceed) $5,000, the Plan Administrator shall distribute the vested portion of
his Account balance as soon as administratively feasible without the consent of
the Participant or his spouse.
(c) Distribution of Accounts Greater Than $5,000. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $5,000, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Administrator shall notify the Participant of the right to defer
any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code Section 401(a)(9)
or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest to occur of the
close of the Plan Year in which (i) the Participant attains age 65, (ii) the
tenth anniversary of the Plan Year in which the Participant
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commenced participation, or (iii) the Participant terminates Service with the
Employer and all Related Employers.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated Beneficiary,
(iii) a period certain not extending beyond the life expectancy
of the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
Beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the Participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or
the joint life and last survivor expectancy of the Participant and the
Participant's designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at least
equal the quotient obtained by dividing the Participant's benefit by
the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for
the first distribution calendar year, shall not be less than the
quotient obtained by dividing the Participant's Account balance by the
lesser of (1) the applicable life expectancy, or (2) if the
Participant's spouse is not the designated Beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions after the
death of the Participant shall be distributed using the applicable
life expectancy in subsection (iii) of Section 9.3(b) above as the
relevant divisor without regard to Proposed Regulations section
1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the
Participant's required beginning date. The minimum distribution for
other calendar years, including the minimum distribution for the
distribution calendar year in which the Participant's required
beginning date occurs, must be made on or before December 31 of the
distribution calendar year.
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(d) If a Participant dies after a distribution has commenced in
accordance with Section 9.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his Account
balance has begun, the entire Account balance shall be distributed by December
31 of the calendar year containing the fifth anniversary of the death of the
Participant, except in the following events:
(i) If any portion of the Participant's Account balance is
payable to (or for the benefit of) a designated Beneficiary over a
period not extending beyond the life expectancy of such Beneficiary
and such distributions begin not later than December 31 of the
calendar year immediately following the calendar year in which the
Participant died; or
(ii) If any portion of the Participant's Account balance is
payable to (or for the benefit of) the Participant's spouse over a
period not extending beyond the life expectancy of such spouse and
such distributions begin no later than December 31 of the calendar
year in which the Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated Beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any election not to recalculate shall be irrevocable and shall apply
to all subsequent years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
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(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant who is a
5-percent owner of the Employer is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70-1/2. The
required beginning date of a Participant who is not a 5-percent owner shall be
April 1 of the calendar year following the later of either: (i) the calendar
year in which the Participant attains age 70-1/2, or (ii) the calendar year in
which the Participant retires.
(b) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested Account balance shall be distributed in a
lump sum payment. Notwithstanding the preceding sentence, but subject to Section
9.3, the Administrator may not distribute a lump sum without the Participant's
consent when the present value of a Participant's total Account balance is in
excess of $5,000. This form of payment shall be the normal form of distribution.
Furthermore, however, in the event that the Administrator must commence
distributions, as required by Section 9.4 herein, with respect to an Employee
who has attained age 70-1/2 and is still employed by the Employer, if the
Employee does not elect a lump sum distribution, payments shall be made in
installments in such amounts as shall satisfy the minimum distribution rules of
Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: The
Account balance of each affected Participant and Former Participant shall
immediately become fully vested and nonforfeitable; the Account balance of all
Participants and Former Participants shall be determined within 60 days after
such termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
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9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
promptly notify the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto, shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.7, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions.
If a Participant receives a distribution of his entire vested Account
balance because of the termination of his participation in the Plan, the Plan
shall disregard a Participant's Service with respect to which such cash-out
distribution shall have been made, in computing his Account balance in the event
that a Former Participant shall again become an Employee and become eligible to
participate in the Plan. Such a distribution shall be deemed to be made on
termination of participation in the Plan if it is made not later than the close
of the second Plan Year following the Plan Year in which such termination
occurs. The forfeitable portion of a Participant's Account balance shall be
restored upon repayment to the Plan by such Former Participant of the full
amount of the cash-out distribution, provided that the Former Participant again
becomes an Employee. Such repayment must be made by the Employee not later than
the end of the 5-year period beginning with the date of the distribution.
Forfeitures required to be restored by virtue of such repayment shall be
restored from the following sources in the following order of preference: (i)
current forfeitures; (ii) an additional Employee Stock Ownership Contribution,
as appropriate, and as subject to Section 5.6; and (iii) investment earnings of
the Fund. In the event that a Participant's Account balance is totally
forfeitable, a Participant shall be deemed to have received a distribution of
zero upon his termination of Service. In the event of a return to Service within
5 years of the date of his deemed distribution, the Participant shall be deemed
to have repaid his distribution in accordance with the rules of this Section
9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in
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writing) shall commence as soon as administratively feasible as of the first
Valuation Date coincident with or next following his death, Disability or
termination of Service, but not later than 1 year after the close of the Plan
Year in which the Participant separates from Service by reason of the attainment
of his Normal Retirement Date, Disability, death or separation from Service. In
addition, all distributions hereunder shall, to the extent that the
Participant's Account is invested in Employer Securities, be made in the form of
Employer Securities or cash, or a combination of Employer Securities and cash,
in the discretion of the Administrator, subject to the Participant's right to
demand Employer Securities in accordance with Section 8.1. Fractional shares,
however, may be distributed in the form of cash.
9.10 Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or Former Participant. In addition, the Participant's or Former
Participant's surviving spouse and the Participant's or Former Participant's
spouse or former spouse who is the alternate payee under a Qualified Domestic
Relations Order are "distributees" with regard to the interest of the spouse or
former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
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9.11 Waiver of 30-day Notice.
If a distribution is one to which Sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that: (1) the Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
9.12 Re-employed Veterans.
Notwithstanding any provision of the Plan to the contrary,
contributions, benefits, Plan loan repayment suspensions and Service credit with
respect to qualified military service will be provided in accordance with Code
Section 414(u).
9.13 Share Legend.
Employer Securities held or distributed by the Trustee may include such
legend restrictions on transferability as the Employer may reasonably require in
order to assure compliance with applicable Federal and State securities and
other laws.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q))
and any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code), (2) in a group of trades or businesses under common
control with such Employer, while it is under common control (within the meaning
of Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years, is
one of the following:
(1) An officer of the Employer who has compensation greater than
50% of the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser, the
greater of 3 or 10% of the Employees) shall be deemed officers;
(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in
effect under Section
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415(c)(1)(A) of the Code, and owning (or considered as owning, within
the meaning of Section 318 of the Code) the largest interests in the
Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who is
not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirements of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution
plan (other than a defined contribution pension plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the respective plan, determined as of the most
recent plan valuation date within a 12-month period
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ending on the Determination Date, including contributions actually
made after the valuation date but before the Determination Date (and,
in the first plan year of a plan, also including any contributions
made after the Determination Date which are allocated as of a date in
the first plan year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value
of the Employee's accrued benefits under the plan, determined as of
the most recent plan valuation date within a 12-month period ending on
the Determination Date, pursuant to the actuarial assumptions used by
such plan, and calculated as if the Employee terminated Service under
such plan as of the valuation date (except that, in the first plan
year of a plan, a current Participant's estimated Accrued Benefit as
of the Determination Date shall be taken into account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the 5-year period ending on
the Determination Date, any Accrued Benefit for such individual shall
not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions, but
shall exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or
plans, as the case may be, during the 5-year period ending on the
Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken
into account as follows:
(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall continue
to count the amount transferred; the receiving plan shall not
count the amount transferred.
(B) If the transfer is not initiated by the Employee or is
made between plans maintained by related employers, the
transferring plan shall no
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longer count the amount transferred; the receiving plan shall
count the amount transferred.
(c) If any individual has not performed services for the Employer at
any time during the 5-year period ending on the Determination Date, any Accrued
Benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any Plan Year in which the Plan is top-heavy, each Non-Key
Employee who has met the age and service requirements, if any, contained in the
Plan, shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under
this Plan shall be 3% of such Non-Key Employee's compensation.
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(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan
shall in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group;
provided, however, that this Section 10.7(b)(1) shall not apply if
this Plan is included in a Required Aggregation Group and this Plan
enables a defined benefit plan in such Required Aggregation Group to
meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution
is being accrued or made on account of such Plan Year, in whole or in
part, on behalf of the Non-Key Employee, in accordance with Section
416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1)
any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Accrued Benefit derived from Employer contributions (not including
contributions made pursuant to Code Section 401(k), if any) shall continue to
vest according to the following schedule:
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Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as Year of Vesting Service, as set forth in Section
1.1(ss), and as modified by Section 3.2.
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 or more Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i) shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the Plan Year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. The authority to control and
manage the operation and administration of the Plan is vested in the
Administrator appointed by the Board of Directors. The Administrator shall have
the rights, duties and obligations of an "administrator," as that term is
defined in section 3(16)(A) of the Act, and of a "plan administrator," as that
term is defined in Section 414(g) of the Code. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Sponsor and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Sponsor
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Sponsor in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities
in connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
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(b) To exercise discretion in determining all questions arising in the
administration, interpretation and application of the Plan, including questions
of eligibility and of the status and rights of Participants, Beneficiaries and
any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and direct the Trustee regarding the known
future needs for funds to be available for distribution in order that the
Trustee may establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies
to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to
the Plan for each fiscal year;
(g) To direct the Trustee concerning all matters pertaining to its
duties and obligations pursuant to the provisions of this Plan and the Trust
Agreement;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against
the Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee;
(l) To have all such other powers as may be necessary to discharge its
duties hereunder; and
(m) To direct the Trustee to pay all expenses of administering this
Plan, except to the extent that the Employer pays such expenses.
Full discretion is granted to the Administrator to interpret the Plan
and to determine the benefits, rights and privileges of Participants,
Beneficiaries or other persons affected by this Plan. The Administrator shall
exercise its discretion under the terms of this Plan and shall administer the
Plan in accordance with its terms, such administration to be exercised uniformly
so that all persons similarly situated shall be similarly treated.
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11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrator.
No member of the committee constituting the Administrator shall be
precluded from becoming a Participant in the Plan if he would be otherwise
eligible, but he shall not be entitled to vote or act upon matters or to sign
any documents relating specifically to his own participation under the Plan,
except when such matters or documents relate to benefits generally. If this
disqualification results in the lack of a quorum, then the Board of Directors
shall appoint a sufficient number of temporary members of the committee
constituting the Administrator who shall serve for the sole purpose of
determining such a question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services and
all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator
may be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to any Employees of
the Employer, to the Trustee with its written consent, or to any other person or
firm, provided that the Administrator shall prudently choose such agents and
rely in good faith on their actions.
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11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall
be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his Account balance, as well as a complete copy of the Plan and
the Trust Agreement and copies of annual reports to the Internal Revenue
Service, shall be made available by the Administrator to the Employer for
examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's Account
balance shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of Section 402 of
the Act and shall be the designated agent for receipt of service of process on
behalf of the Plan. It shall use the care and diligence in the performance of
its duties under this Plan that are required of fiduciaries under the Act.
Nothing in this Plan shall preclude the Employer from purchasing liability
insurance to protect the Administrator with respect to its duties under this
Plan.
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11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Responsibilities of Directors.
Subject to the rights reserved to the Board of Directors acting on
behalf of the Employer as set forth in this Plan, no member of the board of
Directors shall have any duties or responsibilities under this Plan, except to
the extent he shall be acting in the capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) To the extent not prohibited by the Act, the Administrator shall
not be responsible in any way for any action or omission of the Employer, the
Trustee or any other person in the performance of their duties and obligations
set forth in this Plan and in the Trust Agreement. To the extent not prohibited
by the Act, the Administrator shall also not be responsible for any act or
omission of any of its agents, or with respect to reliance upon advice of its
counsel (whether or not such counsel is also counsel to the Employer or the
Trustee), provided that such agents or counsel were prudently chosen by the
Administrator and that the Administrator relied in good faith upon the action of
such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary
for the claimant to perfect his claim, if possible, and an explanation of why
such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above,
the claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within
60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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The Administrator's decision shall be binding and conclusive with respect to all
persons interested therein unless the Administrator has no reasonable basis for
its decision.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Sponsor reserves the right at any time and from time to time, for
any reason and retroactively if deemed necessary or appropriate by it, to the
extent permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's Account balance as of the effective date of the amendment
or change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Vesting Service is permitted to elect to have the vesting schedule in effect
before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit; and.
(d) No amendment may increase the duties of the Trustee without its
consent.
Amendments may be made in the form of Board of Directors' resolutions
or separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Effect of Change In Control
(a) In the event of a "change in control" of the Sponsor, as defined in
paragraph (d) below, this Plan shall terminate at the effective time of such
change in control unless the Board of Directors shall affirmatively determine
prior to such effective time that the Plan shall not terminate. Nothing in this
Plan shall prevent the Sponsor from becoming a party to such a change in
control. In the event that the Board of Directors determines that the Plan shall
not terminate upon a change in control, any successor corporation or other
entity formed and resulting from such change in control shall have the right to
become the sponsor of this Plan by adopting the same by resolution. If, within
180 days from the effective time of such change in control, such entity does not
affirmatively adopt this Plan, then this Plan shall automatically be terminated,
all affected Participants' and Former Participants' Account balances shall
become fully vested and nonforfeitable, and the Trustee shall make payments to
the persons entitled thereto in accordance with Article IX.
(b) In the event that the Plan terminates upon a change in control in
accordance with paragraph (a) above, the Account balances of all affected
Participants and Former
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Participants shall become fully vested and nonforfeitable, and the Trustee shall
either (i) make payments to each Participant and Beneficiary in accordance with
Section 9.5 or, (ii) in the discretion of the Sponsor, continue the Trust
Agreement and make distributions upon the contingencies and in all the
circumstances under which distributions would have been made, on a fully vested
basis, had there been no termination of the Plan.
(c) Notwithstanding any provision of the Plan to the contrary, at and
after the effective time of a change in control, whether or not the Plan
terminates at such time, each of the following provisions shall become
applicable; provided, however, that any such provision shall not apply if the
Board of Directors determines that such provision either (i) would adversely
affect the tax-qualified status of the Plan pursuant to Code Section 401(a),
(ii) would adversely affect the accounting treatment of the change in control as
a pooling of interests, if the Board of Directors desires that such treatment
apply, or (iii) should not apply for any other reason:
(1) The Plan shall be interpreted, maintained and operated
exclusively for the benefit of those individuals who are participating
in the Plan as of the effective time of the change in control and
their Beneficiaries. Notwithstanding the provisions of Section 2.1(a),
no Employee shall become a Participant for the first time at or after
the effective time of a change in control.
(2) After a Participant's Retirement, Disability or other
termination of Service, such Participant's Account, regardless of its
value, shall not be distributed and shall share in the allocation of
the Employee Stock Ownership Contribution and Investment Adjustments
until such time as either (A) the Fund is liquidated in connection
with the termination of the Plan, or (B) the Participant (or his
Beneficiary) receives a full distribution of his Account either upon
his election in accordance with Section 9.2(c) or as required in
accordance with Section 8.8, 9.3 or 9.4.
(3) Upon the termination of the Plan, Employer Securities that
are allocated to the Exempt Loan Suspense Account and that are not
used to repay an Exempt Loan shall be allocated as Investment
Adjustments in accordance with Section 5.3.
(4) Employer Securities that are released from the Exempt Loan
Suspense Account in accordance with Section 8.5 shall be allocated to
the Employee Stock Ownership Account of each Participant regardless of
whether he completed a Year of Vesting Service during the Plan Year or
was an Employee on the last day of such Plan Year.
(5) The Administrator shall consist of a committee selected by
the Board of Directors, and such committee shall have the exclusive
authority (i) to remove the Trustee and to appoint a successor
trustee, (ii) to adopt amendments to the Plan or the Trust Agreement
to effectuate the provisions and intent of this Section 13.2, and
(iii) to perform any or all of the functions and to exercise all of
the discretion that are delegated to the Administrator pursuant to
Article XI.
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(6) Any application for a favorable determination letter with
respect to the tax-qualified status of the Plan under Code Section
401(a) with respect to its termination shall be subject to the prior
review, comment and approval (which approval shall not be unreasonably
withheld) of the Administrator, as defined in paragraph (5) above.
(d) For purposes of this Section 13.2, the term "change in control"
means the occurrence of any one or more of the events specified in the following
clauses (i) through (iii): (i) any third person, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the
beneficial owner of shares of the Sponsor with respect to which 25% or more of
the total number of votes for the election of the Board of Directors may be
cast, (ii) as a result of, or in connection with, any cash tender offer, merger
or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors of the Sponsor
shall cease to constitute a majority of the Board of Directors, or (iii) the
effective time of a transaction that is approved by the stockholders of the
Sponsor and that provides either for the Sponsor to cease to be an independent
publicly-owned corporation or for a sale or other disposition of all or
substantially all of the assets of the Sponsor.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors, or of any new or successor
employer of the affected Participants, shall authorize such transfer of assets,
and, in the case of the new or successor employer of the affected Participants,
its resolutions shall include an assumption of liabilities imposed under this
Plan with respect to such Participants' inclusion in the new employer's plan;
and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, or similar federal or state statute, or any federal or
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state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically with
respect to such entity on such date (provided, however, that if a proceeding is
brought against the Employer for reorganization under Chapter 11 of the United
States Bankruptcy Code or any similar federal or state statute, then this Plan
shall terminate automatically if and when said proceeding results in a
liquidation of the Employer, or the approval of any Plan providing therefor, or
the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or
any similar conversion to a liquidation proceeding under federal or state law
including, but not limited to, a receivership proceeding). In the event of any
such termination as provided in the foregoing sentence, the Trustee shall make
payments to the persons entitled thereto in accordance with Section 9.6 hereof.
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the Account balances of all affected Participants and Former
Participants shall become fully vested and nonforfeitable, and the Trustee shall
make payments to each Participant or Beneficiary in accordance with Section 9.6.
Alternatively, the Sponsor, in its discretion, may determine to continue the
Trust Agreement and to continue the maintenance of the Fund, in which event
distributions shall be made upon the contingencies and in all the circumstances
under which such distributions would have been made, on a fully vested basis,
had there been no termination of the Plan. In addition, an entity other than the
Sponsor that is participating in this Plan may terminate its participation in
the Plan on a prospective basis by action of its board of directors. Upon such
termination of participation, Participants who are employees of such entity
shall be entitled to distributions from this Plan in accordance with Article IX
and this Article XIII.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue permanently its
contributions hereunder, the right of each affected Participant and Former
Participant in his Account balance shall be fully vested and nonforfeitable. The
Sponsor, in its discretion, shall decide whether to direct the Trustee to make
immediate distribution of such portion of the Fund assets to the persons
entitled thereto or to make distribution in the circumstances and contingencies
which would have controlled such distributions if there had been no partial
termination or permanent discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to the extent that a return of the Employer's contribution
is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person, shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Facility of Payment.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minors
Act, or corresponding legislation (who shall be an adult, a guardian of the
minor or a trust company), and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, including in the case of
certain judgments and settlements described in subparagraph (C) of Section
401(a)(13) of the Code, no benefits or other amounts payable under the Plan
shall be subject in any manner to anticipation, sale, transfer, assignment,
pledge, encumbrance, charge or alienation. If the Administrator determines that
any person entitled to any payments under the Plan has become insolvent or
bankrupt or has attempted to anticipate, sell, transfer, assign, pledge,
encumber, charge or otherwise in any manner alienate any benefit or other amount
payable to him under the Plan or that there is any danger of any levy or
attachment or other court process or encumbrance on the part of any creditor of
such person entitled to payments under the Plan against any benefit or other
accounts payable to such person, the Administrator may, at any time, in its
discretion, and in accordance with applicable law, direct the Trustee to
withhold any or all payments to such person under the
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Plan and apply the same for the benefit of such person, in such manner and in
such proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and
the Employer shall be under no legal liability to make any such contributions,
except as otherwise provided herein. The benefits of this Plan shall be provided
solely by the assets of the Fund, and no liability for the payment of benefits
under the Plan or for any loss of assets due to any action or inaction of the
Trustee shall be imposed upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and papers
which are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort
to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period of
5 years from the date such benefit shall be due, any such persons entitled to
benefits have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Trustee shall send a
certified letter to all such persons at their last known address advising them
that their interest in benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Trustee for a period of 3 additional
years (or a total of 8 years from the time the benefits first became payable),
and thereafter such amounts shall be reallocated among current Participants in
the same manner that a current contribution would be allocated. However, if a
person subsequently makes a valid claim with respect to such reallocated amounts
and any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Alaska, and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the
58
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employment of the Employer, or as a limitation of the right of the Employer to
discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who
may be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder, or with
respect to any action or proceeding or any question of law, and they shall be
fully protected to the extent allowable by law with respect to any action taken
or omitted by them in good faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be affixed on
this _____ day of _______, 1999.
Alaska Pacific Bancshares, Inc.
ATTEST:
____________________________ By ______________________________
Roger K. White, Craig E. Dahl
Secretary President and Chief Executive
Officer
[Corporate Seal]
59
EXHIBIT 10.10
Proposed Form of Employee Severance Compensation Plan
<PAGE>
ALASKA FEDERAL SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of Alaska Federal Savings Bank Employee Severance
Compensation Plan (the "Plan") is to assure for Alaska Federal Savings Bank (the
"Bank") the services of the Employees in the event of a Change in Control of
Alaska Pacific Bancshares, Inc. (the "Holding Company") or the Bank. The
benefits contemplated by the Plan recognize the value to the Bank of the
services and contributions of the eligible Employees and the effect upon the
Bank resulting from uncertainties relating to continued employment, reduced
employee benefits, management changes and employee relations that may arise if a
Change in Control occurs or is threatened. The Bank's board of directors (the
"Board of Directors") and the Holding Company's board of directors believe that
it is in the best interests of the Bank and the Holding Company to provide
eligible Employees with such benefits in order to defray the costs and changes
in employee status that could follow a Change in Control. The Board of Directors
believes that the Plan will also aid the Bank in attracting and retaining highly
qualified individuals who are essential to its success and that the Plan's
assurance of fair treatment of the Bank's employees will reduce the distractions
and other adverse effects on Employees' performance if a Change in Control
occurs or is threatened.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date, the Bank hereby establishes a severance
compensation plan to be known as the "Alaska Federal Savings Bank Employee
Severance Compensation Plan." The purposes of the Plan are as set forth above.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all
Employees, who, at or after the Effective Date, meet the eligibility
requirements of Article III. The Plan shall not apply to any Employee whose
employment was terminated prior to the Effective Date.
1.3 Contractual Right to Benefits
This Plan establishes and vests in each Participant a contractual
right to the benefits to which each Participant is entitled hereunder,
enforceable by the Participant against the Employer.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below.
(a) "Annual Compensation" of a Participant means and includes all
wages, salary, bonus, and incentive compensation (other than stock based
compensation), paid (including accrued amounts) by an Employer as consideration
for the Participant's services during the 12 months ended on the date as of
which Annual Compensation is to be determined, which are or would be includable
in the gross income of the Participant receiving the same for federal income tax
purposes.
(b) "Bank" means Alaska Federal Savings Bank or any successor as
provided for in Article VII hereof.
(c) "Change in Control," for purposes of determining under the Plan
whether there has been a change in control of the Bank or the Holding Company,
means (1) an event of a nature that results in the acquisition of control of the
Holding Company or the Bank within the meaning of the Savings and Loan Holding
Company Act under 12 U.S.C. Section 1467a and 12 C.F.R. Part 574 (or any
successor statute or regulation) or requires the filing of a notice with the
Federal Deposit Insurance Corporation under 12 U.S.C. Section 1817(j) (or any
successor statute or regulation); (2) an event that would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the Effective Date, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); (3) any person (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly
of securities of the Holding Company or the Bank representing 25% or more of the
combined voting power of the Holding Company's or the Bank's outstanding
securities; (4) individuals who are members of the board of directors of the
Holding Company immediately following the Effective Date or who are members of
the board of directors of the Bank immediately following the Effective Date (in
each case, the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequently
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's or the Bank's stockholders was approved by the nominating
committee serving under an Incumbent Board, shall be considered a member of the
Incumbent Board; or (5) consummation of a plan of reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Holding
Company or a similar transaction in which the Holding Company is not the
resulting entity, or a transaction at the completion of which the former
stockholders of the acquired corporation become the holders of more than 40% of
the outstanding common stock of the Holding Company and the Holding Company is
the resulting entity of such transaction; provided that the term "Change in
Control" shall not include an acquisition of securities by an employee benefit
plan of the Bank or the Holding Company.
(d) "Continuous Employment" means the absence of any interruption
or termination of service as an Employee of the Bank or an affiliate. Service
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Bank or in the case
2
<PAGE>
of transfers between payroll locations of the Bank or between the Bank, its
Parent, its Subsidiary or its successor.
(e) "Effective Date," as to Employees of an Employer, means the
date the Plan is approved by the Board of Directors, or such other date as the
Board of Directors shall designate in its resolution approving the Plan.
(f) "Employee" means an employee employed by the Employer on a
full-time basis, excluding any executive officer of the Employer who is covered
by an employment contract or a change in control severance agreement with the
Employer.
(g) "Employer" means the Bank, the Holding Company or a Subsidiary
or a Parent which has adopted the Plan pursuant to Article VI hereof.
(h) "Expiration Date" means the date fifteen (15) years from the
Effective Date unless earlier terminated pursuant to Section 8.2 or extended
pursuant to Section 8.1.
(i) "Holding Company" means Alaska Pacific Bancshares, Inc., the
Parent of the Bank.
(j) "Just Cause," with respect to termination of employment, means
an act or acts of 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. In
determining incompetence, acts or omissions shall be measured against standards
generally prevailing in the savings institution industry.
(k) "Parent" means any corporation which holds a majority of the
voting power of the outstanding shares of the Bank's common stock.
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(m) "Payment" means the payment of severance compensation as
provided in Article IV hereof.
(n) "Plan" means the Alaska Federal Savings Bank Employee Severance
Compensation Plan.
(o) "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock.
2.2 Applicable Law
To the extent not preempted by the laws of the United States as now
or hereafter in effect, the laws of the State of Alaska shall be the controlling
law in all matters relating to the Plan.
3
<PAGE>
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
Each Employee who has completed at least one year of Continuous
Employment as of the Effective Date shall become a Participant on the Effective
Date. Thereafter, each Employee shall become a Participant on the day on which
he or she completes one year of Continuous Employment. Notwithstanding the
foregoing, persons who have entered into and continue to be covered by an
employment or change in control severance agreement with the Employer shall not
be entitled to participate in the Plan.
3.2 Duration of Participation
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. Furthermore, an Employee shall
cease to be a Participant upon entering into an employment or change in control
severance agreement with the Employer. A Participant entitled to receipt of a
Payment shall remain a Participant in this Plan until the full amount of such
Payment has been paid to the Participant.
3.3 Temporary Suspension or Prohibition
If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the
Bank's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Employee all or part
of the compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
3.4 Permanent Suspension or Prohibition
If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
4
<PAGE>
3.5 Default of the Bank
If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this provision shall not affect any vested rights of the
contracting parties.
3.6 Termination by Regulators
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 Bank: (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve problems related
to operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from his respective
Employer a Payment in the amount provided in Section 4.3 if there has been a
Change in Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, total and permanent disability, or
for Just Cause.
4.2 Reasons for Termination
Following a Change in Control, a Participant shall be entitled to a
Payment if his employment with an Employer is terminated, voluntarily or
involuntarily, within one year following such Change in Control, for any one or
more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control, or as the
same may have been increased thereafter.
(b) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than fifteen miles from the location of the Participant's job or
office immediately prior to the Change in Control, provided that such new
location is not closer to Participant's home.
5
<PAGE>
(c) The Employer materially reduces the benefits and perquisites,
taken as a whole, available to the Participant immediately prior to the Change
in Control; provided, however, that a material reduction on a nondiscriminatory
basis in the benefits and perquisites generally provided to all employees of the
Bank that does not reduce a Participant's Annual Compensation shall not trigger
a Payment.
(d) A successor bank or company fails or refuses to assume the
Bank's obligations under this Plan, as required by Article VII.
(e) The Bank or any successor company breaches any other provisions
of the Plan.
(f) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
Each Participant entitled to a Payment under the Plan shall receive
from the Bank a lump sum cash payment, in an amount determined as follows:
(a) The Participant's cash payment shall equal the product of
3.846% of his or her Annual Compensation paid or accrued during each of his or
her years of Continuous Employment prior to the Change in Control times the
number of full or substantially completed (nine months or more) years of
Continuous Employment with the Employer, provided that no Participant shall
receive a cash payment hereunder in an aggregate amount of more than one hundred
percent (100%) of his or her Annual Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a "disqualified individual" shall be in an amount which
includes an "excess parachute payment," the payment hereunder to that
Participant shall be reduced to the maximum amount which does not include an
"excess parachute payment." The terms "disqualified individual" and "excess
parachute payment" shall have the same meaning as defined in Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor section of similar
import.
The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment with an Employer.
4.4 Time of Payment
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty-five (25) business days after the termination of the
Participant's employment. If any Participant should die after termination of
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's surviving spouse, or if none, to the Participant's
named beneficiary, if living, otherwise to the personal representative on behalf
of or for the benefit of the Participant's estate.
6
<PAGE>
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of the Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose on
the Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
Upon approval by the Board of Directors of the Bank, this Plan may
be adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent.
ARTICLE VII
SUCCESSOR TO THE BANK
The Bank shall require any successor to or assignee of, whether
direct or indirect, by purchase, merger, consolidation or otherwise, all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under the
Plan.
7
<PAGE>
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change in Control has not occurred, the Plan shall expire
fifteen (15) years from the Effective Date, unless sooner terminated as provided
in Section 8.2, or unless extended for an additional period or periods by
resolution adopted by the Board of Directors.
Notwithstanding the foregoing, if a Change in Control occurs, the
Plan shall continue in full force and effect, and shall not terminate or expire
until such date as all Participants who become entitled to Payments hereunder
shall have received such Payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors, unless (i) a Change in Control
has previously occurred, (ii) the Bank shall have in the previous year received
an offer, which was not subsequently withdrawn, from a third party to engage in
a transaction which would involve a Change in Control or (iii) a third party
shall have disclosed in a filing with the Securities and Exchange Commission
("SEC") its intent to engage in a transaction which would result in a Change in
Control and has not subsequently indicated in another SEC filing that it no
longer had such intention. For so long as any of the events listed in paragraphs
(i), (ii) and (iii) persist, the Plan shall not be subject to amendment, change,
substitution, deletion, revocation or termination in any respect whatsoever
unless any acquiror of the Bank shall agree in writing to provide benefits to
covered employees which are at least as substantial as those set forth herein if
such employees are terminated without cause within one year of a Change in
Control of the Bank.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan shall
be a written instrument signed by the duly authorized officer or officers of the
Bank, certifying that the amendment or termination has been approved by the
Board of Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to all Participant's rights hereunder, regardless of
whether the Participants receive notice of such action. A proper termination of
the Plan automatically shall effect a termination of all Participants' rights
and benefits hereunder, regardless of whether the Participants receive notice of
such action.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 Subject to the notice provision in section 9.2 hereof, the Bank
shall pay all legal fees, costs of litigation, and other expenses incurred by
each Participant as a result of the Bank's refusal
8
<PAGE>
to make the Payment to which the Participant becomes entitled under this Plan,
or as a result of the Bank's unsuccessfully contesting the validity,
enforceability or interpretation of the Plan.
9.2 A Participant must provide the Bank with 10 (ten) business days
notice of a complaint of entitlement under the Plan before the Bank shall be
liable for the payment of any legal fees, costs of litigation or other expenses
referred to in section 9.1 hereof.
ARTICLE X
ARBITRATION
Any dispute or controversy arising under or in connection with the
Plan shall be settled exclusively by arbitration, conducted before a panel of
three arbitrators sitting in a location selected by the Participant within fifty
(50) miles from the location of the Bank, in accordance with rules of the
American Arbitration Association then in effect. Judgment may be entered on the
award of the arbitrator in any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of the counsel for the Participant,
shall be borne by the Bank.
9
<PAGE>
Having been adopted by its Board of Directors on _________, 1999,
the Plan is executed by its duly authorized officers as of the ___ day of
_______, 1999.
Attest
ALASKA FEDERAL SAVINGS BANK
___________________________ By ______________________________
Secretary President and Chief Executive
Officer
Having been adopted by its Board of Directors on ________, 1999,
the Plan is executed by its duly authorized officers this ____ day of _______,
1999.
Attest
ALASKA PACIFIC BANCSHARES, INC.
