As filed with the Securities and Exchange Commission on March 22, 1999
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
ALASKA PACIFIC BANCSHARES, INC.
-------------------------------------------------
(Exact name of registrant as specified in charter)
Alaska 6035 applied for
- ------------------------------- ------------------ -------------------
(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
-------------------------------------------------------------
(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)
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>
<CAPTION>
=============================================================================================================================
Calculation of Registration Fee
=============================================================================================================================
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)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 1,058,000 $10.00 $10,580,000 $2,942
=============================================================================================================================
</TABLE>
(1) 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.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
[LOGO]
ALASKA PACIFIC BANCSHARES, INC.
(PROPOSED HOLDING COMPANY FOR ALASKA FEDERAL)
920,000 SHARES OF COMMON STOCK
Alaska Federal Savings Bank is converting from the mutual form to the stock form
of organization and will become 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 under the terms of its plan of conversion which 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: 680,000 800,000 920,000 1,058,000
Gross offering proceeds: $6,800,000 $8,000,000 $9,200,000 $10,580,000
Estimated underwriting commissions
and other offering expenses: $491,880 $508,440 $525,000 $544,044
Estimated net proceeds: $6,308,120 $7,491,560 $8,675,000 $10,035,956
Estimated net proceeds per share: $9.27 $9.36 $9.43 $9.49
</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 1,058,000 shares.
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 at (907) ___-____.
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, provided that Alaska Pacific
Bancshares has registered the shares for sale under the
securities laws of their state of residence.
o SECOND PRIORITY: Alaska Federal's employee stock ownership plan.
o THIRD PRIORITY: Depositors of Alaska Federal with at least $50 on
deposit on March 31, 1999, provided that Alaska Pacific
Bancshares has registered the shares for sale under the
securities laws of their state of residence.
o FOURTH PRIORITY: Depositors of Alaska Federal on _________ __,
1999 and borrowers of Alaska Federal on October 20, 1993 whose
loans were still outstanding on _________ __, 1999, provided that
Alaska Pacific Bancshares has registered the shares for sale
under the securities laws of their state of residence.
o FIFTH PRIORITY: Residents of the communities of Juneau,
Ketchikan, Sitka and Wrangell, Alaska, or a trust of those
residents, provided that Alaska Pacific Bancshares decides to
extend the offering to them.
o SIXTH PRIORITY: All other people, provided that Alaska Pacific
Bancshares has registered the shares for sale under the
securities laws of their state of residence and that Alaska
Pacific Bancshares decides to extend the offering to them.
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 -- to be filed by amendment]
<PAGE>
TABLE OF CONTENTS
Page
----
Summary .................................................................. (i)
Risk Factors ............................................................. 1
Selected Financial Information .......................................... 6
How Alaska Pacific Bancshares Intends to Use
the Conversion Offering Proceeds ........................................ 8
Alaska Pacific Bancshares's Dividend Policy .............................. 9
Market for Alaska Pacific Bancshares's Common Stock ...................... 10
Capitalization ........................................................... 12
Historical and Pro Forma Regulatory Capital Compliance ................... 14
Pro Forma Data ........................................................... 15
Shares to be Purchased by Management with
Subscription Rights ..................................................... 20
Alaska Federal Savings Bank Statements of Income ......................... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................... 22
Business of Alaska Pacific Bancshares .................................... 36
Business of Alaska Federal ............................................... 36
Management of Alaska Pacific Bancshares .................................. 64
Management of Alaska Federal ............................................. 65
Regulation ............................................................... 73
Taxation ................................................................. 82
Alaska Federal's Conversion .............................................. 86
Restrictions on Acquisition of Alaska Pacific Bancshares ................. 100
Description of Capital Stock of Alaska Pacific Bancshares ................ 105
Registration Requirements ................................................ 106
Legal and Tax Opinions ................................................... 106
Experts .................................................................. 106
Where You Can Find More Information ...................................... 107
Index to Financial Statements ............................................ 108
<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 AT (907) ___-____.
THE COMPANIES
ALASKAPACIFIC Alaska Federal formed Alaska Pacific Bancshares to be its
BANCSHARES, INC. holding company. To date, Alaska Pacific Bancshares has only
2094 Jordan conducted organizational activities. After the conversion,
Avenue Alaska Pacific Bancshares will own all of Alaska Federal's
Juneau, Alaska capital stock and will direct, plan and coordinate Alaska
99801 Federal's business activities. After the conversion, Alaska
(907) 789-4844 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 Alaska Federal's business strategy is to operate as a
SAVINGS BANK community-oriented bank dedicated to financing home
2094 Jordan ownership and providing quality customer service. Alaska
Avenue Federal operates out of six full service offices in
Juneau, Alaska Southeast Alaska with two offices located in Juneau, two
99801 offices located in Ketchikan, one office located in Sitka
(907)789-4844 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 The conversion is a change in Alaska Federal's legal form of
CONVERSION organization. As a federal mutual savings bank, Alaska
(PAGE 86) 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. Voting
rights in Alaska Pacific Bancshares will belong to its
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 (depositors and borrowers) approve the
plan of conversion. Alaska Federal has called a special
meeting of its members for _________, 1999 to vote on the
plan of conversion.
ALASKA FEDERAL'S By converting to the stock form of organization, Alaska
REASONS FOR Federal will be structured in the form used by commercial
CONVERSION banks, most business entities and a large number of savings
(PAGE 87) institutions. The conversion will be important to Alaska
Federal's future growth and performance by:
o providing a larger capital base from which it can
operate,
o providing Alaska Federal the ability to continue to
expand its branch and automated teller machine network,
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.
Presently, Alaska Federal does not have any specific plans
or arrangements for diversification or expansion.
(ii)
<PAGE>
BENEFITS OF THE Alaska Pacific Bancshares and Alaska Federal intend to adopt
MANAGEMENT OF the following benefit plans and employment agreements:
ALASKA PACIFIC
BANCSHARES AND
ALASKA FEDERAL
(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 54,400 shares, assuming 680,000
shares are issued in the conversion, to 73,600 shares,
assuming 920,000 shares are issued in the conversion.
Alaska Federal 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 68,000
shares, assuming 680,000 shares are issued in the
conversion, to 92,000 shares, assuming 920,000 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 27,200 shares, assuming 680,000 shares are
issued in the conversion, to 36,800 shares, assuming
920,000 shares are issued in the conversion. This plan
will require shareholder approval.
o SEVERANCE AGREEMENTS with Alaska Federal's President
and Chief Executive Officer, Senior Vice President and
Chief Financial Officer, and Senior Vice President and
Chief Operating Officer and other 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.
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.
(iii)
<PAGE>
The following table summarizes the total number and
dollar value of the shares of common stock, assuming
800,000 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, financial
gains can be realized on an option only if the market
price of common stock increases.
Percentage
Number Estimated of Shares
of Value of Issued in the
Shares Shares Conversion
------ ------ ----------
Employee stock
ownership plan ... 64,000 $640,000 8.0%
Management
development and
recognition-
plan awards ...... 32,000 320,000 4.0
Stock options ..... 80,000 -- 10.0
------- -------- ----
Total ............. 176,000 $960,000 22.0%
======= ======== ====
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 "-- Severance Agreements and Severance Plan
Could Make Takeover Attempts More Difficult to Achieve."
THE OFFERING
SUBSCRIPTION Alaska Federal has granted subscription rights in the
OFFERING following order of priority to:
(PAGE 90)
1. Persons with $50 or more on deposit at Alaska
Federal as of December 31, 1997.
2. The Alaska Federal 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 _________ __, 1999
and borrowers of Alaska Federal as of October 20,
1993 whose loans continue to be outstanding as of
________ __, 1999.
(iv)
<PAGE>
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 Subscription rights are not transferable, and persons
RIGHTS ARE NOT with subscription rights may not subscribe for shares
TRANSFERABLE for the benefit of any other person. If you violate this
(PAGE 99) prohibition, you may lose your right to purchase shares
and may face criminal prosecution and other sanctions.
COMMUNITY Alaska Pacific Bancshares may offer shares not sold in
OFFERING the subscription offering to the general public in a
(PAGE 91) community offering. People and trusts of 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.
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 The purchase price is $10.00 per share. The Boards of
OF THE COMMON Directors of Alaska Pacific Bancshares and Alaska
STOCK (PAGE 96) Federal consulted with Charles Webb in determining it.
You will not pay a commission to buy any shares in the
conversion.
NUMBER OF SHARES Alaska Pacific Bancshares will sell between 680,000 and
TO BE ISSUED IN 920,000 shares of its common stock in this offering.
THE CONVERSION With regulatory approval, Alaska Pacific Bancshares may
(PAGE 96) increase the number of shares to 1,058,000 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.
(v)
<PAGE>
RP Financial, L.C., the independent appraiser, has
estimated that, in its opinion, as of March 12, 1999,
the estimated market value ranged between $6,800,000 and
$9,200,000, with a midpoint of $8,000,000. The appraisal
was based 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. The independent appraisal
will be updated before the conversion is completed.
LIMITATIONS ON The minimum purchase is 25 shares.
THE PURCHASE 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 If you want to subscribe for shares, you must complete
COMMON STOCK an original stock order form and send it together with
(PAGE 94) 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.
(vi)
<PAGE>
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 intends to sell fewer than
680,000 shares or more than 1,058,000 shares, all
subscribers will be notified and given the opportunity
to change or cancel their orders.
ALASKA PACIFIC Alaska Pacific Bancshares will pay 50% of the net
BANCSHARES'S USE offering proceeds to Alaska Federal to buy all of the
OF PROCEEDS FROM common stock of Alaska Federal. Alaska Federal will use
THE SALE OF these funds in the short term to purchase short and
COMMON STOCK IN intermediate term investment securities and ultimately
THE CONVERSION to originate and purchase loans or mortgage-backed
(PAGE 8) securities similar to the kinds it currently holds.
Alaska Federal also intends on using these funds to
renovate its main office in Juneau.
Alaska Pacific Bancshares will 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 and will keep the remainder of the net proceeds
for general corporate purposes. These purposes may
include, for example, paying cash dividends or buying
back shares of common stock. Pending such use, the net
proceeds will be invested in investment securities with
short intermediate terms or in a deposit account at
Alaska Federal.
Alaska Pacific Bancshares and Alaska Federal also will
consider using the proceeds of the offering to expand
operations through acquiring or establishing additional
branch offices or acquiring other financial
institutions, and expanding Alaska Federal's automated
teller machine network.
PURCHASES OF COMMON Alaska Federal's directors and executive officers intend
STOCK BY ALASKA to subscribe for 66,000 shares regardless of the number
FEDERAL'S OFFICERS of shares issued in the conversion. This number equals
AND DIRECTORS 7.1% of the 920,000 shares that would be issued at the
(PAGE 20) 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.
(vii)
<PAGE>
PLANS TO LIST THE Alaska Pacific Bancshares intends to list the common
COMMON STOCK OVER stock through the OTC Bulletin Board or the National
THE COUNTER THROUGH Daily Quotation System "Pink Sheets" published by the
THE OTC BULLETIN National Quotation Bureau, Inc. Keefe Bruyette & Woods,
BOARD OR THE Inc. intends to be a market maker in the common stock.
NATIONAL DAILY After shares of the common stock begin trading, you may
QUOTATION contact a stock broker to buy or sell shares. Alaska
SYSTEM "PINK Pacific Bancshares cannot assure you that there will be
SHEETS" (PAGE 10) 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's
Common Stock May Lower Market Price."
ALASKA FEDERAL'S Alaska Pacific Bancshares intends to pay a quarterly
PLAN TO PAY cash dividend with an annualized rate of $0.20 per
QUARTERLY CASH share, starting after the completion of the first full
DIVIDENDS quarter after the conversion. Future dividends are not
(PAGE 9) guaranteed and will depend on the ability of Alaska
Pacific Bancshares to pay them.
(viii)
<PAGE>
RISK FACTORS
BEFORE INVESTING IN ALASKA PACIFIC BANCSHARES'S COMMON STOCK PLEASE
CAREFULLY CONSIDER THE MATTERS DISCUSSED BELOW. ALASKA PACIFIC BANCSHARES'S
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
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.
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.
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. This
situation is further complicated by the recurring possibility of the relocation
of the state capital from Juneau to Anchorage. This proposal has been voted on
in 1974 and 1994 by Alaskans and defeated 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
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.
Diversification into commercial business and consumer lending has provided
Alaska Federal with increased yields, decreased interest rate risk and provided
access to additional lending opportunities. 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. Commercial and consumer loans
involve more risk than residential lending and are subject to a greater extent
to adverse conditions in the economy. See "Business of Alaska Federal -- Lending
Activities -- Commercial Business Lending" and "-- Consumer Lending."
1
<PAGE>
LOSS OF KEY PERSONNEL MAY HURT ALASKA FEDERAL'S OPERATIONS
Between mid-1992 through 1993, Alaska Federal 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. Since 1993, 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, 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
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. 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. The net operating loss carryforwards may be used to offset
future taxable income and thus are considered 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 Federal would recognize expenses for its
employee stock ownership plan when shares are committed to be released 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 have been reflected in the pro forma financial
information under "Pro Forma Data" assuming the $10.00 per share purchase price
as fair market value. Actual expenses, however, 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 stockholders approve the new stock-based benefit programs, Alaska
Pacific Bancshares intends to issue shares to its officers and directors through
these plans. If the shares for the management recognition and development plan
are issued from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.9%. If the shares for the stock option plan are
issued from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 9.1%. See "Pro Forma Data."
2
<PAGE>
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 Federal's
employee stock ownership plan and Alaska Pacific Bancshares's stock-based
benefit plans, could ultimately result in management and employees controlling a
significant percentage of Alaska Pacific Bancshares's 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. In addition, the total voting power
of management and employees could reach in excess of 20% of Alaska Pacific
Bancshares's outstanding stock, if 920,000 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'S ARTICLES OF INCORPORATION AND
STATUTORY PROVISIONS THAT COULD DISCOURAGE TAKEOVER ATTEMPTS BY OTHER PARTIES
Provisions in Alaska Pacific Bancshares's 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. 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. These provisions include:
o limitations on voting rights of beneficial owners of more than
10% of Alaska Pacific Bancshares's common stock;
o supermajority voting requirements for certain business
combinations;
o the election of directors to staggered terms of three years; and
o the elimination of cumulative voting for directors.
The Articles of Incorporation of Alaska Pacific Bancshares also contain
provisions regarding the timing and content of stockholder proposals and
nominations and limiting the calling of special meetings. For further
information about these provisions, see "Restrictions on Acquisition of Alaska
Pacific Bancshares."
SEVERANCE AGREEMENTS AND SEVERANCE PLAN COULD MAKE TAKEOVER ATTEMPTS MORE
DIFFICULT TO ACHIEVE
The severance agreements of 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 executive 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 these executive and senior officers
under the agreements would have been approximately $874,000 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. These
arrangements may have the effect of increasing the costs of acquiring Alaska
Pacific Bancshares, thereby discouraging future attempts to take over Alaska
Pacific Bancshares or Alaska Federal. For information about the proposed
severance agreements and Severance Plan, see "Management of Alaska Federal --
Executive Compensation."
3
<PAGE>
POSSIBLE LIMITED MARKET FOR ALASKA PACIFIC BANCSHARES'S 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's common stock, see "Market for Alaska Pacific Bancshares's Common
Stock."
