As filed with the Securities and Exchange Commission
on June 8, 1999
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JADE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania 6035 To Be Requested
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classi- Identification
or organization) fication Code Number) Number)
213 West Street Road,
Feasterville, Pennsylvania 19053 (215) 322-9000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
John J. O'Connell, Chairman and Chief Executive Officer
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
Jeffrey P. Waldron, Esquire Martin L. Meyrowitz,
Stevens & Lee, P.C. Esquire
One Glenhardie Corporate Center Silver, Freedman & Taff, P.C.
1275 Drummers Lane 1100 New York Avenue, N.W.
P.O. Box 236 Washington, DC 20005
Wayne, Pennsylvania 19087 (202) 414-6100
(610) 964-1480
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
being offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the following
box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=================================================================
Proposed
Title of each maximum
class of offering Aggregate Amount of
securities to Amount to be price per offering registra-
be registered registered share price(1) tion fees
- -----------------------------------------------------------------
Common Stock, 1,981,549 $10.00 $19,815,490 $5,509
$.01 par shares(2)
value per
share
=================================================================
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(d) and based on
the maximum of the appraisal valuation range of IGA Federal
Savings (to be acquired by the registrant in connection with
this offering), as determined by an independent appraiser.
(2) Represents maximum number of shares to be issued in the
transactions contemplated by this Registration Statement,
including shares of common stock to be issued to the IGA
Charitable Foundation.
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.
PROSPECTUS
[Logo]
Up to 1,917,625 Shares of Common Stock
JADE FINANCIAL CORP.
(Proposed Holding Company for IGA Federal Savings)
JADE FINANCIAL CORP. has been formed to own all of the
common stock of IGA Federal Savings. IGA is a federal savings
bank that is changing from the mutual to the stock form of
organization.
Terms of the Offering
Maximum
Minimum Maximum as adjusted
Per Share Price........... $10.00 $10.00 $10.00
Number of Shares.......... 1,232,500 1,667,500 1,917,625
Underwriting Commissions
and Other Expenses......
Net Proceeds to JADE FINANCIAL......
Net Proceeds Per Share....
Please refer to Risk Factors beginning on page ___ of this
document.
These securities are not deposits or accounts and are not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office
of Thrift Supervision, nor any state securities regulator has
approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
For information on how to subscribe, call the Stock
Information Center at (___) ___-____.
CHARLES WEBB & COMPANY,
a Division of Keefe, Bruyette & Woods, Inc.
_________________________
The date of this Prospectus is August ___, 1999.
[MAP OF REGISTRANT'S MARKET AREA TO BE PRODUCED HERE]
PROSPECTUS SUMMARY
This summary highlights selected information from this
document and may not contain all the information that is
important to you. To understand the stock offering fully, you
should read this entire document carefully, including the
financial statements and the notes to the financial statements of
IGA.
The Company:
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
JADE FINANCIAL CORP. is not an operating company and has not
engaged in any significant business to date. It was formed as a
Pennsylvania-chartered corporation to be the holding company for
IGA.
The Bank:
IGA Federal Savings
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
IGA Federal Savings originally was established in 1975 as
IGA Federal Credit Union. On July 1, 1998, we converted from a
credit union to IGA Federal Savings, a federal mutual savings
bank. We are now a community-oriented federal mutual savings
bank primarily serving customers in the Philadelphia metropolitan
area through five offices located in Philadelphia, Bucks, Chester
and Delaware Counties, Pennsylvania. We provide financial
services to individuals, families and small businesses.
Historically, we have emphasized consumer loans, including home
equity, auto, credit card and personal loans, and one- to four-
family first mortgage loans. We also offer a variety of
commercial loan products.
The Stock Offering
JADE FINANCIAL is offering between 1,232,500 and 1,667,500
shares of common stock at $10.00 per share. As a result of
changes in market and financial conditions prior to completion of
the conversion or to fill the order of our employee stock
ownership plan we may increase the offering to 1,917,625 shares
with the approval of the Office of Thrift Supervision without
further notice to you. In that event, you may not change or
cancel any stock order previously delivered to us.
Charles Webb & Company, a division of Keefe, Bruyette &
Woods, Inc. will assist us in selling the stock. For further
<PAGE 1> information about Charles Webb & Company's role in the
offering, see "The Conversion -- Market Arrangements."