- ----------------------------- ------------------------------
Secretary President and Chief Executive
Officer
10
EXHIBIT 10.11
Alaska Federal Savings Bank 401(k) Savings Plan
<PAGE>
BASIC PLAN DOCUMENT 04
TABLE OF CONTENTS
SECTION ONE DEFINITIONS .................................................... 1
1.01 ADOPTION AGREEMENT ................................................ 1
1.02 BASIC PLAN DOCUMENT ............................................... 1
1.03 BENEFICIARY ....................................................... 1
1.04 BREAK IN ELIGIBILITY SERVICE ...................................... 1
1.05 BREAK IN VESTING SERVICE .......................................... 1
1.06 CODE .............................................................. 1
1.07 COMPENSATION ...................................................... 1
1.08 CUSTODIAN ......................................................... 3
1.09 DISABILITY ........................................................ 3
1.10 EARLY RETIREMENT AGE .............................................. 3
1.11 EARNED INCOME ..................................................... 3
1.12 EFFECTIVE DATE .................................................... 3
1.13 ELIGIBILITY COMPUTATION PERIOD .................................... 3
1.14 EMPLOYEE .......................................................... 3
1.15 EMPLOYER .......................................................... 3
1.16 EMPLOYER CONTRIBUTION ............................................. 3
1.17 EMPLOYMENT COMMENCEMENT DATE ...................................... 3
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION .............................. 3
1.19 ENTRY DATES ....................................................... 4
1.20 ERISA ............................................................. 4
1.21 FORFEITURE ........................................................ 4
1.22 FUND .............................................................. 4
1.23 HIGHLY COMPENSATED EMPLOYEE ....................................... 4
1.24 HOURS OF SERVICE - Means .......................................... 4
1.25 INDIVIDUAL ACCOUNT ................................................ 5
1.26 INVESTMENT FUND ................................................... 5
1.27 KEY EMPLOYEE ...................................................... 5
1.28 LEASED EMPLOYEE ................................................... 5
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS .............................. 5
1.30 NORMAL RETIREMENT AGE ............................................. 6
1.31 OWNER - EMPLOYEE .................................................. 6
1.32 PARTICIPANT ....................................................... 6
1.33 PLAN .............................................................. 6
1.34 PLAN ADMINISTRATOR ................................................ 6
1.35 PLAN YEAR ......................................................... 6
1.36 PRIOR PLAN ........................................................ 6
1.37 PROTOTYPE SPONSOR ................................................. 6
1.38 QUALIFYING PARTICIPANT ............................................ 6
1.39 RELATED EMPLOYER .................................................. 6
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT .......................... 6
1.41 SELF-EMPLOYED INDIVIDUAL .......................................... 6
1.42 SEPARATE FUND ..................................................... 6
<PAGE>
1.43 TAXABLE WAGE BASE ................................................. 6
1.44 TERMINATION OF EMPLOYMENT ......................................... 6
1.45 TOP-HEAVY PLAN .................................................... 7
1.46 TRUSTEE ........................................................... 7
1.47 VALUATION DATE .................................................... 7
1.48 VESTED ............................................................ 7
1.49 YEAR OF ELIGIBILITY SERVICE ....................................... 7
1.50 YEAR OF VESTING SERVICE ........................................... 7
SECTION TWO ELIGIBILITY AND PARTICIPATION ................................. 7
2.01 ELIGIBILITY TO PARTICIPATE ........................................ 7
2.02 PLAN ENTRY ........................................................ 7
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS .............................. 8
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE ........ 8
2.05 DETERMINATIONS UNDER THIS SECTION ................................. 8
2.06 TERMS OF EMPLOYMENT ............................................... 8
2.07 SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED ............. 8
2.08 ELECTION NOT TO PARTICIPATE ....................................... 9
SECTION THREE CONTRIBUTIONS ............................................... 9
3.01 EMPLOYER CONTRIBUTIONS ............................................ 9
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS .............................. 12
3.03 ROLLOVER CONTRIBUTIONS ............................................ 12
3.04 TRANSFER CONTRIBUTIONS ............................................ 12
3.05 LIMITATION ON ALLOCATIONS ......................................... 12
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION ............ 16
4.01 INDIVIDUAL ACCOUNTS ............................................... 16
4.02 VALUATION OF FUND ................................................. 16
4.03 VALUATION OF INDIVIDUAL ACCOUNTS .................................. 16
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS ............ 18
4.05 SEGREGATION OF ASSETS ............................................. 18
4.06 STATEMENT OF INDIVIDUAL ACCOUNTS .................................. 18
SECTION FIVE TRUSTEE OR CUSTODIAN ......................................... 18
5.01 CREATION OF FUND .................................................. 18
5.02 INVESTMENT AUTHORITY .............................................. 18
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT
FULL TRUST POWERS ................................................. 18
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS
AND INDIVIDUAL TRUSTEE ............................................ 19
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS ............................ 20
5.06 COMPENSATION AND EXPENSES ......................................... 20
5.07 NOT OBLIGATED TO QUESTION DATA .................................... 21
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS ........................ 21
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN) .................. 21
5.10 DEGREE OF CARE - LIMITATIONS OF LIABILITY ......................... 21
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN) ... 22
5.12 INVESTMENT MANAGERS ............................................... 22
5.13 MATTERS RELATING TO INSURANCE ..................................... 22
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT ........................... 23
SECTION SIX VESTING AND DISTRIBUTION ...................................... 23
6.01 DISTRIBUTION TO PARTICIPANT ....................................... 23
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT ............................. 26
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT ..................... 27
6.04 FORM OF DISTRIBUTION TO BENEFICIARY ............................... 28
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS ........................... 28
<PAGE>
6.06 DISTRIBUTION REQUIREMENTS ........................................ 31
6.07 ANNUITY CONTRACTS ................................................ 35
6.08 LOANS TO PARTICIPANTS ............................................ 35
6.09 DISTRIBUTION IN KIND ............................................. 36
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS .............. 36
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENEFICIARIES .............. 36
SECTION SEVEN CLAIMS PROCEDURE ............................................ 36
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS ............................ 36
7.02 DENIAL OF CLAIM .................................................. 37
7.03 REMEDIES AVAILABLE ............................................... 37
SECTION EIGHT PLAN ADMINISTRATOR .......................................... 37
8.01 EMPLOYER IS PLAN ADMINISTRATOR ................................... 37
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR ...................... 37
8.03 EXPENSES AND COMPENSATION ........................................ 38
8.04 INFORMATION FROM EMPLOYER ........................................ 38
SECTION NINE AMENDMENT AND TERMINATION .................................... 38
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN ..................... 38
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN .............................. 39
9.03 LIMITATION ON POWER TO AMEND ..................................... 39
9.04 AMENDMENT OF VESTING SCHEDULE .................................... 39
9.05 PERMANENCY ....................................................... 39
9.06 METHOD AND PROCEDURE FOR TERMINATION ............................. 39
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER ........................ 39
9.08 FAILURE OF PLAN QUALIFICATION .................................... 40
SECTION TEN MISCELLANEOUS ................................................. 40
10.01 STATE COMMUNITY PROPERTY LAWS ................................... 40
10.02 HEADINGS ........................................................ 40
10.03 GENDER AND NUMBER ............................................... 40
10.04 PLAN MERGER OR CONSOLIDATION .................................... 40
10.05 STANDARD OF FIDUCIARY CONDUCT ................................... 40
10.06 GENERAL UNDERTAKING OF ALL PARTIES .............................. 40
10.07 AGREEMENT BINDS HEIRS, ETC ...................................... 40
10.08 DETERMINATION OF TOP-HEAVY STATUS ............................... 40
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES ......................... 42
10.10 INALIENABILITY OF BENEFITS ...................................... 42
10.11 CANNOT ELIMINATE PROTECTED BENEFITS ............................. 42
SECTION ELEVEN 401(k) PROVISIONS ......................................... 43
11.100 DEFINITIONS .................................................... 43
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP) ............................... 43
11.102 AGGREGATE LIMIT ................................................ 43
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP) .......................... 43
11.104 CONTRIBUTING PARTICIPANT ....................................... 43
11.105 CONTRIBUTION PERCENTAGE ........................................ 43
11.106 CONTRIBUTION PERCENTAGE AMOUNTS ................................ 43
11.107 ELECTIVE DEFERRALS ............................................. 43
11.108 ELIGIBLE PARTICIPANT ........................................... 44
11.109 EXCESS AGGREGATE CONTRIBUTIONS ................................. 44
11.110 EXCESS CONTRIBUTIONS ........................................... 44
11.111 EXCESS ELECTIVE DEFERRALS ...................................... 44
11.112 MATCHING CONTRIBUTION .......................................... 44
<PAGE>
11.113 QUALIFIED NONELECTIVE CONTRIBUTIONS ................................ 44
11.114 QUALIFIED MATCHING CONTRIBUTIONS ................................... 44
11.115 QUALIFYING CONTRIBUTING PARTICIPANT ................................ 45
11.200 CONTRIBUTING PARTICIPANT ........................................... 45
11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT ............... 45
11.202 CHANGING ELECTIVE DEFERRAL AMOUNTS ................................. 45
11.203 CEASING ELECTIVE DEFERRALS ......................................... 45
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER
CEASING ELECTIVE DEFERRALS ......................................... 45
11.205 CERTAIN ONE-TIME IRREVOCABLE ELECTIONS ............................. 45
11.300 CONTRIBUTIONS ...................................................... 45
11.301 CONTRIBUTIONS BY EMPLOYER .......................................... 45
11.302 MATCHING CONTRIBUTIONS ............................................. 46
11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS ................................ 46
11.304 QUALIFIED MATCHING CONTRIBUTIONS ................................... 46
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS ............................... 46
11.400 NONDISCRIMINATION TESTING .......................................... 46
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP) .............................. 46
11.402 LIMITS ON NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
AND MATCHING CONTRIBUTIONS ......................................... 47
11.500 DISTRIBUTION PROVISIONS ............................................ 48
11.501 GENERAL RULE ....................................................... 48
11.502 DISTRIBUTION REQUIREMENTS .......................................... 48
11.503 HARDSHIP DISTRIBUTION .............................................. 49
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS .......................... 49
11.505 DISTRIBUTION OF EXCESS CONTRIBUTIONS ............................... 50
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS ..................... 50
11.507 RECHARACTERIZATION ................................................. 51
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS
ANNUAL ADDITIONS ................................................... 51
11.600 VESTING ............................................................ 51
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS .............................. 51
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS .................. 51
<PAGE>
QUALIFIED RETIREMENT PLAN AND TRUST
Defined Contribution Basic Plan Document
- --------------------------------------------------------------------------------
SECTION ONE DEFINITIONS
The following words and phrases when used in the Plan with
initial capital letters shall, for the purpose of this Plan, have
the meanings set forth below unless the context indicates that
other meanings are intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it
adopts the Plan and Trust and thereby agrees to be bound by all
terms and conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this prototype Plan and Trust document.
1.03 BENEFICIARY
Means the individual or individuals designated pursuant to
Section 6.03(A) of the Plan.
1.04 BREAK IN ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee fails to
complete more than 500 Hours of Service (or such lesser number of
Hours of Service specified in the Adoption Agreement for this
purpose).
1.05 BREAK IN VESTING SERVICE
Means a Plan Year (or other vesting computation period described
in Section 1.50) during which an Employee fails to complete more
than 500 Hours of Service (or such lesser number of Hours of
Service specified in the Adoption Agreement for this purpose).
1.06 CODE
Means the Internal Revenue Code of 1986 as amended from
time-to-time.
1.07 COMPENSATION
A. Basic Definition
For Plan Years beginning on or after January 1, 1989, the
following definition of Compensation shall apply:
As elected by the Employer in the Adoption Agreement (and if no
election is made, W-2 wages will be deemed to have been
selected), Compensation shall mean one of the following:
1. W-2 wages. Compensation is defined as information
required to be reported under Sections 6041 and
6051, and 6052 of the Code (Wages, tips and other
compensation as reported on Form W-2).
Compensation is defined as wages within the
meaning of Section 3401(a) of the Code and all
other payments of compensation to an Employee by
the Employer (in the course of the Employer's
trade or business) for which the Employer is
required to furnish the Employee a written
statement under Sections 6041(d) and 6051(a)(3),
and 6052 of the Code. Compensation must be
determined without regard to any rules under
Section 3401(a) that limit the remuneration
included in wages based on the nature or location
of the employment or the services performed (such
as the exception for agricultural labor in Section
3401(a)(2)).
2. Section 3401(a) wages. Compensation is defined as
wages within the meaning of Section 3401(a) of the
Code, for the purposes of income tax withholding
at the source but determined without regard to any
rules that limit the remuneration included in
wages based on the nature or location of the
employment or the services performed (such as the
exception for agricultural labor in Section
3401(a)(2)).
3. 415 safe-harbor compensation. Compensation is
defined as wages, salaries, and fees for
professional services and other amounts received
(without regard to whether or not an amount is
paid in cash) for personal services actually
rendered in the course of employment with the
Employer maintaining the Plan to the extent that
the amounts are includible in gross income
(including, but not limited to, commissions paid
salesmen, compensation for services on the basis
of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe
benefits, and reimbursements or other expense
allowances under a nonaccountable plan (as
described in 1.62-2(c)), and excluding the
following:
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a. Employer contributions to a plan of
deferred compensation which are not
includible in the Employee's gross
income for the taxable year in
which contributed, or employer
contributions under a simplified
employee pension plan to the extent
such contributions are deductible
by the Employee, or any
distributions from a plan of
deferred compensation;
b. Amounts realized from the exercise
of a nonqualified stock option, or
when restricted stock (or property)
held by the Employee either becomes
freely transferable or is no longer
subject to a substantial risk of
forfeiture;
c. Amounts realized from the sale,
exchange or other disposition of
stock acquired under a qualified
stock option; and
d. Other amounts which received
special tax benefits, or
contributions made by the Employer
(whether or not under a salary
reduction agreement) towards the
purchase of an annuity contract
described in Section 403(b) of the
Code (whether or not the
contributions are actually
excludable from the gross income of
the Employee).
For any Self-Employed Individual covered under the Plan,
Compensation will mean Earned Income.
B. Determination Period And Other Rules
Compensation shall include only that Compensation which is
actually paid to the Participant during the determination period.
Except as provided elsewhere in this Plan, the determination
period shall be the Plan Year unless the Employer has selected
another period in the Adoption Agreement. If the Employer makes
no election, the determination period shall be the Plan Year.
Unless otherwise indicated in the Adoption Agreement,
Compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is
not includible in the gross income of the Employee under Sections
125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
Where this Plan is being adopted as an amendment and restatement
to bring a Prior Plan into compliance with the Tax Reform Act of
1986, such Prior Plan's definition of Compensation shall apply
for Plan Years beginning before January 1, 1989.
C. Limits On Compensation
For years beginning after December 31, 1988 and before January 1,
1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan for
any determination period shall not exceed $200,000. This
limitation shall be adjusted by the Secretary at the same time
and in the same manner as under Section 415(d) of the Code,
except that the dollar increase in effect on January 1 of any
calendar year is effective for Plan Years beginning in such
calendar year and the first adjustment to the $200,000 limitation
is effective on January 1, 1990.
For Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any Plan
Year shall not exceed $150,000, as adjusted for increases in the
cost-of-living in accordance with Section 401(a)(17)(B) of the
Internal Revenue Code. The cost-of-living adjustment in effect
for a calendar year applies to any determination period beginning
in such calendar year.
If the period for determining Compensation used in calculating an
Employee's allocation for a determination period is a short Plan
Year (i.e., shorter than 12 months), the annual Compensation
limit is an amount equal to the otherwise applicable annual
Compensation limit multiplied by a fraction, the numerator of
which is the number of months in the short Plan Year, and the
denominator of which is 12.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19
before the close of the year. If, as a result of the application
of such rules the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of Compensation
up to the integration level, if this Plan provides for permitted
disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation
as determined under this Section prior to the application of this
limitation.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for
the current determination period, the Compensation for such prior
determination period is subject to the applicable annual
Compensation limit in effect for that prior period. For this
purpose, in determining allocations in Plan Years beginning on or
after January 1, 1989, the annual Compensation limit in effect
for determination periods beginning before that date is $200,000.
In addition, in determining allocations in Plan Years beginning
on or after January 1, 1994, the annual Compensation limit in
effect for determination periods beginning before that date is
$150,000.
2
<PAGE>
1.08 CUSTODIAN
Means an entity specified in the Adoption Agreement as Custodian
or any duly appointed successor as provided in Section 5.09.
1.09 DISABILITY
Unless the Employer has elected a different definition in the
Adoption Agreement, Disability means the inability to engage in
any substantial, gainful activity by reason of any medically
determinable physical or mental impairment that can be expected
to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months. The
permanence and degree of such impairment shall be supported by
medical evidence.
1.10 EARLY RETIREMENT AGE
Means the age specified in the Adoption Agreement. The Plan will
not have an Early Retirement Age if none is specified in the
Adoption Agreement.
1.11 EARNED INCOME
Means the net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which
personal services of the individual are a material
income-producing factor. Net earnings will be determined without
regard to items not included in gross income and the deductions
allocable to such items. Net earnings are reduced by
contributions by the Employer to a qualified plan to the extent
deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction
allowed to the Employer by Section 164(f) of the Code for taxable
years beginning after December 31, 1989.
1.12 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the
Adoption Agreement. However, as indicated in the Adoption
Agreement, certain provisions may have specific effective dates.
Further, where a separate date is stated in the Plan as of which
a particular Plan provision becomes effective, such date will
control with respect to that provision.
1.13 ELIGIBILITY COMPUTATION PERIOD
An Employee's initial Eligibility Computation Period shall be the
12 consecutive month period commencing on the Employee's
Employment Commencement Date. The Employee's subsequent
Eligibility Computation Periods shall be the 12 consecutive month
periods commencing on the anniversaries of his or her Employment
Commencement Date; provided, however, if pursuant to the Adoption
Agreement, an Employee is required to complete one or less Years
of Eligibility Service to become a Participant then his or her
subsequent Eligibility Computation Periods shall be the Plan
Years commencing with the Plan Year beginning during his or her
initial Eligibility Computation Period. An Employee does not
complete a Year of Eligibility Service before the end of the 12
consecutive month period regardless of when during such period
the Employee completes the required number of Hours of Service.
1.14 EMPLOYEE
Means any person employed by an Employer maintaining the Plan or
of any other employer required to be aggregated with such
Employer under Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed
to be an Employee of any Employer described in the previous
paragraph as provided in Section 414(n) or (o) of the Code.
1.15 EMPLOYER
Means any corporation, partnership, sole-proprietorship or other
entity named in the Adoption Agreement and any successor who by
merger, consolidation, purchase or otherwise assumes the
obligations of the Plan. A partnership is considered to be the
Employer of each of the partners and a sole-proprietorship is
considered to be the Employer of a sole proprietor. Where this
Plan is being maintained by a union or other entity that
represents its member Employees in the negotiation of collective
bargaining agreements, the term Employer shall mean such union or
other entity.
1.16 EMPLOYER CONTRIBUTION
Means the amount contributed by the Employer each year as
determined under this Plan.
1.17 EMPLOYMENT COMMENCEMENT DATE
An Employee's Employment Commencement date means the date the
Employee first performs an Hour of Service for the Employer.
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION
Means an Employer Contribution made pursuant to the Section of
the Adoption Agreement titled "Employer Profit Sharing
Contributions." The Employer may make Employer Profit Sharing
Contributions without regard to current or accumulated earnings
or profits.
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1.19 ENTRY DATES
Means the first day of the Plan Year and the first day of the
seventh month of the Plan Year, unless the Employer has specified
different dates in the Adoption Agreement.
1.20 ERISA
Means the Employee Retirement Income Security Act of 1974 as
amended from time-to-time.
1.21 FORFEITURE
Means that portion of a Participant's Individual Account derived
from Employer Contributions which he or she is not entitled to
receive (i.e., the nonvested portion).
1.22 FUND
Means the Plan assets held by the Trustee for the Participants'
exclusive benefit.
1.23 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly compensated
active employees and highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination year
and who, during the look-back year: (a) received Compensation
from the Employer in excess of $75,000 (as adjusted pursuant to
Section 415(d) of the Code); (b) received Compensation from the
Employer in excess of $50,000 (as adjusted pursuant to Section
415(d) of the Code) and was a member of the top-paid group for
such year; or (c) was an officer of the Employer and received
Compensation during such year that is greater than 50% of the
dollar limitation in effect under Section 415(b)(1)(A) of the
Code. The term Highly Compensated Employee also includes: (a)
Employees who are both described in the preceding sentence if the
term "determination year" is substituted for the term "look-back
year" and the Employee is one of the 100 Employees who received
the most Compensation from the Employer during the determination
year; and (b) Employees who are 5% owners at any time during the
look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a Highly
Compensated Employee.
For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the 12 month period immediately
preceding the determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer
during the determination year, and was a highly compensated
active employee for either the separation year or any
determination year ending on or after the Employee's 55th
birthday.
If an Employee is, during a determination year or look-back year,
a family member of either a 5% owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10
most Highly Compensated Employees ranked on the basis of
Compensation paid by the Employer during such year, then the
family member and the 5% owner or top 10 Highly Compensated
Employee shall be aggregated. In such case, the family member and
5% owner or top 10 Highly Compensated Employee shall be treated
as a single Employee receiving Compensation and Plan
contributions or benefits equal to the sum of such Compensation
and contributions or benefits of the family member and 5% owner
or top 10 Highly Compensated Employee. For purposes of this
Section, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of
such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
Employees in the top-paid group, the top 100 Employees, the
number of Employees treated as officers and the Compensation that
is considered, will be made in accordance with Section 414(q) of
the Code and the regulations thereunder.
1.24 HOURS OF SERVICE - Means
A. Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer.
These hours will be credited to the Employee for the
computation period in which the duties are performed; and
B. Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of
absence. No more than 501 Hours of Service will be credited
under this paragraph for any single continuous period
(whether or not such period occurs in a single computation
period). Hours under this paragraph shall be calculated and
credited pursuant to Section 2530.200b-2 of the Department
of Labor Regulations which is incorporated herein by this
reference; and
4
<PAGE>
C. Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours of Service will not be credited both under
paragraph (A) or paragraph (B), as the case may be, and
under this paragraph (C). These hours will be credited to
the Employee for the computation period or periods to which
the award or agreement pertains rather than the computation
period in which the award, agreement, or payment is made.
D. Solely for purposes of determining whether a Break in
Eligibility Service or a Break in Vesting Service has
occurred in a computation period (the computation period for
purposes of determining whether a Break in Vesting Service
has occurred is the Plan Year or other vesting computation
period described in Section 1.50), an individual who is
absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be
determined, 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence (1) by
reason of the pregnancy of the individual, (2) by reason of
a birth of a child of the individual, (3) by reason of the
placement of a child with the individual in connection with
the adoption of such child by such individual, or (4) for
purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited (1)
in the Eligibility Computation Period or Plan Year or other
vesting computation period described in Section 1.50 in
which the absence begins if the crediting is necessary to
prevent a Break in Eligibility Service or a Break in Vesting
Service in the applicable period, or (2) in al other cases,
in the following Eligibility Computation Period or Plan Year
or other vesting computation period described in Section
1.50.
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m)
of the Code), a controlled group of corporations (under
Section 414(b) of the Code), or a group of trades or
businesses under common control (under Section 414(c) of the
Code) of which the adopting Employer is a member, and any
other entity required to be aggregated with the Employer
pursuant to Section 414(o) of the Code and the regulations
thereunder
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Code
Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor
employer, service for such predecessor employer shall be
treated as service for the Employer.
G. The above method for determining Hours of Service may be
altered as specified in the Adoption Agreement.
1.25 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan for
each Participant in accordance with Section 4.01.
1.26 INVESTMENT FUND
Means a subdivision of the Fund established pursuant to Section
5.05.
1.27 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under
Section 10.08.
1.28 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in
accordance with Section 414(n)(6) of the Code) on a substantially
full time basis for a period of at least one year, and such
services are of a type historically performed by Employees in the
business field of the recipient Employer. Contributions or
benefits provided a Leased Employee by the leasing organization
which are attributable to services performed for the recipient
Employer shall be treated as provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the
recipient if: (1) such employee is covered by a money purchase
pension plan providing: (a) a nonintegrated employer contribution
rate of at least 10% of compensation, as defined in Section
415(c)(3) of the Code, but including amounts contributed pursuant
to a salary reduction agreement which are excludable from the
employee's gross income under Section 125, Section 402(e)(3),
Section 402(h)(1)(B) or Section 403(b) of the Code, (b) immediate
participation, and (c) full and immediate vesting; and (2) Leased
Employees do not constitute more than 20% of the recipient's
nonhighly compensated work force.
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Means any contribution made to the Plan by or on behalf of a
Participant that is included in the Participant's gross income in
the year in which made and that is maintained under a separate
account to which earnings and losses are allocated.
5
<PAGE>
1.30 NORMAL RETIREMENT AGE
Means the age specified in the Adoption Agreement. However, if
the Employer enforces a mandatory retirement age which is less
than the Normal Retirement Age, such mandatory age is deemed to
be the Normal Retirement Age. If no age is specified in the
Adoption Agreement, the Normal Retirement Age shall be age 65.
1.31 OWNER - EMPLOYEE
Means an individual who is a sole proprietor, or who is a partner
owning more than 10% of either the capital or profits interest of
the partnership.
1.32 PARTICIPANT
Means any Employee or former Employee of the Employer who has met
the Plan's eligibility requirements, has entered the Plan and who
is or may become eligible to receive a benefit of any type from
this Plan or whose Beneficiary may be eligible to receive any
such benefit.
1.33 PLAN
Means the prototype defined contribution plan adopted by the
Employer. The Plan consists of this Basic Plan Document plus the
corresponding Adoption Agreement as completed and signed by the
Employer.
1.34 PLAN ADMINISTRATOR
Means the person or persons determined to be the Plan
Administrator in accordance with Section 8.01.
1.35 PLAN YEAR
Means the 12 consecutive month period which coincides with the
Employer's fiscal year or such other 12 consecutive month period
as is designated in the Adoption Agreement.
1.36 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this
Plan document as indicated in the Adoption Agreement.
1.37 PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement that makes
this prototype plan available to employers for adoption.
1.38 QUALIFYING PARTICIPANT
Means a Participant who has satisfied the requirements described
in Section 3.01(B)(2) to be entitled to share in any Employer
Contribution (and Forfeitures, if applicable) for a Plan Year.
1.39 RELATED EMPLOYER
Means an employer that may be required to be aggregated with the
Employer adopting this Plan for certain qualification
requirements under Sections 414(b), (c), (m) or (o) of the Code
(or any other employer that has ownership in common with the
Employer). A Related Employer may participate in this Plan if so
indicated in the Section of the Adoption Agreement titled
"Employer Information" or if such Related Employer executes a
Related Employer Participation Agreement.
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT
Means the agreement under this prototype Plan that a Related
Employer may execute to participate in this Plan.
1.41 SELF-EMPLOYED INDIVIDUAL
Means an individual who has Earned Income for the taxable year
from the trade or business for which the Plan is established;
also, an individual who would have had Earned Income but for the
fact that the trade or business had no net profits for the
taxable year.
1.42 SEPARATE FUND
Means a subdivision of the Fund held in the name of a particular
Participant representing certain assets held for that
Participant. The assets which comprise a Participant's Separate
Fund are those assets earmarked for him or her and those assets
subject to the Participant's individual direction pursuant to
Section 5.14.
1.43 TAXABLE WAGE BASE
Means, with respect to any taxable year, the contribution and
benefit base in effect under Section 230 of the Social Security
Act at the beginning of the Plan Year.
1.44 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer shall
occur whenever his or her status as an Employee of such Employer
ceases for any reason other than death. An Employee who does not
return to work for the Employer on or before the expiration of an
authorized leave of absence from such Employer shall be deemed to
have incurred a Termination of Employment when such leave ends.
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1.45 TOP-HEAVY PLAN
This Plan is a Top-Heavy Plan for any Plan Year if it is
determined to be such pursuant to Section 10.08.
1.46 TRUSTEE
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed successor as
provided in Section 5.09. Trustee shall mean Custodian in the
event the financial organization named as Trustee does not have
full trust powers.
1.47 VALUATION DATE
Means the date or dates as specified in the Adoption Agreement.
If no date is specified in the Adoption Agreement, the Valuation
Date shall be the last day of the Plan Year and each other date
designated by the Plan Administrator which is selected in a
uniform and nondiscriminatory manner when the assets of the Fund
are valued at their then fair market value.
1.48 VESTED
Means nonforfeitable, that is, a claim which is unconditional and
legally enforceable against the Plan obtained by a Participant or
the Participant's Beneficiary to that part of an immediate or
deferred benefit under the Plan which arises from a Participant's
Years of Vesting Service.
1.49 YEAR OF ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee completes
at least 1,000 Hours of Service (or such lesser number of Hours
of Service specified in the Adoption Agreement for this purpose).
An Employee does not complete a Year of Eligibility Service
before the end of the 12 consecutive month period regardless of
when during such period the Employee completes the required
number of Hours of Service.
1.50 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at least
1,000 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
Notwithstanding the preceding sentence, where the Employer so
indicates in the Adoption Agreement, vesting shall be computed by
reference to the 12 consecutive month period beginning with the
Employee's Employment Commencement Date and each successive 12
month period commencing on the anniversaries thereof.
In the case of a Participant who has 5 or more consecutive Breaks
in Vesting Service, all Years of Vesting Service after such
Breaks in Vesting Service will be disregarded for the purpose of
determining the Vested portion of his or her Individual Account
derived from Employer Contributions that accrued before such
breaks. Such Participant's prebreak service will count in vesting
the postbreak Individual Account derived from Employer
Contributions only if either:
(A) such Participant had any Vested right to any portion of his
or her Individual Account derived from Employer
Contributions at the time of his or her Termination of
Employment; or
(B) upon returning to service, the number of consecutive Breaks
in Vesting Service is less than his or her number of Years
of Vesting Service before such breaks.
Separate subaccounts will be maintained for the Participant's
prebreak and postbreak portions of his or her Individual Account
derived from Employer Contributions. Both subaccounts will share
in the gains and losses of the Fund.
Years of Vesting Service shall not include any period of time
excluded from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period,
Employees shall receive credit for Years of Vesting Service, in
accordance with the preceding provisions of this definition, for
each of the Plan Years (the old and new Plan Years) which overlap
as a result of such change.
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who belong
to a class of Employees which is excluded from participation as
indicated in the Adoption Agreement, shall be eligible to
participate in this Plan upon the satisfaction of the age and
Years of Eligibility Service requirements specified in the
Adoption Agreement.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by amendment
or restatement, each Employee of the Employer who was a
Participant in said Prior Plan before the Effective Date
shall continue to be a Participant in this Plan.
7
<PAGE>
B. An Employee will become a Participant in the Plan as of the
Effective Date if the Employee has met the eligibility
requirements of Section 2.01 as of such date. After the
Effective Date, each Employee shall become a Participant on
the first Entry Date following the date the Employee
satisfies the eligibility requirements of Section 2.01
unless otherwise indicated in the Adoption Agreement.
C. The Plan Administrator shall notify each Employee who
becomes eligible to be a Participant under this Plan and
shall furnish the Employee with the application form,
enrollment forms or other documents which are required of
Participants. The eligible Employee shall execute such forms
or documents and make available such information as may be
required in the administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to
participate because he or she is no longer a member of an
eligible class of Employees, but has not incurred a Break in
Eligibility Service, such Employee shall participate immediately
upon his or her return to an eligible class of Employees. If such
Employee incurs a Break in Eligibility Service, his or her
eligibility to participate shall be determined by Section 2.04.
An Employee who is not a member of the eligible class of
Employees will become a Participant immediately upon becoming a
member of the eligible class provided such Employee has satisfied
the age and Years of Eligibility Service requirements. If such
Employee has not satisfied the age and Years of Eligibility
Service requirements as of the date he or she becomes a member of
the eligible class, such Employee shall become a Participant on
the first Entry Date following the date he or she satisfies those
requirements unless otherwise indicated in the Adoption
Agreement.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE
A. Employee Not Participant Before Break - If an Employee
incurs a Break in Eligibility Service before satisfying the
Plan's eligibility requirements, such Employee's Years of
Eligibility Service before such Break in Eligibility Service
will not be taken into account.
B. Nonvested Participants - In the case of a Participant who
does not have a Vested interest in his or her Individual
Account derived from Employer Contributions, Years of
Eligibility Service before a period of consecutive Breaks in
Eligibility Service will not be taken into account for
eligibility purposes if the number of consecutive Breaks in
Eligibility Service in such period equals or exceeds the
greater of 5 or the aggregate number of Years of Eligibility
Service before such break. Such aggregate number of Years of
Eligibility Service will not include any Years of
Eligibility Service disregarded under the preceding sentence
by reason of prior breaks.
If a Participant's Years of Eligibility Service are
disregarded pursuant to the preceding paragraph, such
Participant will be treated as a new Employee for
eligibility purposes. If a Participant's Years of
Eligibility Service may not be disregarded pursuant to the
preceding paragraph, such Participant shall continue to
participate in the Plan, or, if terminated, shall
participate immediately upon reemployment.
C. Vested Participants - A Participant who has sustained a
Break in Eligibility Service and who had a Vested interest
in all or a portion of his or her Individual Account derived
from Employer Contributions shall continue to participate in
the Plan, or, if terminated, shall participate immediately
upon reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be
conclusive and binding upon all persons except as otherwise
provided herein or by law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact
that a common law Employee has become a Participant shall give to
that common law Employee any right to continued employment; nor
shall either fact limit the right of the Employer to discharge or
to deal otherwise with a common law Employee without regard to
the effect such treatment may have upon the Employee's rights
under the Plan.
2.07 SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED
This Section 2.07 shall apply where the Employer has indicated in
the Adoption Agreement that the elapsed time method will be used.
When this Section applies, the definitions of year of service,
break in service and hour of service in this Section will replace
the definitions of Year of Eligibility Service, Year of Vesting
Service, Break in Eligibility Service, Break in Vesting Service
and Hours of Service found in the Definitions Section of the Plan
(Section One).
For purposes of determining an Employee's initial or continued
eligibility to participate in the Plan or the Vested interest in
the Participant's Individual Account balance derived from
Employer Contributions, (except for periods of service which may
be disregarded on account of the "rule of parity" described in
Sections 1.50 and 2.04) an Employee will receive credit for the
aggregate of all time period(s) commencing with the Employee's
first day of employment or reemployment and ending on the date a
break in service begins. The first day of employment or
reemployment is the first day the
8
<PAGE>
Employee performs an hour of service. An Employee will also
receive credit for any period of severance of less than 12
consecutive months. Fractional periods of a year will be
expressed in terms of days.
For purposes of this Section, hour of service will mean each hour
for which an Employee is paid or entitled to payment for the
performance of duties for the Employer. Break in service is a
period of severance of at least 12 consecutive months. Period of
severance is a continuous period of time during which the
Employee is not employed by the Employer. Such period begins on
the date the Employee retires, quits or is discharged, or if
earlier, the 12 month anniversary of the date on which the
Employee was otherwise first absent from service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12 consecutive month period
beginning on the first anniversary of the first date of such
absence shall not constitute a break in service. For purposes of
this paragraph, an absence from work for maternity or paternity
reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the
individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
Each Employee will share in Employer Contributions for the period
beginning on the date the Employee commences participation under
the Plan and ending on the date on which such Employee severs
employment with the Employer or is no longer a member of an
eligible class of Employees.
If the Employer is a member of an affiliated service group (under
Section 414(m) of the Code), a controlled group of corporations
(under Section 414(b) of the Code), a group of trades or
businesses under common control (under Section 414(c) of the
Code), or any other entity required to be aggregated with the
Employer pursuant to Section 414(o) of the Code, service will be
credited for any employment for any period of time for any other
member of such group. Service will also be credited for any
individual required under Section 414(n) or Section 414(o) to be
considered an Employee of any Employer aggregated under Section
414(b), (c), or (m) of the Code.
2.08 ELECTION NOT TO PARTICIPATE
This Section 2.08 will apply if this Plan is a nonstandardized
plan and the Adoption Agreement so provides. If this Section
applies, then an Employee or a Participant may elect not to
participate in the Plan for one or more Plan Years. The Employer
may not contribute for an Employee or Participant for any Plan
Year during which such Employee's or Participant's election not
to participate is in effect. Any election not to participate must
be in writing and filed with the Plan Administrator.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules as it deems necessary or advisable to
carry out the terms of this Section, including, but not limited
to, rules prescribing the timing of the filing of elections not
to participate and the procedures for electing to re-participate
in the Plan.
An Employee or Participant continues to earn credit for vesting
and eligibility purposes for each Year of Vesting Service or Year
of Eligibility Service he or she completes and his or her
Individual Account (if any) will share in the gains or losses of
the Fund during the periods he or she elects not to participate.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. Obligation to Contribute - The Employer shall make
contributions to the Plan in accordance with the
contribution formula specified in the Adoption Agreement. If
this Plan is a profit sharing plan, the Employer shall, in
its sole discretion, make contributions without regard to
current or accumulated earnings or profits.
B. Allocation Formula and the Right to Share in the Employer
Contribution -
1. General - The Employer Contribution for any Plan Year
will be allocated or contributed to the Individual
Accounts of Qualifying Participants in accordance with
the allocation or contribution formula specified in the
Adoption Agreement. The Employer Contribution for any
Plan Year will be allocated to each Participant's
Individual Account as of the last day of that Plan
Year.
Any Employer Contribution for a Plan Year must satisfy
Section 401(a)(4) and the regulations thereunder for
such Plan Year.
2. Qualifying Participants - A Participant is a Qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year if the Participant was a
Participant on at least one day during the Plan Year
and satisfies any additional conditions specified in
the Adoption Agreement. If this Plan is a standardized
plan, unless the Employer specifies more favorable
conditions in the Adoption Agreement, a Participant
will not be a qualifying Participant for Plan Year if
he or she incurs a Termination of Employment during
such Plan Year
9
<PAGE>
with not more than 500 Hours of Service if he or she is
not an Employee on the last day of the Plan Year. The
determination of whether a Participant is entitled to
share in the Employer Contribution shall be made as of
the last day of each Plan Year.
3. Special Rules for Integrated Plans - This Plan may not
allocate contributions based on an integrated formula
if the Employer maintains any other plan that provides
for allocation of contributions based on an integrated
formula that benefits any of the same Participants. If
the Employer has selected the integrated contribution
or allocation formula in the Adoption Agreement, then
the maximum disparity rate shall be determined in
accordance with the following table.
MAXIMUM DISPARITY RATE
<TABLE>
<CAPTION>
Top-Heavy Nonstandardized and
Integration Level Money Purchase Profit Sharing Non-Top-Heavy Profit Sharing
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more
than 20% of TWB 5.7% 2.7% 5.7%
More than 20% of TWB but
not more than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but
not more than TWB 5.4% 2.4% 5.4%
</TABLE>
C. Allocation of Forfeitures - Forfeitures for a Plan Year
which arise as a result of the application of Section
6.01(D) shall be allocated as follows:
1. Profit Sharing Plan - If this is a profit
sharing plan, unless the Adoption Agreement
indicates otherwise, Forfeitures shall be
allocated in the manner provided in Section
3.01(B) (for Employer Contributions) to the
Individual Accounts of Qualifying
Participants who are entitled to share in
the Employer Contribution for such Plan
Year. Forfeitures shall be allocated as of
the last day of the Plan Year during which
the Forfeiture arose (or any subsequent Plan
Year if indicated in the Adoption
Agreement).
2. Money Purchase Pension and Target Benefit
Plan - If this Plan is a money purchase plan
or a target benefit plan, unless the
Adoption Agreement indicates otherwise,
Forfeitures shall be applied towards the
reduction of Employer Contributions to the
Plan. Forfeitures shall be allocated as of
the last day of the Plan Year during which
the Forfeiture arose (or any subsequent Plan
Year if indicated in the Adoption
Agreement).
D. Timing of Employer Contribution - The Employer Contribution
for each Plan Year shall be delivered to the Trustee (or
Custodian, if applicable) not later than the due date for
filing the Employer's income tax return for its fiscal year
in which the Plan Year ends, including extensions thereof.
E. Minimum Allocation for Top-Heavy Plans - The contribution
and allocation provisions of this Section 3.01(E) shall
apply for any Plan Year with respect to which this Plan is a
Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, the
Employer Contributions and Forfeitures allocated on
behalf of any Participant who is not a Key Employee
shall not be less than the lesser of 3% of such
Participant's Compensation or (in the case where the
Employer has no defined benefit plan which designates
this Plan to satisfy Section 401 of the Code) the
largest percentage of Employer Contributions and
Forfeitures, as a percentage of the first $200,000
($150,000 for Plan Years beginning after December 31,
1993), (increased by any cost of living adjustment made
by the Secretary of Treasury or the Secretary's
delegate) of the Key Employee's Compensation, allocated
on behalf of any Key Employee for that year. The
minimum allocation is determined without regard to any
Social Security contribution. The Employer may, in the
Adoption Agreement, limit the Participants who are
entitled to receive the minimum allocation. This
minimum allocation shall be made even though under
other Plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or
would have received a lesser allocation for the year
because of (a) the Participant's failure to complete
1,000 Hours of Service (or any equivalent provided in
the Plan), or (b) the Participant's failure to make
mandatory Nondeductible Employee Contributions to the
Plan, or (c) Compensation less than a stated amount.
2. For purposes of computing the minimum allocation,
Compensation shall mean Compensation as defined in
Section 1.07 of the Plan and shall exclude any amounts
contributed by the Employer pursuant to a salary
10
<PAGE>
reduction agreement and which is not includible in the
gross income of the Employee under Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code even if
the Employer has elected to include such contributions
in the definition of Compensation used for other
purposes under the Plan.
3. The provision in (1) above shall not apply to any
Participant who was not employed by the Employer on the
last day of the Plan Year.
4. The provision in (1) above shall not apply to any
Participant to the extent the Participant is covered
under any other plan or plans of the Employer and the
Employer has provided in the adoption agreement that
the minimum allocation or benefit requirement
applicable to Top-Heavy Plans will be met in the other
plan or plans.
5. The minimum allocation required under this Section
3.01(E) and Section 3.01(F)(1) (to the extent required
to be nonforfeitable under Code Section 416(b)) may not
be forfeited under Code Section 411(a)(3)(B) or
411(a)(3)(D).
F. Special Requirements for Paired Plans - The Employer
maintains paired plans if the Employer has adopted both a
standardized profit sharing plan and a standardized money
purchase pension plan using this Basic Plan Document.
1. Minimum Allocation - When the paired plans are
top-heavy, the top-heavy requirements set forth in
Section 3.01(E)(1) of the Plan shall apply.
a. Same eligibility requirements. In satisfying the
top-heavy minimum allocation requirements set forth in
Section 3.01(E) of the Plan, if the Employees
benefiting under each of the paired plans are
identical, the top-heavy minimum allocation shall be
made to the money purchase pension plan.
b. Different eligibility requirements. In satisfying the
top-heavy minimum allocation requirements set forth in
Section 3.01(E) of the Plan, if the Employees
benefiting under each of the paired plans are not
identical, the top-heavy minimum allocation will be
made to both of the paired plans.