YOUR SUBSCRIPTION FUNDS COULD BE HELD FOR AN EXTENDED TIME PERIOD IF COMPLETION
OF THE CONVERSION IS DELAYED
If the conversion is not completed by __________, 1999 and the Office
of Thrift Supervision gives Alaska Federal more time to complete this
conversion, 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
without the consent of Alaska Pacific Bancshares and Alaska Federal until the
conversion is completed or terminated.
RISING INTEREST RATES COULD HURT ALASKA FEDERAL'S PROFITS
Like most financial institutions, Alaska Federal's ability to make a
profit depends largely on its net interest income, which is the difference
between interest income it receives from its loans and investment securities and
interest it pays on deposits and borrows. 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
Return on equity, which equals net income divided by average equity, is
a ratio used by many investors to compare the performance of a particular
company with other companies. Alaska Federal's earnings have been weak because
of lower interest earning assets supporting a large, fixed infrastructure. The
cost of the infrastructure is reflected in Alaska Federal's general and
administrative expenses which have been high as a result of personnel and office
occupancy expense. In addition to the higher costs associated with operating in
remote Alaska locations, personnel cost is high due to the number of full time
employees relative to assets, higher salaries because of the high
4
<PAGE>
cost of living in the State of Alaska, and a high level of employee turnover.
This has been offset slightly by a low cost of funds associated with a large
percentage of transaction accounts and passbook accounts.
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. This goal could take a number
of years to achieve, and Alaska Pacific Bancshares cannot assure you that this
goal can be attained. 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. This information should be read 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 ............. 794 931 880
Deposit accounts .......................... 12,508 12,735 12,923
Full service offices ...................... 5 5 4
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 .................. NA 514.38 NA
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
The net proceeds from the sale of the common stock offered by this
prospectus are estimated to range from $6.3 million to $8.7 million, or up to
$10.0 million if the estimated valuation range is increased by 15%. See "Pro
Forma Data" for the assumptions used to arrive at such amounts. Alaska Pacific
Bancshares has received conditional approval from the Office of Thrift
Supervision to purchase all of the capital stock of Alaska Federal to be issued
in the conversion in exchange for 50% of the net proceeds of the conversion.
The following table presents the estimated net proceeds of the
offering, the amount to be contributed to Alaska Federal, and the amount of
Alaska Pacific Bancshares's 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 1,058,000 shares in the
conversion.
<TABLE>
<CAPTION>
1,058,000
680,000 800,000 920,000 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........................... $6,800 $8,000 $9,200 $10,580
Less: estimated underwriting commissions
and other offering expenses........... (492) (508) (525) (544)
------ ------- ------ --------
Net proceeds............................. $6,308 $7,492 $8,675 $10,036
===== ====== ====== =======
Amount to be retained by Alaska
Pacific Bancshares.................... 3,154 3,746 4,338 5,018
Amount to be contributed to Alaska
Federal............................... 3,154 3,746 4,338 5,018
Amount of loan by Alaska Pacific
Bancshares to the employee stock
ownership plan........................ (544) (640) (736) (846)
</TABLE>
Alaska Pacific Bancshares has received conditional Office of Thrift
Supervision approval to purchase all of the capital stock of Alaska Federal to
be issued in the conversion in exchange for 50% of the net proceeds of the stock
offering. Receipt of 50% of the net proceeds of the sale of the common stock
will increase Alaska Federal's capital and will support the expansion of Alaska
Federal 's existing business activities. Alaska Federal will use the funds
contributed to it for general corporate purposes, including, initially,
investment in short and intermediate term U.S. Government and agency obligations
and ultimately to purchase loans or for investment in mortgage-backed
securities. Alaska Federal also is evaluating the renovation of its main office
in Juneau, which may cost up to $500,000, and may consider using a portion of
the proceeds from the conversion contributed to it for this purpose.
Alaska Pacific Bancshares intends to loan the employee stock ownership
plan the amount necessary to purchase 8% of the shares sold in the conversion.
Accordingly, the employee stock ownership plan purchases would range between
54,400 shares at the minimum of the offering range and 73,600 shares at the
maximum of the offering range.
At the midpoint of the offering range, the employee stock ownership
plan would purchase 64,000 shares. If 1,058,000 shares are issued in the
conversion, the employee stock ownership plan would purchase 84,640 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
8
<PAGE>
principally from Alaska Federal's contributions to the employee stock ownership
plan and from any dividends paid on shares of common stock held by the employee
stock ownership plan.
The remaining net proceeds retained by Alaska Pacific Bancshares
initially will be invested primarily in short-term U.S. Government and agency
obligations. The proceeds will be available for additional contributions to
Alaska Federal in the form of debt or equity, to support future diversification
or acquisition activities, as a source of 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. Alaska Pacific
Bancshares will consider exploring opportunities to use such funds to expand
operations through acquiring or establishing additional branch offices or
acquiring other financial institutions, and expanding Alaska Federal's automated
teller machine network. Currently, there are no specific plans, arrangements,
agreements or understandings, written or oral, regarding any expansion
activities.
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, there currently is insufficient information upon which an intention to
repurchase stock could be based. The Board of Directors will consider many facts
and circumstances in determining whether to repurchase stock in the future.
These factors include market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the ability to improve Alaska
Pacific Bancshares's return on equity. 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 is another factor that will considered.
The Board of Directors will also 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's 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'S 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. Declarations or payments of any dividends, whether
regular or special, will be determined by Alaska Pacific Bancshares's Board of
Directors. The Board of Directors will take into account the amount of the net
proceeds retained by Alaska Pacific Bancshares, Alaska Pacific Bancshares's
financial condition, results of operations, tax considerations, capital
requirements, industry standards, and economic conditions. The regulatory
restrictions that affect the payment of dividends by Alaska Federal to Alaska
Pacific Bancshares discussed below will also be considered. Under Alaska law,
Alaska Pacific Bancshares is prohibited 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
9
<PAGE>
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. No
assurances can be given 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
by Alaska Federal's plan of 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, retained earnings of Alaska
Federal appropriated to 1988 base year bad debt reserves and deducted for
federal income tax purposes cannot be used by Alaska Federal to pay cash
dividends to Alaska Pacific Bancshares without the payment of federal income
taxes by Alaska Federal 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'S 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 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, there can be no assurance that timely and accurate
quotations will be regularly available. The development of a liquid public
market depends on the existence of willing buyers and sellers and their
existence is not within the control of 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
10
<PAGE>
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, there can be no
assurance that purchasers will be able to sell their shares at or above the
$10.00 per share purchase price or that published quotations will be regularly
available.
11
<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 1,058,000 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
---------------------------------------------------------------------
1,058,000
680,000 800,000 920,000 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)................. -- 7 8 9 11
Additional paid-in capital........ -- 6,301 7,484 8,666 10,025
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)....................... -- (544) (640) (736) (846)
Common Stock to be acquired
by management recognition
and development plan(7)....... -- (272) (320) (368) (423)
------ ------- ------- ------- -------
Total stockholders' equity........... $7,250 $12,742 $13,782 $14,821 $16,016
====== ======= ======= ======= =======
</TABLE>
(footnotes on following page)
12
<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) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. 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) Total equity is substantially restricted by applicable regulatory capital
requirements. Additionally, Alaska Federal will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of
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 8% of the common stock sold in the conversion will be acquired
by the employee stock ownership plan in the conversion with funds borrowed
from Alaska Pacific Bancshares. This would range between 54,400 shares,
assuming 680,000 shares are issued in the conversion, to 84,640 shares,
assuming 1,058,000 shares are issued in the conversion. The loan will be
repaid principally from Alaska Federal's 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. As shares are released to employee stock ownership plan
participants' accounts, a corresponding reduction in the charge against
capital will occur. 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 27,200 shares, assuming
680,000 shares are issued in the conversion, to 43,320 shares, assuming
1,058,000 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.
13
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
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 for purposes of the following
table is 50% of the net proceeds of the offering. For purpose of the table
below, the amount expected to be borrowed by the employee stock ownership plan
and the cost of the shares expected to be acquired by the management recognition
and development plan 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
--------------------- ------------------------ -------------------
680,000 Shares 800,000 Shares 920,000 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) Amount Assets (1) Amount Assets (1)
------ ----------- ------ ---------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted
accounting principles
capital.................... $7,250 6.60% $9,418 8.30% $9,866 8.65% $10,314 9.00%
Tangible capital............ $7,548 6.85% $9,716 8.61% $10,164 8.96% $10,612 9.31%
Tangible capital requirement 1,652 1.50 1,693 1.50 1,701 1.50 1,709 1.50
------- ---- ------- ---- -------- ---- --------- ----
Excess...................... $5,896 5.35% $8,023 7.11% $ 8,463 7.46% $ 8,902 7.81%
====== ==== ====== ==== ======== ==== =========== ====
Core capital................ $7,548 6.85% $9,716 8.61% $10,164 8.96% $10,612 9.31%
Core capital requirement(2)` 3,304 3.00 3,385 3.00 3,402 3.00 3,418 3.00
------- ---- ------- ---- --------- ---- --------- ----
Excess...................... $4,244 3.85% $6,331 5.61% $ 6,762 5.96% $ 7,193 6.31%
====== ==== ====== ==== ======== ==== ======== ====
Total capital(3)............ $8,222 12.35% $10,390 15.88% $10,838 16.53% $11,286 17.19%
Risk-based
capital requirement........ 5,325 8.00 5,235 8.00 5,244 8.00 5,252 8.00
------- ---- -------- ---- --------- ---- --------- ----
Excess...................... $2,897 4.35% $ 5,155 7.88% $ 5,594 8.53% $ 6,033 9.19%
====== ==== ======== ==== ======== ==== ======== ====
</TABLE>
PRO FORMA AT DECEMBER 31, 1998
------------------------------
15% above
Maximum of Estimated
Valuation Range
----------------------------
1,058,000 Shares
at $10.00 Per Share
----------------------------
Percent of
Adjusted
Total
Amount Assets (1)
------ ----------
(Dollars in thousands)
Generally accepted accounting
principles capital......... $10,828 9.40%
Tangible capital............ $11,126 9.71%
Tangible capital requirement 1,718 1.50
-------- ----
Excess...................... $ 9,408 8.21%
======== ====
Core capital................ $11,126 9.71%
Core capital requirement(2)` 3,437 3.00
-------- ----
Excess...................... $ 7,690 6.71%
======== ====
Total capital(3)............ $11,800 17.94%
Risk-based
capital requirement........ 5,262 8.00
-------- ----
Excess...................... $ 6,538 9.94%
======== ====
- ----------------
(1) Based upon total adjusted assets of $110.1 million at December 31, 1998 and
$113.5 million, $114.1 million, $114.6 million and $115.2 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 $64.9 million at
December 31, 1998 and $65.4 million, $65.5 million, $65.7 million and $65.8
million at the minimum, midpoint, maximum, and maximum, as adjusted, of the
estimated valuation range, respectively, for purposes of the risk-based
capital requirement.
(2) The current 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.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
14
<PAGE>
PRO FORMA DATA
The plan of 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 March 12, 1999 is from a minimum of $6,800,000 to a
maximum of $9,200,000 with a midpoint of $8,000,000. At a price per share of
$10.00, this results in a minimum number of shares of 680,000, a maximum number
of shares of 920,000 and a midpoint number of shares of 800,000.
The actual net proceeds from the sale of the common stock cannot be
determined 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 $491,880 to $525,000 if a minimum
number of shares, 680,000 shares, to the maximum number of
shares, 920,000 shares, are sold, and $508,440 if a midpoint
number of shares, 800,000 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.
The pro forma data that follows was prepared by Alaska Pacific
Bancshares and Alaska Federal 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;
2. withdrawals from deposit accounts to purchase common stock in the
conversion;
15
<PAGE>
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'S COMMON STOCK, THE CURRENT FAIR MARKET VALUE OF ALASKA
FEDERAL'S OR ALASKA PACIFIC BANCSHARES'S ASSETS OR LIABILITIES, OR THE AMOUNT OF
MONEY THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS IF ALASKA PACIFIC
BANCSHARES IS LIQUIDATED.
16
<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
---------- --------- --------- ---------------
680,000 800,000 920,000 1,058,000(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 ......................................... $ 6,800 $ 8,000 $ 9,200 $ 10,580
Less: estimated underwriting commissions
and other offering expenses ......................... (492) (508) (525) (544)
Estimated net proceeds ................................. 6,308 7,492 8,675 10,036
Less: Common stock acquired by employee
stock ownership plan ................................ (544) (640) (736) (846)
Less: Common stock to be acquired by management
recognition and development plan ................... (272) (320) (368) (423)
----------- ----------- ----------- -----------
Net investable proceeds ........................ $ 5,492 $ 6,532 $ 7,571 $ 8,766
=========== =========== =========== ===========
Consolidated net income:
Historical ......................................... $ 336 $ 336 $ 336 $ 336
Pro forma income on net proceeds(2) ................ 248 295 342 396
Pro forma employee stock ownership
plan adjustments(3) ............................. (54) (64) (74) (85)
Pro forma management recognition and
development plan adjustments(4) ................. (54) (64) (74) (85)
----------- ----------- ----------- -----------
Pro forma net income ............................. $ 476 $ 503 $ 530 $ 562
=========== =========== =========== ===========
Consolidated net income per share (5)(6):
Historical ......................................... $ 0.53 $ 0.45 $ 0.39 $ 0.34
Pro forma income on net proceeds ................... 0.39 0.40 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 ................... $ 0.74 $ 0.67 $ 0.61 $ 0.56
=========== =========== =========== ===========
Shares used in earnings per share calculations ......... 631,040 742,400 853,760 981,824
Purchase price as a multiple of pro forma
net income per share .................................. 13.51 14.93 16.39 17.85
Consolidated stockholders' equity (book value):
Historical ......................................... $ 7,250 $ 7,250 $ 7,250 $ 7,250
Estimated net proceeds ............................. 6,308 7,492 8,675 10,036
Less: Common stock acquired by employee
stock ownership plan ............................. (544) (640) (736) (846)
Less: Common stock to be acquired by
management recognition and development
plan(4) .......................................... (272) (320) (368) (423)
----------- ----------- ----------- -----------
Pro forma stockholders' equity(7) .............. $ 12,742 $ 13,782 $ 14,821 $ 16,016
=========== =========== =========== ===========
Consolidated stockholders' equity per
share(6)(8):
Historical(6) ...................................... $ 10.66 $ 9.06 $ 7.88 $ 6.85
Estimated net proceeds ............................. 9.28 9.36 9.43 9.49
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) .............................................. $ 18.74 $ 17.22 $ 16.11 $ 15.14
=========== =========== =========== ===========
Shares used in book value calculations ................. 680,000 800,000 920,000 1,058,000
Purchase price as a percentage of pro forma
stockholders' equity per share ........................ 53.36% 58.07% 62.07% 66.05%
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
- -----------
(1) Gives effect to the sale of an additional 138,000 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 funds on
deposit at Alaska Federal may be withdrawn to purchase shares of common
stock (which will reduce deposits by the amount of such purchases), the net
amount of funds available to Alaska Federal for investment following
receipt of the net proceeds of the conversion will be reduced by the amount
of such withdrawals.
(3) The funds used to acquire such shares will be borrowed by the employee
stock ownership plan 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 Federal 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 Federal's 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
paid by Alaska Federal 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 $0.54, $0.50, $0.48 and $0.46 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 $18.16, $16.74, $15.70 and $14.79 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 $54,400, $64,000,
$73,600 and $84,640 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.