How We Determined The Offering Range and the $10.00 Price Per
Share
The independent appraisal by RP Financial, L.C., dated as of
May __, 1999, established the offering range. The appraisal was
based both upon our financial condition and operations and upon
the effect of the additional capital we will raise in this
offering. Our board of directors set the purchase price per
share of the common stock at $10.00. It is the price most
commonly used in stock offerings involving conversions of mutual
savings institutions. RP Financial will update the appraisal
before the completion of the offering.
After completion of the conversion and the stock offering,
each share of JADE FINANCIAL common stock, including the shares
given to the IGA Charitable Foundation, will have a book value of
$16.89, at the maximum of the offering range. This means the
price paid for each share sold in this offering will be 59.2% of
the book value. This ratio is one important factor used by the
appraiser in determining the appraised value of IGA. Our ratio
is lower than our peer group of publicly traded thrift
institutions of 103.6%.
Terms of the Offering
We are offering the shares of common stock to those with
subscription rights in the following order of priority:
(1) Depositors with us on March 31, 1998.
(2) The IGA employee stock ownership plan.
(3) Depositors with us on June 30, 1999.
(4) Other members of IGA on _________, 1999.
Shares of common stock not subscribed for in the
subscription offering will be offered to the general public in a
direct community offering and, if necessary, a public offering.
See pages _____ to _____.
Termination of the Offering
The subscription offering will end on September ___, 1999.
If all of the shares are not subscribed for in the subscription
offering and we do not get orders for the remaining shares by
October ___, 1999, we will either:
(1) promptly return any payment you made to us, with
interest, or cancel any withdrawal authorization you
gave us; or
<PAGE 2>
(2) extend the offering, if allowed, and give you notice of
the extension and of your rights to cancel or change
your order. If we extend the offering and you do not
respond to the notice, then we will cancel your order
and return your payment, with interest, or cancel any
withdrawal authorization you gave us.
Use of the Proceeds Raised from the Sale of Common Stock
We intend to use the net proceeds received from the offering
as follows:
$ 8,337,500 - Used to buy all of the capital stock of IGA.
$ 1,334,000 - Employee stock ownership plan loan.
$ 278,000 - Cash contribution to IGA Charitable
Foundation.
$ 5,780,500 - Retained by JADE FINANCIAL and initially
placed in short-term investments for general
corporate purposes.
$15,730,000 - Net proceeds from stock offering at the
maximum of the offering range.
The proceeds received by IGA will increase our capital and
will be available for expansion of our branch system and future
lending and investment, in addition to general corporate
purposes.
Dividends
We intend to adopt a policy of paying cash dividends on the
common stock, starting after the first full calendar quarter
following completion of the conversion. We expect the amount of
the dividend to be between $0.20 and $0.30 per year. This will
provide an annual yield of 2%-3% on the initial $10.00 per share
purchase price. Based on our earnings history and expected
earnings on the proceeds from the conversion, we believe we will
have the financial ability to pay this dividend. Future
dividends are not guaranteed and will depend on our ability to
pay them. See "Our Policy Regarding Dividends" on page ___.
Market for the Common Stock
We expect our common stock to be traded on the Nasdaq
National Market System under the symbol "IGAF." Persons
purchasing shares may not be able to sell their shares when they
desire or sell them at a price equal to or above $ 10.00 per
share.
<PAGE 3>
We Intend to Contribute a Total of $833,750 in Cash and Stock to
a New Charitable Foundation
To continue our long-standing commitment to our local
community, we intend to establish a charitable foundation, the
IGA Charitable Foundation, and to fund the foundation with cash
and shares of our common stock with a total value equal to 5% of
the shares sold in this offering. Based on the maximum amount of
shares offered, we will issue an additional 55,586 shares to the
foundation, worth $555,860 and make a cash contribution of
$277,890. We plan for the foundation to support charitable
causes in our primary market areas. Charitable contributions by
IGA totaled $12,500 in 1996, $11,000 in 1997 and $16,000 in 1998.
If we do establish the foundation, then the value of the common
stock will be lower than if the offering was completed without
the foundation. For a further discussion of the financial impact
of the foundation, see "Risk Factors -- The establishment of IGA
Charitable Foundation will reduce our earnings," "Pro Forma Data"
and "Comparison of Valuation and Pro Forma Information With No
Foundation."