A Participant is treated as benefiting under the Plan for
any Plan Year during which the Participantreceived or is
deemed to receive an allocation in accordance with Section
1.410(b)-3(a).
2. Only One Plan Can Be Integrated - If the Employer
maintains paired plans, only one of the Plans may
provide for the disparity in contributions which is
permitted under Section 401(l) of the Code. In the
event that both Adoption Agreements provide for such
integration, only the money purchase pension plan shall
be deemed to be integrated.
G. Return of the Employer Contribution to the Employer Under
Special Circumstances - Any contribution made by the
Employer because of a mistake of fact must be returned to
the Employer within one year of the contribution.
In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under
the Code, any contributions made incident to that initial
qualification by the Employer must be returned to the
Employer within one year after the date the initial
qualification is denied, but only if the application for
qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date as the Secretary of
the Treasury may prescribe.
In the event that a contribution made by the Employer under
this Plan is conditioned on deductibility and is not
deductible under Code Section 404, the contribution, to the
extent of the amount disallowed, must be returned to the
Employer within one year after the deduction is disallowed.
H. Omission of Participant
1. If the Plan is a money purchase plan or a target
benefit plan and, if in any Plan Year, any Employee who
should be included as a Participant is erroneously
omitted and discovery of such omission is not made
until after a contribution by the Employer for the year
has been made and allocated, the Employer shall make a
subsequent contribution to include earnings thereon,
with respect to the omitted Employee in the amount
which the Employer would have contributed with respect
to that Employee had he or she not been omitted.
2. If the Plan is a profit sharing plan, and if in any
Plan Year, any Employee who should be included as a
Participant is erroneously omitted and discovery of
such omission is not made until after the Employer
Contribution has been made and allocated, then the Plan
Administrator must re-do the allocation (if a
correction can be made) and inform the Employee.
Alternatively, the Employer may choose to contribute
for the omitted Employee the amount to include earnings
thereon, which the Employer would have contributed for
the Employee.
11
<PAGE>
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
This Plan will not accept Nondeductible Employee Contributions
and matching contributions for Plan Years beginning after the
Plan Year in which this Plan is adopted by the Employer.
Nondeductible Employee Contributions for Plan Years beginning
after December 31, 1986, together with any matching contributions
as defined in Section 401(m) of the Code, will be limited so as
to meet the nondiscrimination test of Section 401(m) of the Code.
A separate account will be maintained by the Plan Administrator
for the Nondeductible Employee Contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator withdraw the lesser of the portion of his or her
Individual Account attributable to his or her Nondeductible
Employee Contributions or the amount he or she contributed as
Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be
nonforfeitable at all times. No Forfeiture will occur solely as a
result of an Employee's withdrawal of Nondeductible Employee
Contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning after
December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at
all times. The account will share in the gains and losses of the
Fund in the same manner as described in Section 4.03 of the Plan.
No part of the deductible employee contribution account will be
used to purchase life insurance. Subject to Section 6.05, joint
and survivor annuity requirements (if applicable), the
Participant may withdraw any part of the deductible employee
contribution account by making a written application to the Plan
Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If so indicated in the Adoption Agreement, an Employee may
contribute a rollover contribution to the Plan. The Plan
Administrator may require the Employee to submit a written
certification that the contribution qualifies as a rollover
contribution under the applicable provisions of the Code. If it
is later determined that all or part of a rollover contribution
was ineligible to be rolled into the Plan, the Plan Administrator
shall direct that any ineligible amounts, plus earnings
attributable thereto, be distributed from the Plan to the
Employee as soon as administratively feasible.
A separate account shall be maintained by the Plan Administrator
for each Employee's rollover contributions which will be
nonforfeitable at all times. Such account will share in the
income and gains and losses of the Fund in the manner described
in Section 4.03 and shall be subject to the Plan's provisions
governing distributions.
The Employer may, in a uniform and nondiscriminatory manner, only
allow Employees who have become Participants in the Plan to make
rollover contributions.
3.04 TRANSFER CONTRIBUTIONS
If so indicated in the Adoption Agreement, the Trustee (or
Custodian, if applicable) may receive any amounts transferred to
it from the trustee or custodian of another plan qualified under
Code Section 401(a). If it is later determined that all or part
of a transfer contribution was ineligible to be transferred into
the Plan, the Plan Administrator shall direct that any ineligible
amounts, plus earnings attributable thereto, be distributed from
the Plan to the Employee as soon as administratively feasible.
A separate account shall be maintained by the Plan Administrator
for each Employee's transfer contributions which will be
nonforfeitable at all times. Such account will share in the
income and gains and losses of the Fund in the manner described
in Section 4.03 and shall be subject to the Plan's provisions
governing distributions. Notwithstanding any provisions of this
Plan to the contrary, to the extent that any optional form of
benefit under this Plan permits a distribution prior to the
Employee's retirement, death, Disability, or severance from
employment, and prior to Plan termination, the optional form of
benefit is not available with respect to benefits attributable to
assets (including the post-transfer earnings thereon) and
liabilities that are transferred, within the meaning of Section
414(l) of the Internal Revenue Code, to this Plan from a money
purchase pension plan qualified under Section 401(a) of the
Internal Revenue Code (other than any portion of those assets and
liabilities attributable to voluntary employee contributions).
The Employer may, in a uniform and nondiscriminatory manner, only
allow Employees who have become Participants in the Plan to make
transfer contributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer or a welfare benefit fund, as defined in Section
419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2)
of the Code, or a simplified employee pension plan, as
defined in Section 408(k) of the Code, maintained by the
Employer, which provides an annual addition as defined in
Section 3.08(E)(1) the following rules shall apply:
1. The amount of annual additions which may be credited to the
Participant's Individual Account for any limitation year
will not exceed the lesser of the maximum permissible amount
or any other limitation contained
12
<PAGE>
in this Plan. If the Employer Contribution that would
otherwise be contributed or allocated to the Participant's
Individual Account would cause the annual additions for the
limitation year to exceed the maximum permissible amount,
the amount contributed or allocated will be reduced so that
the annual additions for the limitation year will equal the
maximum permissible amount.
2. Prior to determining the Participant's actual Compensation
for the limitation year, the Employer may determine the
maximum permissible amount for a Participant on the basis of
a reasonable estimation of the Participant's Compensation
for the limitation year, uniformly determined for all
Participants similarly situated.
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual Compensation for the limitation year.
4. If pursuant to Section 3.05(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount, the
excess will be disposed of as follows:
a. Any Nondeductible Employee Contributions, to the extent they
would reduce the excess amount, will be returned to the
Participant;
b. If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan at
the end of the limitation year, the excess amount in the
Participant's Individual Account will be used to reduce
Employer Contributions (including any allocation of
Forfeitures) for such Participant in the next limitation
year, and each succeeding limitation year if necessary;
c. If after the application of paragraph (b) an excess amount
still exists, and the Participant is not covered by the Plan
at the end of a limitation year, the excess amount will be
held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer Contributions
(including allocation of any Forfeitures) for all remaining
Participants in the next limitation year, and each
succeeding limitation year if necessary;
d. If a suspense account is in existence at any time during a
limitation year pursuant to this Section, it will not
participate in the allocation of the Fund's investment gains
and losses. If a suspense account is in existence at any
time during a particular limitation year, all amounts in the
suspense account must be allocated and reallocated to
Participants' Individual Accounts before any Employer
Contributions or any Nondeductible Employee Contributions
may be made to the Plan for that limitation year. Excess
amounts may not be distributed to Participants or former
Participants.
B. If, in addition to this Plan, the Participant is covered
under another qualified master or prototype defined
contribution plan maintained by the Employer, a welfare
benefit fund maintained by the Employer, an individual
medical account maintained by the Employer, or a simplified
employee pension maintained by the Employer that provides an
annual addition as defined in Section 3.05(E)(1), during any
limitation year, the following rules apply:
1. The annual additions which may be credited to a
Participant's Individual Account under this Plan for
any such limitation year will not exceed the maximum
permissible amount reduced by the annual additions
credited to a Participant's Individual Account under
the other qualified master or prototype plans, welfare
benefit funds, individual medical accounts and
simplified employee pensions for the same limitation
year. If the annual additions with respect to the
Participant under other qualified master or prototype
defined contribution plans, welfare benefit funds,
individual medical accounts and simplified employee
pensions maintained by the Employer are less than the
maximum permissible amount and the Employer
Contribution that would otherwise be contributed or
allocated to the Participant's Individual Account under
this Plan would cause the annual additions for the
limitation year to exceed this limitation, the amount
contribute or allocated will be reduced so that the
annual additions under all such plans and funds for the
limitation year will equal the maximum permissible
amount. If the annual additions with respect to the
Participant under such other qualified master or
prototype defined contribution plans, welfare benefit
funds, individual medical accounts and simplified
employee pensions in the aggregate are equal to or
greater than the maximum permissible amount, no amount
will be contribute or allocated to the Participant's
Individual Account under this Plan for the limitation
year.
2. Prior to determining the Participant's actual
Compensation for the limitation year, the Employer may
determine the maximum permissible amount for a
Participant in the manner described in Section
3.05(A)(2).
3. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount
for the limitation year will be determined on the basis
of the Participant's actual Compensation for the
limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a result of
the allocation of Forfeitures a Participant's annual
additions under this Plan and such other plans would
result in an excess amount
13
<PAGE>
for a limitation year, the excess amount will be deemed
to consist of the annual additions last allocated,
except that annual additions attributable to a
simplified employee pension will be deemed to have been
allocated first, followed by annual additions to a
welfare benefit fund or individual medical account,
regardless of the actual allocation date.
5. If an excess amount was allocated to a Participant on
an allocation date of this Plan which coincides with an
allocation date of another plan, the excess amount
attributed to this Plan will be the product of,
a. the total excess amount allocated as of such date,
times
b. the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date
under this Plan to (ii) the total annual additions
allocated to the Participant for the limitation year as
of such date under this and all the other qualified
prototype defined contribution plans.
6. Any excess amount attributed to this Plan will be
disposed in the manner described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified
defined contribution plan maintained by the Employer which
is not a master or prototype plan, annual additions which
may be credited to the Participant's Individual Account
under this Plan for any limitation year will be limited in
accordance with Sections 3.05(B)(1) through 3.05(B)(6) as
though the other plan were a master or prototype plan unless
the Employer provides other limitations in the Section of
the Adoption Agreement titled "Limitation on Allocation -
More Than One Plan."
D. If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in
this Plan, the sum of the Participant's defined benefit plan
fraction and defined contribution plan fraction will not
exceed 1.0 in any limitation year. The annual additions
which may be credited to the Participant's Individual
Account under this Plan for any limitation year will be
limited in accordance with the Section of the Adoption
Agreement titled "Limitation on Allocation - More Than One
Plan."
E. The following terms shall have the following meanings when
used in this Section 3.05:
1. Annual additions: The sum of the following amounts
credited to a Participant's Individual Account for the
limitation year:
a. Employer Contributions,
b. Nondeductible Employee Contributions,
c. Forfeitures,
d. amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section
415(l)(2) of the Code, which is part of a pension or
annuity plan maintained by the Employer are treated as
annual additions to a defined contribution plan. Also
amounts derived from contributions paid or accrued
after December 31, 1985, in taxable years ending after
such date, which are attributable to post-retirement
medical benefits, allocated to the separate account of
a key employee, as defined in Section 419A(d)(3) of the
Code, under a welfare benefit fund, as defined in
Section 419(e) of the Code, maintained by the Employer
are treated as annual additions to a defined
contribution plan, and
e. allocations under a simplified employee pension.
For this purpose, any excess amount applied under Section
3.05(A)(4) or 3.05(B)(6) in the limitation year to reduce
Employer Contributions will be considered annual additions
for such limitation year.
2. Compensation: Means Compensation as defined in Section
1.07 of the Plan except that Compensation for purposes
of this Section 3.05 shall not include any amounts
contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in the
gross income of the Employee under Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code even if
the Employer has elected to include such contributions
in the definition of Compensation used for othe
purposes under the Plan. Further, any other exclusion
the Employer has elected (such as the exclusion of
certain types of pay or pay earned before the Employee
enters the Plan) will not apply for purposes of this
Section.
Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is
permanently and totally disabled (as defined in Section
22(e)(3) of the Code) is the Compensation such Participant
would have received for the limitation year if the
Participant had been paid at the rate of Compensation paid
immediately before becoming permanently and totally
disabled; such imputed Compensation for the disabled
Participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as defined
in Section 414(q) of the Code) and contributions made on
behalf of such Participant are nonforfeitable when made.
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3. Defined benefit fraction: A fraction, the numerator of
which is the sum of the Participant's projected annual
benefits under all the defined benefit plans (whether
or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125% of the
dollar limitation determined for the limitation year
under Section 415(b) and (d) of the Code or 140% of the
highest average compensation, including any adjustments
under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first limitation year
beginning after December 31, 1986, in one or more defined
benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction
will not be less than 125% of the sum of the annual benefits
under such plans which the Participant had accrued as of the
close of the last limitation year beginning before January
1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements
of Section 415 of the Code for all limitation years
beginning before January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if
greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(b)(1) of the Code
as in effect for the limitation year.
5. Defined contribution fraction: A fraction, the
numerator of which is the sum of the annual additions
to the Participant's account under all the defined
contribution plans (whether or not terminated)
maintained by the Employer for the current and all
prior limitation years (including the annual additions
attributable to the Participant's nondeductible
employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer,
and the annual additions attributable to all welfare
benefit funds, as defined in Section 419(e) of the
Code, individual medical accounts, and simplified
employee pensions, maintained by the Employer), and the
denominator of which is the sum of the maximum
aggregate amounts for the current and all prior
limitation years of service with the Employer
(regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate
amount in any limitation yea is the lesser of 125% of
the dollar limitation determined under Section 415(b)
and (d) of the Code in effect under Section
415(c)(1)(A) of the Code or 35% of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of the first
day of the first limitation year beginning after December
31, 1986, in one or more defined contribution plans
maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the
sum of this fraction and the defined benefit fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the
denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as
of the end of the last limitation year beginning before
January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 5, 1986, but using
the Section 415 limitation applicable to the first
limitation year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before
January 1, 1987, shall not be recomputed to treat all
Nondeductible Employee Contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer
shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations (as
defined in Section 414(b) of the Code as modified by
Section 415(h)), all commonly controlled trades or
businesses (as defined in Section 414(c) as modified by
Section 415(h)) or affiliated service groups (as
defined in Section 414(m)) of which the adopting
Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations
under Section 414(o) of the Code.
7. Excess amount: The excess of the Participant's annual
additions for the limitation year over the maximum
permissible amount.
8. Highest average compensation: The average compensation
for the three consecutive years of service with the
Employer that produces the highest average.
9. Limitation year: A calendar year, or the 12-consecutive
month period elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the
Employer must use the same limitation year. If the
limitation year is amended to a different
12-consecutive month period, the new limitation year
must begin on a date within the limitation year in
which the amendment is made.
10. Master or prototype plan: A plan the form of which is
the subject of a favorable opinion letter from the
Internal Revenue Service.
11. Maximum permissible amount: The maximum annual addition
that may be contributed or allocated to a Participant's
Individual Account under the Plan for any limitation
year shall not exceed the lesser of:
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a. the defined contribution dollar limitation, or
b. 25% of the Participant's Compensation for the
limitation year.
The compensation limitation referred to in (b) shall not
apply to any contribution for medical benefits (within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code)
which is otherwise treated as an annual addition under
Section 415(l)(1) or 419A(d)(2) of the Code. If a short
limitation year is created because of an amendment changing
the limitation year to a different 12-consecutive month
period, the maximum permissible amount will not exceed the
defined contribution dollar limitation multiplied by the
following fraction:
Number of months in the short limitation year
---------------------------------------------
12
12. Projected annual benefit: The annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight
life annuity or qualified joint and survivor annuity) to
which the Participant would be entitled under the terms of
the Plan assuming:
a. the Participant will continue employment until Normal
Retirement Age under the Plan (or current age, if
later), and
b. the Participant's Compensation for the current
limitation year and all other relevant factors used to
determine benefits under the Plan will remain constant
for all future limitation years.
Straight life annuity means an annuity payable in equal
installments for the life of the Participant that terminates
upon the Participant's death.
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain an
Individual Account in the name of each Participant to
reflect the total value of his or her interest in the Fund.
Each Individual Account established hereunder shall consist
of such subaccounts as may be needed for each Participant
including:
1. a subaccount to reflect Employer Contributions and
Forfeitures allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover
contributions;
3. a subaccount to reflect a Participant's transfer
contributions;
4. a subaccount to reflect a Participant's Nondeductible
Employee Contributions; and
5. a subaccount to reflect a Participant's deductible
employee contributions.
B. The Plan Administrator may establish additional accounts as
it may deem necessary for the proper administration of the
Plan, including, but not limited to, a suspense account for
Forfeitures as required pursuant to Section 6.01(D).
4.02 VALUATION OF FUND
The Fund will be valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a Participant's
Individual Account are invested in a Separate Fund for the
Participant, then the value of that portion of such
Participant's Individual Account at any relevant time equals
the sum of the fair market values of the assets in such
Separate Fund, less any applicable charges or penalties.
B. The fair market value of the remainder of each Individual
Account is determined in the following manner:
1. First, the portion of the Individual Account invested
in each Investment Fund as of the previous Valuation
Date is determined. Each such portion is reduced by any
withdrawal made from the applicable Investment Fund to
or for the benefit of a Participant or the
Participant's Beneficiary, further reduced by any
amounts forfeited by the Participant pursuant to
Section 6.01(D) and further reduced by any transfer to
another Investment Fund since the previous Valuation
Date and is increased by any amount transferred from
another Investment Fund since the previous Valuation
Date. The resulting amounts are the net Individual
Account portions invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested
in each Investment Fund are adjusted upwards or
downwards, pro rata (i.e., ratio of each net Individual
Account
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portion to the sum of all net Individual Account portions)
so that the sum of all the net Individual Account portions
invested in an Investment Fund will equal the then fair
market value of the Investment Fund. Notwithstanding the
previous sentence, for the first Plan Year only, the net
Individual Account portions shall be the sum of all
contributions made to each Participant's Individual Account
during the first Plan Year.
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<PAGE>
3. Thirdly, any contributions to the Plan and Forfeitures
are allocated in accordance with the appropriate
allocation provisions of Section 3. For purposes of
Section 4, contributions made by the Employer for any
Plan Year but after that Plan Year will be considered
to have been made on the last day of that Plan Year
regardless of when paid to the Trustee (or Custodian,
if applicable).
Amounts contributed between Valuation Dates will not be
credited with investment gains or losses until the next
following Valuation Date.
4. Finally, the portions of the Individual Account
invested in each Investment Fund (determined in
accordance with (1), (2) and (3) above) are added
together.
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
If necessary or appropriate, the Plan Administrator may establish
different or additional procedures (which shall be uniform and
nondiscriminatory) for determining the fair market value of the
Individual Accounts.
4.05 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a lump
sum, the Plan Administrator may place that Participant's account
balance into a segregated Investment Fund for the purpose of
maintaining the necessary liquidity to provide benefit
installments on a periodic basis.
4.06 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the
Plan Administrator shall furnish a statement to each Participant
indicating the Individual Account balances of such Participant as
of the last Valuation Date in such Plan Year.
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which
shall consist of the assets of the Plan held by the Trustee (or
Custodian, if applicable) pursuant to this Section 5. Assets
within the Fund may be pooled on behalf of all Participants,
earmarked on behalf of each Participant or be a combination of
pooled and earmarked. To the extent that assets are earmarked for
a particular Participant, they will be held in a Separate Fund
for that Participant.
No part of the corpus or income of the Fund may be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual
direction of investments by Participants), the Employer, not the
Trustee (or Custodian, if applicable), shall have exclusive
management and control over the investment of the Fund into any
permitted investment. Notwithstanding the preceding sentence, a
Trustee may make an agreement with the Employer whereby the
Trustee will manage the investment of all or a portion of the
Fund. Any such agreement shall be in writing and set forth such
matters as the Trustee deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST
POWERS
This Section 5.03 applies where a financial organization has
indicated in the Adoption Agreement that it will serve, with
respect to this Plan, as Custodian or as Trustee without full
trust powers (under applicable law). Hereinafter, a financial
organization Trustee without full trust powers (under applicable
law) shall be referred to as a Custodian. The Custodian shall
have no discretionary authority with respect to the management of
the Plan or the Fund but will act only as directed by the entity
who has such authority.
A. Permissible Investments - The assets of the Plan shall be
invested only in those investments which are available
through the Custodian in the ordinary course of business
which the Custodian may legally hold in a qualified plan and
which the Custodian chooses to make available to Employers
for qualified plan investments. Notwithstanding the
preceding sentence, the Prototype Sponsor may, as a
condition of making the Plan available to the Employer,
limit the types of property in which the assets of the Plan
may be invested.
B. Responsibilities of the Custodian - The responsibilities of
the Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and
reinvest the Fund without distinction between principal
and interest; provided, however, that nothing in this
Plan shall require the Custodian to maintain physical
custody of stock certificates (or other indicia of
ownership of any type of asset) representing assets
within the Fund;
2. To maintain accurate records of contributions,
earnings, withdrawals and other information the
Custodian deems relevant with respect to the Plan;
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<PAGE>
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of
the Custodian as of the end of each Plan Year and as of
any other times as the Custodian and Plan Administrator
may agree.
C. Powers of the Custodian - Except as otherwise provided in
this Plan, the Custodian shall have the power to take any
action with respect to the Fund which it deems necessary or
advisable to discharge its responsibilities under this Plan
including, but not limited to, the following powers:
1. To invest all or a portion of the Fund (including idle
cash balances) in time deposits, savings accounts,
money market accounts or similar investments bearing a
reasonable rate of interest in the Custodian's own
savings department or the savings department of another
financial organization;
2. To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney
with or without power of substitution; to exercise any
conversion privileges or subscription rights and to
make any payments incidental thereto; to oppose, or to
consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate
securities, and to pay any assessment or charges in
connection therewith; and generally to exercise any of
the powers of an owner with respect to stocks, bonds,
securities or other property;
3. To hold securities or other property of the Fund in its
own name, in the name of its nominee or in bearer form;
and
4. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate
to carry out the powers herein granted.
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL TRUSTEE
This Section 5.04 applies where a financial organization has
indicated in the Adoption Agreement that it will serve as Trustee
with full trust powers. This Section also applies where one or
more individuals are named in the Adoption Agreement to serve as
Trustee(s).
A. Permissible Investments - The Trustee may invest the assets of
the Plan in property of any character, real or personal,
including, but not limited to the following: stocks, including
shares of open-end investment companies (mutual funds); bonds;
notes; debentures; options; limited partnership interests;
mortgages; real estate or any interests therein; unit investment
trusts; Treasury Bills, and other U.S. Government obligations;
common trust funds, combined investment trusts, collective trust
funds or commingled funds maintained by a bank or similar
financial organization (whether or not the Trustee hereunder);
savings accounts, time deposits or money market accounts of a
bank or similar financial organization (whether or not the
Trustee hereunder); annuity contracts; life insurance policies;
or in such other investments as is deemed proper without regard
to investments authorized by statute or rule of law governing the
investment of trust funds but with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype Sponsor
may, as a condition of making the Plan available to the Employer,
limit the types of property in which the assets of the Plan may
be invested.
B. Responsibilities of the Trustee - The responsibilities of the
Trustee shall be limited to the following:
1. To receive Plan contributions and to hold, invest and
reinvest the Fund without distinction between principal and
interest; provided, however, that nothing in this Plan shall
require the Trustee to maintain physical custody of stock
certificates (or other indicia of ownership) representing
assets within the Fund;
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Trustee deems relevant
with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of the
Trustee as of the end of each Plan Year and as of any other
times as the Trustee and Plan Administrator may agree.
C. Powers of the Trustee - Except as otherwise provided in this
Plan, the Trustee shall have the power to take any action with
respect to the Fund which it deems necessary or advisable to
discharge its responsibilities under this Plan including, but not
limited to, the following powers:
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<PAGE>
1. To hold any securities or other property of the Fund in its
own name, in the name of its nominee or in bearer form;
2. To purchase or subscribe for securities issued, or real
property owned, by the Employer or any trade or business
under common control with the Employer but only if the
prudent investment and diversification requirements of ERISA
are satisfied;
3. To sell, exchange, convey, transfer or otherwise dispose of
any securities or other property held by the Trustee, by
private contract or at public auction. No person dealing
with the Trustee shall be bound to see to the application of
the purchase money or to inquire into the validity,
expediency, or propriety of any such sale or other
disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or
without power of substitution; to exercise any conversion
privileges or subscription rights and to make any payments
incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate
discretionary powers, and to pay any assessments or charges
in connection therewith; and generally to exercise any of
the powers of an owner with respect to stocks, bonds,
securities or other property;
5. To invest any part or all of the Fund (including idle cash
balances) in certificates of deposit, demand or time
deposits, savings accounts, money market accounts or similar
investments of the Trustee (if the Trustee is a bank or
similar financial organization), the Prototype Sponsor or
any affiliate of such Trustee or Prototype Sponsor, which
bear a reasonable rate of interest;
6. To provide sweep services without the receipt by the Trustee
of additional compensation or other consideration (other
than reimbursement of direct expenses properly and actually
incurred in the performance of such services);
7. To hold in the form of cash for distribution or investment
such portion of the Fund as, at any time and from
time-to-time, the Trustee shall deem prudent and deposit
such cash in interest bearing or noninterest bearing
accounts;
8. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry
out the powers herein granted;
9. To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to
commence or defend suits or legal or administrative
proceedings, and to represent the Plan in all suits and
legal and administrative proceedings;
10. To employ suitable agents and counsel, to contract with
agents to perform administrative and recordkeeping duties
and to pay their reasonable expenses, fees and compensation,
and such agent or counsel may or may not be agent or counsel
for the Employer;
11. To cause any part or all of the Fund, without limitation as
to amount, to be commingled with the funds of other trusts
(including trusts for qualified employee benefit plans) by
causing such money to be invested as a part of any pooled,
common, collective or commingled trust fund (including any
such fund described in the Adoption Agreement) heretofore or
hereafter created by any Trustee (if the Trustee is a bank),
by the Prototype Sponsor, by any affiliate bank of such a
Trustee or by such a Trustee or the Prototype Sponsor, or by
such an affiliate in participation with others; the
instrument or instruments establishing such trust fund or
funds, as amended, being made part of this Plan and trust so
long as any portion of the Fund shall be invested through
the medium thereof; and
12. Generally to do all such acts, execute all such instruments,
initiate such proceedings, and exercise all such rights and
privileges with relation to property constituting the Fund
as if the Trustee were the absolute owner thereof.
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS
The Employer may direct the Trustee (or Custodian) from
time-to-time to divide and redivide the Fund into one or more
Investment Funds. Such Investment Funds may include, but not be
limited to, Investment Funds representing the assets under the
control of an investment manager pursuant to Section 5.12 and
Investment Funds representing investment options available for
individual direction by Participants pursuant to Section 5.14.
Upon each division or redivision, the Employer may specify the
part of the Fund to be allocated to each such Investment Fund and
the terms and conditions, if any, under which the assets in such
Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such
reasonable compensation as may be agreed upon by the Trustee (or
Custodian) and the Employer. The Trustee (or Custodian) shall be
entitled to reimbursement by the Employer
20
<PAGE>
for all proper expenses incurred in carrying out his or her
duties under this Plan, including reasonable legal, accounting
and actuarial expenses. If not paid by the Employer, such
compensation and expenses may be charged against the Fund.
All taxes of any kind that may be levied or assessed under
existing or future laws upon, or in respect of, the Fund or the
income thereof shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if
applicable) and Plan Administrator the information which each
party deems necessary for the administration of the Plan
including, but not limited to, changes in a Participant's status,
eligibility, mailing addresses and other such data as may be
required. The Trustee (or Custodian) and Plan Administrator shall
be entitled to act on such information as is supplied them and
shall have no duty or responsibility to further verify or
question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding
federal income taxes from distributions from the Plan, unless the
Participant (or Beneficiary, where applicable) elects not to have
such taxes withheld. The Trustee (or Custodian) or other payor
may act as agent for the Plan Administrator to withhold such
taxes and to make the appropriate distribution reports, if the
Plan Administrator furnishes all the information to the Trustee
(or Custodian) or other payor it may need to do withholding and
reporting.
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN)
The Trustee (or Custodian, if applicable) may resign at any time
by giving 30 days advance written notice to the Employer. The
resignation shall become effective 30 days after receipt of such
notice unless a shorter period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such
removal shall be effective 30 days after receipt of such notice
unless a shorter period is agreed upon. The Employer shall have
the power to appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed
Trustee (or Custodian) is the sole Trustee (or Custodian), he or
she shall transfer all of the assets of the Fund then held by
such Trustee (or Custodian) as expeditiously as possible to the
successor Trustee (or Custodian) after paying or reserving such
reasonable amount as he or she shall deem necessary to provide
for the expense in the settlement of the accounts and the amount
of any compensation due him or her and any sums chargeable
against the Fund for which he or she may be liable. If the Funds
as reserved are not sufficient for such purpose, then he or she
shall be entitled to reimbursement from the successor Trustee (or
Custodian) out of the assets in the successor Trustee's (or
Custodian's) hands under this Plan. If the amount reserved shall
be in excess of the amount actually needed, the former Trustee
(or Custodian) shall return such excess to the successor Trustee
(or Custodian).
Upon receipt of the transferred assets, the successor Trustee (or
Custodian) shall thereupon succeed to all of the powers and
responsibilities given to the Trustee (or Custodian) by this
Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer
within 30 days of its receipt, the accounting shall be deemed to
have been approved and the resigning or removed Trustee (or
Custodian) shall be released and discharged as to all matters set
forth in the accounting. Where a financial organization is
serving as Trustee (or Custodian) and it is merged with or bought
by another organization (or comes under the control of any
federal or state agency), that organization shall serve as the
successor Trustee (or Custodian) of this Plan, but only if it is
the type of organization that can so serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal
Revenue that such substitution is required because the Trustee
(or Custodian) has failed to comply with the requirements of
Section 1.401-12(n) or is not keeping such records or making such
returns or rendering such statements as are required by forms or
regulations.
5.10 DEGREE OF CARE - LIMITATIONS OF LIABILITY
The Trustee (or Custodian) shall not be liable for any losses
incurred by the Fund by any direction to invest communicated by
the Employer, Plan Administrator, investment manager appointed
pursuant to Section 5.12 or any Participant or Beneficiary. The
Trustee (or Custodian) shall be under no liability for
distributions made or other action taken or not taken at the
written direction of the Plan Administrator. It is specifically
understood that the Trustee (or Custodian) shall have no duty or
responsibility with respect to the determination of matters
pertaining to the eligibility of any Employee to become a
Participant or remain a Participant hereunder, the amount of
benefit to which a Participant or Beneficiary shall be entitled
to receive hereunder, whether a distribution to Participant or
Beneficiary is appropriate under the terms of the Plan or the
size and type of any policy to be purchased from any insurer for
any Participant hereunder or similar matters it being understood
that all such responsibilities under the Plan are vested in the
Plan Administrator.
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5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN)
Notwithstanding any other provision herein, and except as may be
otherwise provided by ERISA, the Employer shall indemnify and
hold harmless the Trustee (or Custodian, if applicable) and the
Prototype Sponsor, their officers, directors, employees, agents,
their heirs, executors, successors and assigns, from and against
any and all liabilities, damages, judgments, settlements, losses,
costs, charges, or expenses (including legal expenses) at any
time arising out of or incurred in connection with any action
taken by such parties in the performance of their duties with
respect to this Plan, unless there has been a final adjudication
of gross negligence or willful misconduct in the performance of
such duties.
Further, except as may be otherwise provided by ERISA, the
Employer will indemnify the Trustee (or Custodian) and Prototype
Sponsor from any liability, claim or expense (including legal
expense) which the Trustee (or Custodian) and Prototype Sponsor
shall incur by reason of or which results, in whole or in part,
from the Trustee's (or Custodian's) or Prototype Sponsor's
reliance on the facts and other directions and elections the
Employer communicates or fails to communicate.
5.12 INVESTMENT MANAGERS
A. Definition of Investment Manager - The Employer may appoint
one or more investment managers to make investment decisions
with respect to all or a portion of the Fund. The investment
manager shall be any firm or individual registered as an
investment adviser under the Investment Advisers Act of
1940, a bank as defined in said Act or an insurance company
qualified under the laws of more than one state to perform
services consisting of the management, acquisition or
disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate Investment Fund
shall be established representing the assets of the Fund
invested at the direction of the investment manager. The
investment manager so appointed shall direct the Trustee (or
Custodian, if applicable ) with respect to the investment of
such Investment Fund. The investments which may be acquired
at the direction of the investment manager are those
described in Section 5.03(A) (for Custodians) or Section
5.04(A) (for Trustees).
C. Written Agreement - The appointment of any investment
manager shall be by written agreement between the Employer
and the investment manager and a copy of such agreement (and
any modification or termination thereof) must be given to
the Trustee (or Custodian).
The agreement shall set forth, among other matters, the
effective date of the investment manager's appointment and
an acknowledgment by the investment manager that it is a
fiduciary of the Plan under ERISA.
D. Concerning the Trustee (or Custodian) - Written notice of
each appointment of an investment manager shall be given to
the Trustee (or Custodian) in advance of the effective date
of such appointment. Such notice shall specify which portion
of the Fund will constitute the Investment Fund subject to
the investment manager's direction. The Trustee (or
Custodian) shall comply with the investment direction given
to it by the investment manager and will not be liable for
any loss which may result by reason of any action (or
inaction) it takes at the direction of the investment
manager.
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a
Participant, the aggregate premium for certain life
insurance for each Participant must be less than a certain
percentage of the aggregate Employer Contributions and
Forfeitures allocated to a Participant's Individual Account
at any particular time as follows:
1. Ordinary Life Insurance - For purposes of these
incidental insurance provisions, ordinary life
insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing
premiums. If such contracts are purchased, less than
50% of the aggregate Employer Contributions and
Forfeitures allocated to any Participant's Individual
Account will be used to pay the premiums attributable
to them.
2. Term and Universal Life Insurance - No more than 25% of
the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account will
be used to pay the premiums on term life insurance
contracts, universal life insurance contracts, and all
other life insurance contracts which are not ordinary
life.
3. Combination - The sum of 50% of the ordinary life
insurance premiums and all other life insurance
premiums will not exceed 25% of the aggregate Employer
Contributions and Forfeitures allocated to any
Participant's Individual Account.
If this Plan is a profit sharing plan, the above incidental
benefits limits do not apply to life insurance contracts
purchased with Employer Contributions and Forfeitures that
have been in the Participant's Individual Account for at
least 2 full Plan Years, measured from the date such
contributions were allocated.
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<PAGE>
B. Any dividends or credits earned on insurance contracts
for a Participant shall be allocated to such
Participant's Individual Account.
C. Subject to Section 6.05, the contracts on a
Participant's life will be converted to cash or an
annuity or distributed to the Participant upon
commencement of benefits.
D. The Trustee (or Custodian, if applicable) shall apply
for and will be the owner of any insurance contract(s)
purchased under the terms of this Plan. The insurance
contract(s) must provide that proceeds will be payable
to the Trustee (or Custodian), however, the Trustee (or
Custodian) shall be required to pay over all proceeds
of the contract(s) to the Participant's designated
Beneficiary in accordance with the distribution
provisions of this Plan. A Participant's spous will be
the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made
in accordance with Section 6.05. Under no circumstances
shall the Fund retain any part of the proceeds. In the
event of any conflict between the terms of this Plan
and the terms of any insurance contract purchased
hereunder, the Plan provisions shall control.
E. The Plan Administrator may direct the Trustee (or
Custodian) to sell and distribute insurance or annuity
contracts to a Participant (or other party as may be
permitted) in accordance with applicable law or
regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each Participant may
individually direct the Trustee (or Custodian, if applicable)
regarding the investment of part or all of his or her Individual
Account. To the extent so directed, the Employer, Plan
Administrator, Trustee (or Custodian) and all other fiduciaries
are relieved of their fiduciary responsibility under Section 404
of ERISA.
The Plan Administrator shall direct that a Separate Fund be
established in the name of each Participant who directs the
investment of part or all of his or her Individual Account. Each
Separate Fund shall be charged or credited (as appropriate) with
the earnings, gains, losses or expenses attributable to such
Separate Fund. No fiduciary shall be liable for any loss which
results from a Participant's individual direction. The assets
subject to individual direction shall not be invested in
collectibles as that term is defined in Section 408(m) of the
Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it
deems necessary or advisable including, but not limited to, rules
describing (1) which portions of Participant's Individual Account
can be individually directed; (2) the frequency of investment
changes; (3) the forms and procedures for making investment
changes; and (4) the effect of a Participant's failure to make a
valid direction.
The Plan Administrator may, in a uniform and nondiscriminatory
manner, limit the available investments for Participants'
individual direction to certain specified investment options
(including, but not limited to, certain mutual funds, investment
contracts, deposit accounts and group trusts). The Plan
Administrator may permit, in a uniform and nondiscriminatory
manner, a Beneficiary of a deceased Participant or the alternate
payee under a qualified domestic relations order (as defined in
Section 414(p) of the Code) to individually direct in accordance
with this Section.
SECTION SIX VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. Distributable Events
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable
to the Participant upon (1) the occurrence of any of
the distributable events specified in the Adoption
Agreement; (2) the Participant's Termination of
Employment after attaining Normal Retirement Age; (3)
the termination of the Plan; and (4) the Participant's
Termination of Employment after satisfying any Early
Retirement Age conditions.