(5) Per share amounts are based upon shares outstanding of 680,000, 800,000,
920,000 and 1,058,000 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
18
<PAGE>
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 680,000, 800,000,
920,000 and 1,058,000 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.
19
<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 0.7% 0.5%
President, Chief Executive
Officer and Director
Lisa Corrigan Bell 5,000 50,000 0.7 0.5
Senior Vice President and
Chief Operating Officer
Roger K. White 5,000 50,000 0.7 0.5
Senior Vice President and
Chief Financial Officer
Avrum M. Gross 10,000 100,000 1.5 1.1
Chairman of the Board
Roger Grummett 10,000 100,000 1.5 1.1
Director
Hugh N. Grant 10,000 100,000 1.5 1.1
Director
Deborah Marshall 6,000 60,000 0.9 0.7
Director
D. Eric McDowell 5,000 50,000 0.7 0.5
Director
William J. Schmitz 10,000 100,000 1.5 1.1
Director ------- --------- --------- ---------
Total 66,000 $660,000 9.7% 7.1%
======= ======== ========= =========
</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.
20
<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 of Seattle 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.
21
<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. 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. Alaska Federal's net income is also affected by,
among other things, fee income, provisions for loan losses, operating expenses
and income tax provisions. Alaska Federal's results of operations are also
significantly affected by 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.
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. These risks and uncertainties should be considered 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. This decrease resulted
primarily from a $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.
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 large proportion of the
mortgages originated by Alaska Federal were sold in the secondary market. In
addition,
22
<PAGE>
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, there are plans to open a
new office in the Juneau area in leased premises. In addition, there are 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 no
specific commitments have been made. 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.
23
<PAGE>
Accordingly, Federal Home Loan Bank advances could be expected to 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."
24
<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 adoption of the employee stock
ownership plan and, if approved by Alaska Pacific Bancshares's stockholders, the
management recognition and development plan. 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. No tax was recognized 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.
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998 1997
----------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
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.
26
<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.
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C> <C>
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)
==== ====== ==== =====
</TABLE>
27
<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. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. 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. Alaska Federal's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and regulation and monetary and fiscal policies.
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
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
28
<PAGE>
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. This procedure for measuring interest rate risk was
developed by the Office of Thrift Supervision 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)
29
<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.
December 31, September 30, December 31,
1998 1998 1997
---- ---- ----
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 12bp 4bp 36bp
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
30
<PAGE>
agency securities in 1998. There were no purchases of investment securities in
1997. These activities were funded primarily by principal repayments on loans,
mortgage-backed securities and deposits.
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 6.71%, 6.71% and 12.41%, 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.
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Alaska Federal's Y2K Task Force is chaired by Ms. Lisa Bell, Alaska
Federal's Chief Operating Officer, and includes a cross-section of bank managers
and the internal auditor. The Audit Committee of the Board of Directors is
charged with oversight of 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. Mr. Craig E.
Dahl, President and Chief Executive Officer of Alaska Federal, has been
appointed by the Mayor of Juneau to the City's Y2K Task Force and 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 will
participate in follow- up testing in April 1999, either directly
or by proxy. 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.
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. System maintenance or modification costs are charged to expense as
incurred, while the cost of new hardware, software or other equipment
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is capitalized and amortized 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.
A Remediation Contingency Plan is in place and will be implemented in
the event that a critical system will not meet regulatory deadlines for
renovation, validation or implementation. Management is confident that the
Remediation Contingency Plan will not need to be implemented, 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.
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
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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.
Alaska Federal is scheduled for an on-site Y2K Examination, conducted
by the Office of Thrift Supervision, on March 23, 1999.
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 are, however, allowed to
continue to measure compensation cost for those plans using the INTRINSIC VALUE
BASED METHOD of accounting, which generally does not result in compensation
expense recognition for most plans. Companies that elect to remain with the
existing accounting method are required to disclose in a footnote to the
financial statements pro forma net income and, if presented, earnings per share,
as if this statement had been adopted. The accounting requirements of this
statement are effective for 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. Earlier or retroactive application is
not permitted. 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 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.
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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. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. 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.
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.
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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.
BUSINESS OF ALASKA PACIFIC BANCSHARES
GENERAL
Alaska Pacific Bancshares was organized as a Alaska business
corporation at the direction of Alaska Federal 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 all of the issued and outstanding
capital stock of Alaska Federal will be owned by Alaska Pacific Bancshares.
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's 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. 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.
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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 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:
(1) 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.
(2) develop an internal asset review policy;
(3) develop an internal audit plan; and
(4) maintain certain minimum capital levels.
Management's efforts to reverse the trend of Alaska Federal's shrinking
loan portfolio started in 1994. These efforts are reflected in Alaska Federal's
increase in a loan to deposit ratio of approximately 45% in 1993 to 70% at
December 31, 1998. 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
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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 occupied by 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.
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. Ketchikan is supported
by a large fishing fleet, fish processing facilities, timber and wood products
manufacturing, and tourism. 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%.
Alaska Federal also has a full service office located in the 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.
The mill was sold to Silver Bay Logging and reopened in April 1998. Other
Wrangell employers include city, state and federal
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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 64.6% 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 loans receivable 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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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)
Real estate:
Permanent:
<S> <C> <C> <C> <C>
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, they are originated 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. These adjustable rate mortgage
loans are retained primarily for Alaska Federal's 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 offers these
40
<PAGE>
adjustable rate mortgage loans at an initial below market "teaser" rate.
Borrowers, however, are qualified 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. These loans are
generally sold 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.
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<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. These
loans, which generally convert to a fully amortizing adjustable- or fixed-rate
loan at the end of the construction term, are generally underwritten 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.
Construction loans are more difficult to evaluate 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. Additionally, working out of problem
construction loans is complicated by the fact that in-process homes are
difficult to sell and typically must be completed in order to be successfully
sold. 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.
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<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. These risks can be significantly impacted
by supply and demand conditions in the market for office, retail and residential
space, 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. These loans are generally secured by
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
are often collateralized by equipment, inventory, accounts receivable or other
business assets, 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,
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<PAGE>
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.
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. Boat loans are offered by Alaska Federal
with maturities of between five and 15 years, generally range in principal
amounts from $15,000 to $350,000 and are secured by new and used boats. Boat
loans of less than $50,000 are made 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. Automobile loans are offered 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.
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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 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)
Real Estate:
Permanent:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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. A
small percentage of Alaska Federal's mortgage loan applicants are referred by
local real estate agents, and some consumer loans, such as boat loans are
referred by dealers. Title insurance is required 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. Loans in excess of these amounts up
to and including $500,000 must approved by Alaska Federal's Senior Loan
Committee consisting of the President and Chief Executive Officer, the Chief
Operating Officer and the two lending division managers. All loans in excess of
the Senior Loan Committee's approval authority must be approved by the Board of
Directors.
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
appraisal of the real estate offered as collateral is undertaken by an
independent fee appraiser approved by Alaska Federal and licensed or certified
by the State of Alaska. Applicants are promptly notified of the decision of
Alaska Federal. Interest rates are subject to change if the approved loan is not
closed within the time of the commitment.
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<PAGE>
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 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."
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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
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<PAGE>
the same for each 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 prompt payment is not made, the collector
telephones the customer 20 days after the payment due date. After 30 days, a
letter is sent which begins the demand process. Follow-up contacts are made
between the 30th and 60th day, after which a demand letter is sent that
specifies the action Alaska Federal will take and the deadline for resolving the
delinquency. While most delinquencies are cured promptly, foreclosure or
repossession, according to the terms of the security instrument and applicable
law, is initiated 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. Consumer and commercial business loans are evaluated
individually depending on the nature and value of the collateral.
All loans which are past due 90 days or more are placed on nonaccrual
status and all previously recorded interest income is reversed. Consumer loans
are charged off 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
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<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. Real estate acquired by Alaska Federal as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed
property until sold. When property is acquired 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. The loan was classified as substandard until the new
owners had operated the business for more than two years with
49
<PAGE>
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.
50
<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. The amount of the allowance
for loan losses is increased 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
51
<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.
52
<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.
53
<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)
Real estate:
Permanent:
<S> <C> <C> <C> <C> <C> <C>
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. This
loan was classified as substandard in 1997, and contributed $26,000 to the
allowance for loan losses at that date. This loan was no longer included in the
substandard category at December 31, 1998, as it had been foreclosed. This
decrease in the allowance for loan losses was partially offset by an increase in
doubtful loans in 1998, related primarily to one bankruptcy case. 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.
54
<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
Alaska Federal is permitted under federal law 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 is also required
to maintain an investment in Federal Home Loan Bank stock as a condition of
membership in the Federal Home Loan Bank of Seattle.
Alaska Federal is required under federal regulations 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. Investments are made based on
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). 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.
55
<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
56
<PAGE>
securities, to investors 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>
57
<PAGE>
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.
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.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1998 1997
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Collateralized mortgage obligations............... $767 $761 $1,214 $1,192
</TABLE>
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 deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources.
They may also be used on a longer-term basis for general business purposes.
DEPOSIT ACCOUNTS. Deposits are attracted 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.
58
<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>
2.15% NA Non-interest-bearing $ 5,046 $100 4.95%
3.74 NA Interest-bearing demand 25,570 100 25.08
3.00 NA Money market deposit accounts 15,872 3,500 15.57
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
======
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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.
<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
======= =======
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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. As a member, Alaska Federal is required to own capital
stock in the Federal Home Loan Bank of Seattle and is authorized 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.
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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.
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<PAGE>
PROPERTIES
The following table sets forth certain information regarding Alaska
Federal's offices at December 31, 1998, all of which are owned except as noted.
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) As of March 31, 1999, Alaska Federal has executed 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.
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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's 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's 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."
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<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
Year Year of
Elected Expiration
Name Age(1) Position Director of Term
---- ----- -------- -------- ----------
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
- -------------
(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.
65
<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's 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.
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<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.
ANNUAL COMPENSATION(1)
--------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION(3)
- -------- ---- ------ ----- -------------- --------------
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
- -------------
(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.
SEVERANCE AGREEMENTS FOR EXECUTIVE OFFICERS. In connection with the
conversion, Alaska Pacific Bancshares and Alaska Federal intend to enter into
three-year severance agreements with Craig E. Dahl, Lisa Corrigan Bell and Roger
K. White. On each anniversary of the commencement 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 is terminable by Alaska Pacific
Bancshares and 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 in the event of involuntary termination of employment in connection
with any change in control of Alaska Pacific Bancshares and Alaska Federal.
Severance payments also will be provided on a similar basis in connection with a
voluntary termination of employment where, subsequent to a change in control,
the executive is assigned duties inconsistent with his position, duties,
responsibilities and status immediately prior to such change in control. The
term "change in control" is defined in the agreement as having occurred when,
among other things, a person other than Alaska Pacific Bancshares purchases
shares of Alaska Pacific Bancshares's 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's 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's 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 preceding 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, (i) in the form of a lump sum cash
payment equal to 2.99 times the executive's base amount or (ii) a combination of
a cash payment and continued coverage under Alaska Pacific Bancshares's 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
67
<PAGE>
executive elected to receive a lump sum cash payment, Craig E. Dahl, Lisa
Corrigan Bell and Roger K. White would be entitled to payments of approximately
$343,605, $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 contingent upon a change in control. Individuals receiving excess
parachute payments are subject to a 20% excise tax on the amount of such excess
payments, and 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 contingent on a change in control
will be reduced to the extent necessary to ensure that no amounts payable to the
executive will constitute excess parachute payments.
SEVERANCE AGREEMENTS FOR SENIOR OFFICERS. In connection with the
conversion, Alaska Pacific Bancshares and Alaska Federal intend to enter into
one-year severance agreements with five senior officers of Alaska Federal. On
each anniversary of the commencement 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 in the event of involuntary termination of
employment in connection with any change in control of Alaska Pacific Bancshares
and Alaska Federal. Severance payments and benefits also will be provided on a
similar basis in connection with a voluntary termination of employment where,
subsequent to a change in control, the officer is assigned duties inconsistent
with his position, duties, responsibilities and status immediately prior to such
change in control. The term "change in control" is defined in the agreement as
having occurred when, among other things, a person other than Alaska Pacific
Bancshares purchases shares of Alaska Pacific Bancshares's 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's 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's 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 preceding 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
one-twelfth of annual compensation for each year of service up to a maximum of
100% of annual compensation. Such payments may tend to discourage takeover
attempts by increasing costs to be incurred by 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 Federal's employees would be retained in
their current positions in the event of a change in control, and that any amount
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<PAGE>
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, no matching contribution is made by Alaska Federal 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, the investment of plan assets is directed by plan
participants. In connection with the conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the investment of 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 Plan is designed 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. Performance targets were not
achieved during fiscal 1998, so no bonus pool was established or paid out under
the Plan.
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<PAGE>
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 employee stock ownership
plan is intended to satisfy the requirements for an employee stock ownership
plan under the Internal Revenue Code and the Employee Retirement Income Security
Act of 1974, as amended. Full-time 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 21 will be
eligible to participate in the employee stock ownership plan.
The employee stock ownership plan intends to purchase 8% of the shares
issued in the conversion. This would range between 54,400 shares, assuming
680,000 shares are issued in the conversion, and 73,600 shares, assuming 920,000
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 loan to the
employee stock ownership plan will be repaid principally from Alaska Federal's
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 additional shares may
be acquired following the conversion through open market purchases.
In any plan year, Alaska Federal 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. The timing, amount, and manner of such
discretionary contributions will be affected by several factors, including
applicable regulatory policies, the requirements of applicable laws and
regulations, and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds
of the loan will be held in a suspense account and released on a pro rata basis
as the loan is repaid. Discretionary contributions to the 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 Federal's
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. Allocated shares for which no instructions are received
are voted in the discretion of the trustee.
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."
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<PAGE>
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 vote of Alaska Pacific Bancshares's
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.
The stock option plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in 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, stock options may be granted 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 68,000 shares, assuming 680,000 shares are issued in the conversion, to
92,000, assuming 920,000 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 stock option plan will be administered and interpreted by the
compensation committee of the Board of Directors of Alaska Pacific Bancshares.
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.
It is anticipated that all options granted under the stock option plan
will be granted 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.
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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.
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 grant and the option exercise price, if any, will be
taxable to the optionee at ordinary income tax rates. A federal income tax
deduction generally will not be available to 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's
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. However, the
plan will not be approved or endorsed by the Office of Thrift Supervision. Under
current Office of Thrift Supervision regulations, the approval of a majority
vote of Alaska Pacific Bancshares's outstanding shares is required for
implementation of the plan within one year after the conversion.
The plan intends to acquire a number of shares of Alaska Pacific
Bancshares's common stock equal to 4% of the common stock issued in the
conversion. This would range from 27,200 shares, assuming 680,000 shares are
issued in the conversion, to 36,800 shares, assuming 920,000 shares are issued
in the conversion. The shares will be acquired 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
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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, all shares
will be held in escrow by Alaska Pacific Bancshares or by the plan. Under Office
of Thrift Supervision regulations, if the management development and recognition
plan is implemented within the first year 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 5.6% of pro forma stockholders'
equity assuming that 920,000 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
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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 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. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the Federal Home
Loan Bank System. 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.
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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. An institution is
also placed in one of three supervisory subcategories within each capital group.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the 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, insurance of deposits may be
terminated by the Federal Deposit Insurance Corporation 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. Monetary penalties may be imposed for failure to meet liquidity
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
PROMPT CORRECTIVE ACTION. Under 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
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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 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
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subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a 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 only those savings associations rated a composite one, the
highest rating, under the CAMEL rating system for savings associations will be
permitted to operate at or near the regulatory minimum leverage ratio of 3%. All
other savings associations will be required 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
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or assets more than 90 days past due. Qualifying residential mortgage loans,
including multi-family mortgage loans, are assigned a 50% risk weight. Consumer,
commercial, home equity and residential construction loans are assigned a 100%
risk weight, as are nonqualifying residential mortgage loans and that portion of
land loans and nonresidential construction loans that do not exceed an 80%
loan-to-value ratio. The book value of assets in each category is multiplied by
the weighing factor, 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
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minimum capital requirements following a proposed capital distribution, however,
must obtain Office of Thrift 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
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as if the savings association were a Federal Reserve member bank. A savings and
loan holding company, its subsidiaries and any other company under common
control are considered affiliates of the subsidiary savings association under
the 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. 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 such shares during
the preceding four calendar weeks. Provision
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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. There are currently no demand registration rights outstanding.
However, in the event Alaska Pacific Bancshares, at some future time, determines
to issue additional shares from its authorized but unissued shares, Alaska
Pacific Bancshares might offer registration rights to certain of its affiliates
who want to sell their shares.
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, 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 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 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 bu 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's 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 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." 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 on the matter at a special meeting called for that
purpose to be held on _________ __, 1999, and conditioned on the satisfaction of
certain other conditions imposed by the Office of Thrift Supervision in its
approval.
The conversion will be accomplished through adoption of a Federal stock
charter and bylaws to authorize the issuance of capital stock by 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 and
trusts of natural persons residing in the communities of Juneau,
Ketchikan, Sitka and Wrangell, and then to natural persons and
trusts 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
$6,800,000 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;
(ii) Alaska Federal's employee stock ownership plan;
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(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 _________ __, 1999 and
borrowers of Alaska Federal with loans outstanding as of October
20, 1993, which continue to be outstanding as of ____________ __,
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
680,000 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
Alaska Federal's current lending and investment activities and may also support
possible future expansion and
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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.
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
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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
________ __, 1999 and each borrower with a loan outstanding on October 20, 1993,
which continues to be outstanding as of ____________ __, 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 Federal's 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.
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
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preference given to natural persons and trusts of natural persons residing in
the communities of Juneau, Ketchikan, Sitka and Wrangell and then to natural
persons and trusts of 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 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
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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. 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 resides in a state of the United
States with respect to which a small number of persons otherwise eligible to
subscribe for shares of common stock reside in such state, or Alaska Pacific
Bancshares or Alaska Federal 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 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, 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 the state.
Where the number of persons eligible to subscribe for shares in one state is
small, 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,
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 Alaska
Pacific Bancshares, its officers, directors or employees as brokers, dealers or
salesmen.
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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 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.
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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's 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
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
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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's 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's 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, 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's
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
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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 March 12, 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 $6,800,000 to $9,200,000 with a midpoint of $8,000,000. 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 $6,800,000 to
$9,200,000 with a midpoint of $8,000,000. Assuming that the shares are sold at
$10.00 per share in the conversion, the estimated number of shares would be
between 680,000 and 920,000 with a midpoint of 800,000. 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 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 1,058,000 shares or less than 680,000 shares. If the
total amount of shares issued is less than 680,000 or more than 1,058,000, 15%
above the maximum of the estimated valuation range, for aggregate gross proceeds
of less than $6,800,000 or more than $10,580,000, 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
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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.
Alaska Federal's and Alaska Pacific Bancshares's 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
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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 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's
common stock with respect to the restriction on transfers. Any shares issued to
directors and officers as a stock dividend, stock split or otherwise with
respect to restricted common stock shall also be restricted.
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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's 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.
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
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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 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.
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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.
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
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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 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
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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 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.
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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 920,000 shares of common stock and no shares of
preferred stock in the conversion. Each share of Alaska Pacific Bancshares's
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's 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's 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's
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 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's 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
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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 & 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.
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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-_____) 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's 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 ...... 21
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)
680,000 to 920,000 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,
II-1
<PAGE>
or 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 ($9,200,000, or 920,000 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. (a)
1.2-- Engagement Letter between Alaska Federal Savings Bank and Charles Webb
& Company, a division of Keefe, Bruyette & Woods, Inc.
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.
3.2-- Bylaws of Alaska Pacific Bancshares, Inc.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Associates PC regarding legality of securities
registered
8.1-- Form of Federal Tax Opinion of Breyer & Associates PC (a)
8.2-- Form of State Tax Opinion of Deloitte & Touche LLP (a)
8.3-- Opinion of RP Financial, LC. as to the value of subscription rights
10.1-- Proposed Form of Severance Agreement for Executive Officers
10.2-- Proposed Form of Severance Agreement for Certain Senior Officers
10.3-- Proposed Form of Employee Stock Ownership Plan
10.4-- Proposed Form of Employee Severance Compensation Plan
10.5-- Alaska Federal Savings Bank 401(k) Savings Plan (a)
21 -- Subsidiaries of Alaska Pacific Bancshares, Inc.
23.1-- Consent of Deloitte & Touche LLP
23.2-- Consent of Breyer & Associates PC (contained in opinion included as
Exhibit 5)
23.3-- Consent of Breyer & Associates PC as to its Federal Tax Opinion
(contained in opinion included as Exhibit 8.1) (a)
23.4-- Consent of RP Financial, LC.
24 -- Power of Attorney (see signature page)
99.1-- Order and Acknowledgement Form
99.2-- Solicitation and Marketing Materials (a)
99.3-- Appraisal Agreement with RP Financial, LC.
99.4-- Appraisal Report of RP Financial, LC. (a)
99.5-- Proxy Statement for Special Meeting of Members of Alaska Federal
Savings Bank
- -------------
(a) To be filed by amendment.
II-3
<PAGE>
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.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Juneau, Alaska
on the 22nd day of March, 1999.
ALASKA PACIFIC BANCSHARES, INC.
By: /s/Craig E. Dahl
-----------------------------------
Craig E. Dahl
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Alaska Pacific
Bancshares, Inc., do hereby severally constitute and appoint Craig E. Dahl, our
true and lawful attorney and agent, to do any and all things and acts in our
names in the capacities indicated below and to execute all instruments for us
and in our names in the capacities indicated below which said Craig E. Dahl may
deem necessary or advisable to enable Alaska Pacific Bancshares, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
Registration Statement on Form SB-2 relating to the offering of Alaska Pacific
Bancshares, Inc.'s Common Stock, including specifically but not limited to,
power and authority to sign for us or any of us in our names in the capacities
indicated below the Registration Statement and any and all amendments (including
post-effective amendments) thereto; and we hereby ratify and confirm all that
Craig E. Dahl shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/Craig E. Dahl President, Chief Executive Officer March 22, 1999
- ------------------------ and Director
Craig E. Dahl (Principal Executive Officer)
/s/Rogert K. White Senior Vice President and Chief March 22, 1999
- ------------------------ Financial Officer
Roger K. White (Principal Financial and Accounting Officer)
/s/Avrum M. Gross Director March 22, 1999
- ------------------------
Avrum M. Gross
/s/Roger Grummett Director March 22, 1999
- ------------------------
Roger Grummett
<PAGE>
/s/Deborah Marshall Director March 22, 1999
- ------------------------
Deborah Marshall
/s/D. Eric McDowell Director March 22, 1999
- ------------------------
D. Eric McDowell
/s/William J. Schmitz Director March 22, 1999
- ------------------------
William J. Schmitz
/s/Hugh N. Grant Director March 22, 1999
- ------------------------
Hugh N. Grant
<PAGE>
As filed with the Securities and Exchange Commission on March 22, 1999
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ALASKA PACIFIC BANCSHARES, INC.
-------------------------------------------------
(Exact name of registrant as specified in charter)
Alaska 6035 applied for
- ------------------------------- ------------------ -------------------
(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. (a)
1.2-- Engagement Letter between Alaska Federal Savings Bank and Charles Webb
& Company, a division of Keefe, Bruyette & Woods, Inc.
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.
3.2-- Bylaws of Alaska Pacific Bancshares, Inc.
4-- Form of Certificate for Common Stock
5-- Opinion of Breyer & Associates PC regarding legality of securities
registered
8.1-- Form of Federal Tax Opinion of Breyer & Associates PC (a)
8.2-- Form of State Tax Opinion of Deloitte & Touche LLP (a)
8.3-- Opinion of RP Financial, LC. as to the value of subscription rights
10.1-- Proposed Form of Severance Agreement for Executive Officers
10.2-- Proposed Form of Severance Agreement for Certain Senior Officers
10.3-- Proposed Form of Employee Stock Ownership Plan
10.4-- Proposed Form of Employee Severance Compensation Plan
10.5-- Alaska Federal Savings Bank 401(k) Savings Plan (a)
21-- Subsidiaries of Alaska Pacific Bancshares, Inc.
23.1-- Consent of Deloitte & Touche LLP
23.2-- Consent of Breyer & Associates PC (contained in opinion included as
Exhibit 5)
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.
24-- Power of Attorney (see signature page)
99.1-- Order and Acknowledgement Form
99.2-- Solicitation and Marketing Materials (a)
99.3-- Appraisal Agreement with RP Financial, LC.
<PAGE>
99.4-- Appraisal Report of RP Financial, LC. (a)
99.5-- Proxy Statement for Special Meeting of Members of Alaska Federal
Savings Bank
- ---------------
(a) To be filed by amendment.
EXHIBIT 1.2
Engagement Letter between Alaska Federal Savings Bank
and Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc.
<PAGE>
[CHARLES WEBB & CO. LETTERHEAD]
January 12, 1999
Mr. Craig E. Dahl
President and Chief Executive Officer
Alaska Federal Savings Bank
2094 Jordan Ave.
Juneau, AK 99801-8046
Dear Mr. Dahl:
This proposal is in connection with Alaska Federal Savings Bank's' ("Alaska
Federal or Bank") intention to convert from a mutual to a capital stock form of
organization (the "Conversion"). In order to effect the Conversion, it is
contemplated that all of the Bank's common stock to be outstanding pursuant to
the Conversion will be issued to a holding company (the "Company") to be formed
by the Bank, and that the Company will offer and sell shares of its common stock
first to eligible persons (pursuant to the Bank's Plan of Conversion) in a
Subscription and Community Offering.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Bank's and the Company's exclusive financial advisor
and marketing agent in connection with the Conversion. This letter sets forth
selected terms and conditions of our engagement.
1. Advisory/Conversion Services. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy (for both regular and
special dividends), stock
<PAGE>
repurchase strategy and communication with market makers. Prior to the closing
of the offering, Webb shall furnish to client a Post-Conversion reference manual
which will include specifics relative to these items. (The nature of the
services to be provided by Webb as the Bank's and the Company's financial
advisor and marketing agent are further described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and its counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement, Application
for Conversion or any offering or other documents naming Webb as the Bank's and
the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably requests, and will permit Webb to discuss with
management the operations and prospects of the Bank. Webb will treat all
material non-public information as confidential. The Bank acknowledges that Webb
will rely upon the accuracy and completeness of all information received from
the Bank, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Bank's and the
Company's financial advisor and marketing agent.
4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), Office of Thrift Supervision ("OTS") and such state
securities commissioners as may be determined by the Bank.
5. Agency Agreement. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between Webb and the Bank and
the Company to be executed prior to commencement of the offering, and dated the
date that the Company's Prospectus is declared effective and/or authorized to be
disseminated by the appropriate regulatory agencies, the SEC, the NASD, the OTS
and such state securities commissioners and other regulatory agencies as
required by applicable law.
6. Representations, Warranties and Covenants. The Agency Agreement will provide
for customary representations, warranties and covenants by the Bank and Webb,
and for the Company to indemnify Webb and their controlling persons (and, if
applicable, the members of the selling group and their controlling persons), and
for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.
<PAGE>
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $25,000 payable in four consecutive monthly
installments of $6,250 commencing with the signing of this
letter. Such fees shall be deemed to have been earned when due.
Should the Conversion be terminated for any reason not
attributable to the action or inaction of Webb, Webb shall have
earned and be entitled to be paid fees accruing through the stage
at which point the termination occurred.
(b) A Success Fee of 1.50% shall be charged based on the aggregate
Purchase Price of Common Stock sold in the Subscription Offering
and Community Offering excluding shares purchased by the Bank's
officers, directors, or employees (or members of their immediate
families) plus any ESOP, tax-qualified or stock based
compensation plans (except IRA's) or similar plan created by the
Bank for some or all of its directors or employees. The
Management Fee described in 7(a) will be applied against the
Success Fee.
(c) If any shares of the Company's stock remain available after the
Subscription Offering, at the request of the Bank, Webb will seek
to form a syndicate of registered broker-dealers to assist in the
sale of such common stock on a best efforts basis, subject to the
terms and conditions set forth in the selected dealers agreement.
Webb will endeavor to distribute the common stock among dealers
in a fashion which best meets the distribution objectives of the
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 by them. Webb will pass onto selected
broker-dealers, who assist in the syndicated community offering,
an amount competitive with gross underwriting discounts charged
at such time for comparable amounts of stock sold at a comparable
price per share in a similar market environment. Fees with
respect to purchases effected with the assistance of a
broker/dealer other than Webb shall be transmitted by Webb to
such broker/dealer. The decision to utilize selected
broker-dealers will be made by the Bank upon consultation with
Webb. In the event, with respect to any stock purchases, fees are
paid pursuant to this subparagraph 7(c), such fees shall be in
lieu of, and not in addition to, payment pursuant to subparagraph
7(a) and 7(b).
8. Additional Services. Webb further agrees to provide financial advisory
assistance to the Company and the Bank for a period of one year following
completion of the Conversion, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations matters, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and the Bank of any fees
in addition to those set forth in Section 7 hereof. Nothing in this Agreement
shall require the Company and the Bank to obtain such services from Webb.
Following this
<PAGE>
initial one year term, if both parties wish to continue the relationship, a fee
will be negotiated and an agreement entered into at that time.
9. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing expenses associated with the Conversion; the
fees set forth in Section 7; and fees for "Blue Sky" legal work. If Webb incurs
expenses on behalf of Client, Client will reimburse Webb for such expenses.
Webb will request reimbursement for its reasonable out-of-pocket expenses
including travel, hotel, meals and shipping. Further, Webb shall request
reimbursement for fees and expenses of their counsel (such fees of counsel will
not be incurred without the prior approval of Client). The selection of such
counsel will be done by Webb, with the approval of the Bank. Such reimbursement
of legal fees will not exceed $35,000.
10. Conditions. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Bank subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
12. Benefit. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified pursuant to the terms
and conditions of the Agency Agreement and their successors, and the obligations
and liabilities assumed hereunder by the parties hereto shall be binding upon
their respective successors provided, however, that this Agreement shall not be
assignable by Webb.
13. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the termination of this Agreement or the completion of the services
furnished hereunder and shall remain operative and in full force and effect. You
further acknowledge that any report or analysis rendered by Webb pursuant to
this engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
<PAGE>
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/Patricia A. McJoynt
--------------------------
Patricia A. McJoynt
Executive Vice President
ALASKA FEDERAL SAVINGS BANK
By: /s/Craig E. Dahl Date: January 25, 1999
-------------------------- ----------------
Craig E. Dahl
President and Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO ALASKA FEDERAL SAVINGS BANK
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., provides
thrift institutions converting from mutual to stock form of ownership with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. The following list
is representative of the conversion services, if appropriate, we propose to
perform on behalf of the Bank.