If a Participant separates from service before satisfying
the Early Retirement Age requirement, but has satisfied the
service requirement, the Participant will be entitled to
elect an early retirement benefit upon satisfaction of such
age requirement.
2. Written Request: When Distributed - A Participant
entitled to distribution who wishes to receive a
distribution must submit a written request to the Plan
Administrator. Such request shall be made upon a form
provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the
Trustee (or Custodian, if applicable) to commence
distribution no later than the time specified in the
Adoption Agreement for this purpose and, if not
specified i the Adoption Agreement, then no later than
90 days following the later of:
a. the close of the Plan Year within which the event
occurs which entitles the Participant to distribution;
or
b. the close of the Plan Year in which the request is
received.
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<PAGE>
3. Special Rules for Withdrawals During Service - If this
is a profit sharing plan and the Adoption Agreement so
provides, a Participant may elect to receive a
distribution of all or part of the Vested portion of
his or her Individual Account, subject to the
requirements of Section 6.05 and further subject to the
following limits:
a. Participant for 5 or more years. An Employee who has
been a Participant in the Plan for 5 or more years may
withdraw up to the entire Vested portion of his or her
Individual Account.
b. Participant for less than 5 years. An Employee who has
been a Participant in the Plan for less than 5 years
may withdraw only the amount which has been in his or
her Individual Account attributable to Employer
Contributions for at least 2 full Plan Years, measured
from the date such contributions were allocated.
However, if the distribution is on account of hardship,
the Participant may withdraw up to his or her entire
Vested portion of the Participant's Individual Account.
For this purpose, hardship shall have the meaning set
forth in Section 6.01(A)(4) of the Code.
4. Special Rules for Hardship Withdrawals - If this is a
profit sharing plan and the Adoption Agreement so
provides, a Participant may elect to receive a hardship
distribution of all or part of the Vested portion of
his or her Individual Account, subject to the
requirements of Section 6.05 and further subject to the
following limits:
a. Participant for 5 or more years. An Employee who has
been a Participant in the Plan for 5 or more years may
withdraw up to the entire Vested portion of his or her
Individual Account.
b. Participant for less than 5 years. An Employee who has
been a Participant in the Plan for less than 5 years
may withdraw only the amount which has been in his or
her Individual Account attributable to Employer
Contributions for at least 2 full Plan Years, measured
from the date such contributions were allocated.
For purposes of this Section 6.01(A)(4) and Section
6.01(A)(3) hardship is defined as an immediate and heavy
financial need of the Participant where such Participant
lacks other available resources. The following are the only
financial needs considered immediate and heavy: expenses
incurred or necessary for medical care, described in Section
213(d) of the Code, of the Employee, the Employee's spouse
or dependents; the purchase (excluding mortgage payments) of
a principal residence for the Employee; payment of tuition
and related educational fees for the next 12 months of
post-secondary education for the Employee, the Employee's
spouse, children or dependents; or the need to prevent the
eviction of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
1) The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under
all plans maintained by the Employer;
2) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result
from the distribution).
5. One-Time In-Service Withdrawal Option - If this is a
profit sharing plan and the Employer has elected the
one-time in-service withdrawal option in the Adoption
Agreement, then Participants will be permitted only one
in-service withdrawal during the course of such
Participants employment with the Employer. The amount
which the Participant can withdraw will be limited to
the lesser of the amount determined under the limits
set forth in Section 6.01(A)(3) or the percentage of
the Participant's Individual Account specified by the
Employer in the Adoption Agreement. Distributions under
this Section will be subject to the requirements of
Section 6.05.
6. Commencement of Benefits - Notwithstanding any other
provision, unless the Participant elects otherwise,
distribution of benefits will begin no later than the
60th day after the latest of the close of the Plan Year
in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
Notwithstanding the foregoing, the failure of a Participant
and spouse to consent to a distribution while a benefit is
immediately distributable, within the meaning of Section
6.02(B) of the Plan, shall be deemed to be an election to
defer commencement of payment of any benefit sufficient to
satisfy this Section.
B. Determining the Vested Portion - In determining the
Vested portion of a Participant's Individual Account,
the following rules apply:
24
<PAGE>
1. Employer Contributions and Forfeitures - The Vested
portion of a Participant's Individual Account derived
from Employer Contributions and Forfeitures is
determined by applying the vesting schedule selected in
the Adoption Agreement (or the vesting schedule
described in Section 6.01(C) if the Plan is a Top-Heavy
Plan).
2. Rollover and Transfer Contributions - A Participant is
fully Vested in his or her rollover contributions and
transfer contributions.
3. Fully Vested Under Certain Circumstances - A
Participant is fully Vested in his or her Individual
Account if any of the following occurs:
a. the Participant reaches Normal Retirement Age;
b. the Plan is terminated or partially terminated; or
c. there exists a complete discontinuance of contributions
under the Plan.
Further, unless otherwise indicated in the Adoption
Agreement, a Participant is fully Vested if the Participant
dies, incurs a Disability, or satisfies the conditions for
Early Retirement Age (if applicable).
4. Participants in a Prior Plan - If a Participant was a
participant in a Prior Plan on the Effective Date, his
or her Vested percentage shall not be less than it
would have been under such Prior Plan as computed on
the Effective Date.
C. Minimum Vesting Schedule for Top-Heavy Plans - The following
vesting provisions apply for any Plan Year in which this
Plan is a Top-Heavy Plan.
Notwithstanding the other provisions of this Section 6.01 or
the vesting schedule selected in the Adoption Agreement
(unless those provisions or that schedule provide for more
rapid vesting), a Participant's Vested portion of his or her
Individual Account attributable to Employer Contributions
and Forfeitures shall be determined in accordance with the
vesting schedule elected by the Employer in the Adoption
Agreement (and if no election is made the 6 year graded
schedule will b deemed to have been elected) as described
below:
<TABLE>
<CAPTION>
6 YEAR GRADED 3 YEAR CLIFF
------------- ------------
Years of Years of
Vesting Service Vested Percentage Vesting Service Vested Percentage
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
1 0 1 0
2 20 2 0
3 40 3 100
4 60
5 80
6 100
</TABLE>
This minimum vesting schedule applies to all benefits within
the meaning of Section 411(a)(7) of the Code, except those
attributable to Nondeductible Employee Contributions
including benefits accrued before the effective date of
Section 416 of the Code and benefits accrued before the Plan
became a Top-Heavy Plan. Further, no decrease in a
Participant's Vested percentage may occur in the event the
Plan's status as a Top-Heavy Plan changes for any Plan Year.
However, this Section 6.01(C) does not apply to the
Individual Account of any Employee who does not have an Hour
of Service after the Plan has initially become a Top-Heavy
Plan and such Employee's Individual Account attributable to
Employer Contributions and Forfeitures will be determined
without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in
accordance with the above restrictions, the vesting schedule
as selected in the Adoption Agreement will govern. If the
vesting schedule under the Plan shifts in or out of
top-heavy status, such shift is an amendment to the vesting
schedule and the election in Section 9.04 applies.
D. Break in Vesting Service and Forfeitures - If a Participant
incurs a Termination of Employment, any portion of his or
her Individual Account which is not Vested shall be held in
a suspense account. Such suspense account shall share in any
increase or decrease in the fair market value of the assets
of the Fund in accordance with Section 4 of the Plan. The
disposition of such suspense account shall be as follows:
1. Breaks in Vesting Service - If a Participant neither
receives nor is deemed to receive a distribution
pursuant to Section 6.01(D)(3) or (4) and the
Participant returns to the service of the Employer
before incurring 5 consecutive Breaks in Vesting
Service, there shall be no Forfeiture and the amount in
such suspense account shall be recredited to such
Participant's Individual Account.
25
<PAGE>
2. Five Consecutive Breaks in Vesting Service - If a
Participant neither receives nor is deemed to receive a
distribution pursuant to Section 6.01(D)(3) or (4) and
the Participant does not return to the service of the
Employer before incurring 5 consecutive Breaks in
Vesting Service, the portion of the Participant's
Individual Account which is not Vested shall be treated
as a Forfeiture and allocated in accordance with
Section 3.01(C).
3. Cash-out of Certain Participants - If the value of the
Vested portion of such Participant's Individual Account
derived from Nondeductible Employee Contributions and
Employer Contributions does not exceed $3,500, the
Participant shall receive a distribution of the entire
Vested portion of such Individual Account and the
portion which is not Vested shall be treated as a
Forfeiture and allocated in accordance with Section
3.01(C). For purposes of this Section, if the value of
the Vested portion of a Participant's Individual
Account is zero, the Participant shall be deemed to
have received a distribution of such Vested Individual
Account. A Participant's Vested Individual Account
balance shall not include accumulated deductible
employee contributions within the meaning of Section
72(o)(5)(B) of the Code for Plan Years beginning prior
to January 1, 1989.
4. Participants Who Elect to Receive Distributions - If
such Participant elects to receive a distribution, in
accordance with Section 6.02(B), of the value of the
Vested portion of his or her Individual Account derived
from Nondeductible Employee Contributions and Employer
Contributions, the portion which is not Vested shall be
treated as a Forfeiture and allocated in accordance
with Section 3.01(C).
5. Re-employed Participants - If a Participant receives or
is deemed to receive a distribution pursuant to Section
6.01(D)(3) or (4) above and the Participant resumes
employment covered under this Plan, the Participant's
Employer-derived Individual Account balance will be
restored to the amount on the date of distribution if
the Participant repays to the Plan the full amount of
the distribution attributable to Employer Contributions
before the earlier of 5 years after th first date on
which the Participant is subsequently re-employed by
the Employer, or the date the Participant incurs 5
consecutive Breaks in Vesting Service following the
date of the distribution.
Any restoration of a Participant's Individual Account
pursuant to Section 6.01(D)(5) shall be made from other
Forfeitures, income or gain to the Fund or contributions
made by the Employer.
E. Distribution Prior to Full Vesting - If a distribution is
made to a Participant who was not then fully Vested in his
or her Individual Account derived from Employer
Contributions and the Participant may increase his or her
Vested percentage in his or her Individual Account, then the
following rules shall apply:
1. a separate account will be established for the
Participant's interest in the Plan as of the time of
the distribution, and
2. at any relevant time the Participant's Vested portion
of the separate account will be equal to an amount
("X") determined by the formula: X=P (AB + (R x D)) -
(R x D) where "P" is the Vested percentage at the
relevant time, "AB" is the separate account balance at
the relevant time; "D" is the amount of the
distribution; and "R" is the ratio of the separate
account balance at the relevant time to the separate
account balance after distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. Value of Individual Account Does Not Exceed $3,500 - If the
value of the Vested portion of a Participant's Individual
Account derived from Nondeductible Employee Contributions
and Employer Contributions does not exceed $3,500,
distribution from the Plan shall be made to the Participant
in a single lump sum in lieu of all other forms of
distribution from the Plan as soon as administratively
feasible.
B. Value of Individual Account Exceeds $3,500
1. If the value of the Vested portion of a Participant's
Individual Account derived from Nondeductible Employee
Contributions and Employer Contributions exceeds (or at
the time of any prior distribution exceeded) $3,500,
and the Individual Account is immediately
distributable, the Participant and the Participant's
spouse (or where either the Participant or the spouse
died, the survivor) must consent to any distribution of
such Individual Account. The consent of the Participant
and the Participant's spouse shall be obtained in
writing within the 90-day period ending on the annuity
starting date. The annuity starting date is the first
day of the first period for which an amount is paid as
an annuity or any other form. The Plan Administrator
shall notify the Participant and the Participant's
spouse of the right to defer any distribution until the
Participant's Individual Account is no longer
immediately distributable. Such notification shall
include a general description of the material features,
and an explanation of the relative values of, the
optional forms of benefit available under the Plan in a
manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code, and shall be provided no
less than 30 days and no more than 90 days prior to the
annuity starting date.
If a distribution is one to which Sections 401(a)(11) and
417 of the Internal Revenue Code do not apply, such
distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
26
<PAGE>
a. the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at
least 30 days after receiving the notice to consider
the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option),
and
b. the Participant, after receiving the notice,
affirmatively elects a distribution.
Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form of
a qualified joint and survivor annuity while the Individual
Account is immediately distributable. Neither the consent of
the Participant nor the Participant's spouse shall be
required to the extent that a distribution is required to
satisfy Section 401(a)(9) or Section 415 of the Code. In
addition, upon termination of this Plan if the Plan does not
offer an annuity option (purchased from a commercial
provider), the Participant's Individual Account may, without
the Participant's consent, be distributed to the Participant
or transferred to another defined contribution plan (other
than an employee stock ownership plan as defined in Section
4975(e)(7) of the Code) within the same controlled group.
An Individual Account is immediately distributable if any
part of the Individual Account could be distributed to the
Participant (or surviving spouse) before the Participant
attains or would have attained (if not deceased) the later
of Normal Retirement Age or age 62.
2. For purposes of determining the applicability of the
foregoing consent requirements to distributions made before
the first day of the first Plan Year beginning after
December 31, 1988, the Vested portion of a Participant's
Individual Account shall not include amounts attributable to
accumulated deductible employee contributions within the
meaning of Section 72(o)(5)(B) of the Code.
C. Other Forms of Distribution to Participant - If the value of the
Vested portion of a Participant's Individual Account exceeds
$3,500 and the Participant has properly waived the joint and
survivor annuity, as described in Section 6.05, the Participant
may request in writing that the Vested portion of his or her
Individual Account be paid to him or her in one or more of the
following forms of payment: (1) in a lump sum; (2) in installment
payments over a period no to exceed the life expectancy of the
Participant or the joint and last survivor life expectancy of the
Participant and his or her designated Beneficiary; or (3) applied
to the purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the contrary, a
Participant cannot elect payments in the form of an annuity if
the Retirement Equity Act safe harbor rules of Section 6.05(F)
apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Designation of Beneficiary - Spousal Consent - Each
Participant may designate, upon a form provided by and
delivered to the Plan Administrator, one or more primary and
contingent Beneficiaries to receive all or a specified
portion of the Participant's Individual Account in the event
of his or her death. A Participant may change or revoke such
Beneficiary designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a
primary Beneficiary who is not his or her spouse, his or her
spouse must consent in writing to such designation, and the
spouse's consent must acknowledge the effect of such
designation and be witnessed by a notary public or plan
representative. Notwithstanding this consent requirement, if
the Participant establishes to the satisfaction of the Plan
Administrator that such written consent may not be obtained
because there is no spouse or the spouse cannot be located,
no consent shall be required. Any change of Beneficiary will
require a new spousal consent.
B. Payment to Beneficiary - If a Participant dies before the
Participant's entire Individual Account has been paid to him
or her, such deceased Participant's Individual Account shall
be payable to any surviving Beneficiary designated by the
Participant, or, if no Beneficiary survives the Participant,
to the Participant's estate.
C. Written Request: When Distributed - A Beneficiary of a
deceased Participant entitled to a distribution who wishes
to receive a distribution must submit a written request to
the Plan Administrator. Such request shall be made upon a
form provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the Trustee (or
Custodian) to commence distribution no later than the time
specified in the Adoption Agreement for this purpose and if
not specified in the Adoption Agreement, then no later than
90 days following the later of:
1. the close of the Plan Year within which the Participant
dies; or
2. the close of the Plan Year in which the request is received.
27
<PAGE>
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Does Not Exceed $3,500 - If the
value of the Participant's Individual Account derived from
Nondeductible Employee Contributions and Employer
Contributions does not exceed $3,500, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to
make a distribution to the Beneficiary in a single lump sum
in lieu of all other forms of distribution from the Plan.
B. Value of Individual Account Exceeds $3,500 - If the value of
a Participant's Individual Account derived from
Nondeductible Employee Contributions and Employer
Contributions exceeds $3,500 the preretirement survivor
annuity requirements of Section 6.05 shall apply unless
waived in accordance with that Section or unless the
Retirement Equity Act safe harbor rules of Section 6.05(F)
apply. However, a surviving spouse Beneficiary may elect any
form of payment allowable under the Plan in lieu of the
preretirement survivor annuity. Any such payment to the
surviving spouse must meet the requirements of Section 6.06.
C. Other Forms of Distribution to Beneficiary - If the value of
a Participant's Individual Account exceeds $3,500 and the
Participant has properly waived the preretirement survivor
annuity, as described in Section 6.05 (if applicable) or if
the Beneficiary is the Participant's surviving spouse, the
Beneficiary may, subject to the requirements of Section
6.06, request in writing that the Participant's Individual
Account be paid as follows: (1) in a lump sum; or (2) in
installment payments over a period not to exceed the life
expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any
Participant who is credited with at least one Hour of
Eligibility Service with the Employer on or after August 23,
1984, and such other Participants as provided in Section
6.05(G).
B. Qualified Joint and Survivor Annuity - Unless an optional
form of benefit is selected pursuant to a qualified election
within the 90-day period ending on the annuity starting
date, a married Participant's Vested account balance will be
paid in the form of a qualified joint and survivor annuity
and an unmarried Participant's Vested account balance will
be paid in the form of a life annuity. The Participant may
elect to have such annuity distributed upon attainmen of the
earliest retirement age under the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an
optional form of benefit has been selected within the
election period pursuant to a qualified election, if a
Participant dies before the annuity starting date then the
Participant's Vested account balance shall be applied toward
the purchase of an annuity for the life of the surviving
spouse. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the
Participant's death.
D. Definitions
1. Election Period - The period which begins on the first
day of the Plan Year in which the Participant attains
age 35 and ends on the date of the Participant's death.
If a Participant separates from service prior to the
first day of the Plan Year in which age 35 is attained,
with respect to the account balance as of the date of
separation, the election period shall begin on the date
of separation.
Pre-age 35 waiver - A Participant who will not yet attain
age 35 as of the end of any current Plan Year may make
special qualified election to waive the qualified
preretirement survivor annuity for the period beginning on
the date of such election and ending on the first day of the
Plan Year in which the Participant will attain age 35. Such
election shall not be valid unless the Participant receives
a written explanation of the qualified preretirement
survivor annuity in such terms as are comparable to the
explanation required under Section 6.05(E)(1). Qualified
preretirement survivor annuity coverage will be
automatically reinstated as of the first day of the Plan
Year in which the Participant attains age 35. Any new waiver
on or after such date shall be subject to the full
requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which,
under the Plan, the Participant could elect to receive
retirement benefits.
3. Qualified Election - A waiver of a qualified joint and
survivor annuity or a qualified preretirement survivor
annuity. Any waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity
shall not be effective unless: (a) the Participant's
spouse consents in writing to the election, (b) the
election designates a specific Beneficiary, including
any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal
consent (or the spouse expressly permits designations
by the Participant without any further spousal
consent); (c) the spouse's consent acknowledges the
effect of the election; and (d) the spouse's consent is
witnessed by a plan representative or notary public.
Additionally, a Participant's waiver of the qualified
joint and survivor annuity shall not be effective
unless the election designates a form of benefit
payment which may not be changed without spousal
consent (or the spouse expressly permits designations
by the Participant without any further spousal
consent). If it is established to the satisfaction of a
plan
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<PAGE>
representative that there is no spouse or that the
spouse cannot be located, a waiver will be deemed a
qualified election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such
spouse. A consent that permits designations by the
Participant without any requirement of further consent by
such spouse must acknowledge that the spouse has the right
to limit consent to a specific Beneficiary, and a specific
form of benefit where applicable, and that the spouse
voluntarily elects to relinquish either or both of such
rights. A revocation of a prior waiver may be made by a
Participant without the consent of the spouse at any time
before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under
this provision shall be valid unless the Participant has
received notice as provided in Section 6.05(E) below.
4. Qualified Joint and Survivor Annuity - An immediate
annuity for the life of the Participant with a survivor
annuity for the life of the spouse which is not less
than 50% and not more than 100% of the amount of the
annuity which is payable during the joint lives of the
Participant and the spouse and which is the amount of
benefit which can be purchased with the Participant's
vested account balance. The percentage of the survivor
annuity under the Plan shall be 50% (unless a different
percentage is elected by the Employer in the Adoption
Agreement).
5. Spouse (surviving spouse) - The spouse or surviving
spouse of the Participant, provided that a former
spouse will be treated as the spouse or surviving
spouse and a current spouse will not be treated as the
spouse or surviving spouse to the extent provided under
a qualified domestic relations order as described in
Section 414(p) of the Code.
6. Annuity Starting Date - The first day of the first
period for which an amount is paid as an annuity or any
other form.
7. Vested Account Balance - The aggregate value of the
Participant's Vested account balances derived from
Employer and Nondeductible Employee Contributions
(including rollovers), whether Vested before or upon
death, including the proceeds of insurance contracts,
if any, on the Participant's life. The provisions of
this Section 6.05 shall apply to a Participant who is
Vested in amounts attributable to Employer
Contributions, Nondeductible Employee Contributions (or
both) at the time of death or distribution.
E. Notice Requirements
1. In the case of a qualified joint and survivor annuity,
the Plan Administrator shall no less than 30 days and
not more than 90 days prior to the annuity starting
date provide each Participant a written explanation of:
(a) the terms and conditions of a qualified joint and
survivor annuity; (b) the Participant's right to make
and the effect of an election to waive the qualified
joint and survivor annuity form of benefit; (c) the
rights of a Participant's spouse; and (d) the right to
make, and the effect of, a revocation of a previous
election to waive the qualified joint and survivor
annuity.
2. In the case of a qualified preretirement annuity as
described in Section 6.05(C), the Plan Administrator
shall provide each Participant within the applicable
period for such Participant a written explanation of
the qualified preretirement survivor annuity in such
terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of
Section 6.05(E)(1) applicable to a qualified joint and
survivor annuity.
The applicable period for a Participant is whichever of the
following periods ends last: (a) the period beginning with
the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age
35; (b) a reasonable period ending after the individual
becomes a Participant; (c) a reasonable period ending after
Section 6.05(E)(3) ceases to apply to the Participant; and
(d) a reasonable period ending after this Section 6.05 first
applies to the Participant. Notwithstanding the foregoing,
notice must be provided within a reasonable period ending
after separation from service in the case of a Participant
who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a
reasonable period ending after the enumerated events
described in (b), (c) and (d) is the end of the two-year
period beginning one year prior to the date the applicable
event occurs, and ending one year after that date. In the
case of a Participant who separates from service before the
Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior
to separation and ending one year after separation. If such
a Participant thereafter returns to employment with the
Employer, the applicable period for such Participant shall
be redetermined.
3. Notwithstanding the other requirements of this Section
6.05(E), the respective notices prescribed by this
Section 6.05(E), need not be given to a Participant if
(a) the Plan "fully subsidizes" the costs of a
qualified joint and survivor annuity or qualified
preretirement survivor annuity, and (b) the Plan does
29
<PAGE>
not allow the Participant to waive the qualified joint
and survivor annuity or qualified preretirement
survivor annuity and does not allow a married
Participant to designate a nonspouse beneficiary. For
purposes of this Section 6.05(E)(3), a plan fully
subsidizes the costs of a benefit if no increase in
cost, or decrease in benefits to the Participant may
result from the Participant's failure to elect another
benefit.
F. Retirement Equity Act Safe Harbor Rules
1. If the Employer so indicates in the Adoption Agreement,
this Section 6.05(F) shall apply to a Participant in a
profit sharing plan, and shall always apply to any
distribution, made on or after the first day of the
first Plan Year beginning after December 31, 1988, from
or under a separate account attributable solely to
accumulated deductible employee contributions, as
defined in Section 72(o)(5)(B) of the Code, and
maintained on behalf of a Participant in a money
purchase pension plan, (including a target benefit
plan) if the following conditions are satisfied:
a. the Participant does not or cannot elect payments in
the form of a life annuity; and
b. is no surviving spouse, or if the surviving spouse has
consented in a manner conforming to a qualified
election, then to the Participant's designated
Beneficiary. The surviving spouse may elect to have
distribution of the Vested account balance commence
within the 90-day period following the date of the
Participant's death. The account balance shall be
adjusted for gains or losses occurring after the
Participant's death in accordance with the provisions
of the Pla governing the adjustment of account balances
for other types of distributions. This Section 6.05(F)
shall not be operative with respect to a Participant in
a profit sharing plan if the plan is a direct or
indirect transferee of a defined benefit plan, money
purchase plan, a target benefit plan, stock bonus, or
profit sharing plan which is subject to the survivor
annuity requirements of Section 401(a)(11) and Section
417 of the code. If this Section 6.05(F) is operative,
then the provisions of this Section 6.05 other than
Section 6.05(G) shall be inoperative.
2. The Participant may waive the spousal death benefit
described in this Section 6.05(F) at any time provided
that no such waiver shall be effective unless it
satisfies the conditions of Section 6.05(D)(3) (other
than the notification requirement referred to therein)
that would apply to the Participant's waiver of the
qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account
balance shall mean, in the case of a money purchase
pension plan or a target benefit plan, the
Participant's separate account balance attributable
solely to accumulated deductible employee contributions
within the meaning of Section 72(o)(5)(B) of the Code.
In the case of a profit sharing plan, Vested account
balance shall have the same meaning as provided in
Section 6.05(D)(7).
G. Transitional Rules
1. Any living Participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits
prescribed by the previous subsections of this Section
6.05 must be given the opportunity to elect to have the
prior subsections of this Section apply if such
Participant is credited with at least one Hour of
Service under this Plan or a predecessor plan in a Plan
Year beginning on or after January 1, 1976, and such
Participant had at least 10 Years of Vestin Service
when he or she separated from service.
2. Any living Participant not receiving benefits on August
23, 1984, who was credited with at least one Hour of
Service under this Plan or a predecessor plan on or
after September 2, 1974, and who is not otherwise
credited with any service in a Plan Year beginning on
or after January 1, 1976, must be given the opportunity
to have his or her benefits paid in accordance with
Section 6.05(G)(4).
3. The respective opportunities to elect (as described in
Section 6.05(G)(1) and (2) above) must be afforded to
the appropriate Participants during the period
commencing on August 23, 1984, and ending on the date
benefits would otherwise commence to said Participants.
4. Any Participant who has elected pursuant to Section
6.05(G)(2) and any Participant who does not elect under
Section 6.05(G)(1) or who meets the requirements of
Section 6.05(G)(1) except that such Participant does
not have at least 10 Years of Vesting Service when he
or she separates from service, shall have his or her
benefits distributed in accordance with all of the
following requirements if benefits would have been
payable in the form of a life annuity:
a. Automatic Joint and Survivor Annuity - If benefits in
the form of a life annuity become payable to a married
Participant who:
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<PAGE>
(1) begins to receive payments under the Plan on or after
Normal Retirement Age; or
(2) dies on or after Normal Retirement Age while still
working for the Employer; or
(3) begins to receive payments on or after the qualified
early retirement age; or
(4) separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age)
and after satisfying the eligibility requirements for
the payment of benefits under the Plan and thereafter
dies before beginning to receive such benefits;
then such benefits will be received under this Plan in the
form of a qualified joint and survivor annuity, unless the
Participant has elected otherwise during the election
period. The election period must begin at least 6 months
before the Participant attains qualified early retirement
age and ends not more than 90 days before the commencement
of benefits. Any election hereunder will be in writing and
may be changed by the Participant at any time.
b. opportunity to elect, during the election period, to have a
survivor annuity payable on death. If the Participant elects
the survivor annuity, payments under such annuity must not
be less than the payments which would have been made to the
spouse under the qualified joint and survivor annuity if the
Participant had retired on the day before his or her death.
Any election under this provision will be in writing and may
be changed by the Participant at any time. Th election
period begins on the later of (1) the 90th day before the
Participant attains the qualified early retirement age, or
(2) the date on which participation begins, and ends on the
date the Participant terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest of:
a. the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits,
b. the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
c. the date the Participant begins participation.
2. Qualified joint and survivor annuity is an annuity for the
life of the Participant with a survivor annuity for the life
of the spouse as described in Section 6.05(D)(4) of this
Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. General Rules
1. Subject to Section 6.05 Joint and Survivor Annuity
Requirements, the requirements of this Section shall apply
to any distribution of a Participant's interest and will
take precedence over any inconsistent provisions of this
Plan. Unless otherwise specified, the provisions of this
Section 6.06 apply to calendar years beginning after
December 31, 1984.
2. All distributions required under this Section 6.06 shall be
determined and made in accordance with the Income Tax
Regulations under Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the proposed regulations.
B. Required Beginning Date - The entire interest of a
Participant must be distributed or begin to be distributed
no later than the Participant's required beginning date.
C. Limits on Distribution Periods - As of the first
distribution calendar year, distributions, if not made in a
single sum, may only be made over one of the following
periods (or a combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated
Beneficiary,
3. a period certain not extending beyond the life
expectancy of the Participant, or
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<PAGE>
4. a period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
designated Beneficiary.
D. Determination of Amount to be Distributed Each Year - If the
Participant's interest is to be distributed in other than a
single sum, the following minimum distribution rules shall
apply on or after the required beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed over
(1) a period not extending beyond the life expectancy
of the Participant or the joint life and last survivor
expectancy of the Participant and the Participant's
designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated
Beneficiary, the amount required to be distributed for
each calendar year, beginning with distributions for
the first distribution calendar year, must at least
equal the quotient obtained by dividing the
Participant's benefit by the applicable life
expectancy.
b. For calendar years beginning before January 1, 1989, if
the Participant's spouse is not the designated
Beneficiary, the method of distribution selected must
assure that at least 50% of the present value of the
amount available for distribution is paid within the
life expectancy of the Participant.
c. For calendar years beginning after December 31, 1988,
the amount to be distributed each year, beginning with
distributions for the first distribution calendar year
shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (1)
the applicable life expectancy or (2) if the
Participant's spouse is not the designated Beneficiary,
the applicable divisor determined from the table set
forth in Q&A-4 of Section 1.401(a)(9)-2 of th Proposed
Income Tax Regulations. Distributions after the death
of the Participant shall be distributed using the
applicable life expectancy in Section 6.05(D)(1)(a)
above as the relevant divisor without regard to
proposed regulations 1.401(a)(9)-2.
d. The minimum distribution required for the Participant's
first distribution calendar year must be made on or
before the Participant's required beginning date. The
minimum distribution for other calendar years,
including the minimum distribution for the distribution
calendar year in which the Employee's required
beginning date occurs, must be made on or before
December 31 of that distribution calendar year.
2. Other Forms - If the Participant's benefit is distributed in
the form of an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with
the requirements of Section 401(a)(9) of the Code and the
regulations thereunder.
E. Death Distribution Provisions
1. Distribution Beginning Before Death - If the Participant
dies after distribution of his or her interest has begun,
the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death.
2. Distribution Beginning After Death - If the Participant dies
before distribution of his or her interest begins,
distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in
accordance with (a) or (b) below:
a. if any portion of the Participant's interest is payable
to a designated Beneficiary, distributions may be made
over the life or over a period certain not greater than
the life expectancy of the designated Beneficiary
commencing on or before December 31 of the calendar
year immediately following the calendar year in which
the Participant died;
b. if the designated Beneficiary is the Participant's
surviving spouse, the date distributions are required
to begin in accordance with (a) above shall not be
earlier than the later of (1) December 31 of the
calendar year immediately following the calendar year
in which the Participant dies or (2) December 31 of the
calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 6.05(E)(2) by the time of his or her death, the
Participant's designated Beneficiary must elect the method
of distribution no later than the earlier of (1) December 31
of the calendar year in which distributions would be
required to begin under this Section 6.05(E)(2), or (2)
December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the
Participant has no designated Beneficiary, or if the
designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire
interest must be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's
death.
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3. For purposes of Section 6.06(E)(2) above, if the
surviving spouse dies after the Participant, but before
payments to such spouse begin, the provisions of
Section 6.06(E)(2), with the exception of paragraph (b)
therein, shall be applied as if the surviving spouse
were the Participant.
4. For purposes of this Section 6.06(E), any amount paid
to a child of the Participant will be treated as if it
had been paid to the surviving spouse if the amount
becomes payable to the surviving spouse when the child
reaches the age of majority.
5. For purposes of this Section 6.06(E), distribution of a
Participant's interest is considered to begin on the
Participant's required beginning date (or, if Section
6.06(E)(3) above is applicable, the date distribution
is required to begin to the surviving spouse pursuant
to Section 6.06(E)(2) above). If distribution in the
form of an annuity irrevocably commences to the
Participant before the required beginning date, the
date distribution is considered to begin is the date
distribution actually commences.
F. Definitions
1. Applicable Life Expectancy - The life expectancy (or
joint and last survivor expectancy) calculated using
the attained age of the Participant (or designated
Beneficiary) as of the Participant's (or designated
Beneficiary's) birthday in the applicable calendar year
reduced by one for each calendar year which has elapsed
since the date life expectancy was first calculated. If
life expectancy is being recalculated, the applicable
life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the
first distribution calendar year, and if life
expectancy is being recalculated such succeeding
calendar year.
2. Designated Beneficiary - The individual who is
designated as the Beneficiary under the Plan in
accordance with Section 401(a)(9) of the Code and the
regulations thereunder.
3. Distribution Calendar Year - A calendar year for which
a minimum distribution is required. For distributions
beginning before the Participant's death, the first
distribution calendar year is the calendar year
immediately preceding the calendar year which contains
the Participant's required beginning date. For
distributions beginning after the Participant's death,
the first distribution calendar year is the calendar
year in which distributions are required to begin
pursuant to Section 6.05(E) above.
4. Life Expectancy - Life expectancy and joint and last
survivor expectancy are computed by use of the expected
return multiples in Tables V and VI of Section 1.72-9
of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in
the case of distributions described in Section 6.05(E)(2)(b)
above) by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election
shall be irrevocable as to the Participant (or spouse) and
shall apply to all subsequent years. The life expectancy of
a nonspouse Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balance as of the last valuation date in
the valuation calendar year (the calendar year
immediately preceding the distribution calendar year)
increased by the amount of any Contributions or
Forfeitures allocated to the account balance as of
dates in the valuation calendar year after the
valuation date and decreased by distributions made in
the valuation calendar year after the valuation date.
b. Exception for second distribution calendar year. For
purposes of paragraph (a) above, if any portion of the
minimum distribution for the first distribution
calendar year is made in the second distribution
calendar year on or before the required beginning date,
the amount of the minimum distribution made in the
second distribution calendar year shall be treated as
if it had been made in the immediately preceding
distribution calendar year.
6. Required Beginning Date
a. General Rule - The required beginning date of a
Participant is the first day of April of the calendar
year following the calendar year in which the
Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a
Participant who attains age 70 1/2 before January 1,
1988, shall be determined in accordance with (1) or (2)
below:
(1) Non 5% Owners - The required beginning date of a
Participant who is not a 5% owner is the first day of
April of the calendar year following the calendar year
in which the later of retirement or attainment of age
70 1/2 occurs.
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<PAGE>
(2) 5% Owners - The required beginning date of a
Participant who is a 5% owner during any year beginning
after December 31, 1979, is the first day of April
following the later of:
(a) the calendar year in which the Participant attains age
70 1/2, or
(b) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
5% owner, or the calendar year in which the Participant
retires.
The required beginning date of a Participant who is not a 5%
owner who attains age 70 1/2 during 1988 and who has not
retired as of January 1, 1989, is April 1, 1990.
c. 5% Owner - A Participant is treated as a 5% owner for
purposes of this Section 6.06(F)(6) if such Participant
is a 5% owner as defined in Section 416(i) of the Code
(determined in accordance with Section 416 but without
regard to whether the Plan is top-heavy) at any time
during the Plan Year ending with or within the calendar
year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
d. Once distributions have begun to a 5% owner under this
Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be a 5%
owner in a subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of this Section
6.06 and subject to the requirements of Section 6.05,
Joint and Survivor Annuity Requirements, distribution
on behalf of any Employee, including a 5% owner, may be
made in accordance with all of the following
requirements (regardless of when such distribution
commences):
a. The distribution by the Fund is one which would not
have qualified such Fund under Section 401(a)(9) of the
Code as in effect prior to amendment by the Deficit
Reduction Act of 1984.
b. The distribution is in accordance with a method of
distribution designated by the Employee whose interest
in the Fund is being distributed or, if the Employee is
deceased, by a Beneficiary of such Employee.
c. Such designation was in writing, was signed by the
Employee or the Beneficiary, and was made before
January 1, 1984.
d. The Employee had accrued a benefit under the Plan as of
December 31, 1983.
e. The method of distribution designated by the Employee
or the Beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of
priority.
2. A distribution upon death will not be covered by this
transitional rule unless the information in the
designation contains the required information described
above with respect to the distributions to be made upon
the death of the Employee.
3. For any distribution which commences before January 1,
1984, but continues after December 31, 1983, the
Employee, or the Beneficiary, to whom such distribution
is being made, will be presumed to have designated the
method of distribution under which the distribution is
being made if the method of distribution was specified
in writing and the distribution satisfies the
requirements in Sections 6.06(G)(1)(a) and (e).
4. If a designation is revoked, any subsequent
distribution must satisfy the requirements of Section
401(a)(9) of the Code and the regulations thereunder.
If a designation is revoked subsequent to the date
distributions are required to begin, the Plan must
distribute by the end of the calendar year following
the calendar year in which the revocation occurs the
total amount not yet distributed which would have been
required to have been distributed to satisfy Section
401(a)(9) of the Code and the regulations thereunder,
but for the Section 242(b)(2) election. For calendar
years beginning after December 31, 1988, such
distributions must meet the minimum distribution
incidental benefit requirements in Section
1.401(a)(9)-2 of the Proposed Income Tax Regulations.
Any changes in the designation will be considered to be
a revocation of the designation. However, the mere
substitution or addition of another Beneficiary (one
not name in the designation) under the designation will
not be considered to be a revocation of the
designation, so long as such substitution or addition
does not alter the period over which distributions are
to be made under the designation, directly or
indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is
transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
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<PAGE>
6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or
required by this Section 6) must be nontransferable. The terms of any
annuity contract purchased and distributed by the Plan to a
Participant or spouse shall comply with the requirements of the Plan.