General Services
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center, meet with
prospective shareholders at individual and community information meetings,
solicit local investor interest through a tele-marketing campaign, answer
inquiries, and otherwise assist in the sale of stock in the Subscription and
Community Offerings. This effort will be lead by a Principal of Webb/KBW.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
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Conversion Offering Enhancement Services- Continued
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
Aftermarket Support Services.
Webb will use their best efforts to secure market making and on-going research
commitment from at least three NASD firms, one of which will be Keefe, Bruyette
& Woods, Inc.
EXHIBIT 3.1
ARTICLES OF INCORPORATION OF ALASKA PACIFIC BANCSHARES, INC.
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ARTICLES OF INCORPORATION
OF
ALASKA PACIFIC BANCSHARES, INC.
ARTICLE I. NAME. The name of the corporation is Alaska Pacific
Bancshares, Inc. (the "corporation").
ARTICLE II. DURATION. The duration of the corporation is perpetual.
ARTICLE III. PURPOSE AND POWERS. The nature of the business and the
objects and purposes to be transacted, promoted or carried on by the corporation
are to engage in the activities of a savings and loan holding company and in any
other lawful act or business for which corporations may be organized under the
Alaska Corporations Code (as now in existence or as may hereafter be amended,
the "ACC").
ARTICLE IV. CAPITAL STOCK. The total number of shares of all classes of
capital stock which the corporation has authority to issue is Twenty One Million
(21,000,000), of which Twenty Million (20,000,000) shall be common stock of par
value of $0.01 per share, and of which One Million (1,000,000) shall be serial
preferred stock of par value $0.01 per share. The shares may be issued from time
to time as authorized by the Board of Directors without further approval of the
shareholders, except 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 stated par
value per share. Upon payment of such consideration such shares shall be deemed
to be fully paid and not assessable. Upon authorization by its Board of
Directors, the corporation may issue its own shares in exchange for or in
conversion of its outstanding shares or distribute its own shares, pro rata to
its shareholders or the shareholders of one or more classes or series, to
effectuate stock dividends or splits, and any such transaction shall not require
consideration.
Except as expressly provided by applicable law, these Articles of
Incorporation or by any resolution of the board of directors designating and
establishing the terms of any series of preferred stock, no holders of any class
or series of capital stock shall have any right to vote as a separate class or
series or to vote more than one vote per share. The shareholders of the
corporation shall not be entitled to cumulative voting in any election of
directors.
A description of the different classes and series (if any) of the
corporation's capital stock and a statement of the designations, and the
relative rights, preferences and limitations of the shares of each class and
series (if any) of capital stock are as follows:
A. Common Stock. On matters on which holders of common stock are
entitled to vote, each holder of shares of common stock shall be entitled to one
vote for each share held by such holder.
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, but only when and as
declared by the board of directors.
In the event of any liquidation, dissolution or winding up of the
corporation, 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 corporation available for distribution remaining after: (i)
payment or provision for payment of the corporation's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provision for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation,
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dissolution or winding up of the corporation. 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. Serial Preferred Stock. The board of directors of the corporation is
authorized by resolution or resolutions from time to time adopted to provide for
the issuance of preferred stock in series and to fix and state the voting
powers, designations, preferences and relative, participating, optional or other
special rights of the shares of each such series and the qualifications,
limitations and restrictions thereof, including, but not limited to,
determination of any of the following:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates 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
corporation;
(f) Whether the shares or 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 or of any other
series of the same or any other class or classes of stock of the
corporation, and, if so convertible or exchangeable, the conversion
price(s), or the rate or rates 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 preferred stock shall have the same
relative rights as and be identical in all respects with all other shares of the
same series.
C. 1. Notwithstanding any other provision of these Articles of
Incorporation, in no event shall any record owner of any outstanding common
stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of shareholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
common stock ("Limit"), be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit, unless a majority of the Whole Board (as
hereinafter defined) shall have by resolution granted in advance such
entitlement or permission. The number of votes which may be cast by any record
owner by virtue of the provisions hereof in respect of common stock beneficially
owned by such person owning shares in excess of the Limit shall be a number
equal to the total number of votes which a single record
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owner of all common stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series which are both beneficially owned by such person and owned of
record by such record owner and the denominator of which is the total number of
shares of common stock beneficially owned by such person owning shares in excess
of the Limit.
2. The following definitions shall apply to this Section C of this
Article VII.
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of these Articles of
Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or provision
thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of
these Articles of Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any common stock:
(i) which such person or any of its affiliates beneficially owns,
directly or indirectly; or
(ii) which such person or any of its affiliates has (A) the right
to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of an agreement, contract, or other
arrangement with the corporation to effect any transaction which is
described in any one or more of subparagraphs A(1)(a) through (h) of
Article X hereof or upon the exercise of conversion rights, exchange
rights, warrants, or options or otherwise, or (B) sole or shared
voting or investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or otherwise (but
shall not be deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a particular meeting
of shareholders, pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such person nor any
such affiliate is otherwise deemed the beneficial owner); or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of its
affiliates acts as a partnership, limited partnership, syndicate or
other group pursuant to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of the corporation; and provided further,
however, that (i) no director or officer of the corporation (or any
Affiliate of any such director or officer) shall, solely by reason of
any or all of such directors of officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any
common stock beneficially owned by any other such director or officer
(or any Affiliate thereof), and (ii) neither any employee stock
ownership or similar plan of the corporation or any subsidiary of the
corporation, nor any trustee with respect thereto or any Affiliate of
such trustee (solely by reason of such capacity of such trustee),
shall be deemed, for any purposes hereof, to beneficially own any
common stock held under any such plan. For purposes of computing the
percentage beneficial ownership of common stock of a person, the
outstanding common stock shall include shares deemed owned by such
person through application of this subsection but shall not include
any other common stock which may be issuable by the corporation
pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise. For all other purposes, the
outstanding common stock shall include only common stock then
outstanding and shall not include any common stock which may be
issuable by the corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or other
entity.
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(d) "Whole Board" shall mean the total number of directors that the
corporation would have if there were no vacancies on the board of
directors.
3. The board of directors shall have the power to construe and apply
the provisions of this Section C and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of common stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of this Section C to
the given facts, or (v) any other matter relating to the applicability or effect
of this Section C.
4. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own common stock in excess of
the Limit (or holds of record common stock beneficially owned by any person in
excess of the Limit) supply the corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section C) entitled to be cast by the holders of shares of capital stock of
the corporation entitled to vote shall constitute a quorum at all meetings of
the shareholders, and every reference in these Articles of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
shareholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
6. Any constructions, applications, or determinations made by the board
of directors pursuant to this Section C in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the corporation and its shareholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section C shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of the corporation and its shareholders that
each such remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to all
shareholders, including shareholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE V. PREEMPTIVE RIGHTS. Holders of the capital stock of the
corporation shall not be entitled to preemptive rights with respect to any
shares of the corporation that may be issued.
ARTICLE VI. INITIAL DIRECTORS. The persons who shall serve as the
initial directors of the corporation are: Craig E. Dahl, Avrum Gross, Roger
Grummett, Hugh Grant, William Schmitz, Deborah Marshall and Eric McDowell. The
address of each initial director is 2094 Jordan Avenue, Juneau, Alaska 99801.
The initial directors shall serve until the first annual meeting of
shareholders, at which time they may stand for reelection.
ARTICLE VII. DIRECTORS.
A. Number. The corporation shall be under the direction of a Board of
Directors. The number of directors shall be as stated in the corporation's
bylaws, but in no event shall be fewer than five nor more than 15.
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B. Classified Board. The board of directors shall be divided into three
groups, with each group containing one-third of the total number of directors,
or as near as may be. The terms of the directors in the first group shall expire
at the first annual shareholders' meeting following their election, the terms of
the second group shall expire at the second shareholders' meeting following
their election, and the terms of the third group shall expire at the third
annual shareholders' meeting following their election. At each annual
shareholders' meeting held thereafter, directors shall be chosen for a term of
three years to succeed those whose terms expire.
C. Vacancies. Any vacancy occurring in the board of directors may be
filled only 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 for the unexpired term of his predecessor in
office. A 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
continuing only until the next election of directors by the shareholders.
ARTICLE VIII. REGISTERED OFFICE AND AGENT. The registered office of the
corporation shall be located at 2094 Jordan Avenue, Juneau, Alaska 99801. The
initial registered agent of the corporation at such address shall be Craig Dahl.
ARTICLE IX. NOTICE FOR SHAREHOLDER NOMINATIONS AND PROPOSALS.
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of shareholders may be
made by the board of directors of the corporation or by any shareholder of the
corporation entitled to vote generally in the election of directors. In order
for a shareholder of the corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
corporation not less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than thirty-one days' notice of the
meeting is given to shareholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the corporation not later than the
close of the tenth day following the day on which notice of the meeting was
mailed to shareholders. Each such notice given by a shareholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominees,
(iii) the number of shares of stock of the corporation which are beneficially
owned by each such nominee, (iv) such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee pursuant to Regulation 14A of the General Rules and Regulations
of the Securities Exchange Act of 1934, including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director, if elected, and (v) as to the shareholder giving such
notice (a) his name and address as they appear on the corporation's books and
(b) the class and number of shares of the corporation which are beneficially
owned by such shareholder. In addition, the shareholder making such nomination
shall promptly provide any other information reasonably requested by the
corporation.
B. Each such notice given by a shareholder to the Secretary with
respect to business proposals to bring before a meeting shall set forth in
writing as to each matter: (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address, as they appear on the corporation's books,
of the shareholder proposing such business; (iii) the class and number of shares
of the corporation which are beneficially owned by the shareholder; and (iv) any
material interest of the shareholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of shareholders may,
if the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or
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annual meeting of the shareholders taking place thirty days or more thereafter.
This provision shall not require the holding of any adjourned or special meeting
of shareholders for the purpose of considering such defective nomination or
proposal.
ARTICLE X. APPROVAL OF CERTAIN BUSINESS COMBINATIONS. The shareholder
vote required to approve Business Combinations (as hereinafter defined) shall be
as set forth in this section.
A. (1) Except as otherwise expressly provided in this Article X, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least 80% of
the outstanding shares of each such class or series), and (ii) at least a
majority of the outstanding shares entitled to vote thereon, not including
shares deemed beneficially owned by a Related Person (as hereinafter defined),
shall be required to authorize any of the following:
(a) any merger or consolidation of the corporation with or into a
Related Person;
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security
device, of all or any Substantial Part (as hereinafter defined) of the
assets of the corporation (including without limitation any voting
securities of a subsidiary) or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the corporation or a subsidiary of the corporation;
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the
corporation or a subsidiary of the corporation;
(e) the issuance of any securities of the corporation or a
subsidiary of the corporation to a Related Person;
(f) the acquisition by the corporation or a subsidiary of the
corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the corporation,
or any recapitalization involving the common stock of the corporation;
(h) any liquidation or dissolution of the corporation; and
(i) any agreement, contract or other arrangement providing for
any of the transactions described in this Article X.
(2) Such affirmative vote shall be required notwithstanding any other
provision of these Articles of Incorporation, any provision of law, or any
agreement with any regulatory agency or national securities exchange that might
otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article X shall
mean any transaction that is referred to in any one or more of subparagraphs (a)
through (i) above.
B. The provisions of Part A of this Article X shall not be applicable
to any particular Business Combination, which shall require only such
affirmative vote as is required by any other provision of these
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Articles of Incorporation, any provision of law, or any agreement with any
regulatory agency or national securities exchange, if such particular Business
Combination shall have been approved by two-thirds of the Continuing Directors
(as hereinafter defined); provided, however, that such approval shall only be
effective if obtained at a meeting at which a Continuing Director Quorum (as
hereinafter defined) is present.
C. For the purposes of this Article X the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which
together with its "affiliates" (as that term is defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934), "beneficially owns" (as that term is defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Act of 1934) in the
aggregate 10% or more of the outstanding shares of the common stock of the
corporation (excluding tax-qualified benefit plans of the corporation); and
(b) any "affiliate" (as that term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of any such individual, corporation,
partnership or other person or entity. Without limitation, any shares of
the common stock of the corporation which any Related Person has the right
to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially
owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25% of the total
assets of the corporation as of the end of its most recent fiscal year
prior to when the determination is made.
(3) The term "Continuing Director" shall mean any member of the board
of directors of the corporation who is unaffiliated with the Related Person
and was a member of the board of directors prior to the time the Related
Person became a Related Person, and any successor of a Continuing Director
who is unaffiliated with the Related Person and is recommended to succeed a
Continuing Director by a majority of Continuing Directors then on the board
of directors.
(4) The term "Continuing Director Quorum" shall mean seventy-five
percent (75%) of the Continuing Directors capable of exercising the powers
conferred on them.
D. Nothing contained in this Article X shall be construed to relieve a
Related Person from any fiduciary obligation imposed by law. In addition,
nothing contained in the Article X shall prevent any shareholders of the
corporation from objecting to any Business Combination and from demanding any
appraisal rights which may be available to such shareholder.
E. No amendment, alteration, change, or repeal of any provision of the
Article X may be effected unless it is approved at a meeting of the
corporation's shareholders called for that purpose. Notwithstanding any other
provision of this charter, the affirmative vote of the holders of not less than
80% of the outstanding shares entitled to vote thereon shall be required to
amend, alter, change, or repeal, directly or indirectly, any provision of
Article X; provided, however, that the preceding provisions of this Part E shall
not be applicable to any amendment to this Article X if such amendment receives
the affirmative vote required by law and any other provisions of these Articles
of Incorporation and if such amendment has been approved by a majority of the
Continuing Directors.
ARTICLE XI. EVALUATION OF BUSINESS COMBINATIONS. In connection with the
exercise of its judgment in determining what is in the best interests of the
corporation and of the shareholders, when evaluating a Business Combination (as
defined in Article X) or a tender or exchange offer, the board of directors of
the corporation, in addition to considering the adequacy of the amount to be
paid in connection with any such transaction, shall consider all of the
following factors and any other factors which it deems relevant: (i) the social
and economic effects of the transaction on the corporation and its subsidiaries,
employees, depositors, loan and other customers, creditors and other elements of
the communities in which the corporation and its subsidiaries operate or are
located;
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(ii) the business and financial condition and earnings prospects of the
acquiring person or entity, including, but not limited to, debt service and
other existing financial obligations, financial obligations to be incurred in
connection with the acquisition and other likely financial obligations of the
acquiring person or entity and the possible effect of such conditions upon the
corporation and its subsidiaries and the other elements of the communities in
which the corporation and its subsidiaries operate or are located; and (iii) the
competence, experience, and integrity of the acquiring person or entity and its
or their management.
ARTICLE XII. LIMITATION OF DIRECTORS' LIABILITY. To the fullest extent
permitted by the ACC a director of the corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for conduct
as a director, except for liability of the director for acts that involve (i) a
breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; (iii) willful or negligent conduct involved in
the payment of dividends or the repurchase of stock from other than lawfully
available funds; or (iv), a transaction from which the director derives an
improper personal benefit. If the ACC is amended in the future to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the full extent permitted by the ACC, as so amended,
without any requirement or further action by shareholders. An amendment or
repeal of this Article XII shall not adversely affect any right or protection of
a director of the corporation existing at the time of such amendment or repeal.
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 ACC, 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 a director, officer,
employee, or agent of the corporation, or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise. Indemnification may
include reimbursement of expenses, attorney fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by the person in connection
with such action or proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to a criminal action or proceeding, the
person had no reasonable cause to believe the conduct was unlawful.
B. Implementation. Unless determined otherwise by a court,
indemnification may be made by a corporation upon determination of the director,
officer, employee, or agent is proper in the circumstances because the director,
officer, employee, or agent has met the applicable standard of conduct. Such
determination shall be made by (i) the board by a majority vote of a quorum
consisting of directors who were not parties to the action or proceeding; or
(ii) independent legal counsel in a written opinion of a quorum; or (iii) the
approval of shareholders. 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 XIII 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.
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D. Service for Other Entities. The indemnification and advancement of
expenses provided under this Article XIII 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 corporation'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 the ACC.
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 shareholders, or
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.
ARTICLE XIV. SPECIAL MEETING OF SHAREHOLDERS. Special meetings of the
shareholders for any purpose or purposes may be called only by the president or
by the Board of Directors. The right of shareholders of the corporation to call
special meetings is specifically denied.
ARTICLE XV. REPURCHASE OF SHARES. The corporation may from time to
time, pursuant to authorization by the board of directors of the corporation and
without action by the shareholders, purchase or otherwise acquire shares of any
class, bonds, debentures, notes, scrip, warrants, obligations, evidences of
indebtedness, or other securities of the corporation in such manner, upon such
terms, and in such amounts as the board of directors shall determine; subject,
however, to such limitations or restrictions, if any, as are contained in the
express terms of any class of shares of the corporation outstanding at the time
of the purchase or acquisition in question or as are imposed by law.
ARTICLE XVI. AMENDMENT OF BYLAWS. In furtherance and not in limitation
of the powers conferred by statute, the board of directors of the corporation is
expressly authorized to make, repeal, alter, amend and rescind the bylaws of the
corporation by a majority vote of the board of directors. Notwithstanding any
other provision of these Articles of Incorporation or the bylaws of the
corporation (and notwithstanding the fact that some lesser percentage may be
specified by law), the bylaws shall not be adopted, repealed, altered, amended
or rescinded by the shareholders of the corporation except by the vote of the
holders of not less than 80% of the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the shareholders called for
that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such meeting),
or, as set forth above, by the board of directors.
ARTICLE XVII. AMENDMENT OF ARTICLES OF INCORPORATION. The corporation
reserves the right to repeal, alter, amend or rescind any provision contained in
the Articles of Incorporation in the manner now or hereafter prescribed by law,
and all rights conferred on shareholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
II, III, IV (other than a change to the number of authorized shares in
connection with a split of, or stock dividend in, the corporation's own shares,
provided the corporation has only one class of shares outstanding or a change in
the par value of such shares), V, VI, VIII, IX, X,
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XI, XII, XIII, XIV, XV, XVI and this Article XVII of these Articles of
Incorporation may not be repealed, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than 80% of the votes entitled to be cast by each separate voting group entitled
to vote thereon, cast at a meeting of the shareholders called for that purpose
(provided that notice of such proposed adoption, repeal, alteration, amendment
or rescission is included in the notice of such meeting).
ARTICLE XIX. INCORPORATOR. The name and mailing address of the
incorporator is Craig Dahl, 2094 Jordan Ave., Juneau, Alaska 99801.
Executed this 19th day of March, 1999.
/s/ Craig Dahl
-----------------------------
Craig Dahl, Incorporator
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EXHIBIT 3.2
BYLAWS OF ALASKA PACIFIC BANCSHARES, INC.
<PAGE>
BYLAWS
OF
ALASKA PACIFIC BANCSHARES, INC.
ARTICLE I
PRINCIPAL OFFICE
SECTION 1. PRINCIPAL OFFICE. The principal office and place of business
of the corporation in the state of Alaska shall be located in the City and
Borough of Juneau, First Judicial District.
SECTION 2. OTHER OFFICES. The corporation may have such other offices
as the Board of Directors may designate or the business of the corporation may
require from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of the
shareholders shall be held at the principal office of the corporation or at such
other place within the State of Alaska as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
corporation for the election of directors and for the transaction of any other
business of the corporation shall be held annually on the third Thursday 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 2:00 p.m., Alaska Standard time, or
at such other date and time as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes shall be called in accordance with the procedures set
forth in the Articles of Incorporation.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules prescribed by the presiding officer of the
meeting, unless otherwise prescribed by these bylaws. The Board of Directors
shall designate, when present, either the chairman of the board or the president
to preside at such meetings.
SECTION 5. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in the case of a special meeting of shareholders, the
purpose or purposes for which the meeting is called, shall be delivered not less
than 20 nor more than 60 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.
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 corporation as of the record date prescribed in
Section 6 of this Article II, with postage thereon prepaid. When any
shareholders' meeting, either annual or special, is adjourned for three 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 three days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, 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 70 days, and in case of a meeting of shareholders, not
less than 20 days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken. If no record date is fixed
for the determination of shareholders entitled to
<PAGE>
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the day before the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. 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 corporation 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 of and the number of shares held by each.
This list of shareholders shall be kept on file at the home office of the
corporation and shall be subject to inspection by any shareholder at any time
during usual business hours, for a period of 20 days prior to such meeting. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to inspection by any shareholder during the entire time of
the meeting. The original stock transfer book shall be prima facie evidence of
the shareholders entitled to examine such list or transfer books or to vote at
any meeting of shareholders. Failure to comply with the requirements of this
bylaw shall not affect the validity of any action taken at the meeting.
SECTION 8. QUORUM. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. If a quorum is present or represented at a meeting, a majority of those
present or represented may transact any business that comes before the meeting,
unless a greater percentage is required by law. If less than a quorum of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified, and in the case of any adjourned meeting called for the
election of directors, those who attend the second of the adjourned meetings,
although less than a quorum, shall nevertheless constitute a quorum for the
purpose of electing directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. All proxies shall be filed
with the secretary of the corporation before or at the commencement of meetings.
No proxy may be effectively revoked until notice in writing of such revocation
has been given to the secretary of the corporation by the shareholder (or his
duly authorized attorney in fact, as the case may be) granting the proxy. No
proxy shall be valid after eleven months from the date of its execution unless
it is coupled with an interest.
SECTION 10. 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. A certified copy of
a resolution adopted by such directors shall be conclusive as to their action.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
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If shares are held jointly by three or more fiduciaries, the will of
the majority of the fiduciaries shall control the manner of voting or giving of
a proxy, unless the instrument or order appointing such fiduciaries otherwise
directs.
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 corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation held by the corporation,
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 11. VOTING. Every holder of outstanding shares of capital stock
of the corporation entitled to vote at any meeting shall be entitled to the
number of votes (if any) as set forth in the Articles of Incorporation.
Shareholders shall not be entitled to cumulative voting rights in the election
of directors. Unless otherwise provided in the Articles of Incorporation, by
statute, or by these bylaws, a majority of those votes cast by shareholders at a
lawful meeting shall be sufficient to pass on a transaction or matter.
SECTION 12. 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 the shareholders, may be taken without a meeting if consented to
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. All corporate powers shall be exercised by,
or under authority of, and the business and affairs of the corporation shall be
managed under the direction of, the 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, TERM AND ELECTION. The Board of Directors shall
consist of seven (7) members. The number of directors may be increased or
decreased from time to time by amendment to or in the manner provided in these
bylaws, but shall be no less than and no more than the numbers set forth in the
Articles of Incorporation. No decrease, however, shall have the effect of
shortening the term of any incumbent director unless such director is removed in
accordance with the provisions of these bylaws. Unless removed in accordance
with the Articles of Incorporation, each director shall hold office until his
successor shall have been elected and qualified.
SECTION 3. REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after
the annual meeting of shareholders, and at the same place as other regularly
scheduled meetings of the Board of Directors. 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. The president of the
corporation, the Board of Directors or any director may call a special meeting
of the Board. Regular meetings may be held in or out of the State of Alaska.
Members of the Board of Directors may participate in regular or 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 attendance in person, but shall not constitute
attendance for the purpose of compensation pursuant to SECTION 13 of this
Article.
3
<PAGE>
SECTION 4. NOTICE OF SPECIAL MEETING. Written notice of any special
meeting shall be given to each director at least two days prior thereto. If
mailed to 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 thereon prepaid. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Special meetings may be held in or out of the state of Alaska.
SECTION 5. 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 6. MANNER OF ACTING. The act of the majority of the directors
present at a meeting or adjourned meeting at which a quorum is present shall be
the act of the board of directors, unless a greater number is prescribed by
these bylaws.
SECTION 7. 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 8. RESIGNATION. Any director may resign at any time by sending
a written notice of such resignation to the principal office of the corporation
addressed to the chairman of the board or the president. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof by
the chairman of the board or the president.
SECTION 9. REMOVAL. A director or the entire board of directors may be
removed only in accordance with the procedures set forth in the Articles of
Incorporation.
SECTION 10. VACANCIES. Vacancies of the board of directors may be
filled only in accordance with the procedures set forth in the Articles of
Incorporation.
SECTION 11. COMPENSATION. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Nothing herein shall be construed to preclude any director from serving the
corporation in any other capacity and receiving remuneration therefor.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors at which action on a corporation
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his 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 corporation within five
(5) days after the date he receives a copy of the minutes of the meeting. Such
right to dissent shall not apply to a director who voted in favor of such
action.
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<PAGE>
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. APPOINTMENT. The board of directors may, by resolution
adopted by a majority of the full board, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any such committee.
SECTION 2. AUTHORITY. Any such committee shall have all the authority
of the board of directors, except to the extent, if any, that such authority
shall be limited by the resolution appointing the committee; and except also
that no committee shall have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Corporation, 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 Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this
Article III, each member of a 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 committee.
SECTION 4. MEETINGS. Unless the board of directors shall otherwise
provide, regular meetings of any committee appointed pursuant to this Article
III shall be at such times and places as are determined by the board of
directors, or by any such committee. Special meetings of any such committee may
be held at the principal executive office of the Corporation, or at any place
which has been designated from time to time by resolution of such committee or
by written consent of all members thereof, and 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 shall been given in the manner provided for the giving
of notice to members of the board of directors of the time and place of special
meetings of the board of directors.
SECTION 5. QUORUM. A majority of the members of any committee shall
constitute a quorum for the transaction of business at any meeting thereof.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by any 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 any such committee.
SECTION 7. RESIGNATIONS AND REMOVAL. Any member of any 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 any committee may resign from any
such committee at any time by giving written notice to the president or
secretary of the Corporation. 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 8. PROCEDURE. Unless the board of directors otherwise provides,
each 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.
5
<PAGE>
ARTICLE V
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall be a
president, a secretary and a treasurer, each of whom shall be elected by the
board of directors. The board of directors may also designate the chairman of
the board as an officer. The president shall be the chief executive officer
unless the board of directors designates the chairman of the board as chief
executive officer. The president shall be a director of the Corporation. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation 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 Corporation
shall be elected annually by the board of directors 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 his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the corporation to enter
into an employment contract with any officer in accordance with applicable law.
SECTION 3. REMOVAL. Any officer may be removed by vote of two-thirds of
the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract 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 and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. Except as otherwise prescribed by these bylaws
with respect to certificates for shares, the Board of Directors may authorize
any officer, employee, or agent of the bank to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
corporation. Such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation 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 in the name of
the corporation shall be signed by one or more officer, employee, or agent of
the corporation in such manner as shall from time to time be determined by the
Board of Directors.
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<PAGE>
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposits form time to time to the credit of the corporation in
any of its duly authorized depositories as the Board of Directors may select.
SECTION 5. CONTRACTS WITH DIRECTORS AND OFFICERS. To the fullest extent
authorized by and in conformance with Alaska law, the corporation may enter into
contracts with and otherwise transact business as vendor, purchaser, or
otherwise, with its directors, officers, employees and shareholders and with
corporations, associations, firms, and entities in which they are or may become
interested as directors, officers, shareholders, or otherwise, as freely as
though such interest did not exist, except that no loans shall be made by the
corporation secured by its shares. In the absence of fraud, the fact that any
director, officer, employee, shareholder, or any corporation, association, firm
or other entity of which any director, officer, employee or shareholder is
interested, is in any way interested in any transaction or contract shall not
make the transaction or contract void or voidable, or require the director,
officer, employee or shareholder to account to this corporation for any profits
therefrom if the transaction or contract is or shall be authorized, ratified, or
approved by (i) the vote of a majority of the Board of Directors excluding any
interested director or directors, (ii) the written consent of the holders of a
majority of the shares entitled to vote, or (iii) a general resolution approving
the acts of the directors and officers adopted at a shareholders meeting by vote
of the holders of the majority of the shares entitled to vote. All loans to
officers and directors shall be subject to Federal and state laws and
regulations. Nothing herein contained shall create or imply any liability in the
circumstances above described or prevent the authorization, ratification or
approval of such transactions or contracts in any other manner.
SECTION 6. SHARES OF ANOTHER CORPORATION. Shares of another corporation
held by this corporation may be voted by the president or any vice president, or
by proxy appointment form by either of them, unless the directors by resolution
shall designate some other person to vote the shares.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the corporation shall be in such form as shall be determined by
the Board of Directors. Such certificates shall be signed by the chief executive
officer or by any other officer of the corporation 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 corporation 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 corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for the like
number of shares has been surrendered and canceled, except that in case of a
lost or destroyed certificate, a new certificate may be issued therefor upon
such terms and indemnity to the corporation as the Board of Directors may
prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of
the corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney authorized by power of attorney duly executed and filed with the
corporation. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name of shares of capital
stock stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
SECTION 3. CERTIFICATION OF BENEFICIAL OWNERSHIP. The Board of
Directors may adopt by resolution a procedure whereby a shareholder of the bank
may certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. Upon receipt by the corporation of a certification
complying with such procedure, the persons specified in the certification shall
be
7
<PAGE>
deemed, for the purpose or purposes set forth in the certification, to be the
holders of record of the number of shares specified in place of the shareholder
making the certification.
SECTION 4. LOST CERTIFICATES. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the corporation shall end on the last day of
December of each year. The corporation shall be subject to an annual audit as of
the end of its fiscal year by the independent public accountants appointed by
and responsible to the Board of Directors.
ARTICLE IX
DIVIDENDS
Subject to the terms of the corporation's Articles of Incorporation and
the laws of the State of Alaska, the Board of Directors may, from time to time,
declare, and the corporation may pay, dividends upon its outstanding shares of
capital stock.
ARTICLE X
CORPORATE SEAL
The corporation need not have a corporate seal. If the directors adopt
a corporate seal, the seal of the corporation shall be circular in form and
consist of the name of the corporation, the state and year of incorporation, and
the words "Corporate Seal."
ARTICLE XI
AMENDMENTS
In accordance with the corporation's Articles of Incorporation, these
bylaws may be repealed, altered, amended or rescinded by the shareholders of the
corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
shareholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these bylaws.