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive a
loan from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a reasonably
equivalent basis.
B. Loans shall not be made available to Highly Compensated Employees
(as defined in Section 414(q) of the Code) in an amount greater
than the amount made available to other Employees.
C. Loans must be adequately secured and bear a reasonable interest
rate.
D. No Participant loan shall exceed the present value of the Vested
portion of a Participant's Individual Account.
E. A Participant must obtain the consent of his or her spouse, if
any, to the use of the Individual Account as security for the
loan. Spousal consent shall be obtained no earlier than the
beginning of the 90 day period that ends on the date on which the
loan is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a
plan representative or notary public. Such consent shall
thereafter be binding with respect to the consenting spouse or
any subsequent spouse with respect to that loan. A new consent
shall be required if the account balance is used for
renegotiation, extension, renewal, or other revision of the loan.
Notwithstanding the foregoing, no spousal consent is necessary
if, at the time the loan is secured, no consent would be required
for a distribution under Section 417(a)(2)(B). In addition,
spousal consent is not required if the Plan or the Participant is
not subject to Section 401(a)(11) at the time the Individual
Account is used as security, or if the total Individual Account
subject to the security is less than or equal to $3,500.
F. In the event of default, foreclosure on the note and attachment
of security will not occur until a distributable event occurs in
the Plan. Notwithstanding the preceding sentence, a Participant's
default on a loan will be treated as a distributable event and as
soon as administratively feasible after the default, the
Participant's Vested Individual Account will be reduced by the
lesser of the amount in default (plus accrued interest) or the
amount secured. If this Plan is a 401(k) plan, then to the extent
the loan is attributable to a Participant's Elective Deferrals,
Qualified Nonelective Contributions or Qualified Matching
Contributions, the Participant's Individual Account will not be
reduced unless the Participant has attained age 59 1/2 or has
another distributable event. A Participant will be deemed to have
consented to the provision at the time the loan is made to the
Participant.
G. No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a
shareholder-employee means an employee or officer of an electing
small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Section 318(a)(1) of
the Code), on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the
corporation.
If a valid spousal consent has been obtained in accordance with
6.08(E), then, notwithstanding any other provisions of this Plan,
the portion of the Participant's Vested Individual Account used
as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for
purposes of determining the amount of the account balance payable
at the time of death or distribution, but only if the reduction
is used as repayment of the loan. If les than 100% of the
Participant's Vested Individual Account (determined without
regard to the preceding sentence) is payable to the surviving
spouse, then the account balance shall be adjusted by first
reducing the Vested Individual Account by the amount of the
security used as repayment of the loan, and then determining the
benefit payable to the surviving spouse.
To avoid taxation to the Participant, no loan to any Participant
can be made to the extent that such loan when added to the
outstanding balance of all other loans to the Participant would
exceed the lesser of (a) $50,000 reduced by the excess (if any)
of the highest outstanding balance of loans during the one year
period ending on the day before the loan is made, over the
outstanding balance of loans from the Plan on the date the loan
is made, or (b) 50% of the present value of the nonforfeitable
Individual Account of the Participant or, if greater, the total
Individual Account up to $10,000. For the purpose of the above
limitation, all loans from all plans of the Employer and other
members of a group of employers described in Sections 414(b),
414(c), and 414(m) of the Code are aggregated. Furthermore, any
loan shall by its terms require that repayment (principal and
interest) be amortized in level payments, not less frequently
than quarterly, over a period not extending beyond 5 years from
the date of the loan, unless such loan is used to acquire a
dwelling unit which within a reasonable time (determined at the
time the loan is made) will be used as the principal residence of
the Participant. An assignment or pledge of any portion of the
Participant's interest in the Plan and a loan, pledge, or
assignment with respect to any insurance contract purchased under
the Plan, will be treated as a loan under this paragraph.
The Plan Administrator shall administer the loan program in
accordance with a written document. Such written document shall
include, at a minimum, the following: (i) the identity of the
person or positions authorized to administer the Participant loan
program; (ii) the procedure for applying for loans; (iii) the
basis on which loans will be approved
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or denied; (iv) limitations (if any) on the types and amounts of
loans offered; (v) the procedure under the program for
determining a reasonable rate of interest; (vi) the types of
collateral which may secure a Participant loan; and (vii) the
events constituting default and the steps that will be taken to
preserve Plan assets in the event of such default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan
to be made either in a form actually held in the Fund, or in cash
by converting assets other than cash into cash, or in any
combination of the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. Direct Rollover Option This Section applies to distributions made
on or after January 1, 1993. Notwithstanding any provision of the
Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the time
and in the manner prescribed by the Plan Administrator, to have
any portion of an eligible rollover distribution that is equal to
at least $500 paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
B. Definitions
1. Eligible rollover distribution - An eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that an
eligible rollover distribution does not include:
a. any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the
distributee's designated Beneficiary, or for a
specified period of ten years or more;
b. any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code;
c. the portion of any other distribution that is not
includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with
respect to employer securities); and
d. any other distribution(s) that is reasonably expected
to total less than $200 during a year.
2. Eligible retirement plan - An eligible retirement plan is an
individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the survivin spouse, an eligible retirement plan
is an individual retirement account or individual retirement
annuity.
3. Distributee - A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
4. Direct rollover - A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee.
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENEFICIARIES
The Plan Administrator must use all reasonable measures to locate
Participants or Beneficiaries who are entitled to distributions from
the Plan. In the event that the Plan Administrator cannot locate a
Participant or Beneficiary who is entitled to a distribution from the
Plan after using all reasonable measures to locate him or her, the
Plan Administrator may, consistent with applicable laws, regulations
and other pronouncements under ERISA, use any reasonable procedure to
dispose o distributable plan assets, including any of the following:
(1) establish a bank account for and in the name of the Participant or
Beneficiary and transfer the assets to such bank account, (2) purchase
an annuity contract with the assets in the name of the Participant or
Beneficiary, or (3) after the expiration of 5 years after the benefit
becomes payable, treat the amount distributable as a Forfeiture and
allocate it in accordance with the terms of the Plan and if the
Participant or Beneficiary is later located, restore such benefit to
the Plan.
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary who desires to make a claim for the
Vested portion of the Participant's Individual Account shall file a
written request with the Plan Administrator on a form to be furnished
to him or her by the Plan Administrator for such purpose. The request
shall set forth the basis of the claim. The Plan Administrator is
authorized to conduct such
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examinations as may be necessary to facilitate the payment of any
benefits to which the Participant or Beneficiary may b entitled under
the terms of the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan
Administrator must furnish such Participant or Beneficiary written
notice of the denial within 60 days of the date the original claim was
filed. This notice shall set forth the specific reasons for the
denial, specific reference to pertinent Plan provisions on which the
denial is based, a description of any additional information or
material needed to perfect the claim, an explanation of why such
additional information or material is necessary and an explanation of
the procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of the
denial notice in which to make written application for review by the
Plan Administrator. The Participant or Beneficiary may request that
the review be in the nature of a hearing. The Participant or
Beneficiary shall have the right to representation, to review
pertinent documents and to submit comments in writing. The Plan
Administrator shall issue a decision on such review within 60 days
after receipt of an application for review as provided for in Section
7.02. Upon a decision unfavorable to the Participant or Beneficiary,
such Participant or Beneficiary shall be entitled to bring such
actions in law or equity as may be necessary or appropriate to protect
or clarify his or her right to benefits under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the managing
body of the Employer designates a person or persons other than
the Employer as the Plan Administrator and so notifies the
Trustee (or Custodian, if applicable). The Employer shall also be
the Plan Administrator if the person or persons so designated
cease to be the Plan Administrator. The Employer may establish an
administrative committee that will carry out the Plan
Administrator's duties Members of the administrative committee
may allocate the Plan Administrator's duties among themselves.
B. If the managing body of the Employer designates a person or
persons other than the Employer as Plan Administrator, such
person or persons shall serve at the pleasure of the Employer and
shall serve pursuant to such procedures as such managing body may
provide. Each such person shall be bonded as may be required by
law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the duties
of the Plan Administrator among several individuals or entities.
Such appointments shall not be effective until the party
designated accepts such appointment in writing.
B. The Plan Administrator shall have the authority to control and
manage the operation and administration of the Plan. The Plan
Administrator shall administer the Plan for the exclusive benefit
of the Participants and their Beneficiaries in accordance with
the specific terms of the Plan.
C. The Plan Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited
to, the following:
1. To determine all questions of interpretation or policy in a
manner consistent with the Plan's documents and the Plan
Administrator's construction or determination in good faith
shall be conclusive and binding on all persons except as
otherwise provided herein or by law. Any interpretation or
construction shall be done in a nondiscriminatory manner and
shall be consistent with the intent that the Plan shall
continue to be deemed a qualified plan under the terms of
Section 401(a) of the Code, as amended from time-to-time,
and shall comply with the terms of ERISA, as amended from
time-to-time;
2. To determine all questions relating to the eligibility of
Employees to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be
contributed to the Plan;
4. To compute the amount and kind of benefits to which a
Participant or Beneficiary shall be entitled under the Plan
and to direct the Trustee (or Custodian, if applicable) with
respect to all disbursements under the Plan, and, when
requested by the Trustee (or Custodian), to furnish the
Trustee (or Custodian) with instructions, in writing, on
matters pertaining to the Plan and the Trustee (or
Custodian) may rely and act thereon;
5. To maintain all records necessary for the administration of
the Plan;
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6. To be responsible for preparing and filing such disclosure
and tax forms as may be required from time-to-time by the
Secretary of Labor or the Secretary of the Treasury; and
7. To furnish each Employee, Participant or Beneficiary such
notices, information and reports under such circumstances as
may be required by law.
D. The Plan Administrator shall have all of the powers necessary or
appropriate to accomplish his or her duties under the Plan,
including, but not limited to, the following:
1. To appoint and retain such persons as may be necessary to
carry out the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other persons
as the Plan Administrator deems necessary or advisable in
the administration of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules which
it deems necessary to carry out the terms of the Plan;
5. To make any adjustments in a uniform and nondiscriminatory
manner which it deems necessary to correct any arithmetical
or accounting errors which may have been made for any Plan
Year; and
6. To correct any defect, supply any omission or reconcile any
inconsistency in such manner and to such extent as shall be
deemed necessary or advisable to carry out the purpose of
the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not limited
to, those involved in retaining necessary professional assistance may
be paid from the assets of the Fund. Alternatively, the Employer may,
in its discretion, pay any or all such expenses. Pursuant to uniform
and nondiscriminatory rules that the Plan Administrator may establish
from time-to-time, administrative expenses and expenses unique to a
particular Participant may be charged to a Participant's Individual
Account or the Plan Administrator may allow Participants to pay such
fees outside of the Plan. The Employer shall furnish the Plan
Administrator with such clerical and other assistance as the Plan
Administrator may need in the performance of his or her duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his or her duties, the
Employer shall supply full and timely information to the Plan
Administrator (or his or her designated agents) on all matters
relating to the Compensation of all Participants, their regular
employment, retirement, death, Disability or Termination of
Employment, and such other pertinent facts as the Plan Administrator
(or his or her agents) may require. The Plan Administrator shall
advise the Trustee (or Custodian, if applicable) of such of the
foregoing facts as may be pertinent to the Trustee's (or Custodian's)
duties under the Plan. The Plan Administrator (or his or her agents)
is entitled to rely on such information as is supplied by the Employer
and shall have no duty or responsibility to verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but not the duty, to amend the Plan
without any further action or consent of the Employer as the
Prototype Sponsor deems necessary for the purpose of adjusting
the Plan to comply with all laws and regulations governing
pension or profit sharing plans. Specifically, it is understood
that the amendments may be made unilaterally by the Prototype
Sponsor. However, it shall be understood that the Prototype
Sponsor shall be under no obligation to amend the Plan documents
and the Employer expressly waives any rights or claims against
the Prototype Sponsor for not exercising this power to amend. For
purposes of Prototype Sponsor amendments, the mass submitter
shall be recognized as the agent of the Prototype Sponsor. If the
Prototype Sponsor does not adopt the amendments made by the mass
submitter, it will no longer be identical to or a mino modifier
of the mass submitter plan.
B. An amendment by the Prototype Sponsor shall be accomplished by
giving written notice to the Employer of the amendment to be
made. The notice shall set forth the text of such amendment and
the date such amendment is to be effective. Such amendment shall
take effect unless within the 30 day period after such notice is
provided, or within such shorter period as the notice may
specify, the Employer gives the Prototype Sponsor written notice
of refusal to consent to the amendment. Such written notice of
refusal shall have the effect of withdrawing the Plan as a
prototype plan and shall cause the Plan to be considered an
individually designed plan. The right of the Prototype Sponsor to
cause the Plan to be amended shall terminate should the Plan
cease to conform as a prototype plan as provided in this or any
other section.
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9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may (1) change the choice of options in the Adoption
Agreement; (2) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Section 415 or Section 416 of
the Code because of the required aggregation of multiple plans; and
(3) add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause
the Plan to be treated as individually designed. An Employer that
amends the Plan for any other reason, including a waiver of the
minimum funding requirement under Section 412(d) of the Code, will no
longer participate in this prototype plan and will be considered to
have an individually designed plan.
An Employer who wishes to amend the Plan to change the options it has
chosen in the Adoption Agreement must complete and deliver a new
Adoption Agreement to the Prototype Sponsor and Trustee (or Custodian,
if applicable). Such amendment shall become effective upon execution
by the Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in its
entirety by adopting another retirement plan which the Employer
designates as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's Individual
Account may be reduced to the extent permitted under Section 412(c)(8)
of the Code. For purposes of this paragraph, a plan amendment which
has the effect of decreasing a Participant's Individual Account or
eliminating an optional form of benefit with respect to benefits
attributable to service before the amendment shall be treated as
reducing an accrued benefit. Furthermore, if the vesting schedule of a
Plan is amended, in the case of an Employee who is a Participant as of
the later of the date such amendment is adopted or the date it becomes
effective, the Vested percentage (determined as of such date) of such
Employee's Individual Account derived from Employer Contributions will
not be less than the percentage computed under the Plan without regard
to such amendment.
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the
Participant's Vested percentage, or if the Plan is deemed amended by
an automatic change to or from a top-heavy vesting schedule, each
Participant with at least 3 Years of Vesting Service with the Employer
may elect, within the time set forth below, to have the Vested
percentage computed under the Plan without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in any
Plan Year beginning after December 31, 1988, the preceding sentence
shall be applied by substituting "5 Years of Vesting Service" for "3
Years of Vesting Service" where such language appears. The Period
during which the election may be made shall commence with the date the
amendment is adopted or deemed to be made and shall end the later of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and payment
is not assumed as a contractual obligation. Neither the Adoption
Agreement nor the Plan nor any amendment or modification thereof nor
the making of contributions hereunder shall be construed as giving any
Participant or any person whomsoever any legal or equitable right
against the Employer, the Trustee (or Custodian, if applicable) the
Plan Administrator or the Prototype Sponsor except as specifically
provided herein, or as provided by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by appropriate
action of its managing body. Such termination shall be effective on
the date specified by the Employer. The Plan shall terminate if the
Employer shall be dissolved, terminated, or declared bankrupt. Written
notice of the termination and effective date thereof shall be given to
the Trustee (or Custodian), Plan Administrator, Prototype Sponsor,
Participants and Beneficiaries of deceased Participants, and the
required filings (such as the Form 5500 series and others) must be
made with the Internal Revenue Service and any other regulatory body
as required by current laws and regulations. Until all of the assets
have been distributed from the Fund, the Employer must keep the Plan
in compliance with current laws and regulations by (a) making
appropriate amendments to the Plan and (b) taking such other measures
as may be required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the
Employer may continue the Plan and be substituted in the place of the
present Employer. The successor and the present Employer (or, if
deceased, the executor of the estate
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of a deceased Self-Employed Individual who was the Employer) must
execute a written instrument authorizing such substitution and the
successor must complete and sign a new plan document.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to retain its qualified status, the Plan will no
longer be considered to be part of a prototype plan, and such Employer
can no longer participate under this prototype. In such event, the
Plan will be considered an individually designed plan.
SECTION TEN MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable without
regard to the community property laws of any state.
10.02 HEADINGS
The headings of the Plan have been inserted for convenience of
reference only and are to be ignored in any construction of the
provisions hereof.
10.03 GENDER AND NUMBER
Whenever any words are used herein in the masculine gender they shall
be construed as though they were also used in the feminine gender in
all cases where they would so apply, and whenever any words are used
herein in the singular form they shall be construed as though they
were also used in the plural form in all cases where they would so
apply.
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with, or
transfer of assets or liabilities of such Plan to, any other plan,
each Participant shall be entitled to receive benefits immediately
after the merger, consolidation, or transfer (if the Plan had then
terminated) which are equal to or greater than the benefits he or she
would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated). The
Trustee (or Custodian) has the authority to enter into merger
agreements or agreements to directly transfer the assets of this Plan
but only if such agreements are made with trustees or custodians of
other retirement plans described in Section 401(a) of the Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any other fiduciary
under this Plan shall discharge their duties with respect to this Plan
solely in the interests of Participants and their Beneficiaries and
with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent man acting in like capacity and
familiar with such matters would use in the conduct of an enterprise
of a like character and with like aims. No fiduciary shall cause the
Plan to engage in any transaction known as a "prohibited transaction"
under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest
whatsoever hereunder agree to perform any and all acts and execute any
and all documents and papers which may be necessary or desirable for
the carrying out of this Plan and any of its provisions.
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns, as those terms shall apply to any and all
parties hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983, this Plan is
a Top-Heavy Plan if any of the following conditions exist:
1. If the top-heavy ratio for this Plan exceeds 60% and this
Plan is not part of any required aggregation group or
permissive aggregation group of plans.
2. If this Plan is part of a required aggregation group of
plans but not part of a permissive aggregation group and the
top-heavy ratio for the group of plans exceeds 60%.
3. If this Plan is a part of a required aggregation group and
part of a permissive aggregation group of plans and the
top-heavy ratio for the permissive aggregation group exceeds
60%.
For purposes of this Section 10.08, the following terms shall
have the meanings indicated below:
B. Key Employee - Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such
individual's annual compensation exceeds 50% of the dollar
limitation under
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Section 415(b)(1)(A) of the Code, an owner (or considered an
owner under Section 318 of the Code) of one of the 10 largest
interests in the Employer if such individual's compensation
exceeds 100% of the dollar limitation under Section 415(c)(1)(A)
of the Code, a 5% owner of the Employer, or a 1% owner of the
Employer who has an annual compensation of more than $150,000.
Annual compensation means compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by the
Employer pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Section 125,
Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of th
Code. The determination period is the Plan Year containing the
determination date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the regulations
thereunder.
C. Top-heavy ratio
1. If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and
the Employer has not maintained any defined benefit plan
which during the 5-year period ending on the determination
date(s) has or has had accrued benefits, the top-heavy ratio
for this Plan alone or for the required or permissive
aggregation group as appropriate is a fraction, the
numerator of which is the sum of the account balances of all
Key Employees as of the determination date(s) (including any
part of any account balance distributed in the 5-year period
ending on the determination date(s)), and the denominator of
which is the sum of all account balances (including any part
of any account balance distributed in the 5-year period
ending on the determination date(s)), both computed in
accordance with Section 416 of the Code and the regulations
thereunder. Both the numerator and the denominator of the
top-heavy ratio are increased to reflect any contribution
not actually made as of the determination date, but which is
required to be taken into account on that date under Section
416 of the Code and the regulations thereunder.
2. If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and
the Employer maintains or has maintained one or more defined
benefit plans which during the 5-year period ending on the
determination date(s) has or has had any accrued benefits,
the top-heavy ratio for any required or permissive
aggregation group as appropriate is a fraction, the
numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all Key
Employees, determined in accordance with (1) above, and the
present value of accrued benefits under the aggregated
defined benefit plan or plans for all Key Employees as of
the determination date(s), and the denominator of which is
the sum of the account balances under the aggregated defined
contribution plan or plans for all Participants, determined
in accordance with (1) above, and the present value of
accrued benefits under the defined benefit plan or plans for
all Participants as of the determination date(s), all
determined in accordance with Section 416 of the Code and
the regulations thereunder. The accrued benefits under a
defined benefit plan in both the numerator and denominator
of the top-heavy ratio are increased for any distribution of
an accrued benefit made in the 5-year period ending on the
determination date.
3. For purposes of (1) and (2) above, the value of account
balances and the present value of accrued benefits will be
determined as of the most recent valuation date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
plan years of a defined benefit plan. The account balances
and accrued benefits of a Participant (a) who is not a Key
Employee but who was a Key Employee in a Prior Year, or (b)
who has not been credited with at least one Hour of Service
with any employer maintaining the plan at any time during
the 5-year period ending on the determination date will be
disregarded. The calculation of the top-heavy ratio, and the
extent to which distributions, rollovers, and transfers are
taken into account will be made in accordance with Section
416 of the Code and the regulations thereunder. Deductible
employee contributions will not be taken into account for
purposes of computing the top-heavy ratio. When aggregating
plans the value of account balances and accrued benefits
will be calculated with reference to the determination dates
that fall within the same calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (a) the method, if any,
that uniformly applies for accrual purposes under all
defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation group
of plans plus any other plan or plans of the Employer which,
when considered as a group with the required aggregation
group, would continue to satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.
5. Required aggregation group: (a) Each qualified plan of the
Employer in which at least one Key Employee participates or
participated at any time during the determination period
(regardless of whether the Plan has terminated), and (b) any
other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Sections
401(a)(4) or 410 of the Code.
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6. Determination date: For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year.
For the first Plan Year of the Plan, the last day of that
year.
7. Valuation date: For purposes of calculating the top-heavy
ratio, the valuation date shall be the last day of each Plan
Year.
8. Present value: For purposes of establishing the "present
value" of benefits under a defined benefit plan to compute
the top-heavy ratio, any benefit shall be discounted only
for mortality and interest based on the interest rate and
mortality table specified for this purpose in the defined
benefit plan, unless otherwise indicated in the Adoption
Agreement.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and
the plan established for other trades or businesses must, when looked
at as a single plan, satisfy Sections 401(a) and (d) of the Code for
the employees of those trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses,
the employees of the other trades or businesses must be included in a
plan which satisfies Sections 401(a) and (d) of the Code and which
provides contributions and benefits not less favorable than provided
for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trade or business
which is controlled must be as favorable as those provided for him or
her under the most favorable plan of the trade or business which is
not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or
business if the Owner-Employee, or two or more Owner-Employees,
together:
A. own the entire interest in a unincorporated trade or business, or
B. in the case of a partnership, own more than 50% of either the
capital interest or the profit interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees, shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to
assignment or alienation, either voluntarily or involuntarily. The
preceding sentence shall also apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order
is determined to be a qualified domestic relations order, as defined
in Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified domestic
relations order until January 1, 1985. However, in the case of a
domestic relations order entered before such date, the Plan
Administrator:
(1) shall treat such order as a qualified domestic relations order if
such Plan Administrator is paying benefits pursuant to such order
on such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does not
meet the requirements of Section 414(p) of the Code.
Notwithstanding any provision of the Plan to the contrary, a
distribution to an alternate payee under a qualified domestic
relations order shall be permitted even if the Participant
affected by such order is not otherwise entitled to a
distribution and even if such Participant has not attained
earliest retirement age as defined in Section 414(p) of the Code.
10.11 CANNOT ELIMINATE PROTECTED BENEFITS
Pursuant to Section 411(d)(6) of the Code, and the regulations
thereunder, the Employer cannot reduce, eliminate or make subject to
Employer discretion any Section 411(d)(6) protected benefit. Where
this Plan document is being adopted to amend another plan that
contains a protected benefit not provided for in this document, the
Employer may attach a supplement to the Adoption Agreement that
describes such protected benefit which shall become part of the Plan.
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SECTION ELEVEN 401(k) PROVISIONS
In addition to Sections 1 through 10, the provisions of this Section
11 shall apply if the Employer has established a 401(k) cash or
deferred arrangement (CODA) by completing and signing the appropriate
Adoption Agreement.
11.100 DEFINITIONS
The following words and phrases when used in the Plan with initial
capital letters shall, for the purposes of this Plan, have the
meanings set forth below unless the context indicates that other
meanings are intended.
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP)
Means, for a specified group of Participants for a Plan Year, the
average of the ratios (calculated separately for each Participant in
such group) of (1) the amount of Employer Contributions actually paid
over to the Fund on behalf of such Participant for the Plan Year to
(2) the Participant's Compensation for such Plan Year (taking into
account only that Compensation paid to the Employee during the portion
of the Plan Year he or she was an eligible Participant, unless
otherwise indicated in the Adoption Agreement). For purposes of
calculating the ADP, Employer Contributions on behalf of any
Participant shall include: (1) any Elective Deferrals made pursuant to
the Participant's deferral election, (including Excess Elective
Deferrals of Highly Compensated Employees), but excluding (a) Excess
Elective Deferrals of Non-highly Compensated Employees that arise
solely from Elective Deferrals made under the Plan or plans of this
Employer and (b) Elective Deferral that are taken into account in the
Contribution Percentage test (provided the ADP test is satisfied both
with and without exclusion of these Elective Deferrals); and (2) at
the election of the Employer, Qualified Nonelective Contributions and
Qualified Matching Contributions. For purposes of computing Actual
Deferral Percentages, an Employee who would be a Participant but for
the failure to make Elective Deferrals shall be treated as a
Participant on whose behalf no Elective Deferrals are made.
11.102 AGGREGATE LIMIT
Means the sum of (1) 125% of the greater of the ADP of the
Participants who are not Highly Compensated Employees for the Plan
Year or the ACP of the Participants who are not Highly Compensated
Employees under the Plan subject to Code Section 401(m) for the Plan
Year beginning with or within the Plan Year of the CODA; and (2) the
lesser of 200% or two plus the lesser of such ADP or ACP. "Lesser" is
substituted for "greater" in "(1)" above, and "greater" is substituted
for "lesser" after "two plus the" in "(2)" if it would result in a
larger Aggregate Limit.
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP)
Means the average of the Contribution Percentages of the Eligible
Participants in a group.
11.104 CONTRIBUTING PARTICIPANT
Means a Participant who has enrolled as a Contributing Participant
pursuant to Section 11.201 and on whose behalf the Employer is
contributing Elective Deferrals to the Plan (or is making
Nondeductible Employee Contributions).
11.105 CONTRIBUTION PERCENTAGE
Means the ratio (expressed as a percentage) of the Participant's
Contribution Percentage Amounts to the Participant's Compensation for
the Plan Year (taking into account only the Compensation paid to the
Employee during the portion of the Plan Year he or she was an eligible
Participant, unless otherwise indicated in the Adoption Agreement).
11.106 CONTRIBUTION PERCENTAGE AMOUNTS
Means the sum of the Nondeductible Employee Contributions, Matching
Contributions, and Qualified Matching Contributions made under the
Plan on behalf of the Participant for the Plan Year. Such Contribution
Percentage Amounts shall not include Matching Contributions that are
forfeited either to correct Excess Aggregate Contributions or because
the contributions to which they relate are Excess Deferrals, Excess
Contributions, Excess Aggregate Contributions or excess annual
additions which are distributed pursuant to Section 11.508. If so
elected in the Adoption Agreement, the Employer may include Qualified
Nonelective Contributions in the Contribution Percentage Amount. The
Employer also may elect to use Elective Deferrals in the Contribution
Percentage Amounts so long as the ADP test is met before the Elective
Deferrals are used in the ACP test and continues to be met following
the exclusion of those Elective Deferrals that are used to meet the
ACP test.
11.107 ELECTIVE DEFERRALS
Means any Employer Contributions made to the Plan at the election of
the Participant, in lieu of cash compensation, and shall include
contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a Participant's
Elective Deferral is the sum of all Employer contributions made on
behalf of such Participant pursuant to an election to defer under any
qualified CODA as described in Section 401(k) of the Code, any
simplified employee pension cash or deferred arrangement as described
in Section 402(h)(1)(B), any eligible deferred compensation plan under
Section 457, any plan as described under Section 501(c)(18), and any
Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any
deferrals properly distributed as excess annual additions.
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No Participant shall be permitted to have Elective Deferrals made
under this Plan, or any other qualified plan maintained by the
Employer, during any taxable year, in excess of the dollar limitation
contained in Section 402(g) of the Code in effect at the beginning of
such taxable year.
Elective Deferrals may not be taken into account for purposes of
satisfying the minimum allocation requirement applicable to Top-Heavy
Plans described in Section 3.01(E).
11.108 ELIGIBLE PARTICIPANT
Means any Employee who is eligible to make a Nondeductible Employee
Contribution or an Elective Deferral (if the Employer takes such
contributions into account in the calculation of the Contribution
Percentage), or to receive a Matching Contribution (including
Forfeitures thereof) or a Qualified Matching Contribution.
If a Nondeductible Employee Contribution is required as a condition of
participation in the Plan, any Employee who would be a Participant in
the Plan if such Employee made such a contribution shall be treated as
an Eligible Participant on behalf of whom no Nondeductible Employee
Contributions are made.
11.109 EXCESS AGGREGATE CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate Contribution Percentage Amounts taken into account
in computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees for such
Plan Year, over
B. The maximum Contribution Percentage Amounts permitted by the ACP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess
Elective Deferrals pursuant to Section 11.111 and then determining
Excess Contributions pursuant to Section 11.110.
11.110 EXCESS CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate amount of Employer Contributions actually taken
into account in computing the ADP of Highly Compensated Employees
for such Plan Year, over
B. The maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning with
the highest of such percentages).
11.111 EXCESS ELECTIVE DEFERRALS
Means those Elective Deferrals that are includible in a Participant's
gross income under Section 402(g) of the Code to the extent such
Participant's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code section. Excess Elective Deferrals shall be
treated as annual additions under the Plan, unless such amounts are
distributed no later than the first April 15 following the close of
the Participant's taxable year.
11.112 MATCHING CONTRIBUTION
Means an Employer Contribution made to this or any other defined
contribution plan on behalf of a Participant on account of an Elective
Deferral or a Nondeductible Employee Contribution made by such
Participant under a plan maintained by the Employer.
Matching Contributions may not be taken into account for purposes of
satisfying the minimum allocation requirement applicable to Top-Heavy
Plans described in Section 3.01(E).
11.113 QUALIFIED NONELECTIVE CONTRIBUTIONS
Means contributions (other than Matching Contributions or Qualified
Matching Contributions) made by the Employer and allocated to
Participants' Individual Accounts that the Participants may not elect
to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in
accordance with the distribution provisions that are applicable to
Elective Deferrals and Qualified Matching Contributions.
Qualified Nonelective Contribution may be taken into account for
purposes of satisfying the minimum allocation requirement applicable
to Top-Heavy Plans described in Section 3.01(E).
11.114 QUALIFIED MATCHING CONTRIBUTIONS
Means Matching Contributions which are subject to the distribution and
nonforfeitability requirements under Section 401(k) of the Code when
made.
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11.115 QUALIFYING CONTRIBUTING PARTICIPANT
Means a Contributing Participant who satisfies the requirements
described in Section 11.302 to be entitled to receive a Matching
Contribution (and Forfeitures, if applicable) for a Plan Year.
11.200 CONTRIBUTING PARTICIPANT
11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Each Employee who satisfies the eligibility requirements
specified in the Adoption Agreement may enroll as a Contributing
Participant as of any subsequent Entry Date (or earlier if
required by Section 2.03) specified in the Adoption Agreement for
this purpose. A Participant who wishes to enroll as a
Contributing Participant must complete, sign and file a salary
reduction agreement (or agreement to make Nondeductible Employee
Contributions) with the Plan Administrator.
B. Notwithstanding the times set forth in Section 11.201(A) as of
which a Participant may enroll as a Contributing Participant, the
Plan Administrator shall have the authority to designate, in a
nondiscriminatory manner, additional enrollment times during the
12 month period beginning on the Effective Date (or the date that
Elective Deferrals may commence, if later) in order that an
orderly first enrollment might be completed. In addition, if the
Employer has indicated in the Adoption Agreement that Elective
Deferrals may be based on bonuses, then Participants shall be
afforded a reasonable period of time prior to the issuance of
such bonuses to elect to defer them into the Plan.
11.202 CHANGING ELECTIVE DEFERRAL AMOUNTS
A Contributing Participant may modify his or her salary reduction
agreement (or agreement to make Nondeductible Employee Contributions)
to increase or decrease (within the limits placed on Elective
Deferrals (or Nondeductible Employee Contributions) in the Adoption
Agreement) the amount of his or her Compensation deferred into the
Plan. Such modification may only be made as of the dates specified in
the Adoption Agreement for this purpose, or as of any other more
frequent date(s) if the Plan Administrator permits in a uniform and
nondiscriminatory manner. A Contributing Participant who desires to
make such a modification shall complete, sign and file a new salary
reduction agreement (or agreement to make Nondeductible Employee
Contribution) with the Plan Administrator. The Plan Administrator may
prescribe such uniform and nondiscriminatory rules it deems
appropriate to carry out the terms of this Section.
11.203 CEASING ELECTIVE DEFERRALS
A Participant may cease Elective Deferrals (or Nondeductible Employee
Contributions) and thus withdraw as a Contributing Participant as of
the dates specified in the Adoption Agreement for this purpose (or as
of any other date if the Plan Administrator so permits in a uniform
and nondiscriminatory manner) by revoking the authorization to the
Employer to make Elective Deferrals (or Nondeductible Employee
Contributions) on his or her behalf. A Participant who desires to
withdraw as a Contributing Participant shall give written notice of
withdrawal to the Plan Administrator at least thirty days (or such
lesser period of days as the Plan Administrator shall permit in a
uniform and nondiscriminatory manner) before the effective date of
withdrawal. A Participant shall cease to be a Contributing Participant
upon his or her Termination of Employment, or an account of
termination of the Plan.
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE DEFERRALS
A Participant who has withdrawn as a Contributing Participant under
Section 11.203 (or because the Participant has taken a hardship
withdrawal pursuant to Section 11.503) may not again become a
Contributing Participant until the dates set forth in the Adoption
Agreement for this purpose, unless the Plan Administrator, in a
uniform and nondiscriminatory manner, permits withdrawing Participants
to resume their status as Contributing Participants sooner.
11.205 CERTAIN ONE-TIME IRREVOCABLE ELECTIONS
This Section 11.205 applies where the Employer has indicated in the
Adoption Agreement that an Employee may make a one-time irrevocable
election to have the Employer make contributions to the Plan on such
Employee's behalf. In such event, an Employee may elect, upon the
Employee's first becoming eligible to participate in the Plan, to have
contributions equal to a specified amount or percentage of the
Employee's Compensation (including no amount of Compensation) made by
the Employer on the Employee's behalf to the Plan (and to any other
plan of the Employer) for the duration of the Employee's employment
with the Employer. Any contributions made pursuant to a one-time
irrevocable election described in this Section are not treated as made
pursuant to a cash or deferred election, are not Elective Deferrals
and are not includible in an Employee's gross income.
The Plan Administrator shall establish such uniform and
nondiscriminatory procedures as it deems necessary or advisable to
administer this provision.
11.300 CONTRIBUTIONS
11.301 CONTRIBUTIONS BY EMPLOYER
The Employer shall make contributions to the Plan in accordance with
the contribution formulas specified in the Adoption Agreement.
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11.302 MATCHING CONTRIBUTIONS
The Employer may elect to make Matching Contributions under the Plan
on behalf of Qualifying Contributing Participants as provided in the
Adoption Agreement. To be a Qualifying Contributing Participant for a
Plan Year, the Participant must make Elective Deferrals (or
Nondeductible Employee Contributions, if the Employer has agreed to
match such contributions) for the Plan Year, satisfy any age and Years
of Eligibility Service requirements that are specified for Matching
Contribution in the Adoption Agreement and also satisfy any additional
conditions set forth in the Adoption Agreement for this purpose. In a
uniform and nondiscriminatory manner, the Employer may make Matching
Contributions at the same time as it contributes Elective Deferrals or
at any other time as permitted by laws and regulations.
11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may elect to make Qualified Nonelective Contributions
under the Plan on behalf of Participants as provided in the Adoption
Agreement.
In addition, in lieu of distributing Excess Contributions as provided
in Section 11.505 of the Plan, or Excess Aggregate Contributions as
provided in Section 11.506 of the Plan, and to the extent elected by
the Employer in the Adoption Agreement, the Employer may make
Qualified Nonelective Contributions on behalf of Participants who are
not Highly Compensated Employees that are sufficient to satisfy either
the Actual Deferral Percentage test or the Average Contribution
Percentage test, or both, pursuant to regulations under the Code.
11.304 QUALIFIED MATCHING CONTRIBUTIONS
The Employer may elect to make Qualified Matching Contributions under
the Plan on behalf of Participants as provided in the Adoption
Agreement.
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Notwithstanding Section 3.02, if the Employer so allows in the
Adoption Agreement, a Participant may contribute Nondeductible
Employee Contributions to the Plan.
If the Employer has indicated in the Adoption Agreement that
Nondeductible Employee Contributions will be mandatory, then the
Employer shall establish uniform and nondiscriminatory rules and
procedures for Nondeductible Employee Contributions as it deems
necessary and advisable including, but not limited to, rules
describing in amounts or percentages of Compensation Participants may
or must contribute to the Plan.
A separate account will be maintained by the Plan Administrator for
the Nondeductible Employee Contributions for each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his or her
Individual Account attributable to his or her Nondeductible Employee
Contributions or the amount he or she contributed as Nondeductible
Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be
nonforfeitable at all times. No Forfeiture will occur solely as a
result of an Employee's withdrawal of Nondeductible Employee
Contributions.
11.400 NONDISCRIMINATION TESTING
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP)
A. Limits on Highly Compensated Employees - The Actual Deferral
Percentage (hereinafter "ADP") for Participants who are Highly
Compensated Employees for each Plan Year and the ADP for
Participants who are not Highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
1. The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
2. The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 2.0 provided that the ADP
for Participants who are Highly Compensated Employees does
not exceed the ADP for Participants who are not Highly
Compensated Employees by more than 2 percentage points.
B. Special Rules
1. The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have
Elective Deferrals (and Qualified Nonelective Contributions
or Qualified Matching Contributions, or both, if treated as
Elective Deferrals for purposes of the ADP test) allocated
to his or her Individual Accounts under two or more
arrangements described in Section 401(k) of the Code, that
are maintained by the Employer, shall be determined as if
suc Elective Deferrals (and, if applicable, such Qualified
Nonelective
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Contributions or Qualified Matching Contributions, or both)
were made under a single arrangement. If a Highly
Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all
cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be
treated as separate if mandatorily disaggregated under
regulations under Section 401(k) of the Code.
2. In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such sections of the
Code only if aggregated with this Plan, then this Section
11.401 shall be applied by determining the ADP of Employees
as if all such plans were a single plan. For Plan Years
beginning after December 31, 1989, plans may be aggregated
in order to satisfy Section 401(k) of the Code only if they
have the same Plan Year.
3. For purposes of determining the ADP of a Participant who is
a 5% owner or one of the 10 most highly paid Highly
Compensated Employees, the Elective Deferrals (and Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for
purposes of the ADP test) and Compensation of such
Participant shall include the Elective Deferrals (and, if
applicable, Qualified Nonelective Contributions and
Qualified Matching Contributions, or both) and Compensation
for the Plan Year of family members (as defined in Section
414(q)(6) of the Code). Family members, with respect to such
Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for
Participants who are not Highly Compensated Employees and
for Participants who are Highly Compensated Employees.
4. For purposes of determining the ADP test, Elective
Deferrals, Qualified Nonelective Contributions and Qualified
Matching Contributions must be made before the last day of
the 12 month period immediately following the Plan Year to
which contributions relate.
5. The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, used in such test.
6. The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
7. If the Employer elects to take Qualified Matching
Contributions into account as Elective Deferrals for
purposes of the ADP test, then (subject to such other
requirements as may be prescribed by the Secretary of the
Treasury) unless otherwise indicated in the Adoption
Agreement, only the amount of such Qualified Matching
Contributions that are needed to meet the ADP test shall be
taken into account.
8. In the event that the Plan Administrator determines that it
is not likely that the ADP test will be satisfied for a
particular Plan Year unless certain steps are taken prior to
the end of such Plan Year, the Plan Administrator may
require Contributing Participants who are Highly Compensated
Employees to reduce their Elective Deferrals for such Plan
Year in order to satisfy that requirement. Said reduction
shall also be required by the Plan Administrator in the
event that the Plan Administrator anticipates that the
Employer will not be able to deduct all Employer
Contributions from its income for Federal income tax
purposes.
11.402 LIMITS ON NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS
A. Limits on Highly Compensated Employees - The Average Contribution
Percentage (hereinafter "ACP") for Participants who are Highly
Compensated Employees for each Plan Year and the ACP for
Participants who are not Highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
1. The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 1.25; or
2. The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for
Participants who are not Highly Compensated Employees for
the same Plan Year multiplied by 2, provided that the ACP
for the Participants who are Highly Compensated Employees
does not exceed the ACP for Participants who are not Highly
Compensated Employees by more than 2 percentage points.
B. Special Rules
1. Multiple Use - If one or more Highly Compensated Employees
participate in both a CODA and a plan subject to the ACP
test maintained by the Employer and the sum of the ADP and
ACP of those Highly Compensated Employees subject to either
or both tests exceeds the Aggregate Limit, then, as elected
in the Adoption Agreement, the ACP or the ADP of those
Highly Compensated Employees who also participate in a CODA
will be reduced (beginning with such Highly Compensated
Employee whose ACP (or ADP, if elected) is the
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highest) so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution
Percentage Amounts (or ADP, if elected) is reduced shall be
treated as an Excess Aggregate Contribution (or Excess
Contribution, if elected). The ADP and ACP of the Highly
Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. Multiple use does
not occur if th ADP and ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the ADP and ACP
of the Participants who are not Highly Compensated
Employees.
2. For purposes of this Section 11.402, the Contribution
Percentage for any Participant who is a Highly Compensated
Employee and who is eligible to have Contribution Percentage
Amounts allocated to his or her Individual Account under two
or more plans described in Section 401(a) of the Code, or
arrangements described in Section 401(k) of the Code that
are maintained by the Employer, shall be determined as if
the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements
that have different plan years, all cash or deferred
arrangements ending with or within the same calendar year
shall be treated as a single arrangement. Notwithstanding
the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under regulations under Section
401(m) of the Code.
3. In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Sections of the
Code only if aggregated with this Plan, then this Section
shall be applied by determining the Contribution Percentage
of Employees as if all such plans were a single plan. For
Plan Years beginning after December 31, 1989, plan may be
aggregated in order to satisfy Section 401(m) of the Code
only if they have the same Plan Year.
4. For purposes of determining the Contribution Percentage of a
Participant who is a 5% owner or one of the 10 most highly
paid Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participant
shall include the Contribution Percentage Amounts and
Compensation for the Plan Year of family members, (as
defined in Section 414(q)(6) of the Code). Family members,
with respect to Highly Compensated Employees, shall be
disregarded as separate Employees in determining the
Contribution Percentage both for Participants who are not
Highly Compensated Employees and for Participants who are
Highly Compensated Employees.
5. For purposes of determining the Contribution Percentage
test, Nondeductible Employee Contributions are considered to
have been made in the Plan Year in which contributed to the
Fund. Matching Contributions and Qualified Nonelective
Contributions will be considered made for a Plan Year if
made no later than the end of the 12 month period beginning
on the day after the close of the Plan Year.
6. The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, used in such test.
7. The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
8. If the Employer elects to take Qualified Nonelective
Contributions into account as Contribution Percentage
Amounts for purposes of the ACP test, then (subject to such
other requirements as may be prescribed by the Secretary of
the Treasury) unless otherwise indicated in the Adoption
Agreement, only the amount of such Qualified Nonelective
Contributions that are needed to meet the ACP test shall be
taken into account.
9. If the Employer elects to take Elective Deferrals into
account as Contribution Percentage Amounts for purposes of
the ACP test, then (subject to such other requirements as
may be prescribed by the Secretary of the Treasury) unless
otherwise indicated in the Adoption Agreement, only the
amount of such Elective Deferrals that are needed to meet
the ACP test shall be taken into account.
11.500 DISTRIBUTION PROVISIONS
11.501 GENERAL RULE
Distributions from the Plan are subject to the provisions of Section 6
and the provisions of this Section 11. In the event of a conflict
between the provisions of Section 6 and Section 11, the provisions of
Section 11 shall control.
11.502 DISTRIBUTION REQUIREMENTS
Elective Deferrals, Qualified Nonelective Contributions, and Qualified
Matching Contributions, and income allocable to each are not
distributable to a Participant or his or her Beneficiary or
Beneficiaries, in accordance with such Participant's or Beneficiary or
Beneficiaries' election, earlier than upon separation from service,
death or disability.
Such amounts may also be distributed upon:
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A. Termination of the Plan without the establishment of another
defined contribution plan, other than an employee stock ownership
plan (as defined in Section 4975(e) or Section 409 of the Code)
or a simplified employee pension plan as defined in Section
408(k).
B. The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section
409(d)(2) of the Code used in a trade or business of such
corporation if such corporation continues to maintain this Plan
after the disposition, but only with respect to Employees who
continue employment with the corporation acquiring such assets.
C. The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of
Section 409(d)(3) of the Code) if such corporation continues to
maintain this Plan, but only with respect to Employees who
continue employment with such subsidiary.
D. The attainment of age 59 1/2 in the case of a profit sharing
plan.
E. If the Employer has so elected in the Adoption Agreement, the
hardship of the Participant as described in Section 11.503.
All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and
Participant consent requirements (if applicable) contained in Section
401(a)(11) and 417 of the Code. In addition, distributions after March
31, 1988, that are triggered by any of the first three events
enumerated above must be made in a lump sum.
11.503 HARDSHIP DISTRIBUTION
A. General - If the Employer has so elected in the Adoption
Agreement, distribution of Elective Deferrals (and any earnings
credited to a Participant's account as of the end of the last
Plan Year, ending before July 1, 1989) may be made to a
Participant in the event of hardship. For the purposes of this
Section, hardship is defined as an immediate and heavy financial
need of the Employee where such Employee lacks other available
resources. Hardship distributions are subject to the spousal
consent requirements contained in Sections 401(a)(11) and 417 of
the Code.
B. Special Rules
1. The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for
medical care, described in Section 213(d) of the Code, of
the Employee, the Employee's spouse or dependents; the
purchase (excluding mortgage payments) of a principal
residence for the Employee; payment of tuition and related
educational fees for the next 12 months of post-secondary
education for the Employee, the Employee's spouse, children
or dependents; or the need to prevent the eviction of the
Employee from, or a foreclosure on the mortgage of, the
Employee's principal residence.
2. A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
a. The Employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under
all plans maintained by the Employer;
b. All plans maintained by the Employer provide that the
Employee's Elective Deferrals (and Nondeductible
Employee Contributions) will be suspended for 12 months
after the receipt of the hardship distribution;
c. The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any Federal, state or local income
taxes or penalties reasonably anticipated to result
from the distribution); and
d. All plans maintained by the Employer provide that the
Employee may not make Elective Deferrals for the
Employee's taxable year immediately following the
taxable year of the hardship distribution in excess of
the applicable limit under Section 402(g) of the Code
for such taxable year less the amount of such
Employee's Elective Deferrals for the taxable year of
the hardship distribution.
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
A. General Rule - A Participant may assign to this Plan any Excess
Elective Deferrals made during a taxable year of the Participant
by notifying the Plan Administrator on or before the date
specified in the Adoption Agreement of the amount of the Excess
Elective Deferrals to be assigned to the Plan. A Participant is
deemed to notify the Plan Administrator of any Excess Elective
Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of the Employer.
49
<PAGE>
Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15 to any Participant to
whose Individual Account Excess Elective Deferrals were assigned
for the preceding year and who claims Excess Elective Deferrals
for such taxable year.
B. Determination of Income or Loss - Excess Elective Deferrals shall
be adjusted for any income or loss up to the date of
distribution. The income of loss allocable to Excess Elective
Deferrals is the sum of : (1) income or loss allocable to the
Participant's Elective Deferral account for the taxable year
multiplied by a fraction, the numerator of which is such
Participant's Elective Deferrals for the year and the denominator
is the Participant's Individual Account balance attributable to
Elective Deferrals without regard to any income or loss occurring
during such taxable year; and (2) 10% of the amount determined
under (1) multiplied by the number of whole calendar months
between the end of the Participant's taxable year and the date of
distribution, counting the month of distribution if distribution
occurs after the 15th of such month. Notwithstanding the
preceding sentence, the Plan Administrator may compute the income
or loss allocable to Excess Elective Deferrals in the manner
described in Section 4 (i.e., the usual manner used by the Plan
for allocating income or loss to Participants' Individual
Accounts), provided such method is used consistently for all
Participants and for all corrective distributions under the Plan
for the Plan Year.
11.505 DISTRIBUTION OF EXCESS CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of this Plan,
Excess Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than the last
day of each Plan Year to Participants to whose Individual
Accounts such Excess Contributions were allocated for the
preceding Plan Year. If such excess amounts are distributed more
than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a 10% excise tax will be imposed on
the Employer maintaining the Plan with respect to such amounts.
Such distributions shall be made to Highly Compensated Employees
on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees. Excess
Contributions of Participants who are subject to the family
member aggregation rules shall be allocated among the family
members in proportion to the Elective Deferrals (and amounts
treated as Elective Deferrals) of each family member that is
combined to determine the combined ADP.
Excess Contributions (including the amounts recharacterized)
shall be treated as annual additions under the Plan.
B. Determination of Income or Loss - Excess Contributions shall be
adjusted for any income or loss up to the date of distribution.
The income or loss allocable to Excess Contributions is the sum
of: (1) income or loss allocable to Participant's Elective
Deferral account (and, if applicable, the Qualified Nonelective
Contribution account or the Qualified Matching Contributions
account or both) for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's Excess Contributions for
the year and the denominator is the Participant's Individual
Account balance attributable to Elective Deferrals (and Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both, if any of such contributions are included in the ADP test)
without regard to any income or loss occurring during such Plan
Year; and (2) 10% of the amount determined under (1) multiplied
by the number of whole calendar months between the end of the
Plan Year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such month.
Notwithstanding the preceding sentence, the Plan Administrator
may compute the income or loss allocable to Excess Contributions
in the manner described in Section 4 (i.e., the usual manner used
by the Plan for allocating income or loss to Participants'
Individual Accounts), provided such method is used consistently
for all Participants and for all corrective distributions under
the Plan for the Plan Year.
C. Accounting for Excess Contributions - Excess Contributions shall
be distributed from the Participant's Elective Deferral account
and Qualified Matching Contribution account (if applicable) in
proportion to the Participant's Elective Deferrals and Qualified
Matching Contributions (to the extent used in the ADP test) for
the Plan Year. Excess Contributions shall be distributed from the
Participant's Qualified Nonelective Contribution account only to
the extent that such Excess Contributions exceed the balance in
the Participant's Elective Deferral account and Qualified
Matching Contribution account.
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of this Plan,
Excess Aggregate Contributions, plus any income and minus any
loss allocable thereto, shall be forfeited, if forfeitable, or if
not forfeitable, distributed no later than the last day of each
Plan Year to Participants to whose accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions of Participants who are subject to the
family member aggregation rules shall be allocated among the
family members in proportion to the Employee and Matching
Contributions (or amounts treated as Matching Contributions) of
each family member that is combined to determine the combined
ACP. If such Excess Aggregate Contributions are distributed more
than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a 10% excise tax will be imposed on
the Employer maintaining the Plan with respect to those amounts.
50
<PAGE>
Excess Aggregate Contributions shall be treated as annual
additions under the Plan.
B. Determination of Income or Loss - Excess Aggregate Contributions
shall be adjusted for any income or loss up to the date of
distribution. The income or loss allocable to Excess Aggregate
Contributions is the sum of: (1) income or loss allocable to the
Participant's Nondeductible Employee Contribution account,
Matching Contribution account (if any, and if all amounts therein
are not used in the ADP test) and, if applicable, Qualified
Nonelective Contribution account and Elective Deferral account
for the Plan Year multiplied by a fraction, the numerator of
which is such Participant's Excess Aggregate Contributions for
the year and the denominator is the Participant's Individual
Account balance(s) attributable to Contribution Percentage
Amounts without regard to any income or loss occurring during
such Plan Year; and (2) 10% of the amount determined under (1)
multiplied by the number of whole calendar months between the end
of the Plan Year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th of such
month. Notwithstanding the preceding sentence, the Plan
Administrator may compute the income or loss allocable to Excess
Aggregate Contributions in the manner described in Section 4
(i.e., the usual manner used by the Plan for allocating income or
loss to Participants' Individual Accounts), provided such method
is used consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year.
C. Forfeitures of Excess Aggregate Contributions - Forfeitures of
Excess Aggregate Contributions may either be reallocated to the
accounts of Contributing Participants who are not Highly
Compensated Employees or applied to reduce Employer
Contributions, as elected by the Employer in the Adoption
Agreement.
D. Accounting for Excess Aggregate Contributions - Excess Aggregate
Contributions shall be forfeited, if forfeitable or distributed
on a pro rata basis from the Participant's Nondeductible Employee
Contribution account, Matching Contribution account, and
Qualified Matching Contribution account (and, if applicable, the
Participant's Qualified Nonelective Contribution account or
Elective Deferral account, or both).
11.507 RECHARACTERIZATION
A Participant may treat his or her Excess Contributions as an amount
distributed to the Participant and then contributed by the Participant
to the Plan. Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated Employee to
the extent that such amount in combination with other Nondeductible
Employee Contributions made by that Employee would exceed any stated
limit under the Plan on Nondeductible Employee Contributions.
Recharacterization must occur no later than two and one-half months
after the last day of the Plan Year in which such Excess Contributions
arose and is deemed to occur no earlier than the date the last Highly
Compensated Employee is informed in writing of the amount
recharacterized and the consequences thereof. Recharacterized amounts
will be taxable to the Participant for the Participant's tax year in
which the Participant would have received them in cash.
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS
Notwithstanding any other provision of the Plan, a Participant's
Elective Deferrals shall be distributed to him or her to the extent
that the distribution will reduce an excess annual addition (as that
term is described in Section 3.05 of the Plan).
11.600 VESTING
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Nonelective Contributions, Nondeductible Employee
Contributions, and Qualified Matching Contributions is nonforfeitable.
Separate accounts for Elective Deferrals, Qualified Nonelective
Contributions, Nondeductible Employee Contributions, Matching
Contributions, and Qualified Matching Contributions will be maintained
for each Participant. Each account will be credited with the
applicable contributions and earnings thereon.
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS
Matching Contributions shall be Vested in accordance with the vesting
schedule for Matching Contributions in the Adoption Agreement. In any
event, Matching Contributions shall be fully Vested at Normal
Retirement Age, upon the complete or partial termination of the profit
sharing plan, or upon the complete discontinuance of Employer
Contributions. Notwithstanding any other provisions of the Plan,
Matching Contributions or Qualified Matching Contributions must be
forfeited if the contributions to which they relate are Excess
Elective Deferrals, Excess Contributions, Excess Aggregate
Contributions or excess annual additions which are distributed
pursuant to Section 11.508. Such Forfeitures shall be allocated in
accordance with Section 3.01(C).
When a Participant incurs a Termination of Employment, whether a
Forfeiture arises with respect to Matching Contributions shall be
determined in accordance with Section 6.01(D).
51
EXHIBIT 23.1
Consent of Deloitte & Touche LLP
<PAGE>
[Deloitte & Touche Letterhead]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement of
Alaska Pacific Bancshares, Inc. on Form SB-2 of our report dated February 19,
1999, related to the financial statements of Alaska Federal Savings Bank as of
December 31, 1998 and 1997, and for the years then ended, appearing in the
Prospectus, which is part of such amended Registration Statement. We also
consent to the reference to us under the headings "Selected Financial
Information," "Legal and Tax Opinions," and "Experts" in such Prospectus.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Anchorage, Alaska
May 5, 1999
EXHIBIT 99.2
Solicitation and Marketing Materials
<PAGE>
STOCK OFFERING
QUESTIONS
&
ANSWERS
ALASKA PACIFIC BANCSHARES, INC.
The proposed stock holding company for Alaska Federal Savings Bank
- --------------------------------------------------------------------------------
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
- --------------------------------------------------------------------------------
FACTS ABOUT THE CONVERSION
The Board of Directors of Alaska Federal Savings Bank ("Alaska Federal")
unanimously adopted a Plan of Conversion to convert from a federally chartered
mutual to a federally chartered stock savings bank to be known as Alaska Pacific
Bank and become a wholly-owned subsidiary of a new holding company, Alaska
Pacific Bancshares, Inc. ("Alaska Pacific"). As part of the Conversion, Alaska
Pacific will offer shares of its common stock for sale to the public.
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in Alaska Pacific.
Investment in the stock of Alaska Pacific involves certain risks. For a
discussion of these risks and other factors, including a complete description of
the offering, investors are urged to read the accompanying Prospectus,
especially the discussion under the heading "Risk Factors."
WHY IS ALASKA FEDERAL CONVERTING?
- --------------------------------------------------------------------------------
The Conversion will allow you to purchase stock and share in Alaska Pacific's
future.
The stock form of organization will provide Alaska Federal with greater
operating flexibility, enhance access to capital markets, and facilitate
expansion of products and services to members of our communities.
WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- --------------------------------------------------------------------------------
No. The Conversion will not affect the balance or terms of any deposit account
or loan. Your deposits will continue to be federally insured by the Federal
Deposit Insurance Corporation ("FDIC") to the maximum legal limit. Your deposit
account is not being converted to stock.
WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING?
- --------------------------------------------------------------------------------
Current and certain former depositors and certain borrowers of Alaska Federal
and Alaska Pacific's Employee Stock Ownership Plan.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- --------------------------------------------------------------------------------
Alaska Pacific is offering up to 805,000 shares of common stock, the maximum
without further regulatory approval, as described in the Prospectus, at a price
of $10.00 per share.
HOW MUCH STOCK MAY I BUY?
- --------------------------------------------------------------------------------
The minimum order is 25 shares or $250. Generally, no person may purchase more
than $125,000 of common stock in the subscription offering and no person,
together with associates of and persons acting in concert with such person, may
purchase more than $250,000 of common stock.
DO MEMBERS HAVE TO BUY STOCK?
- --------------------------------------------------------------------------------
No. However, the Conversion will allow Alaska Federal's depositors and certain
borrowers an opportunity to buy stock and become charter shareholders of Alaska
Pacific.
HOW DO I ORDER STOCK?
- --------------------------------------------------------------------------------
You must complete the enclosed Stock Order and Certification Form. Instructions
for completing your Stock Order and Certification Form are contained in this
packet. Your order must be received by Alaska Federal prior to 12:00 Noon,
Alaska Time, on June 16, 1999.
HOW MAY I PAY FOR MY SHARES OF STOCK?
- --------------------------------------------------------------------------------
First, you may pay for stock by check, cash or money order. If paying by cash,
please stop at any one of the Alaska Federal's tellers and convert your cash to
a check. Interest will be paid by Alaska Federal on these funds at the passbook
annual percentage yield from the day the funds are received until the completion
or termination of the Conversion. Second, you may authorize us to withdraw funds
from your Alaska Federal savings account or certificate of deposit for the
amount of funds you specify for payment. You will not have access to these funds
from the day we receive your order until completion or termination of the
Conversion.
CAN I PURCHASE SHARES USING FUNDS IN MY ALASKA FEDERAL SAVINGS BANK IRA ACCOUNT?
- --------------------------------------------------------------------------------
Yes, however, you must establish a self-directed IRA account at a brokerage firm
or trust department to which you can transfer a portion or all of your IRA
account at Alaska Federal that will enable such purchase. Please call our Stock
Information Center as early as possible for additional information as an IRA
transfer can take time to accomplish.
WILL THE STOCK BE INSURED?
- --------------------------------------------------------------------------------
No. Like any other common stock, Alaska Pacific's stock will not be insured.
<PAGE>
WILL DIVIDENDS BE PAID ON THE STOCK?
- --------------------------------------------------------------------------------
Alaska Pacific intends to pay a quarterly cash dividend, initially at an
annualized rate of $0.20 per share starting after the completion of the first
full quarter after the Conversion. The Board of Directors may declare and pay
special cash dividends in addition to, or in lieu of, regular cash dividends.
Declarations or payments of any dividends, whether regular or special, will be
determined by Alaska Pacific's Board of Directors.
HOW WILL THE STOCK BE TRADED?
- --------------------------------------------------------------------------------
Alaska Pacific's stock will trade on the OTC Bulletin Board or the National
Daily Quotation "Pink Sheets" published by the National Quotation Bureau Inc.
ARE OFFICERS AND DIRECTORS OF ALASKA FEDERAL PLANNING TO PURCHASE STOCK?
- --------------------------------------------------------------------------------
Yes! Alaska Federal's executive officers and directors plan to purchase, in the
aggregate, $660,000 worth of stock.
MUST I PAY A COMMISSION?
- --------------------------------------------------------------------------------
No. You will not be charged a commission or fee on the purchase of shares in the
Conversion.
HOW MANY VOTES DO I HAVE?
- --------------------------------------------------------------------------------
Your proxy card(s) show(s) the number of votes you have. Every depositor
entitled to vote may cast one vote for each $100 or fraction thereof, on deposit
as of the voting record date, April 30, 1999, up to 1,000 votes. Borrowers of
Alaska Federal as of October 20, 1993, who continued to have that loan as of the
voting record date, are entitled to cast one vote in addition to any votes they
may have as depositors.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
- --------------------------------------------------------------------------------
Yes, but please sign and mail your proxy today. If you decide to revoke your
proxy you may do so by giving notice at the Special Meeting.
SHOULD I VOTE?
- --------------------------------------------------------------------------------
Yes! Your "YES" vote is very important!
WHY DID I GET SEVERAL PROXY CARDS?
- --------------------------------------------------------------------------------
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts.
IS THERE A HOLDING PERIOD FOR THE STOCK?
- --------------------------------------------------------------------------------
No. Only Alaska Pacific's Board of Directors and Executive Officers along with
any NASD (National Association of Securities Dealers) Affiliates have a holding
period.
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS RECEIVED!
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
------------------------
Toll Free (888)277-8625
10:00 am - 5:30 pm, Alaska Time
Stock Center Location
---------------------
2094 Jordan Avenue, Juneau
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Alaska Pacific
Bancshares, Inc.
the holding company for
Alaska Pacific Bank
(Currently Alaska Federal Savings Bank)
Become a Charter Shareholder!
================================================================================
<PAGE>
Capital Requirements
[GRAPH OMITTED]
As of December 31, 1998, Alaska Federal Savings Bank exceeded all regulatory
capital requirements.
Tangible Core Risk-Based
Capital Capital Capital
-------- ------- ----------
Required ..................... 1.5% 3.0% 8.0%
12/31/98 ..................... 6.9% 6.9% 12.4%
Pro Forma* ................... 10.2% 10.2% 18.4%
----------
* Assumes the sale of 700,000 shares and retention of 22.3% of the net
conversion proceeds by the Holding Company
================================================================================
Loan Portfolio Composition
The Alaska Federal's loan portfolio primarily consists of first mortgage loans
secured by one- to four-family residences most of which are located in its
primary market area of southeast Alaska. Also, Alaska Federal makes various
types of consumer loans and loans for commercial purposes.
[GRAPH OMITTED]
One- to four-family ........................................... 47.9%
Consumer ...................................................... 20.6%
Commerical nonresidential ..................................... 14.9%
Other ......................................................... 10.6%
Commercial .................................................... 6.0%
================================================================================
Total Deposits
[GRAPH OMITTED]
12/31/98 ................................................... $101,945
12/31/97 ................................................... 96,959
12/31/96 ................................................... 96,810
Alaska Federal's liability structure consists primarily of customer deposits
generated through their five retail offices. Total deposits have grown slightly
over the past two years.
<PAGE>
PRO FORMA DATA*
At or For the Year Ended December 31, 1998
================================================================================
MINIMUM MIDPOINT MAXIMUM MAXIMUM OF
OF RANGE OF RANGE OF RANGE RANGE (adj.)
-------- -------- -------- ------------
Shares Sold in the Offering 595,000 700,000 805,000 925,750
Sale Price Per Share ...... $10.00 $10.00 $10.00 $10.00
Gross Proceeds ............ $5,950,000 $7,000,000 $8,050,000 $9,257,500
Pro Forma
Stockholders' Equity ...... $12,600,000 $12,915,000 $13,825,000 $14,871,000
Pro Forma Stockholders'
Equity per Share (a) ...... $20.17 $18.45 $17.18 $16.06
Pro Forma Price/Book Ratio 49.58% 54.20% 58.21% 62.27%
Pro Forma Net Earnings
per Share ................. $0.82 $0.73 $0.67 $0.61
Pro Forma Price/Earnings
Ratio ..................... 12.20x 13.70x 14.93x 16.39x
================================================================================
* Information based upon assumptions in the Prospectus under "Pro Forma Data."
(a) This is not intended to represent potential price appreciation. There are
no assurances that the market price will equal or exceed the offering
price.
SELECTED FINANCIAL RATIOS
================================================================================
At or For the Year Ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Return of average assets ................ 0.31% 0.63% 0.05%
Return on average equity ................ 4.67% 10.36% 0.81%
Interest rate spread .................... 3.99% 4.02% 4.16%
Net interest margin ..................... 4.01% 3.99% 4.36%
Average equity to average assets ........ 6.54% 6.06% 6.43%
Allowance for loan losses as a
percent of loans ........................ 0.94% 0.94% 0.95%
================================================================================
The common stock offered in the Conversion is not a deposit or account and is
not federally insured or guaranteed. This is not an offer to sell or a
solicitation of an offer to buy common stock. The offer is made only by the
Prospectus accompanied by a stock order form and certification form.
<PAGE>
================================================================================
Stock Sales Center
2094 Jordan Avenue
Juneau, AK 99801
1-888-A-P-STOCK
(1-888-277-8625)
================================================================================
<PAGE>
ALASKA FEDERAL SAVINGS BANK REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ALASKA FEDERAL
SAVINGS BANK ("ALASKA FEDERAL") FOR USE ONLY AT A SPECIAL MEETING OF MEMBERS TO
BE HELD ON ______________ __, 1999 AND ANY ADJOURNMENT THEREOF ("SPECIAL
MEETING").
The undersigned being a member of Alaska Federal Savings Bank ("Alaska
Federal"), hereby authorizes the Board of Directors of Alaska Federal or any
successors in their respective positions, as proxy, with full powers of
substitution, to represent the undersigned at the Special Meeting of Members of
Alaska Federal to be held at the executive offices of Alaska Federal located at
2094 Jordan Avenue, Juneau, Alaska on, _________ __, 1999, at _____ a.m., Alaska
Time, and at any adjournment of said meeting, to act with respect to all votes
that the undersigned would be entitled to cast, if then personally present, as
set forth below:
(1) To approve a Plan of Conversion adopted by the Board of Directors on
February 19, 1999, and subsequently amended on April 16, 1999, providing for (i)
the conversion of the Savings Bank from a federally chartered mutual to a
federally chartered capital stock savings bank to be known as "Alaska Pacific
Bank," and to be held as a wholly-owned subsidiary of a new holding company,
Alaska Pacific Bancshares, Inc., including the adoption of a Federal Stock
Charter and Bylaws for the Savings Bank, pursuant to the laws of the United
States and the rules and regulations of the Office of Thrift Supervision.
FOR [ ] AGAINST [ ]
(2) To vote, in its discretion, upon such other business as may properly
come before the Special Meeting or any adjournment thereof. Management is not
aware of any other such business that may come before the Special Meeting.
FOR [ ] AGAINST [ ]
This proxy, if executed, will be voted "FOR" adoption of the Plan and for
adjournment of the Special Meeting if necessary if no choice is made herein.
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
ALASKA FEDERAL SAVINGS BANK REVOCABLE PROXY
Any Member giving a proxy may revoke it at any time before it is voted by
delivering to the Corporate Secretary of Alaska Federal Savings Bank either a
written revocation of the proxy, or a duly executed proxy bearing a later date,
or by voting in person at the Special Meeting.
The undersigned hereby acknowledges receipt of a Notice of Special Meeting of
members of Alaska Federal Savings Bank to be held on ____day, _________ __, 1999
and a proxy statement for the Special Meeting prior to the signing of this
Proxy.
----------------------------------------
Signature Date
----------------------------------------
Signature Date
NOTE: Please sign exactly as your
name appears on this Proxy. Only one
signature is required in the case of
a joint account. When signing in a
representative capacity, please give
title.
IMPORTANT: Please Detach, Sign and Return "ALL" proxies from
"ALL" packets received in the enclosed blue envelope.
FAILURE TO VOTE IS EFFECTIVELY THE SAME AS A "NO" VOTE.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
Alaska Pacific Bancshares, Inc.
Stock Information Center
2094 Jordan Avenue
Juneau, AK
(888) 277-8625
STOCK ORDER FORM
- --------------------------------------------------------------------------------
Deadline: The Subscription Offering ends at 12:00 Noon, Alaska Time, on June 16,
1999. Your original Stock Order and Certification Form, properly executed and
with the correct payment, must be received (not postmarked) at the address on
the top of this form, or at any Alaska Federal Savings Bank branch office, by
the deadline, or it will be considered void. Faxes or copies of this form will
not be accepted.
- --------------------------------------------------------------------------------
(1) Number of Shares Price Per Share (2) Total Amount Due
-------------------- --------------------
X $10.00 =
-------------------- --------------------
Minimum = 25 shares Maximum = Generally 12,500 shares, however, see the Stock
Order Form Instructions (blue sheet) and the Prospectus.
- --------------------------------------------------------------------------------
Method of Payment
(3) [ ] Enclosed is a check, bank draft or money order payable to Alaska Pacific
Bancshares, Inc. for $___________.
(4) [ ] I authorize Alaska Federal to make withdrawals from my Alaska Federal
certificate or savings account(s) shown below, and understand that the
amounts will not otherwise be available for withdrawal:
Account Number(s) Amount(s)
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Total Withdrawal
There is NO penalty for early withdrrawal. ---------
- --------------------------------------------------------------------------------
(5) Purchaser Information (check one)
(a) [ ] Eligible Account Holder -- Check here if you were a depositor with
$50,000 or more on deposit with Alaska Federal as of December 31, 1997.
Enter information in section 8 for all deposit accounts that you had at
Alaska Federal on December 31, 1997.
(b) [ ] Supplemental Eligible Account Holder -- Check here if you were a
depositor with $50,000 or more on deposit with Alaska Federal as of
March 31, 1999 but are not an Eligible Account Holder. Enter information
in section 8 for all deposit accounts that you had at Alaska Federal on
March 31, 1999.
(c) [ ] Other Member -- Check here if you were a depositor of Alaska Federal as
of April 30, 1999 or a borrower whose loan was outstanding as of October
20, 1993 which continued to be outstanding at April 30, 1999, but are
not an Eligible Account Holder. Enter information in section 8 for all
accounts that you had at Alaska Federal on April 30, 1999.
(d) [ ] General Community -- Check here if a, b or c do not apply.
- --------------------------------------------------------------------------------
(6) [ ] Check here if you are a director, officer or employee of Alaska Federal
or a member of such person's immediate family (same household).
- --------------------------------------------------------------------------------
(7) [ ] NASD Affiliation -- see description on reverse side of this form.
- --------------------------------------------------------------------------------
<PAGE>
(8) Please review the preprinted account information listed below. The accounts
printed below may not be all of your qualifying accounts or even your
accounts as of the earliest of the three dates if you have changed names on
the accounts. You should list any other accounts that you may have or had
with Alaska Federal in the box below. SEE THE STOCK ORDER FORM INSTRUCTIONS
SHEET FOR FURTHER INFORMATION (blue sheet). All subscription orders are
subject to the provisions of the Plan of Conversion.
------------------------------------------------------------------------
------------------------------------------------------------------------
Additional Qualifying Accounts
Account Title (Names on Accounts) Account Number
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Please Note: Failure to list all of you accounts may result in the
loss of part or all of your subscription rights. (additional space
on back of form)
- --------------------------------------------------------------------------------
(9) Stock Registration -- Please Print Legibly and Fill Out Completely
(Note: The stock certificate and all correspondence related to this stock
order will be mailed to the address provided below)
[ ] Individual [ ] Corporation
[ ] Joint Tenants [ ] Partnership
[ ] Tenants in Common [ ] Individual Retirement Account
[ ] Uniform Transfer to Minors Act [ ] Fiduciary/Trust (Under
[ ] Uniform Gift to Minors Act Agreement Dated______________)
----------------------------------------------------------------------------
Name Social Security or Tax I.D.
----------------------------------------------------------------------------
Name Social Security or Tax I.D.
----------------------------------------------------------------------------
Mailing Daytime
Address Telephone
----------------------------------------------------------------------------
Zip Evening
City State Code County Telephone
----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acknowledgment By signing below, I acknowledge receipt of the Prospectus dated
____________, 1999 and understand I may not change or revoke my order once it is
received by Alaska Pacific Bancshares, Inc. I also certify that this stock order
is for my account and there is no agreement or understanding regarding any
further sale or transfer of these shares. Applicable regulations prohibit any
persons from transferring, or entering into any agreement directly or indirectly
to transfer, the legal or beneficial ownership of subscription rights or the
underlying securities to the account of another person. Alaska Pacific
Bancshares, Inc. will pursue any and all legal and equitable remedies in the
event it becomes aware of the transfer of subscription rights and will not honor
orders known by it to involve such transfer. Under penalties of perjury, I
further certify that: (1) the social security number or taxpayer identification
number given above is correct; and (2) I am not subject to backup withholding.
You must cross out this item, (2) above, if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. By signing below, I
also acknowledge that I have not waived any rights under the Securities Act of
1933 and the Securities Exchange Act of 1934, both as amended.
Signature: THIS FORM MUST BE SIGNED AND DATED BELOW AND ON THE BACK OF THIS
FORM. This order is not valid if the Stock Order and Certification Form is not
both signed and properly completed. Your order will be filled in accordance with
the provisions of the Plan of Conversion as described in the Prospectus. An
additional signature is required only if payment is by withdrawal from an
account that requires more than one signature to withdraw funds.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Office Use Only Check # _______________ _______________
Date Rec'd ___/___/___ Ck. Amt _______________ _______________
Batch # ______________ Order # ___________ Category ___________
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Item (7) continued -- NASD Affiliation (this section only applies to those
individuals who meet the delineated criteria)
Check the box if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
- --------------------------------------------------------------------------------
Item (8) continued; Purchaser Information
Account Title (Names on Accounts) Account Number
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CERTIFICATION FORM
(This Certification Form Must Be Signed In Addition to the Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
ALASKA PACIFIC BANCSHARES, INC. ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT
FEDERALLY INSURED OR GUARANTEED BY ALASKA FEDERAL OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision West Regional Director, Charles A. Deardorff, at (415)
616-1500.
I further certify that, before purchasing the shares of Common Stock of Alaska
Pacific Bancshares, Inc. I received a copy of the Prospectus dated ____________,
1999 which discloses the nature of the Common Stock being offered and describes
the following risks involved in an investment in the Common Stock under the
heading "Risk Factors" beginning on page 1 of the Prospectus:
1. Alaska Federal's Business Depends Heavily on the Economic Condition of its
Primary Market Area and Weak Market Area Demographics has Hurt Core
Earnings and Limits Growth Prospects.