* * *
8
EXHIBIT 4
FORM OF CERTIFICATE FOR COMMON STOCK
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ALASKA
COMMON STOCK CUSIP _____________
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE, OF
Alaska Pacific Bancshares, Inc., a stock corporation incorporated under the laws
of the State of Alaska. The shares represented by this Certificate are
transferable only on the stock transfer books of the Corporation by the holder
of record hereof, or by his duly authorized attorney or legal representative,
upon the surrender of this Certificate properly endorsed. THE SHARES REPRESENTED
BY THIS CERTIFICATE ARE NOT A DEPOSIT OR ACCOUNT AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. The
Certificate and shares represented hereby are issued and shall be held subject
to all provisions of the Articles of Incorporation and Bylaws of the Corporation
and any amendments thereto (copies of which are on file with the Transfer
Agent), to all of which provisions the holder by acceptance hereof, assents.
IN WITNESS WHEREOF, Alaska Pacific Bancshares, Inc. has caused this
Certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
CORPORATE SECRETARY PRESIDENT
TRANSFER AGENT
[SEAL]
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
The shares represented by this Certificate are issued subject to all
the provisions of the Articles of Incorporation and Bylaws of Alaska Pacific
Bancshares, Inc. ("Corporation") as from time to time amended (copies of which
are on file with the Transfer Agent and at the principal executive offices of
the Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Articles of Incorporation to the effect that in no event shall
any record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the outstanding shares of common stock (the "Limit") be entitled or permitted to
vote in respect of the shares held in excess of the Limit, unless a majority of
the whole Board of Directors, as defined, shall have by resolution granted in
advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of
preferred stock in series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. The Corporation will furnish to any shareholder upon request and
without charge a full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively
voted on any matter. The affirmative vote of the holders of at least 80% of the
voting stock of the Corporation, voting together as a single class, shall be
required to approve certain business combinations and other transactions,
pursuant to the Articles of Incorporation. The affirmative vote of the holders
of at least two-thirds of the voting stock of the Corporation, voting together
as a single class, shall be required to amend certain provisions of the Articles
of Incorporation.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF TRAN MIN ACT -_______Custodian_______ under Uniform Transfer
(Cust) (Minor)
to Minors Act _________
(State)
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address, including
postal zip code, of assignee
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------- shares
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint ________________________________________________
Attorney, to transfer the said shares on the books of the within named
Corporation, with full power of substitution.
Dated _________________
----------------------------------------
Signature
----------------------------------------
Signature
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate in
every particular, without alteration or
enlargement or any change whatever.
EXHIBIT 5
OPINION OF BREYER & ASSOCIATES PC REGARDING
LEGALITY OF SECURITIES REGISTERED
<PAGE>
[Letterhead of Breyer & Associates PC]
March 22, 1999
Board of Directors
Alaska Pacific Bancshares, Inc.
2094 Jordan Avenue
Juneau, Alaska 99801
RE: Alaska Pacific Bancshares, Inc.
Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
You have requested our opinion as special counsel for Alaska Pacific
Bancshares, Inc., an Alaska corporation, in connection with the above-referenced
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of
Alaska Pacific Bancshares, Inc. will be offered and sold in the manner described
in the Prospectus, which is part of the Registration Statement. We have examined
such records and documents and made such examination as we have deemed relevant
in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common
stock of Alaska Pacific Bancshares, Inc. will upon issuance be legally issued,
fully paid and nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal and
Tax Opinions."
Very truly yours,
/s/ Breyer & Associates PC
-------------------------------
BREYER & ASSOCIATES PC
Washington, D.C.
EXHIBIT 8.3
Opinion of RP Financial, LC.
as to the Value of Subscription Rights
<PAGE>
RP Financial, LC.
- ---------------------------------------------
Financial Services Industry Consultants
March 22, 1999
Board of Directors
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801-8046
Re: Plan of Conversion: Subscription Rights
Alaska Federal Savings Bank
----------------------------------------
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Alaska Federal Savings Bank (Alaska Federal" or the "Bank") whereby
the Bank will convert from a federal mutual savings bank to a federal stock
savings bank and issue all of the Bank's outstanding capital stock to Alaska
Pacific Bancshares, Inc. (the "Holding Company"). Simultaneously, the Holding
Company will issue shares of common stock.
We understand that in accordance with the Plan of Conversion,
subscription rights to purchase shares of common stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the Employee Stock
Ownership Plan; (3) Supplemental Eligible Account Holders; and (4) Other
Members. Based solely upon our observation that the subscription rights will be
available to such recipients without cost, will be legally non-transferable and
of short duration, and will afford such parties the right only to purchase
shares of common stock at the same price as will be paid by members of the
general public in the direct community offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the belief that,
as a factual matter:
(1) the subscription rights will have no ascertainable market value;
and,
(2) the price at which the subscription rights are exercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe for shares of
common stock in the conversion will thereafter be able to buy or sell such
shares at the same price paid in the Offerings.
Sincerely,
/s/RP FINANCIAL, LC.
--------------------------
RP FINANCIAL, LC.
EXHIBIT 10.1
PROPOSED FORM OF SEVERANCE AGREEMENT FOR EXECUTIVE OFFICERS
<PAGE>
SEVERANCE AGREEMENT FOR EXECUTIVE OFFICERS
THIS SEVERANCE 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 Pacific Bank (the
"Bank"), and __________ (the "Employee").
WHEREAS, the Employee is currently serving as the _________________ 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
- -------------------------------;
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
<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 "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company (or its successors) that are part of the
consolidated group of the Company (or its successors) for federal income tax
reporting.
(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 _____________________ 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
____________________ 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
2
<PAGE>
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.
(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
___________________ of the Company and as the ______________________ 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.
3
<PAGE>
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 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.
4
<PAGE>
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
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
5
<PAGE>
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 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.
6
<PAGE>
(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 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.
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
7
<PAGE>
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 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
8
<PAGE>
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.
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.
- ------------------------------ ---------------------------
, Secretary By:
Its:
Attest: Alaska Pacific Bank
- ------------------------------ ----------------------------
, Secretary By:
Its:
Employee
----------------------------
----------------------------
9
EXHIBIT 10.2
PROPOSED FORM OF SEVERANCE AGREEMENT FOR CERTAIN SENIOR OFFICERS
<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 PACIFIC 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 _____________________ (the "Employee").
WHEREAS, the Employee is currently serving as
_________________________________; 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 Employee in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Employee to the Employee'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 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. 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
<PAGE>
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 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
consolidated group of the Company (or its successors) for federal income tax
reporting.
(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 Employee the Employee's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Employee as a participant
in all benefit and fringe benefit plans in which the Employee 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
Employee's express written consent, of a material diminution of or interference
with the Employee'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 Employee in respect thereof:
2
<PAGE>
(i) a requirement that the Employee be based at any
location not within 35 miles of Juneau, Alaska, or that
he substantially increase his travel on Company or Bank
business;
(ii) a material demotion of the Employee;
(iii) 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
Company-wide or Bank-wide reduction in staff;
(iv) 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
Company or the Bank;
(v) a material and extended increase in the required hours
of work or the workload of the Employee;
(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 Employee'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 Employee's employment pursuant to Section 7 of this Agreement.
(g) The term "Termination for Cause" means termination of the
employment of the Employee 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 material breach of any provision of this
Agreement. No act or failure to act by the Employee shall be considered
intentional 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 Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred 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 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 Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the Board), stating
3
<PAGE>
that in the good faith opinion of the Board the Employee has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
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 Effective 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 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.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank
at any time from terminating the Employee'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 Employee in the event of any
such termination shall be determined under this Agreement.
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Employee's
employment other than Termination for Cause, or the Employee shall terminate his
employment for Good Reason, within 12 months following a Change in Control, the
Bank shall (i) pay the Employee 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 __ months following
the Date of Termination, for the life, health and disability coverage that is in
effect with respect to the Employee and his eligible dependents at the time the
Notice of Termination is given; and (iii) pay to the Employee 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 ___% of the Employee'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 Employee, arising under any other plans or arrangements (I.E.,
not this Agreement) between the Company or any of the Consolidated Subsidiaries
and the Employee, 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 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 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
4
<PAGE>
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.
(b) The Employee 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 Employee 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 Employee 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 esires to
terminate the employment of the Employee during the term of this Agreement, the
Bank shall deliver to the Employee 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 Employee 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 Employee's right to terminate his employment for Good Reason shall
not be affected by the Employee's incapacity due to physical or mental illness.
The Employee'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. 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 Employee, 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 Employee 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 Employee 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 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. In the event of the death of the Employee, unless
otherwise provided herein, all amounts payable hereunder shall
5
<PAGE>
be paid to the Employee's devisee, legatee, or other designee or, if there be no
such designee, to the Employee's estate.
6. Deferred Payments. If following a termination of the Employee, 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 Employee 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 Employee: _________________________
At the address last appearing
on the personnel records of
the Employee
If to the Bank: Alaska Pacific Bank
2094 Jordan Avenue
Juneau, Alaska 99801
Attention: Secretary
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 Employee within 100 miles of such Employee's job location
6
<PAGE>
with the Bank, in accordance with the rules of the American Arbitration
Association then in effect; PROVIDED, HOWEVER, that the Employee 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 Employee 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 Employee to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Employee for all costs and expenses incurred
by the Employee, 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 Employee as to the matter
in dispute. Reimbursement of the Employee's expenses shall be paid within ten
days of the Employee 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 Employee.
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 BANK
- ----------------------------- ------------------------------
- ------------------- By:
- ------------------- Its:
EMPLOYEE
------------------------------
7
EXHIBIT 10.3
PROPOSED FORM OF EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of __________, 1999
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
----
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................................ 4
(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
i
<PAGE>
(dd) Investment Adjustments.................................... 6
(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.......................................... 7
(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
ii
<PAGE>
2.4 Determination of Eligibility....................................... 11
2.5 Restricted Participation........................................... 11
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
iii
<PAGE>
5.4 Allocation of Forfeitures.......................................... 18
5.5 Allocation of Employee Stock Ownership Contribution................ 18
5.6 Limitation on Annual Additions..................................... 19
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
iv
<PAGE>
8.3 Nondiscrimination in Employee Stock Ownership Contribution......... 27
8.4 Dividends.......................................................... 28
8.5 Exempt Loans....................................................... 28
8.6 Exempt Loan Payments............................................... 30
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
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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
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
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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
11.15 Information from Employer.......................................... 50
11.16 Reservation of Rights by Employer.................................. 50
11.17 Liability and Indemnification...................................... 50
11.18 Service as Trustee and Administrator............................... 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
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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
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
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ALASKA PACIFIC BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of ___________, 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
Pacific 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 ___________, 1999.
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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
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(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 and commissions (but only with respect to the amount of commissions
specified as compensation for purposes of the Plan in the current agreement
between an Employee and the Employer), 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 bonuses, overtime, 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, payments for group insurance, medical benefits,
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 _____________, 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 subsidiary, Alaska Pacific Bank, 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
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<PAGE>
(2) that class of common stock of the Employer or a
Related Employer having the greatest dividend rights.
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 __________ 1 and __________ 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
5
<PAGE>
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
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.
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(ii) "Plan Year" shall mean any 12 consecutive month period commencing
on each __________ 1 and ending on the next following _____________.
(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.
(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
_____________, of ________, ___________.
(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.
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(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.
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.
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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.
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 21.
(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
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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 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. 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
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Fund, but shall not be adjusted to reflect any earnings or gains.
Notwithstanding any provisions of 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.
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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 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
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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 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;
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(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
(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.
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(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.
(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,
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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.
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 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 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
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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 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 as directed by the
Administrator.
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
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(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 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 fair market value of Employer Securities
which are released from the Exempt Loan Suspense Account and allocated to each
such Account shall be equal to or greater than the amount of dividends that
otherwise would have been allocated to such Account, 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.
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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 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 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
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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 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 Trustee's
request 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.
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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.
(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
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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 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.
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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 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
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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.
(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
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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).
(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
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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.
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
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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 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).
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(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.
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;
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(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 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.
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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 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.
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(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 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.
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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.
(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
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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:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 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:
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(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;
(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 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 payments which shall be made
out of the Fund pursuant to the provisions of this Plan;
(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.
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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.
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.
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11.9 Delegation of Duties.
The Administrator may delegate any of its duties to any Employees of
the Employer, to the Trustee with its 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.
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.
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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.
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 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights
shall be exercised only by action of the Board of Directors, except where the
Board of Directors, by written resolution, delegates any such rights to one or
more officers of the Employer or to the Administrator. 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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11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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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
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claimant, with specific references to the pertinent Plan provisions on which the
decision is based. 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.
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(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 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, death, 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
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functions and to exercise all of the discretion that are delegated to the
Administrator pursuant to Article XI.
(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.
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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
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
57
<PAGE>
distributions if there had been no partial termination or permanent
discontinuance of contributions.
58
<PAGE>
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
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<PAGE>
with applicable law, direct the Trustee to withhold any or all payments to such
person under the 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.
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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 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 _________________________________
__________________, _________________________________
Secretary President and Chief Executive Officer
[Corporate Seal]
61
EXHIBIT 10.4
PROPOSED FORM OF EMPLOYEE SEVERANCE COMPENSATION PLAN
<PAGE>
ALASKA PACIFIC BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of Alaska Pacific Bank Employee Severance Compensation Plan
(the "Plan") is to assure for Alaska Pacific 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 Pacific 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.
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<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 Pacific 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 the definition of change in control set forth in 12 C.F.R. ss. 574 et.
seq. as interpreted by the Board of Directors, as it is constituted prior to the
Change in Control.
(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 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.
2
<PAGE>
(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 Pacific 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.
The Plan neither requires nor establishes an ongoing administrative
system for its effect or operation. Payments under the Plan are precipitated by
a single event, a Change in Control, which event is the sole focus of the Plan.
Consequently, it is intended that the Plan shall not be covered by or be subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
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 and who is selected as a Participant by the
Board of Directors shall become a
3
<PAGE>
Participant on the Effective Date. Thereafter, each Employee shall become a
Participant on the later of the day on which (a) he or she completes one year of
Continuous Employment or (b) is selected as a Participant by the Board of
Directors. 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 or is otherwise determined
by the Board of Directors no longer to be a Participant in the Plan, 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.
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.
4
<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 ____% 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 ____ percent (__%) 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
5
<PAGE>
living, otherwise to the personal representative on behalf of or for the benefit
of the Participant's estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of 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.
6
<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
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<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.
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 Pacific 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
8
EXHIBIT 21
SUBSIDIARIES OF ALASKA PACIFIC BANCSHARES, INC.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Parent
- ------
Alaska Pacific Bancshares, Inc.
Percentage Jurisdiction or
Subsidiaries(a) of Ownership State of Incorporation
- --------------- ------------ ----------------------
Alaska Federal Savings Bank(1) 100% United States
- -------------
(1) Upon consummation of the Conversion, Alaska Federal Savings Bank will
change its name to Alaska Pacific Bank and become a wholly-owned
subsidiary of the Registrant.
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
<PAGE>
[Letterhead of Deloitte & Touche LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Alaska Pacific
Bankshares, 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 this 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
March 22, 1999
EXHIBIT 23.4
Consent of RP Financial, LC.
<PAGE>
[RP Financial, LC., Letterhead]
March 22, 1999
Board of Directors
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801-8046
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of Alaska Federal Savings Bank, Juneau, Alaska, and any amendments
thereto, and in the Form SB-2 Registration Statement, and any amendments
thereto, for Alaska Pacific Bancshares, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report and our letter
concerning subscription rights in such filings including the Prospectus of
Alaska Pacific Bancshares, Inc.
Sincerely,
/s/RP FINANCIAL, LC.