2. Alaska Federal's Recent Grown in Commercial Business and Consumer Lending
Poses Greater Risks Than Residential Lending.
3. Loss of Key Personnel May Hurt Alaska Federal's Operations.
4. Possible Loss of a Tax Benefit in the Form of Net Operating Loss
Carryforwards.
5. Implementation of Benefit Plans will Increase Future Compensation Expense
and May Lower Alaska Federal's Net Income.
6. Issuance of Shares for Benefit Programs May Lower Your Ownership Interest.
7. Possible Voting Control by Management and Employees May Make Takeover
Attempts More Difficult to Achieve.
8. Provisions in Alaska Federal's Articles of Incorporation and Statutory
Provisions that Could Discourage Takeover Attempts by Other Parties.
9. Employment Agreements and Severance Plan Could Make Takeover Attempts More
Difficult to Achieve.
10. Possible Limited Market for Alaska Pacific Bancshare's Common Stock May
Lower Market Price.
11. Your Subscription Funds Could be Held for an Extended Time Period if
Completion of the Conversion is Delayed.
12. Rising Interest Rates Could Hurt Alaska Federal's Profits.
13. Alaska Federal's Return on Equity Will Be Below Average After Conversion
Because of High Capital Levels.
- ------------------------------------- -------------------------------------
Signature Date Signature Date
- ------------------------------------- -------------------------------------
(Note: If shares are to be held jointly, both parties must sign)
EXECUTION OF THIS CERTIFICATION FORM WILL NOT CONSTITUTE A WAIVER OF ANY RIGHTS
THAT A PURCHASER MAY HAVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SHARES OF COMMON STOCK BEING 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>
================================================================================
Alaska
Pacific Stock Ownership Guide and Stock Order Form Instructions
Bancshares,
Inc.
================================================================================
Stock Order Form Instructions - All subscription orders are subject to the
provisions of the Plan of Conversion.
- --------------------------------------------------------------------------------
Item 1 and 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum
purchase is 25 shares. Generally, the maximum purchase for any person is 12,500
shares. No person, together with associates, as defined in the Prospectus, and
no person acting in concert may purchase more than 25,000 shares. For additional
information, see "Alaska Federal's Conversion - Limitations on Purchases of
Shares" in the Prospectus.
Item 3 - Payment for shares may be made in cash (only if delivered by you in
person, although we request you to exchange the cash for a check with any of the
tellers at Alaska Federal Savings Bank (the "Savings Bank")), by check, bank
draft or money order payable to ALASKA PACIFIC BANCSHARES, INC. DO NOT MAIL
CASH. Your funds will earn interest at the applicable account rate until the
Conversion is completed.
Item 4 - To pay by withdrawal from a savings account or certificate at the
Savings Bank, insert the account number(s) and the amount(s) you wish to
withdraw from each account. If more than one signature is required for a
withdrawal, all signatories must sign in the signature box on the front of this
form. To withdraw from an account with checking privileges, please write a
check. The Savings Bank will waive any applicable penalties for early withdrawal
from certificate accounts. A hold will be placed on the account(s) for the
amount(s) you indicate to be withdrawn. Payments will remain in account(s) until
the stock offering closes.
Item 5 - Please check the appropriate box to tell us the earliest of the three
dates that applies to you. Borrowers, having a loan as of October 20, 1993 that
was active on April 30, 1999, are Other Members.
Item 6 - Please check this box if you are a director, officer or employee of the
Savings Bank, or a member of such person's household.
Item 7 - Please check this box if you have a National Association of Securities
Dealers, Inc. ("NASD") affiliation (as defined on the reverse side of the Stock
Order Form.)
Item 8 - Please review the preprinted qualifying account information. The
accounts listed may not be all of your qualifying accounts or even your accounts
as of the earliest of the three dates if you have changed their ownership. You
should list any other qualifying accounts that you may have or had with the
Savings Bank in the blue box located under the heading "Additional Qualifying
Accounts". These may appear on other stock order forms you have received. For
example, if you are ordering stock in just your name, you should list all of
your accounts as of the earliest of the three dates that you were a depositor.
This may include accounts on which you were a joint owner, your own regular
individual accounts or your IRA accounts. Similarly, if you are ordering stock
jointly with another depositor, you should list all accounts on which either of
you are owners, i.e. individual accounts, joint accounts, etc. If you are
ordering stock in your minor child's or grandchild's name under the Uniform
Transfer to Minors Act ownership, the minor must have had an account on one of
the three dates and you should list only their accounts. If you are ordering
stock corporately, you need to list just that corporation's accounts, as your
individual accounts do not qualify. Failure to list all of your qualifying
accounts may result in the loss of part or all of your subscription rights.
Item 9 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Alaska Pacific
Bancshares' common stock. Please complete this section as fully and accurately
as possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening phone numbers. We will need to call you if we
cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Subscription
rights are not transferable. If you are an eligible or supplemental eligible
account holder or other member, to protect your priority over other purchasers
as described in the Prospectus, you must take ownership in at least one of the
account holder's names.
(See Reverse Side for Stock Ownership Guide)
<PAGE>
================================================================================
Alaska
Pacific Stock Ownership Guide and Stock Order Form Instructions
Bancshares,
Inc.
================================================================================
Stock Ownership Guide
- --------------------------------------------------------------------------------
Individual - The stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
Joint Tenants - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common - Tenants in common may also identify two or more owners. When
stock is to be held by tenants 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 by tenants in common. You may not list beneficiaries for this
ownership.
Uniform Transfer / Gift to Minors Act - For residents of Alaska and many states,
stock may be held in the name of a custodian for the benefit of a minor under
the Uniform Transfer to Minors Act. For residents in other states, stock may be
held in a similar type of ownership under the Uniform Gift to Minors Act of the
individual state. For either ownership, the minor is the actual owner of the
stock with the adult custodian being responsible for the investment until the
child reaches legal age. Only one custodian and one minor may be designated.
Instructions: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line followed by the notation UTMA-AK or UGMA-Other State. List only the minor's
social security number.
Corporation/Partnership - Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
Individual Retirement Account - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a prearranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Please contact the Stock Information Center if you have any questions about your
IRA account and please do not delay in exploring this option.
Registration for IRA's: On Name Line 1 - list the name of the broker or trust
department followed by CUST or TRUSTEE.
On Name Line 2 - FBO (for benefit of) YOUR NAME IRA
a/c #_____________.
Address will be that of the broker/trust department to
where the stock certificate will be sent.
The Social Security/Tax I.D. number(s) will be either
yours or your trustees, as they direct.
Please list your phone numbers.
Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following the
name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker, donor
or testator or the name of the beneficiary. Following the name, indicate the
type of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated," fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
(See Reverse Side for Stock Order Form Instructions)
<PAGE>
[LOGO]
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
To Members and Friends of
Alaska Federal Savings Bank
- --------------------------------------------------------------------------------
Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc., a member of
the National Association of Securities Dealers, Inc. ("NASD"), is assisting
Alaska Federal Savings Bank ("Alaska Federal") in its conversion from a
federally chartered mutual to a federally chartered stock savings bank to be
known as Alaska Pacific Bank which will become a wholly-owned subsidiary of a
new holding company, Alaska Pacific Bancshares, Inc. ("Alaska Pacific"). In
connection with the conversion, Alaska Pacific is offering shares of its common
stock in a subscription offering pursuant to a Plan of Conversion.
At the request of Alaska Pacific, we are enclosing materials explaining this
process and your options, including an opportunity to invest in shares of Alaska
Pacific common stock, which is being offered to customers through 12:00 Noon,
Alaska Time, on June 16, 1999. Please read carefully the enclosed offering
materials, including the Prospectus, for a complete discussion of the stock
offering. Alaska Pacific has asked us to forward these documents to you in
accordance with certain requirements of the securities laws in your state.
Should you have any questions, please call us toll free at (888) 277-8625,
Monday through Friday from 10:00 am to 5:30 pm, Alaska Time, or stop by the
Stock Information Center located at 2094 Jordan Avenue in Juneau.
Very truly yours,
Charles Webb & Company
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY GOVERNMENT
AGENCY.
- ------------------- Investment Bankers and Financial Advisors ------------------
<PAGE>
, 1999
Dear Friend:
We are pleased to announce that Alaska Federal Savings Bank ("Alaska
Federal") is converting from a federally chartered mutual to a federally
chartered stock savings bank to be known as Alaska Pacific Bank and will become
a wholly-owned subsidiary of a new holding company, Alaska Pacific Bancshares,
Inc. ("Alaska Pacific"). In connection with the conversion, Alaska Pacific is
offering shares of its common stock in a subscription offering pursuant to a
Plan of Conversion.
Because of your subscription rights as a former member of Alaska Federal,
we are sending you the following materials which describe the stock offering.
PROSPECTUS: This document provides detailed information about Alaska
Federal's operations and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offering
are found in this pamphlet.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase Alaska
Pacific common stock by returning it with your payment in the enclosed
business reply envelope. The deadline for ordering common stock is 12:00
Noon, Alaska Time, on June 16, 1999.
As a former depositor of Alaska Federal, you have the opportunity to buy
stock directly from Alaska Pacific Bancshares, Inc. in the conversion without
commission or fee. If you have additional questions regarding the stock
offering, please call us toll free at (888)277-8625, Monday through Friday from
10:00 a.m. to 5:30 p.m., Alaska Time, or stop by the Stock Information Center
located at 2094 Jordan Avenue in Juneau.
Sincerely,
Craig E. Dahl
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
______________, 1999
Dear Prospective Investor:
We are pleased to announce that Alaska Federal Savings Bank ("Alaska
Federal") is converting from a federally chartered mutual to a federally
chartered stock savings bank tp be known as Alaska Pacific Bank and will become
a wholly-owned subsidiary of a new holding company, Alaska Pacific Bancshares,
Inc. ("Alaska Pacific"). In connection with the conversion, Alaska Pacific is
offering shares of its common stock in a subscription offering pursuant to a
Plan of Conversion.
We have enclosed the following materials that will help you learn more
about the merits of Alaska Pacific common stock as an investment. Please read
and review the materials carefully.
PROSPECTUS: This document provides detailed information about Alaska
Pacific's operations and a complete discussion on the proposed stock
offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offering
are found in this pamphlet.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase Alaska
Pacific common stock by returning it with your payment in the enclosed
business reply envelope. The deadline for ordering common stock is 12:00
Noon, Alaska Time, on June 16, 1999.
We invite you and other local community members to become charter
shareholders of Alaska Pacific. Through this offering you have the opportunity
to buy stock directly from Alaska Pacific without a commission or a fee. The
Board of Directors and Senior Management of Alaska Federal fully support the
stock offering.
If you have additional questions regarding the stock offering, please call
us toll free at (888)277-8625, Monday through Friday from 10:00 a.m. to 5:30
p.m., Alaska Time, or stop by the Stock Information Center located at 2094
Jordan Avenue in Juneau.
Sincerely,
Craig E. Dahl
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
_______________,1999
Dear Member:
We are pleased to announce that Alaska Federal Savings Bank ("Alaska
Federal") is converting from a federally chartered mutual to a federally
chartered stock savings bank to be known as Alaska Pacific Bank and will become
a wholly-owned subsidiary of a new holding company, Alaska Pacific Bancshares,
Inc. ("Alaska Pacific"). In connection with the conversion, Alaska Pacific is
offering shares of its common stock in a subscription offering pursuant to a
Plan of Conversion.
Unfortunately, Alaska Pacific is unable to either offer or sell its common
stock to you because 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. Accordingly, this letter should not be considered an offer to sell or
a solicitation of an offer to buy the common stock of Alaska Pacific.
However, as a member of Alaska Federal you have the right to vote on the
Plan of Conversion at the Special Meeting of Members to be held on _________,
1999. Therefore, enclosed is a Proxy Card, a Proxy Statement (which includes the
Notice of the Special Meeting) and a Prospectus (which contains information
incorporated into the Proxy Statement), including a complete discussion of the
offering and a return envelope for your Proxy Card.
I invite you to attend the Special Meeting on _________, 1999. However,
whether or not you are able to attend, please complete the enclosed Proxy Card
and return it in the enclosed envelope to ensure your vote is counted at the
Special Meeting.
Sincerely,
Craig E. Dahl
President and Chief Executive Officer
<PAGE>
_______________,1999
Dear Member:
We are pleased to announce that Alaska Federal Savings Bank ("Alaska
Federal") is converting from a federally chartered mutual to a federally
chartered stock savings bank to be known as Alaska Pacific Bank and will become
a wholly-owned subsidiary of a new holding company, Alaska Pacific Bancshares,
Inc. ("Alaska Pacific"). In connection with the conversion, Alaska Pacific is
offering shares of its common stock in a subscription offering pursuant to a
Plan of Conversion.
To accomplish the conversion, we need your participation in an important
vote. Enclosed is a proxy statement describing the Plan of Conversion and your
voting and subscription rights. The Plan has been approved by the Office of
Thrift Supervision and now must be approved by you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the material, is your proxy card which is located
behind the window of your mailing envelope. This proxy card needs to be signed
and returned to us prior to the Special Meeting to be held on ________, 1999.
Please take a moment to sign all of the enclosed proxy cards and return them to
us in the blue postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME
EFFECT AS VOTING AGAINST THE PLAN.
The Board of Directors believes the conversion will offer a number of
advantages such as an opportunity for depositors and certain borrowers of Alaska
Federal to become shareholders. Please remember:
o Your accounts at Alaska Federal will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
o There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the conversion.
o Members have a right, but no obligation, to buy Alaska Pacific common
stock and may do so without a commission or fee before it is offered
to the general public.
o Like all stock, shares of Alaska Pacific common stock issued in this
offering will not be insured by the FDIC.
Enclosed is a prospectus containing a complete discussion of the stock
offering. We urge you to read this material carefully. If you are interested in
purchasing Alaska Pacific common stock, your enclosed Stock Order and
Certification Form and payment for the shares must be received by Alaska Federal
prior to 12:00 Noon, Alaska Time, on June 16, 1999.
If you have additional questions regarding the stock offering, please call
us toll free at (888)277-8625, Monday through Friday from 10:00 a.m. to 5:30
p.m., Alaska Time, or stop by the Stock Information Center located at 2094
Jordan Avenue in Juneau.
Sincerely,
Craig E. Dahl
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
================================================================================
Alaska Pacific Bancshares
Community Meeting
June xx, 1999
================================================================================
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other government agency. This is not an offer to sell or a
solicitation of an offer to buy stock. The offer is made only by the Prospectus.
<PAGE>
================================================================================
Management of Alaska Federal
o Craig E. Dahl, President and Chief Executive Officer
o Lisa Corrigan Bell, Senior Vice President, Chief Operating Officer
o Roger K. White, Senior Vice President and Chief Financial Officer
================================================================================
<PAGE>
================================================================================
Total Assets
[GRAPH OMITTED]
Thousands
12/31/98 ............................. $110,806
12/31/97 ............................. $114,476
12/31/96 ............................. $109,287
================================================================================
<PAGE>
================================================================================
Asset Mix
[GRAPH OMITTED]
Loans, net .............................. 63.9%
Investment securities ................... 16.4%
Cash and cash equivalents ............... 13.2%
Other ................................... 6.5%
At December 31, 1998
================================================================================
<PAGE>
================================================================================
Loans Receivable, Net
[GRAPH OMITTED]
Thousands
12/31/98 .............................. $70,836
12/31/97 .............................. $78,720
12/31/96 .............................. $76,611
================================================================================
<PAGE>
================================================================================
Loan Portfolio
[GRAPH OMITTED]
One- to four-family ..................... 47.9%
Commercial nonresidential ............... 14.9%
Commercial .............................. 6.0%
Other ................................... 10.6%
At December 31, 1998
================================================================================
<PAGE>
================================================================================
Total Deposits
[GRAPH OMITTED]
Thousands
12/31/98 ............................. $101,945
12/31/97 ............................. $ 96,959
12/31/96 ............................. $ 96,810
================================================================================
<PAGE>
================================================================================
Equity Capital
[GRAPH OMITTED]
Thousands
12/31/98 ............................... $7,250
12/31/97 ............................... $7,140
12/31/96 ............................... $6,358
================================================================================
<PAGE>
================================================================================
Total Equity to Total Assets
[GRAPH OMITTED]
12/31/98 ................................ 6.54%
12/31/97 ................................ 6.24%
12/31/96 ................................ 5.82%
================================================================================
<PAGE>
================================================================================
Net Income
[GRAPH OMITTED]
($000s)
12/31/98 ................................. $336
12/31/97 ................................. $699
12/31/96 ................................. $ 56
================================================================================
<PAGE>
================================================================================
Return on Average Assets
[GRAPH OMITTED]
12/31/98 ................................ 0.31%
12/31/97 ................................ 0.63%
12/31/96 ................................ 0.05%
================================================================================
<PAGE>
================================================================================
Return on Average Equity
[GRAPH OMITTED]
12/31/98 ............................... 4.67%
12/31/97 ............................... 10.36%
12/31/96 ............................... 0.81%
================================================================================
<PAGE>
================================================================================
Net Interest Margin
[GRAPH OMITTED]
12/31/98 ................................ 4.01%
12/31/97 ................................ 3.99%
12/31/96 ................................ 4.36%
================================================================================
<PAGE>
================================================================================
Capital Requirements
[GRAPH OMITTED]
Tangible Core Risk-Based
-------- ----- ----------
Requirement .................. 1.5% 3.0% 8.0%
December 31, 1998 ............ 6.9% 6.9% 12.4%
Pro Forma .................... 10.2% 10.2% 18.4%
----------
* Assumes the sale of 700,000 shares
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Preference Categories
1. Eligible Account Holders -- Depositors with $50 or more on deposit as of
December 31, 1997
2. Employee Stock Ownership Plan (ESOP)
3. Supplemental Eligible Account Holders -- Depositors with $50 or more on
deposit as of March 31, 1999
4. Other Members -- Depositors and Certain Borrowers as of the Voting Record
Date April 30, 1999
5. Residents of the communities of Juneau, Ketchikan, Sitka and Wrangell,
Alaska
6. General Public
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Pro Forma Data
MINIMUM MIDPOINT MAXIMUM MAXIMUM OF
OF RANGE OF RANGE OF RANGE RANGE (adj.)
-------- -------- -------- ------------
Shares Sold in Offering ... 595,000 700,000 805,000 925,750
Sale Price Per Share ...... $10.00 $10.00 $10.00 $10.00
Gross Proceeds ............ $5,950,000 $7,000,000 $8,050,000 $9,257,500
Pro Forma
Stockholders' Equity ...... $12,600,000 $12,915,000 $13,825,000 $14,871,000
Pro Forma Stockholders'
Equity per Share .......... $20.17 $18.45 $17.18 $16.06
Price/Book Ratio .......... 49.58% 54.20% 58.21% 62.27%
Pro Forma Net Income
per Share ................. $0.82 $0.73 $0.67 $0.61
Price/Earnings Ratio ...... 12.20x 13.70x 14.93x 16.39x
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We thank you for your interest in
ALASKA PACIFIC BANCSHARES
OTC Bulletin Board: "XXXX"
================================================================================
Exhibit 99.5
Proxy Statement for Special Meeting of Members of Alaska Federal Savings Bank
<PAGE>
EXHIBIT 99.5
PROXY STATEMENT FOR SPECIAL MEETING OF MEMBERS OF
ALASKA FEDERAL SAVINGS BANK
<PAGE>
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
(907) 790-4844
NOTICE OF SPECIAL MEETING OF MEMBERS
To be held on _________ ___, 1999
Notice is hereby given that a special meeting ("Special Meeting") of
members of Alaska Federal Savings Bank ("Savings Bank") will be held at the
Savings Bank's main office at 2094 Jordan Avenue, Juneau, Alaska, on _____day,
_________ ___, 1999, at __:00 _.m., local time. Business to be taken up at the
Special Meeting shall be:
(1) To approve a Plan of Conversion adopted by the Board of Directors
on February 19, 1999, and subsequently amended on April 16, 1999, to convert the
Savings Bank from a mutual savings bank to a federally chartered capital stock
savings bank to be known as Alaska Pacific Bank and to be held as a wholly-owned
subsidiary of a new holding company, Alaska Pacific Bancshares, Inc., including
the adoption of a Federal Stock Charter and Bylaws for the Savings Bank,
pursuant to the laws of the United States and the rules and regulations of the
Office of Thrift Supervision; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors
is not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those
members of the Savings Bank at the close of business on April 30, 1999, who
continue as members until the Special Meeting, and should the Special Meeting
be, from time to time, adjourned to a later time, until the final adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
REBECCA J. BAXTER
SECRETARY
Juneau, Alaska
_____________ __, 1999
Please sign and return promptly EACH proxy card you receive in the enclosed
postage-paid envelope. This will assure necessary representation at the Special
Meeting, but will not prevent you from voting in person if you so desire. The
proxy is solicited only for this Special Meeting (and any adjournments thereof)
and will not be used for any other meeting. You may revoke your written proxy by
written instrument delivered to Rebecca J. Baxter, Secretary, Alaska Federal
Savings Bank, at the above address at any time prior to or at the Special
Meeting.
<PAGE>
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801
(907) 790-4844
PROXY STATEMENT
Your proxy, in the form enclosed, is solicited by the Board of
Directors of Alaska Federal Savings Bank for use at a special meeting of members
to be held on _____day, _________ ___, 1999, and any adjournment of that
meeting, for the purposes set forth in the foregoing notice of special meeting.
Your Board of Directors and management urge you to vote for the Plan of
Conversion.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Alaska Federal
Savings Bank will be held at its main office at 2094 Jordan Avenue, Juneau,
Alaska, on _____day, _________ ___, 1999, at __:00 _.m., local time, for the
purpose of considering and voting upon a Plan of Conversion from Mutual Savings
Bank to Federal Stock Savings Bank and Formation of a Holding Company ("Plan of
Conversion"), which, if approved by a majority of the total votes of the members
eligible to be cast, will permit Alaska Federal to convert from a federally
chartered mutual savings bank to a federally chartered capital stock savings
bank to be held as a subsidiary of Alaska Pacific Bancshares, Inc. , a newly
organized Alaska corporation formed by Alaska Federal. The conversion of Alaska
Federal and the acquisition of control of Alaska Federal by Alaska Pacific
Bancshares are collectively referred to herein as the "Conversion." Following
consummation of the Conversion, Alaska Federal will be known as Alaska Pacific
Bank.
Members entitled to vote on the Plan of Conversion are members of
Alaska Federal as of April 30, 1999 ("Voting Record Date") who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof. The
Conversion requires the approval of not less than a majority of the total votes
eligible to be cast at the Special Meeting.
The Plan of Conversion provides, among other things, that, after
receiving final authorization from the Office of Thrift Supervision, Alaska
Federal will offer for sale shares of common stock of Alaska Pacific Bancshares
common stock ("Common Stock"), through the issuance of nontransferable
subscription rights, first to depositors of Alaska Federal with $50.00 or more
on deposit as of December 31, 1997 ("Eligible Account Holders"), then to
depositors of Alaska Federal with $50.00 or more on deposit as of March 31, 1999
("Supplemental Eligible Account Holders"), then to depositors of Alaska Federal
as of the Voting Record Date and borrowers with loans outstanding as of October
20, 1993, which continue to be outstanding as of the Voting Record Date ("Other
Members"), in a subscription offering ("Subscription Offering"), and then, if
necessary, to certain members of the general public in a direct community
offering ("Direct Community Offering"). The Subscription and Direct Community
Offerings are referred to herein as the "Subscription and Direct Community
Offerings." It is anticipated that shares of Common Stock not subscribed for in
the Subscription and Direct Community Offerings will be offered to the general
public with the assistance of Charles Webb & Company, a Division of Keefe,
Bruyette & Woods, Inc.("Charles Webb") and, if necessary, a syndicate of
registered broker-dealers to be managed by Charles Webb pursuant to selected
dealers' agreements in a syndicated offering ("Syndicated Community Offering").
The Subscription, Direct Community and Syndicated Community Offerings are
referred to herein as the "Offerings."
Adoption of a Federal Stock Charter and Bylaws of Alaska Federal is an
integral part of the Plan of Conversion. Copies of the Plan of Conversion and
the proposed Federal Stock Charter and Bylaws for Alaska Federal are attached to
this Proxy Statement as exhibits. They provide, among other things, for the
termination of voting rights of members and of their rights to receive any
surplus remaining after liquidation of Alaska Federal. These rights, except for
the
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rights of Eligible Account Holders and Supplemental Eligible Account Holders in
the liquidation account, will vest exclusively in the holders of the stock in
Alaska Pacific Bancshares and Alaska Federal. For further information, see
"ALASKA FEDERAL'S CONVERSION -- Effects of Conversion to Stock Form on
Depositors and Borrowers of Alaska Federal."
ALASKA FEDERAL SAVINGS BANK
Alaska Federal was founded as "Alaska Federal Savings and Loan
Association of Juneau" in 1935 and changed its name to "Alaska Federal Savings
Bank" in October 1993. Alaska Federal is regulated by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. Alaska Federal's
deposits have been federally-insured since 1937 and are currently insured by the
Federal Deposit Insurance Corporation under the Savings Association Insurance
Fund. Alaska Federal has been a member of the Federal Home Loan Bank System
since 1937. Alaska Federal is located at 2094 Jordan Avenue, Juneau, Alaska
99801 and its telephone number is (907) 790-4844.
Alaska Federal is a community oriented financial institution that
operates out of one office in Juneau, Alaska. Alaska Federal's principal
business is attracting deposits from the general public and using those funds to
originate residential and other mortgage loans. At December 31, 1998, Alaska
Federal had total assets of $110.8 million, deposits of $101.9 million and total
equity of $7.3 million. Alaska Federal also originates construction, commercial
real estate, land, consumer and commercial business loans.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Alaska Federal's Board of Directors has fixed the close of business on
April 30, 1999 as the record date for the determination of members entitled to
notice of and to vote at the Special Meeting. All holders of Alaska Federal's
savings or other authorized accounts and all borrowers with loans outstanding on
October 20, 1993 are members of Alaska Federal under its current charter. All
members of record as of the close of business on the Voting Record Date who
continue to be members on the date of the Special Meeting or any adjournment
thereof will be entitled to vote at the Special Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting
to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in Alaska Federal as of the
Voting Record Date. Borrowers with loans outstanding as of October 20, 1993
which continue to be outstanding as of the Voting Record Date will be entitled
to cast one vote for the period of time such borrowings remain in existence. No
member is entitled to cast more than 1,000 votes. Any number of members present
and voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of
a majority of the total outstanding votes of Alaska Federal's members eligible
to be cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately _______ votes eligible to be cast.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible member
to vote on the Plan of Conversion. All properly executed proxies received by
management will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, all
proxies will be voted on such matters in accordance with the best judgment of
the proxy holders named therein. If the enclosed proxy is returned, it may be
revoked at any time before it is voted by written notice to the Secretary of
Alaska Federal, by submitting a later dated proxy, or by attending and voting in
person at the Special Meeting. The proxies being solicited are only for use at
the
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Special Meeting and at any and all adjournments thereof and will not be used for
any other meeting. Management is not aware of any other business to be presented
at the Special Meeting.
Alaska Federal, as trustee for individual retirement accounts at Alaska
Federal, will vote in favor of the Plan of Conversion, unless the beneficial
owner executes and returns the enclosed proxy for the Special Meeting or attends
the Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Charles Webb and by officers,
directors or regular employees of Alaska Federal, in person, by telephone or
through other forms of communication. Such persons will be reimbursed by Alaska
Federal for their reasonable out-of-pocket expenses incurred in connection with
such solicitation. If necessary, the Special Meeting may be adjourned to an
alternative date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that you vote "FOR" the
Plan of Conversion. Voting in favor of the Plan of Conversion will not obligate
any voter to purchase any stock.
ALASKA FEDERAL'S CONVERSION
The Office of Thrift Supervision has approved the Plan of Conversion
with the condition that it is approved by the members of Alaska Federal entitled
to vote and to the satisfaction of certain other conditions imposed by the
Office of Thrift Supervision in its approval. Office of Thrift Supervision
approval is not a recommendation or endorsement of the Plan of Conversion.
General
On February 19, 1999, the Board of Directors of Alaska Federal
unanimously adopted the Plan of Conversion, under which Alaska Federal will be
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank to be held as a wholly-owned subsidiary of Alaska
Pacific Bancshares, a newly formed Alaska corporation. The following discussion
of the Plan of Conversion contains all material terms about the Conversion.
Nevertheless, readers are urged to read carefully the Plan of Conversion, which
is attached as Exhibit A hereto.
As part of the Conversion Alaska Federal will adopt a Federal stock
charter and bylaws to authorize the issuance of capital stock by Alaska Federal.
As part of the Conversion, Alaska Federal will issue all of its newly issued
common stock, 1,000 shares of common stock, to Alaska Pacific Bancshares in
exchange for 50% of the net proceeds from the sale of Common Stock by Alaska
Pacific Bancshares.
The Plan of Conversion provides generally that:
o Alaska Federal will convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank;
o the Common Stock will be offered by Alaska Pacific Bancshares in
the subscription offering to persons having subscription rights
and in a Direct Community Offering to certain members of the
general public, with preference given to natural persons residing
in the communities of Juneau, Ketchikan, Sitka and Wrangell, and
then to natural persons residing in counties contiguous to the
local community;
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o if necessary, shares of Common Stock not subscribed for in the
Subscription and Direct Community offering will be offered to
certain members of the general public in a Syndicated Community
offering through a syndicate of registered broker-dealers under
selected dealers agreements; and
o Alaska Pacific Bancshares will purchase all of the capital stock
of Alaska Federal to be issued in connection with the Conversion.
The Conversion will be completed only upon the sale of at least
$5,950,000 of Common Stock to be issued pursuant to the Plan of
Conversion.
As part of the Conversion, Alaska Pacific Bancshares is making a
subscription offering of its Common Stock to holders of subscription rights in
the following order of priority:
(i) depositors of Alaska Federal with $50.00 or more on deposit as of
December 31, 1997 (Eligible Account Holders);
(ii) Alaska Pacific Bancshares' employee stock ownership plan;
(iii) depositors of Alaska Federal with $50.00 or more on deposit as
of March 31, 1999 (Supplemental Eligible Account Holders); and
(iv) depositors of Alaska Federal as of April 30, 1999 and borrowers
of Alaska Federal with loans outstanding as of October 20, 1993,
which continue to be outstanding as of April 30, 1999 (Other
Members).
Shares of Common Stock not subscribed for in the Subscription and
Direct Community Offering may be offered for sale in the Syndicated Community
Offering. Regulations require that the Syndicated Community Offering be
completed within 45 days after completion of the fully extended Subscription
Offering unless extended by Alaska Federal or Alaska Pacific Bancshares with the
approval of the regulatory authorities. If the Syndicated Community Offering is
determined not to be feasible, the Board of Directors of Alaska Federal will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of Common Stock. The Plan of
Conversion provides that the Conversion must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of Alaska
Federal.
No sales of Common Stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of Alaska Federal.
The completion of the Offerings, however, depends on market conditions
and other factors beyond Alaska Federal's control. No assurance can be given as
to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the Common Stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of Alaska Pacific Bancshares and Alaska Federal, as converted, together
with corresponding changes in the net proceeds realized by Alaska Pacific
Bancshares from the sale of the Common Stock. In the event the Conversion is
terminated, Alaska Federal would be required to charge all Conversion expenses
against current income.
Orders for shares of Common Stock will not be filled until at least
595,000 shares of Common Stock have been subscribed for or sold and the Office
of Thrift Supervision approves the final valuation and the Conversion closes. If
the Conversion is not completed within 45 days after the last day of the fully
extended Subscription Offering and the Office of Thrift Supervision consents to
an extension of time to complete the Conversion, subscribers will be given the
right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Alaska Federal's passbook rate, from the date payment is
received until the funds are returned to the subscriber. If such period is not
extended, or, in any event, if the Conversion is not completed, all withdrawal
authorizations will be
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terminated and all funds held will be promptly returned together with accrued
interest at Alaska Federal's passbook rate from the date payment is received
until the Conversion is terminated.
Reasons for the Conversion
The Board of Directors and management believe that the Conversion is in
the best interests of Alaska Federal, its members and the communities it serves.
Alaska Federal's Board of Directors has formed Alaska Pacific Bancshares to
serve as a holding company, with Alaska Federal as its subsidiary, after the
Conversion. By converting to the stock form of organization, Alaska Pacific
Bancshares and Alaska Federal will be structured in the form used by holding
companies of commercial banks and by a growing number of savings institutions.
Management of Alaska Federal believes that the Conversion offers a number of
advantages which will be important to the future growth and performance of
Alaska Federal. The capital raised in the Conversion is intended to support
Alaska Federal's current lending and investment activities and may also support
possible future expansion and diversification of operations, although there are
no current specific plans, arrangements or understandings, written or oral,
regarding any such expansion or diversification. The Conversion is also expected
to afford Alaska Federal's management, members and others the opportunity to
become stockholders of Alaska Pacific Bancshares and participate more directly
in, and contribute to, any future growth of Alaska Pacific Bancshares and Alaska
Federal. The Conversion will also enable Alaska Pacific Bancshares and Alaska
Federal to raise additional capital in the public equity or debt markets should
the need arise, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any such financing activities.
Effects of Conversion to Stock Form on Depositors and Borrowers of Alaska
Federal
Voting Rights. Savings members and borrowers will have no voting rights
in Alaska Federal, as converted, or Alaska Pacific Bancshares and therefore will
not be able to elect directors of Alaska Federal or Alaska Pacific Bancshares or
to control their affairs. Currently, these rights are accorded to savings
members of Alaska Federal. After to the Conversion, voting rights will be vested
exclusively in Alaska Pacific Bancshares with respect to Alaska Federal and the
holders of the Common Stock as to matters pertaining to Alaska Pacific
Bancshares. Each holder of Common Stock shall be entitled to vote on any matter
to be considered by the stockholders of Alaska Pacific Bancshares. A stockholder
will be entitled to one vote for each share of Common Stock owned.
Deposit Accounts and Loans. Alaska Federal's deposit accounts, account
balances and existing Federal Deposit Insurance Corporation insurance coverage
of deposit accounts will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, loan balances or obligations of
borrowers under their individual contractual arrangements with Alaska Federal.
Tax Effects. Alaska Federal has received an opinion from Breyer &
Associates PC, Washington, D.C., that the Conversion will constitute a
nontaxable reorganization under Section 368(a)(1)(F) of the Internal Revenue
Code. Among other things, the opinion states that:
1. no gain or loss will be recognized to Alaska Federal in its
mutual or stock form by reason of the Conversion;
2. no gain or loss will be recognized to its account holders upon
the issuance to them of accounts in Alaska Federal immediately
after the Conversion, in the same dollar amounts and on the same
terms and conditions as their accounts at Alaska Federal in its
mutual form plus interest in the liquidation account;
3. the tax basis of account holders' accounts in Alaska Federal
immediately after the Conversion will be the same as the tax
basis of their accounts immediately prior to Conversion;
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4. the tax basis of each account holder's interest in the
liquidation account will be equal to the value, if any, of that
interest;
5. the tax basis of the Common Stock purchased in the Conversion
will be the amount paid and the holding period for the stock will
begin at the date of purchase; and
6. no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the Conversion,
except to the extent subscription rights are deemed to have value
as discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service,
an opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached therein. If
there is a disagreement, no assurance can be given that the conclusions reached
in an opinion of counsel would be sustained by a court if contested by the
Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the
opinion provides that the receipt of subscription rights by certain persons
under the Plan of Conversion will be taxable to the extent, if any, that the
subscription rights are deemed to have a fair market value. RP Financial, LC., a
financial consulting firm retained by Alaska Federal, whose findings are not
binding on the Internal Revenue Service, has issued a letter indicating that the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
Common Stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the subscription rights are deemed to
have a fair market value, the receipt of the rights may only be taxable to those
persons who exercise their subscription rights. Alaska Federal could also
recognize a gain on the distribution of such subscription rights. Holders of
subscription rights are encouraged to consult with their own tax advisors as to
the tax consequences in the event the subscription rights are deemed to have a
fair market value.
Alaska Federal has also received an opinion from Deloitte & Touche LLP,
Anchorage, Alaska, that, assuming the Conversion does not result in any federal
income tax liability to Alaska Federal, its account holders, or Alaska Pacific
Bancshares, implementation of the Plan of Conversion will not result in any
Alaska income tax liability to such entities or persons.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
Alaska Federal in its present mutual form, each depositor in Alaska Federal
would receive a pro rata share of any assets of Alaska Federal remaining after
payment of claims of all creditors, including the claims of all depositors up to
the withdrawal value of their accounts. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account to the total value of all deposit accounts in Alaska Federal at the time
of liquidation.
After the Conversion, holders of withdrawable deposit(s) in Alaska
Federal, including certificates of deposit, shall not be entitled to share in
any residual assets in the event of liquidation of Alaska Federal. However,
under Office of Thrift Supervision regulations, Alaska Federal shall, at the
time of the Conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained in the final Prospectus relating to the Conversion.
The liquidation account shall be maintained by Alaska Federal
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their savings accounts in
Alaska
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Federal. Each Eligible Account Holder and Supplemental Eligible Account Holder
shall, with respect to each savings account held, have a related inchoate
interest in a subaccount portion of the liquidation account balance .
The initial subaccount balance for a savings account held by an
Eligible Account Holder or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the savings account and the denominator is the total amount of the
"qualifying deposits" of all Eligible Account Holders. The initial subaccount
balance shall not be increased, and it shall be decreased as provided below.