---------------------------------
RP Financial, LC.
EXHIBIT 99.1
ORDER AND ACKNOWLEDGEMENT FORM
<PAGE>
ALASKA PACIFIC BANCSHARES, INC.
STOCK ORDER FORM
NUMBER OF SHARES
Fill in the number of shares you wish to purchase and the total amount due. No
fractional shares will be issued. The minimum purchase is 25 shares. No Eligible
Account Holder, Supplemental Eligible Account Holder, or Other Member (including
all persons on a joint account) may purchase in their capacity as such in the
Subscription Offering more than 12,500 shares (or $125,000) of the Common Stock
offered in the Conversion; no person, together with associates of an persons
acting in concert with such person may purchase in the Direct Community Offering
and the Syndicated Community Offering, in the aggregate, more than 25,000 shares
(or $250,000) of Common Stock issued in the Conversion, whichever is less; and
no person (including all persons on a joint account), together with associates
of or persons acting in concert with such person, may purchase in the aggregate
more than 1% of the shares of Common Stock issued in the Conversion.
METHOD OF PAYMENT
Check the appropriate boxes that show how you wish to pay for the stock. If
paying by check or money order, make it payable to Alaska Pacific Bancshares,
Inc. Your funds will earn interest at Alaska Federal's passbook rate until the
Offering is completed. If paying by withdrawal from a Alaska Federal deposit
account, write in the account number(s) and the amount(s) you wish to withdraw.
If payment is made from a CD account, it will continue to earn interest at the
same CD account rate.
STOCK REGISTRATION
Print the name(s) in which you want the stock registered. If you are a depositor
or member, to protect your rights over other purchasers as described in the
Prospectus, you must take ownership in at least one of the account holders'
names. Subscription rights are nontransferable. Enter the Social Security Number
(or Tax ID Number) of one registered owner; only one number is required. See the
reverse side of this form for registration guidelines.
NASD AFFILIATION
The NASD's Interpretation with respect to Free Riding and Withholding restricts
the sale of certain initial public offerings to certain NASD members, affiliates
and family members. For an exemption from these restrictions, such persons must
comply with the following conditions: (i) to not sell or transfer the shares for
a period of 150 days following issuance and (ii) to report this subscription in
writing to the applicable NASD member within one day of payment therefor. By
signing this Stock Order Form, you are certifying that you will comply with
applicable NASD regulations.
TELEPHONE INFORMATION
Please enter the daytime telephone number where you may be contacted in the
event we cannot execute your offer as given.
ACCOUNT VERIFICATION
If you were a depositor on December 31, 1997, March 31, 1999 or ___________ __,
1999, and borrower on October 20, 1993, whose loans were still outstanding on
_________ __, 1999, you must list full title and account numbers of all accounts
you had at that date in order to insure proper identification of your purchase
right or preference.
ACKNOWLEDGMENT
Please read the acknowledgement statement carefully and sign on the signature
line. When purchasing as a custodian, corporate officer, etc., add your full
title to your signature. Enter the Social Security number (or Tax ID number) of
the registered owner and date the form; only one number is required.
Subscription priority rights for members as described in the Prospectus will
expire at 12:00 Noon, Alaska Time, on _________, __, 1999. The Direct Community
Offering may end as early as 12:00 Noon, Alaska Time, on _______ __, 1999, or
any time thereafter when orders for all available shares have been received, but
in no event later than ________ __, 1999. This order form must be properly
completed and received with payment at the above address or at any Alaska
Federal office prior to the expiration date.
<PAGE>
Number Purchase Total
of Shares Price Amount
______________ X $10.00 = $___________
[ ] Enclosed is check or money order payable to Alaska Pacific Bancshares,
Inc.
[ ] I authorize withdrawal from the following
account(s):
Account Number(s) Amount
__________________________________ $_________________
__________________________________ $_________________
__________________________________ $_________________
Total Withdrawn $_________________
No penalty for early withdrawal
Name(s) in which your stock is to be registered
________________________________________________
Name(s) in which your stock is to be registered
_________________________________________________
Address
_________________________________________________
City State Zip Code
[ ] Individual [ ] Joint Tenants
[ ] Tenants in Common [ ] Uniform Gifts to Minors
[ ] Other _________________________________________
Are you an officer, director, general partner, employee
or agent of a National Association of Securities
Dealers, Inc. ("NASD") member firm or related to such
person?
[ ] Yes [ ] No
Daytime Phone ( )
-----------------------------------------
Were you a member of Alaska Federal as of
December 31, 1997 March 31, 1999
[ ] Yes [ ] No [ ] Yes [ ] No
____________ __, 1999
[ ] Yes [ ] No
Were you a borrower on October 20, 1993, whose loans were still outstanding
on _________ __, 1999
I acknowledge receipt of the Prospectus and the provisions therein and
understand that after delivery of this order form to Alaska Pacific Bancshares,
Inc., this order may not be modified or revoked. I certify that this order is
for the above account only and under penalties of perjury, I certify that the
Social Security or Taxpayer ID number given below is correct. I further certify
that this order does not violate purchase limitations set forth more fully in
the Prospectus.
I acknowledge that the common stock offered is not a savings or deposit account
and is not insured or guaranteed by the Savings Association Insurance Fund, the
FDIC or any other government agency.
______________________________________________________________
Signature Date
______________________________________________________________
Additional Signature (if required) Date
______________________________________________________________
Social Security No. or Tax ID No.
THE ADDITION TO AN ORDER OF A NAME WHICH DOES NOT APPEAR
ON THE QUALIFYING ACCOUNT WILL RESULT IN THE LOSS OF
SUBSCRIPTION RIGHTS. FOR ASISTANCE PLEASE CALL THE
ALASKA FEDERAL SAVINGS BANK STOCK INFORMATION CENTER AT
(907) ____ - _______
<PAGE>
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your Stock Certificates(s). If you have any questions, please
consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- --------------------------------------------------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as "special
account", "single man", "personal property", etc.
- --------------------------------------------------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types of
joint ownership. Names should be joined by "and"; do not connect
with "or". Omit titles such as "Mrs.", "Dr.", etc.
JOINT TENANTS--Joint Tenancy with Right of Survivorship and not
as Tenants in Common may be specified to identify two or more
owners where ownership is intended to pass automatically to the
surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified to identify
two or more owners. When stock is held as tenancy in common, upon
the death of one co-tenant, ownership of the stock will be held
by the surviving co-tenant(s) and by the heirs of the decreased
co-tenant. All parties must agree to the transfer or sale of
shares held in this form of ownership.
- --------------------------------------------------------------------------------
UNIFORM GIFT Stock may be held in the name of a custodian for a minor under
TO MINORS: the Uniform Gifts to Minors laws of the individual states. There
may be only one custodian and one minor designated on a stock
certificate. The standard abbrevisation of custodian is "CUST",
while the description "Uniform Gifts to Minors Act" is
abbreviated "UNIF GIFT MIN ACT." Standard U.S. Postal Service
state abbreviations should be used to describe the appropriate
state. For example, stock held by John P. Jones under the Alaska
Uniform Gift to Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF GIFT MIN ACT AK
- --------------------------------------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary--
o If an individual, list the first given name, middle
initial, and last name
o If a corporaiton, list the corporate title.
o If an individual and a corporaiton, list the
corporaitons' title before the individual.
2. The fiduciary capaticty--
o Administrator o Conservator
o Committee o Executor
o Trustee o Personal Representative
o Custodian
3. The type of document governing the fiduciary relationship.
Generally, such relationships are either under a form of
living trust agreement or pursuant to a court order. Without
a document establishing a fiduciary relationship, your stock
may not be registered in a fiduciary capacity.
4. The date of the document governing the relationship. The
date of the document need not be used in the description of
a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator or
The name of the beneficiary
Example of Fiduciary Ownership
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED (Date)
EXHIBIT 99.3
Agreement with RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
FINANCIAL SERVICES INDUSTRY CONSULTANTS
December 22, 1998
Mr. Avrum Gross
Chairman
Alaska Federal Savings Bank
2094 Jordan Avenue
Juneau, Alaska 99801-8046
Dear Mr. Gross:
This letter sets forth the agreement between Alaska Federal Savings
Bank, Juneau, Alaska ("Alaska Federal" or the "Bank"), and RP Financial, LC.
("RP Financial") for independent conversion appraisal services pertaining to the
Bank's simultaneous holding company formation and mutual-to-stock conversion.
The specific appraisal services to be rendered by RP Financial are described
below. These appraisal services will be rendered by a team of two senior
consultants on staff and will be directed by the undersigned.
Description of Conversion Appraisal Services
Prior to preparing the conversion appraisal report, RP Financial will
conduct a financial due diligence, including on-site interviews of senior
management and reviews of financial and other documents and records, to gain
insight into the Bank's operations, financial condition, profitability, market
area, risks and various internal and external factors which impact the pro forma
market value of the Bank.
RP Financial will prepare a detailed written valuation report of the
Bank which will be fully consistent with applicable federal regulatory
guidelines and standard pro forma valuation practices. The appraisal report will
include an analysis of the Bank's financial condition and operating results, as
well as an assessment of the Bank's interest rate risk, credit risk and
liquidity risk. The appraisal report will describe the Bank's business
strategies, market area, prospects for the future and the intended use of
proceeds. A peer group analysis relative to comparable publicly-traded savings
institutions will be conducted for the purpose of determining appropriate
valuation adjustments for the Bank relative to the peer group.
We will review pertinent sections of the Bank's prospectus and hold
discussions with the Bank to obtain necessary data and information for the
appraisal report, including the impact of key deal elements on the pro forma
market value, such as dividend policy, use of proceeds and reinvestment rate,
tax rate, conversion expenses, characteristics of stock plans and the structure
of any charitable foundation.
<PAGE>
Mr. Avrum Gross
December 22, 1998
Page 2
The appraisal report will establish a midpoint pro forma market value.
The appraisal report may be periodically updated throughout the conversion
process as appropriate. There will be at least one updated valuation which would
be prepared at the time of the closing of the stock offering.
RP Financial agrees to deliver the appraisal report and subsequent
updates, in writing, to the Bank at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates. RP Financial expects to formally
present the appraisal report, including the appraisal methodology, peer group
selection and assumptions, to the Board of Directors for review and acceptance.
Fee Structure and Payment Schedule
The Bank agrees to pay RP Financial a fixed fee of $30,000 for
preparation and delivery of the original appraisal report and each subsequent
appraisal update, plus reimbursable expenses. Payment of these fees shall be
made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $22,500 upon delivery of the completed original appraisal report;
and,
o $2,500 upon completion of the conversion to cover all subsequent
valuation updates that may be required.
The Bank will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services.
In the event the Bank shall, for any reason, discontinue the proposed
conversion prior to delivery of the completed documents set forth above and
payment of the respective progress payment fees, the Bank agrees to compensate
RP Financial according to RP Financial's standard billing rates for consulting
services based on accumulated and verifiable time expenses, not to exceed the
respective fee caps noted above, after giving full credit to the initial
retainer fee. RP Financial's standard billing rates range from $75 per hour for
research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the
<PAGE>
Mr. Avrum Gross
December 22, 1998
Page 3
terms of said contract shall be subject to renegotiation by the Bank and RP
Financial. Such unforeseen events shall include, but not be limited to, major
changes in the conversion regulations, appraisal guidelines or processing
procedures as they relate to conversion appraisals, major changes in management
or procedures, operating policies or philosophies, and excessive delays or
suspension of processing of conversion applications by the regulators such that
completion of the conversion transaction requires the preparation by RP
Financial of a new appraisal.
Representations and Warranties
The Bank and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such
information with respect to its business and financial condition as RP Financial
may reasonably request in order to provide the aforesaid valuation. Such
information heretofore or hereafter supplied or made available to RP Financial
shall include: annual financial statements, periodic regulatory filings and
material agreements, debt instruments, off balance sheet assets or liabilities,
commitments and contingencies, unrealized gains or losses and corporate books
and records. All information provided by the Bank to RP Financial shall remain
strictly confidential (unless such information is otherwise made available to
the public), and if the conversion is not consummated or the services of RP
Financial are terminated hereunder, RP Financial shall upon request promptly
return to the Bank the original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or fail to state a material fact necessary
to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by the Bank to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by the Bank to RP Financial; or (iii) any action or omission to act by the Bank,
or the Bank's respective officers, Directors, employees or agents which action
or omission is willful or negligent. The Bank will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial was
negligent or acted in bad faith with respect to any actions or omissions of RP
Financial related to a matter for which indemnification is sought hereunder. Any
time devoted by employees of RP Financial to
<PAGE>
Mr. Avrum Gross
December 22, 1998
Page 4
situations for which indemnification is provided hereunder, shall be an
indemnifiable cost payable by the Bank at the normal hourly professional rate
chargeable by such employee.
(b) RP Financial shall give written notice to the Bank of such
claim or facts within thirty days of the assertion of any claim or discovery of
material facts upon which the RP Financial intends to base a claim for
indemnification hereunder. In the event the Bank elects, within seven days of
the receipt of the original notice thereof, to contest such claim by written
notice to RP Financial, RP Financial will be entitled to be paid any amounts
payable by the Bank hereunder, together with interest on such costs from the
date incurred at the annual rate of prime plus two percent within five days
after the final determination of such contest either by written acknowledgement
of the Bank or a final judgment of a court of competent jurisdiction. If the
Bank does not so elect, RP Financial shall be paid promptly and in any event
within thirty days after receipt by the Bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Bank: (1) a written statement of RP Financial's
good faith belief that it is entitled to indemnification hereunder; and (2) a
written undertaking to repay the advance if it ultimately is determined in a
final adjudication of such proceeding that it or he is not entitled to such
indemnification.
(d) In the event the Bank does not pay any indemnified loss or
make advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the Bank
in one or more additional capacities, and that the terms of the original
engagement may be embodied in one or more separate agreements. The provisions of
Paragraph 3 herein shall apply to the original engagement, any such additional
engagement, any modification of the original engagement or such additional
engagement and shall remain in full force and effect following the completion or
termination of RP Financial's engagement(s). This agreement constitutes the
entire understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may not
be modified, supplemented or amended except by written agreement executed by
both parties.
Alaska Federal and RP Financial are not affiliated, and neither Alaska
Federal nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
<PAGE>
Mr. Avrum Gross
December 22, 1998
Page 5
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Sincerely,
/s/ Ronald S. Riggins
-------------------------------
Ronald S. Riggins
President and Managing Director
/s/ Graig E. Dahl
Agreed To and Accepted By: Avrum Gross --------------------------------
Chairman President & CEO
Upon Authorization by the Board of Directors For: Alaska Federal Savings Bank
Juneau, Alaska
Date Executed: January 12, 1999
----------------
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 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 ___________ __, 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 ______ __ 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
1
<PAGE>
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
__________ __, 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
2
<PAGE>
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.
The Conversion will be accomplished through adoption of 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 and
trusts of natural persons residing in the communities of Juneau,
Ketchikan, Sitka and Wrangell, and then to natural persons and
trusts 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
$6,800,000 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 Federal's 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 _________ __, 1999 and
borrowers of Alaska Federal with loans outstanding as of October
20, 1993, which continue to be outstanding as of ____________ __,
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
680,000 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-_____) 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 at (907) ___-____.
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, 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, trusts of natural Persons, 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 and trusts of natural Persons residing in the Local
Community and then to natural Persons and trusts of 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.
* * *
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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, 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.
(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.
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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.