If the deposit balance in any savings account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing day of Alaska Federal subsequent to December 31, 1997 or March
31, 1999 is less than the lesser of the deposit balance in a savings account at
the close of business on any other annual closing date subsequent to December
31, 1997 or March 31, 1999, or the amount of the "qualifying deposit" in a
savings account on December 31, 1997 or March 31, 1999, then the subaccount
balance for a savings account shall be adjusted by reducing the subaccount
balance in an amount proportionate to the reduction in the deposit balance. Once
reduced, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related savings
account. If any savings account is closed, the related subaccount balance shall
be reduced to zero.
Only upon a complete liquidation of Alaska Federal, each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for savings account(s) then held
by the holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of savings
accounts and other liabilities or similar transactions with another federally
insured institution in which Alaska Federal is not the surviving institution
shall be considered to be a complete liquidation. In any of these transactions
the liquidation account shall be assumed by the surviving institution.
In the unlikely event Alaska Federal is liquidated after the
Conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to Alaska Pacific Bancshares as the sole
stockholder of Alaska Federal.
REVIEW OF THE OFFICE OF THRIFT SUPERVISION'S ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a Plan of Conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the Office of
Thrift Supervision be modified, terminated or set aside. Such petition must be
filed within 30 days after the publication of notice of such final action in the
Federal Register, or 30 days after the mailing by the applicant of the notice to
members as provided for in 12 C.F.R. ss.563b.6(c), whichever is later. The
further procedure for review is as follows: A copy of the petition is forthwith
transmitted to the Office of Thrift Supervision by the clerk of the court and
thereupon the Office of Thrift Supervision files in the court the record in the
proceeding, as provided in Section 2112 of Title 28 of the United States Code.
Upon the filing of the petition, the court has jurisdiction, which upon the
filing of the record is exclusive, to affirm, modify, terminate, or set aside in
whole or in part, the final action of the Office of Thrift Supervision. Review
of such proceedings is as provided in Chapter 7 of Title 5 of the United States
Code. The judgment and decree of the court is final, except that they are
subject to review by the United States Supreme Court upon certiorari as provided
in Section 1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
Alaska Pacific Bancshares has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-74827) under the
Securities Act with respect to the Common Stock offered in the
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Conversion. The Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Securities and Exchange Commission. Such
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Registration Statement also is available
through the Securities and Exchange Commission's World Wide Web site on the
Internet (http://www.sec.gov).
Alaska Federal has filed with the Office of Thrift Supervision an
Application for Approval of Conversion, which includes proxy materials for
Alaska Federal's Special Meeting of members and certain other information. This
Prospectus omits certain information contained in the Application for Approval
of Conversion. The Application, including the proxy materials, exhibits and
certain other information that are a part of the Application for Approval of
Conversion, may be inspected, without charge, at the offices of the Office of
Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552 and at the
office of the Regional Director at the West Regional Office of the Office of
Thrift Supervision, Pacific Telesis Tower, 1 Montgomery Street, Suite 400, San
Francisco, California 94104.
Copies of Alaska Pacific Bancshares's Articles of Incorporation and
Bylaws may be obtained by written request to Alaska Federal.
All persons eligible to vote at the Special Meeting should review both
this Proxy Statement and the accompanying Prospectus carefully. However, no
person is obligated to purchase any Common Stock. For additional information,
you may call the Stock Information Center toll free at (888) 277-8625.
BY ORDER OF THE BOARD OF DIRECTORS
REBECCA J. BAXTER
SECRETARY
Juneau, Alaska
__________ __, 1999
Your Board of Directors urges you to consider carefully the information
contained in this Proxy Statement and the Prospectus and, whether or not you
plan to be present in person at the Special Meeting, to fill in, date, sign and
return the enclosed proxy card(s) as soon as possible to assure that your votes
will be counted. This will not prevent you from voting in person if you attend
the Special Meeting. You may revoke your proxy by written instrument delivered
to the secretary of Alaska Federal at any time prior to or at the Special
Meeting or by attending the Special Meeting and voting in person.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
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EXHIBIT A
ALASKA FEDERAL SAVINGS BANK
JUNEAU, ALASKA
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS BANK
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
I. General
It is the desire of the Board of Directors to attract new capital to the
Savings Bank to increase its net worth, to support future savings growth, to
increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion by the Savings Bank. In addition, the Board of
Directors intends to implement stock option plans and other stock benefit plans
as part of the Conversion in order to attract and retain qualified directors and
officers. It is the further desire of the Board of Directors to reorganize the
Savings Bank as the wholly owned subsidiary of a holding company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Savings Bank to compete more effectively with other financial service
organizations. Accordingly, on February 19, 1999, the Board of Directors of
Alaska Federal Savings Bank ("Savings Bank"), after careful study and
consideration, adopted, and on April 16, 1999, subsequently amended, by
unanimous vote this Plan of Conversion ("Plan"), which provides for the
conversion of the Savings Bank from a federally chartered mutual savings bank to
a federally chartered stock savings bank and the concurrent formation of a
holding company for the Savings Bank ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to the Plan, shares of Conversion Stock will be offered as part of
the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the Savings
Bank's Eligible Account Holders, second to the Tax-Qualified Employee Stock
Benefit Plans, third to Supplemental Eligible Account Holders, and fourth to
Other Members of the Savings Bank. Concurrently with the Subscription Offering,
shares not subscribed for in the Subscription Offering will be offered as part
of the Conversion to the general public in a Direct Community Offering. Shares
still remaining may then be offered to the general public in a Syndicated
Community Offering, an underwritten public offering or otherwise. The aggregate
Purchase Price of the Conversion Stock will be based upon an independent
appraisal of the Savings Bank and will reflect the estimated pro forma market
value of the Savings Bank as a subsidiary of the Holding Company.
The Conversion is subject to regulations of the Director of the OTS (Part
563b of the Rules and Regulations Applicable to All Savings Associations) as
promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the Savings
Bank holding not less than a majority of the total votes eligible to be cast at
a special meeting of the Members to be called to consider the Conversion.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
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II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person, means
(i) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan and (iii) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Savings Bank, any of its subsidiaries, or the Holding Company.
C. Capital Stock: Any and all authorized capital stock in the Savings Bank,
as converted.
D. Common Stock: Any and all authorized common stock in the Holding Company
subsequent to the Conversion.
E. Conversion: (i) Amendment of the Savings Bank's Charter and Bylaws to
authorize issuance of shares of Capital Stock by the Savings Bank and to conform
to the requirements of a Federal stock savings bank under the laws of the United
States and regulations of the OTS; (ii) issuance and sale of Conversion Stock by
the Holding Company in the Subscription Offering and Direct Community Offering;
and (iii) purchase by the Holding Company of the Capital Stock of the Savings
Bank to be issued in the Conversion immediately following or concurrently with
the close of the sale of all Conversion Stock.
F. Conversion Stock: Holding Company common stock to be issued and sold by
the Holding Company pursuant to the Plan.
G. Direct Community Offering: The offering for sale of Conversion Stock to
the public.
H. Eligibility Record Date: December 31, 1997.
I. Eligible Account Holder: Holder of a Qualifying Deposit in the Savings
Bank on the Eligibility Record Date.
J. FDIC: Federal Deposit Insurance Corporation.
K. Form AC Application: The application submitted to the OTS for approval
of the Conversion.
L. H-(e)1 Application: The application submitted to the OTS on OTS Form
H-(e)1 or Form H-(e)1- S, if applicable, for approval of the Holding Company's
acquisition of all of the Capital Stock of the Savings Bank.
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M. Holding Company: A corporation to be formed by the Savings Bank under
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Savings Bank to be issued pursuant to the Plan.
N. Holding Company Stock: Any and all authorized capital stock of the
Holding Company.
O. Local Community: City and Boroughs of Juneau and Ketchikan, and the
communities of Sitka and Wrangell, Alaska.
P. Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
Q. Members: All Persons or entities who qualify as members of the Savings
Bank pursuant to its Charter and Bylaws prior to the Conversion.
R. Officer: An executive officer of the Savings Bank, which includes the
Chairman of the Board, President, Executive Vice President, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary and the Treasurer as well as any other person performing similar
functions.
S. Order Forms: Forms to be used for the purchase of Conversion Stock sent
to Eligible Account Holders and other parties eligible to purchase Conversion
Stock in the Subscription Offering pursuant to the Plan.
T. Other Member: Holder of a Savings Account (other than Eligible Account
Holders and Supplemental Eligible Account Holders) as of the Record Date and
borrowers from the Savings Bank as provided in the Savings Bank's Federal Mutual
Charter who continue to be borrowers from the Savings Bank as of the Record
Date.
U. OTS: Office of Thrift Supervision of the United States Department of the
Treasury.
V. Person: An individual, corporation, partnership, association, joint
stock company, unincorporated organization or a government or any
politicalsubdivision thereof.
W. Plan: This Plan of Conversion, which provides for the conversion of the
Savings Bank from a federally chartered mutual savings bank to a federally
chartered capital stock savings bank as a wholly owned subsidiary of the Holding
Company, as originally adopted by the Board of Directors or as amended in
accordance with the terms thereof.
X. Qualifying Deposit: The deposit balance in any Savings Account as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a deposit balance of
less than $50 shall constitute a Qualifying Deposit.
Y. Record Date: Date which determines which Members are entitled to vote at
the Special Meeting.
Z. Registration Statement: The registration statement on Form SB-2 or other
applicable forms filed by the Holding Company with the SEC for the purpose of
registering the Conversion Stock under the Securities Act of 1933, as amended.
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AA. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
including certificates of deposit, demand deposit accounts and
non-interest-bearing accounts.
BB. Savings Bank: Alaska Federal Savings Bank, in its present form as a
federally chartered mutual savings bank.
CC. SEC: Securities and Exchange Commission.
DD. Special Meeting: The special meeting of Members called for the purpose
of considering the Plan for approval.
EE. Subscription Offering: The offering of Conversion Stock to Eligible
Account Holders, Tax- Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
FF. Subscription Rights: Non-transferable, non-negotiable, personal rights
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
GG. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Plan by the OTS.
HH. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit in
the Savings Bank (other than an Officer or director or their Associates) on the
Supplemental Eligibility Record Date.
II. Syndicated Community Offering: The offering for sale by a syndicate of
broker-dealers to the general public of shares of Conversion Stock not purchased
in the Subscription Offering and the Direct Community Offering.
JJ. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan or
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
Prior to submission of the Plan to the Members for approval, the Savings
Bank must receive approval from the OTS of the Form AC Application. Prior to
such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Savings Bank shall notify the Members of the adoption of the Plan by
publishing legal notice in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion may be submitted to
the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Savings Bank.
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
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F. As soon as practicable following the adoption of this Plan, the Savings
Bank shall file the Form AC Application, and the Holding Company shall file the
Registration Statement and the H-(e)1 Application. Upon filing the Form AC
Application, the Savings Bank shall publish legal notice of the filing of the
Form AC Application in a newspaper having a general circulation in each
community in which the Savings Bank maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Savings Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Savings Bank or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Savings Bank's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Savings Bank shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Savings Bank shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supple mental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
VI. Offering Documents
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The Savings
Bank's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders (if applicable) and Other Members to
return to the Savings Bank by a reasonable certain date a postage prepaid card
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation
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materials. If the Subscription Offering is not commenced within 45 days after
the Special Meeting, the Savings Bank may transmit, not more than 30 days prior
to the commencement of the Subscription Offering, to each Eligible Account
Holder, Supplemental Eligible Account Holder and other eligible subscribers who
had been furnished with proxy solicitation materials a notice which shall state
that the Savings Bank is not required to furnish a Prospectus to them unless
they return by a reasonable date certain a postage prepaid card or other written
communication requesting the receipt of the Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
Instead of a separate Subscription Offering, all Subscription Rights may be
exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
After receipt of all orders for Conversion Stock, and concurrently with the
execution thereof, the amendment of the Savings Bank's Federal mutual Charter
and Bylaws to authorize the issuance of shares of Capital Stock and to conform
to the requirements of a Federal capital stock savings bank will be declared
effective by the OTS, the amended Charter and Bylaws approved by the Members
will become effective. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Savings Bank will become
a wholly owned subsidiary of the Holding Company. The Savings Bank will issue to
the Holding Company 1,000 shares of its common stock, representing all of the
shares of Capital Stock to be issued by the Savings Bank, and the Holding
Company will make payment to the Savings Bank of that portion of the aggregate
net proceeds realized by the Holding Company from the sale of the Conversion
Stock under the Plan as may be authorized or required by the OTS.
IX. Stock Offering
A. Number of Shares
The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Board of Directors of the Savings Bank and
the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Savings Bank and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Savings Bank, as converted, at such
time. The estimated pro forma market value of the Savings Bank shall be
determined for such purpose by an independent appraiser on the basis of such
appropriate factors not inconsistent with the regulations of the OTS.
Immediately prior to the Subscription Offering,
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a subscription price range shall be established which shall vary from 15% above
to 15% below the average of the minimum and maximum of the estimated price
range. The maximum subscription price (i.e., the per share amount to be remitted
when subscribing for shares of Conversion Stock) shall then be determined within
the subscription price range by the Board of Directors of the Savings Bank. The
subscription price range and the number of shares to be offered may be revised
after the completion of the Subscription Offering with OTS approval without a
resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20 per share, the minimum number of shares which must be
subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500. The
priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase that
number of shares of Conversion Stock which is equal to the greater of the
maximum purchase limitation established for the Direct Community Offering,
one-tenth of one percent of the total offering or 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of shares of Conversion Stock to be issued by a fraction of which
the numerator is the amount of the Qualifying Deposit of the Eligible
Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders. If the allocation made in this
paragraph results in an oversubscription, shares of Conversion Stock shall
be allocated among subscribing Eligible Account Holders so as to permit
each such account holder, to the extent possible, to purchase a number of
shares of Conversion Stock sufficient to make his total allocation equal to
100 shares of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock not so allocated shall be
allocated among the subscribing Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying Deposits as
compared to the total Qualifying Deposits of all Eligible Account Holders.
b. Subscription Rights received by Officers and directors of the
Savings Bank and their Associates, as Eligible Account Holders, based on
their increased deposits in the Savings Bank in the one-year period
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of Subscription Rights pursuant to
this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
a. Tax-Qualified Employee Stock Benefit Plans of the Savings Bank
shall receive, without payment, non-transferable Subscription Rights to
purchase in the aggregate up to 8% of the Conversion Stock, including
shares of Conversion Stock to be issued in the Conversion as result of an
increase in the estimated price range after commencement of the
Subscription Offering and prior to the completion of the Conversion. The
Subscription Rights granted to Tax- Qualified Stock Benefit Plans of the
Savings Bank shall be subject to the availability of shares of Conversion
Stock after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders; provided, however, that in the event the number
of shares offered in the Conversion is increased to an amount
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greater than the maximum of the estimated price range as set forth in the
Prospectus ("Maximum Shares"), the Tax-Qualified Employee Stock Benefit
Plans shall have a priority right to purchase any such shares exceeding the
Maximum Shares up to an aggregate of 8% of the Conversion Stock.
Tax-Qualified Employee Stock Benefit Plans may use funds contributed or
borrowed by the Holding Company or the Savings Bank and/or borrowed from an
independent financial institution to exercise such Subscription Rights, and
the Holding Company and the Savings Bank may make scheduled discretionary
contributions thereto, provided that such contributions do not cause the
Holding Company or the Savings Bank to fail to meet any applicable capital
requirements.
3. Category 3: Supplemental Eligible Account Holders
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC Application
filed prior to OTS approval, then, and only in that event, each
Supplemental Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying Deposit
of the Supplemental Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all Supplemental Eligible
Account Holders.
b. Subscription Rights received pursuant to this category shall be
subordinated to Subscription Rights granted to Eligible Account Holders and
Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category Number 1
shall reduce to the extent thereof the Subscription Rights to be
distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Category, shares of Conversion Stock shall be allocated
among the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be allocated so as to permit
each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
(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 Supplemental Eligible Account
Holders.
4. Category 4: Other Members
a. Other Members shall receive, without payment, Subscription Rights
to purchase shares of Conversion Stock, after satisfying the subscriptions
of Eligible Account Holders, Tax-
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Qualified Employee Stock Benefit Plans and Supplemental Eligible Account
Holders pursuant to Category Nos. l, 2 and 3 above, subject to the
following conditions:
(1) Each such Other Member shall be entitled to subscribe for the
greater of the maximum purchase limitation established for the Direct
Community Offering or one-tenth of one percent of the total offering.
(2) In the event of an oversubscription for shares of Conversion
Stock pursuant to Category No. 4, the shares of Conversion Stock
available shall be allocated among the subscribing Other Members pro
rata on the basis of the amounts of their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person, including Persons on a joint account, may purchase in the Direct
Community Offering shares of Conversion Stock with an aggregate purchase
price that exceeds $125,000. The right to purchase shares of Conversion
Stock under this Category is subject to the right of the Savings Bank or
the Holding Company to accept or reject such subscriptions in whole or in
part. In the event of an oversubscription for shares in this Category, the
shares available shall be allocated among prospective purchasers pro rata
on the basis of the amounts of their respective orders. The offering price
for which such shares are sold to the general public in the Direct
Community Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering shall
be offered and sold in a manner that will achieve the widest distribution
thereof. Preference shall be given in the Direct Community Offering to
natural Persons residing in the Local Community and then to natural Persons
residing in the counties contiguous to the Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of
broker-dealers to the general public in a Syndicated Community Offering.
Each order for Conversion Stock in the Syndicated Community Offering shall
be subject to the absolute right of the Savings Bank and the Holding
Company to accept or reject any such order in whole or in part either at
the time of receipt of an order or as soon as practicable after completion
of the Syndicated Community Offering. No Person may purchase in the
Syndicated Community Offering shares of Conversion Stock with an aggregate
purchase price that exceeds $125,000. The Savings Bank and the Holding
Company may commence the Syndicated Community Offering concurrently with,
at any time during, or as soon as practicable after the end of the
Subscription Offering and/or Direct Community Offering, provided that the
Syndicated Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Savings
Bank and the Holding Company with the approval of the OTS.
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5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering appears not feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. Purchases of shares of Conversion Stock in the Conversion,
including purchases in the Direct Community Offering or Syndicated
Community Offering, by any Persons Acting in Concert, shall not exceed an
aggregate purchase price of $250,000, except that Tax-Qualified Employee
Stock Benefit Plans may purchase up to 8% of the total Conversion Stock
issued in the Conversion and shares held or to be held by the Tax-Qualified
Employee Stock Benefit Plans and attributable to a Person shall not be
aggregated with other shares purchased directly by or otherwise
attributable to such Person.
2. Officers and directors and Associates thereof may not purchase in
the aggregate more than 33% of the shares issued in the Conversion.
3. The Savings Bank's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. Persons, Associates thereof, or group of Persons Acting in Concert,
may not purchase shares of Conversion Stock with an aggregate purchase
price of more than $250,000, except that Tax- Qualified Employee Stock
Benefit Plans may purchase up to 8% of the total Conversion Stock issued
and shares held or to be held by the Tax-Qualified Employee Stock Benefit
Plans and attributable to a Person shall not be aggregated with other
shares purchased directly by or otherwise attributable to such Person.
5. The Savings Bank's Board of Directors, with the approval of the OTS
and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Savings Bank or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Savings
Bank or the Holding Company, as the case may be, is only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Savings Bank or the Holding Company, as the
case may be, resolicit certain other large subscribers. If the Savings Bank
or the Holding Company, as the case may be, decreases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so that
such Person shall be in compliance with the then maximum number of shares
permitted to be subscribed for by such Person.
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Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Persons. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
1. Transferability. Conversion Stock purchased by Officers and
directors of the Savings Bank and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this certificate
pursuant to Part 563b of the Rules and Regulations of the Office of
Thrift Supervision. These shares may not be transferred prior thereto
without a legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
approval of the OTS, if applicable, Officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax- Qualified Employee Stock Benefit
Plan which may be attributable to such directors and officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. For a period of three years from
the date of Conversion, repurchases of Holding Company Stock by the Holding
Company from any Person shall be subject to the then applicable rules and
regulations of the OTS. The Savings Bank may not declare or pay a cash
dividend on or repurchase any of its Capital Stock if the result thereof
would be to reduce the regulatory capital of the Savings Bank below the
amount required for the liquidation account described in Paragraph XIII.
Further, any dividend declared or paid on the Capital Stock shall comply
with the then applicable rules and regulations of the OTS.
4. Voting Rights. After the Conversion, holders of Savings Accounts in
and obligors on loans of the Savings Bank will not have voting rights in
the Savings Bank. Exclusive voting rights with respect to
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the Holding Company shall be vested in the holders of Holding Company
Stock; holders of Savings Accounts in and obligors on loans of the Savings
Bank will not have any voting rights in the Holding Company except and to
the extent that such Persons become stockholders of the Holding Company,
and the Holding Company will have exclusive voting rights with respect to
the Savings Bank's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account in the Savings Bank
such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account. The Savings Bank shall pay interest at not less than the
passbook rate on all amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account, the funds shall remain in the subscriber's Savings Account and
shall continue to earn interest, but may not be used by such subscriber until
the Conversion is completed or terminated, whichever is earlier. The withdrawal
shall be given effect only concurrently with the sale of all shares of
Conversion Stock proposed to be sold in the Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Savings Bank shall allow subscribers to purchase shares of Conversion Stock
by withdrawing funds from certificate accounts held with the Savings Bank
without the assessment of early withdrawal penalties, subject to the approval,
if necessary, of the applicable regulatory authorities. In the case of early
withdrawal of only a portion of such account, the certificate evidencing such
account shall be canceled if the remaining balance of the account is less than
the applicable minimum balance requirement. In that event, the remaining balance
shall earn interest at the passbook rate. This waiver of the early withdrawal
penalty is applicable only to withdrawals made in connection with the purchase
of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
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I. Undelivered, Defective or Late Order Forms; Insufficient Payment
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon; (iii) is
defectively completed or executed; or (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person to whom such rights have been granted shall not be honored and shall be
treated as though such Person failed to return the completed Order Form within
the time period specified therein. Alternatively, the Holding Company or Savings
Bank may, but shall not be required to, waive any irregularity relating to any
Order Form or require the submission of a corrected Order Form or the remittance
of full payment for the shares of Conversion Stock subscribed for by such date
as the Holding Company or Savings Bank may specify. Subscription orders, once
tendered, shall not be revocable. The Holding Company's and Savings Bank's
interpretation of the terms and conditions of the Plan and of the Order Forms
shall be final.
J. Members in Non-Qualified States or in Foreign Countries
The Holding Company and the Savings Bank will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan reside. However,
the Holding Company and the Savings Bank are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Holding Company or the Savings Bank determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request or
requirement that the Holding Company and the Savings Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or Common Stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small relative to other states,
the Holding Company and the Savings Bank will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
X. Federal Stock Charter and Bylaws
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Savings Bank to operate as a federal capital stock
savings bank. By approving the Plan, the Members of the Savings Bank will
thereby approve the amended Federal Stock Charter and Bylaws. Prior to
completion of the Conversion, the proposed Federal Stock Charter and Bylaws may
be amended in accordance with the provisions and limitations for amending the
Plan under Paragraph XVII below. The effective date of the adoption of the
Federal Stock Charter and Bylaws shall be the date of the issuance of the
Conversion Stock, which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
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The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts shall retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a withdrawable Savings Account or accounts after the
Conversion, equal in amount to the withdrawable value of such holder's Savings
Account or accounts prior to Conversion. All Savings Accounts will continue to
be insured by the Savings Association Insurance Fund of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after the Conversion as they had prior to the Conversion. See Paragraph IX.F.4.
with respect to the termination of voting rights of Members.
XIII. Liquidation Account
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Savings Bank.
However, the Savings Bank shall, at the time of the Conversion, establish a
liquidation account in an amount equal to its total net worth as of the date of
the latest statement of financial condition contained in the final Prospectus.
The function of the liquidation account shall be to establish a priority on
liquidation and, except as provided in Paragraph IX.F.3 above, the existence of
the liquidation account shall not operate to restrict the use or application of
any of the net worth accounts of the Savings Bank.
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall be
subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the Eligibility Record Date is less than the lesser
of (i) the deposit balance in such Savings Account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Savings Bank, each Eligible
Account Holder and Sup plemental Eligible Account Holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for Savings Account(s) then held
by such holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of Savings
Accounts and other liabilities or similar transactions with another
Federally-insured institution in which the Savings Bank is not the surviving
institution shall be considered to be a complete liquidation. In any such
transaction, the liquidation account shall be assumed by the surviving
institution.
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XIV. Regulatory Restrictions on Acquisition of Holding Company
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person, directly
or indirectly, acquires beneficial ownership of more than 10% of any class of
equity security of the Holding Company within such three-year period, without
the prior approval of the OTS, stock of the Holding Company beneficially owned
by such Person in excess of 10% shall not be counted as shares entitled to vote
and shall not be voted by any Person or counted as voting shares in connection
with any matter submitted to the stockholders for a vote. The provisions of this
regulation shall not apply to the acquisition of securities by Tax-Qualified
Employee Stock Benefit Plans provided that such plans do not have beneficial
ownership of more than 25% of any class of equity security of the Holding
Company.
B. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the date of
the completion of the Conversion, no Person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of any
class of equity security of the Holding Company. Such provisions would not apply
to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans
provided that such plans do not have beneficial ownership of more than 25% of
any class of equity security of the Holding Company. The Holding Company may
provide in its articles of incorporation for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Savings Bank at the time of
Conversion shall continue to serve as a member of the Savings Bank's Board of
Directors, subject to the Converted Savings Bank's charter and bylaws. The
Persons serving as Officers immediately prior to the Conversion will continue to
serve at the discretion of the Board of Directors in their respective capacities
as Officers of the Savings Bank. In connection with the Conversion, the Savings
Bank and the Holding Company may enter into employment agreements on such terms
and with such officers as shall be determined by the Boards of Directors of the
Savings Bank and the Holding Company.
XVI. Executive Compensation
The Savings Bank and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
XVII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
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In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
The Holding Company and the Savings Bank shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
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EXHIBIT B
FEDERAL STOCK CHARTER
ALASKA PACIFIC BANK
SECTION 1. CORPORATE TITLE. The full corporate title of the savings bank is
Alaska Pacific Bank ("Savings Bank").
SECTION 2. OFFICE. The home office shall be located in Juneau, Alaska.
SECTION 3. DURATION. The duration of the Savings Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Savings Bank is to pursue
any or all of the lawful objectives of a Federal savings bank chartered under
section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
capital stock that the Savings Bank has the authority to issue is 10,000, of
which 1,000 shares shall be common stock of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock, having no par value. The
shares may be issued from time to time as authorized by the board of directors
without further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Savings Bank. The consideration for
the shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the Savings Bank, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the Savings Bank, shall
be conclusive. In the case of a stock dividend, that part of the retained
earnings of the Savings Bank that is transferred to common stock or paid-in
capital accounts upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
Except for shares issued in the initial organization of the Savings Bank or
in connection with the conversion of the Savings Bank from the mutual to stock
form of capitalization, no shares of capital stock (including shares issuable
upon conversion, exchange or exercise of other securities) shall be issued,
directly or indirectly, to officers, directors, or controlling persons of the
Savings Bank other than as part of a general public offering or as qualifying
shares to a director, unless their issuance or the plan under which they would
be issued has been approved by a majority of the total votes eligible to be cast
at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors, unless the charter
otherwise provides that there shall be no such cumulative voting: PROVIDED, that
this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
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(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or consolidation
of the Savings Bank with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the Savings Bank if the
preferred stock is exchanged for securities of such other corporation:
PROVIDED, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the Office
of the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this Section 5 (or
in any supplementary sections hereto), including any amendment which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of authorized shares
of any class or series of capital stock, or substitutes the surviving
Savings Bank in a merger or consolidation for the Savings Bank, shall not
be considered to be such an adverse change.
A description of the different classes and series (if any) of the
Savings Bank's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class
of and series (if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by each
holder, except as to the cumulation of votes for the election of
directors, unless the charter otherwise provides that there shall be
no such cumulative voting.
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund,
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of
the Savings Bank, the holders of the common stock (and the holders of
any class or series of stock entitled to participate with the common
stock in the distribution of assets) shall be entitled to receive, in
cash or in kind, the assets of the Savings Bank available for
distribution remaining after: (i) payment or provision for payment of
the Savings Bank's debts and liabilities; (ii) distributions or
provision for distributions in settlement of its liquidation account;
and (iii) distributions or provisions for distributions to holders of
any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Savings Bank.
Each share of common stock shall have the same relative rights as and
be identical in all respects with all the other shares of common
stock.
B. PREFERRED STOCK. The Savings Bank may provide in supplementary
sections to its charter for one or more classes of preferred stock,
which shall be separately identified. The shares of any class may be
divided into and issued in series, with each series separately
designated so as to distinguish the shares thereof from the shares of
all other series and classes. The terms of each series shall be set
forth in a supplementary section to the charter. All shares of the
same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of
shares constituting such series;
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(b) The dividend rate or the amount of dividends to be paid
on the shares of such series, whether dividends shall be
cumulative and, if so, from which date(s) the payment date(s) for
dividends, and the participating or other special rights, if any,
with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of
such series;
(d) Whether the shares of such series shall be redeemable
and, if so, the price(s) at which, and the terms and conditions
on which such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution,
or winding up of the Savings Bank;
(f) Whether the shares of such series shall be entitled to
the benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes
of stock of the Savings Bank and, if so, the conversion price(s)
or the rate(s) of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares
of serial preferred stock and whether such shares may be reissued
as shares of the same or any other series of serial preferred
stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Savings
Bank shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Savings
Bank shall not be entitled to preemptive rights with respect to any shares of
the Savings Bank which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Office's Regulations (12 CFR Subchapter D), the Savings Bank shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1997 and March 31, 1999. In the event of a complete liquidation
of the Savings Bank, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the Savings Bank's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence: Provided, that an eligible savers' inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the Savings Bank's stockholders.
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SECTION 8. DIRECTORS. The Savings Bank shall be under the direction of a
Board of Directors. The authorized number of directors, as stated in the Savings
Bank's bylaws, shall not be fewer than five nor more than fifteen except when a
greater or lesser number is approved by the Director of the Office, or his or
her delegate.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is proposed by the Board of Directors of the Savings Bank,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
* * *
Attest: By:
---------------------------- ------------------------------------
Secretary of the Savings Bank Craig E. Dahl
President or Chief Executive Officer
of the Savings Bank
By: By:
---------------------------- ------------------------------------
Secretary of the Director of the
Office of Thrift Supervision Office of Thrift Supervision
Effective Date: _________________, 1999
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EXHIBIT C
BYLAWS
ALASKA PACIFIC BANK
ARTICLE I - HOME OFFICE
The home office of Alaska Pacific Bank ("Savings Bank") shall be located at
2094 Jordan Avenue, in the City of Juneau, in the County of Juneau, in the State
of Alaska.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Savings Bank or at such
other place as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Savings
Bank for the election of directors and for the transaction of any other business
of the Savings Bank shall be held annually within 150 days after the end of the
Savings Bank's fiscal year on the _______ ______day of April, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at _:00 p.m., Pacific Time, or at such other date and time within
such 150-day period as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the President, or a majority of the Board of Directors,
and shall be called by the Chairman of the Board, the President, or the
Secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Savings Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Savings Bank addressed to the
Chairman of the Board, the President, or the Secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
Board of Directors adopts another written procedure for conduct of meetings. The
Board of Directors shall designate, when present, either the Chairman of the
Board or President to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the President, or the Secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Savings Bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjourn ment is
taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action
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requiring such determination of shareholders is to be taken. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Savings Bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Savings
Bank and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or the shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute PRIMA FACIE evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders. In lieu of making the shareholder list available
for inspection by shareholders as provided in the preceding paragraph, the Board
of Directors may elect to follow procedures prescribed in Section 552.6(d) of
the Office's regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the Savings Bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or repre sented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the Board of Directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
Savings Bank if no other instructions are received. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
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control of a receiver may be voted by such receiver without the transfer into
his or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Every shareholder entitled to vote at an
election for directors shall have the right to vote, in person or by proxy, the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board or the President may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the Chairman of the
Board or the President.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the Secretary of the Savings Bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Savings Bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Savings
Bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed
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and considered, but unless stated in writing and filed with the Secretary at
least five days before the meeting, such proposal shall be laid over for action
at an adjourned, special, or annual meeting of the shareholders taking place 30
days or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Savings Bank
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of seven
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The Board of Directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
SECTION 4. QUALIFICATION. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Savings
Bank unless the Savings Bank is a wholly owned subsidiary of a holding company.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the President, or
one-third of the directors. The persons authorized to call special meetings of
the Board of Directors may fix any place, within the Savings Bank's normal
lending territory, as the place for holding any special meeting of the Board of
Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
SECTION 6. NOTICE. Written notice of any special meeting shall be given to
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Savings Bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the Secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
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SECTION 7. QUORUM. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Savings Bank
addressed to the Chairman of the Board or the President. Unless otherwise
specified, such resignation shall take effect upon receipt by the Chairman of
the Board or the President. More than three consecutive absences from regular
meetings of the Board of Directors, unless excused by resolution of the Board of
Directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the Board of Directors.
SECTION 11. VACANCIES. Any vacancy occurring on the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the Board of Directors may determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Savings Bank who is
present at a meeting of the Board of Directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
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ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the Board of Directors
is not in session, shall have and may exercise all of the authority of the Board
of Directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the Board of Directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Savings Bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the Savings Bank
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the Savings Bank; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full Board of Directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the President or Secretary of the Savings Bank. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
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SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Savings Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Savings Bank shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer or
Comptroller, each of whom shall be elected by the Board of Directors. The Board
of Directors may also designate the Chairman of the Board as an officer. The
offices of the Secretary and Treasurer or Comptroller may be held by the same
person and a Vice President may also be either the Secretary or the Treasurer or
Comptroller. The Board of Directors may designate one or more vice presidents as
Executive Vice President or Senior Vice President. The Board of Directors may
also elect or authorize the appointment of such other officers as the business
of the Savings Bank may require. The officers shall have such authority and
perform such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Savings Bank
shall be elected annually at the first meeting of the Board of Directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The Board of Directors may
authorize the Savings Bank to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the Board of Directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Savings Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the Board of Directors may authorize any officer, employee, or agent
of the Savings Bank to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Savings Bank. Such authority may
be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Savings
Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Savings Bank shall be signed by one or more officers, employees, or
agents of the Savings Bank in such manner as shall from time to time be
determined by the Board of Directors.
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SECTION 4. DEPOSITS. All funds of the Savings Bank not otherwise employed
shall be deposited from time to time to the credit of the Savings Bank in any
duly authorized depositories as the Board of Directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the Board of Directors and approved by the Office. Such certificates shall be
signed by the Chief Executive Officer or by any other officer of the Savings
Bank authorized by the Board of Directors, attested by the Secretary or an
Assistant Secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Savings Bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the Savings Bank. All certificates surrendered to the Savings Bank for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Savings Bank as
the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Savings Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Savings Bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Savings Bank shall be deemed by the Savings Bank
to be the owner for all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Savings Bank shall end on the 31st day of December
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Savings Bank's charter and the regulations and
orders of the Office, the Board of Directors may, from time to time, declare,
and the Savings Bank may pay, dividends on its outstanding shares of capital
stock.
ARTICLE X - CORPORATE SEAL
The Board of Directors shall provide an Savings Bank seal, which shall be
two concentric circles between which shall be the name of the Savings Bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized Board of Directors, or by a majority vote of the votes
cast by the shareholders of the Savings Bank at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an Savings Bank fails to
meet its quorum requirements, solely due to vacancies on the Board, then the
affirmative vote of a majority of the sitting Board will be required to amend
the bylaws.
* * *
C-8
<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF
ALASKA FEDERAL SAVINGS BANK
FOR THE SPECIAL MEETING OF MEMBERS
The undersigned member of Alaska Federal Savings Bank ("Savings Bank")
hereby appoints the Board of Directors, with full powers of substitution, as
attorneys-in-fact and agents for and in the name of the undersigned, to vote
such shares as the undersigned may be entitled to cast at the Special Meeting of
Members ("Meeting") of the Savings Bank to be held at the Savings Bank's office
at 2049 Jordan Avenue, Juneau, Alaska, on the date and time indicated on the
Notice of Special Meeting, and at any adjournment thereof. They are authorized
to cast all votes to which the undersigned is entitled, as follows:
FOR AGAINST
(1) To approve a Plan of Conversion adopted by the Board of [ ] [ ]
Directors on February 19, 1999, and subsequently amended
on April 16, 1999, providing for the conversion of the
Savings Bank from a federally chartered mutual to a
federally chartered capital stock savings bank to be
known as "Alaska Pacific Bank," and to be held as a
wholly-owned subsidiary of a new holding company, Alaska
Pacific Bancshares, Inc., including the adoption of a
Federal Stock Charter and Bylaws for the Savings Bank,
pursuant to the laws of the United States and the rules
and regulations of the Office of Thrift Supervision.
(2) In their discretion, upon such other matters as may
properly come before the Special Meeting.
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITION
STATED IF NO CHOICE IS MADE HEREIN
Should the undersigned be present and elect to vote at said Meeting or at
any adjournment thereof and, after notification to the Secretary of the Savings
Bank at said Meeting of the member's decision to terminate this Proxy, then the
power of said attorney-in-fact or agents shall be deemed terminated and of no
further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members of the Savings Bank called on the date and time indicated on the Notice
of Special Meeting, and a Proxy Statement relating to said Meeting from the
Savings Bank, prior to the execution of this Proxy.
- ------------------------------------
Date
- ------------------------------------
Signature
- ------------------------------------
Signature
Please sign your name exactly as it appears on this proxy card.
Note: Only one signature is required in the case of a joint account, but all
account holders should sign if possible. When signing as an attorney,
administrator, agent, corporation, officer, executor, trustee, guardian or
similar position, please give your full title.