Payment for Shares
You may pay for your subscriptions:
(1) by personal check, official bank check or money order;
(2) by authorizing us to withdraw money from your deposit
account(s) maintained at IGA; or
(3) in cash, if delivered in person at any full-service
banking office of IGA, although we request that you
exchange cash for a check with any of our tellers.
Stock Information Center
If you have any questions regarding the offering or our
change in structure, please call the Stock Information Center at
(_____) _________.
Subscription Rights
Subscription rights are not allowed to be transferred and we
will act to ensure that you do not transfer your subscription
rights. We will not accept any stock orders that we believe
involve the transfer of subscription rights.
Important Risks in Owning JADE FINANCIAL CORP.'s Common Stock.
Before you decide to purchase stock in the offering, you
should read the "Risk Factors" section on pages __ - __ of this
document, in addition to the other sections of this prospectus.
The common stock is subject to investment risk, including the
possible loss of principal invested.
<PAGE 4>
Benefits to Management from the Offering
We intend to establish the IGA employee stock ownership plan
which will purchase 8% of the shares sold in this offering. A
loan from JADE FINANCIAL to the plan, funded by a portion of the
proceeds from this offering, will be used to purchase these
shares. If shares are not available for purchase by the employee
stock ownership plan in the subscription offering, then the plan
will purchase the shares in the open market. The employee stock
ownership plan will provide a retirement benefit to all employees
eligible to participate in the plan.
We also intend to adopt a stock option plan and a restricted
stock plan for the benefit of directors, officers and employees,
subject to shareholder approval. If we adopt the restricted
stock plan, some of these individuals will be awarded stock at no
cost to them. As a result, both the employee stock ownership
plan and the restricted stock plan will increase the voting
control of management without a cash outlay.
The following table presents the total value of the shares
of common stock, at the maximum of the offering range, which
would be acquired by the employee stock ownership plan and the
total value of all shares available for award and issuance when
we grant awards under the restricted stock plan. The table
assumes that the value of the shares is the same as the sales
price of the shares in the offering. The table does not include
a value for the options because the price paid for the option
shares will 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 under an option only if the market price of
the common stock increases.
Percentage of
Estimated Shares Sold
Value of Shares in the Offering
Employee Stock Ownership Plan. $1,334,000 8.0%
Restricted Stock Awards....... 667,000 4.0
Stock Options................. -- 10.0
Total....................... $2,001,000 22.0%
For a further discussion of benefits to management, see
"Management."
<PAGE 5>
RISK FACTORS
In addition to the other information in this document, you
should consider carefully the following risk factors in
evaluating an investment in the common stock.
IGA is Now a Taxable Institution
Credit unions are exempt from federal and state income tax.
Therefore, prior to July 1, 1998, IGA never paid federal or state
income tax. All historical financial statements included in this
document for periods ended on or before June 30, 1998 do not
reflect the payment by us of any income tax. As a savings bank
we now must pay tax. We estimate that if we were taxable for the
fiscal years ended June 30, 1998, 1997 and 1996, our net income
would have been $279,000, $586,000 and $489,000, respectively,
rather than $663,000, $1.03 million and $1.49 million,
respectively. We paid $190,000 in income tax for the six months
ended December 31, 1998 and $60,000 in income tax for the three
months ended March 31, 1999. Similar effects of taxation can be
expected in future periods and the earnings from the net proceeds
of the offering are not expected to offset the loss of net income
caused by taxation.
Our Return on Equity Will Decrease and Our Expenses Will Increase
After Conversion
The proceeds we receive from the sale of our common stock,
will increase our equity substantially. We expect our expenses
to increase because we are now subject to federal income tax and
because of costs associated with our employee stock ownership
plan, our restricted stock plan, and being a public company.
Because of the increases in our equity and expense, our return on
equity will decrease as compared to our performance in previous
years and compared to our regional and national peers. A lower
return on equity could hurt our stock price. See "How We Intend
to Use the Proceeds" and "Pro Forma Data."
Risk of Making Commercial Real Estate Loans and Commercial
Business Loans
Consistent with our effort to be a full-service community
bank, IGA has increased its efforts to originate commercial real
estate loans and commercial business loans. Both involve a
higher degree of risk than single-family residential lending due
to a variety of factors, including generally larger loan
balances, the dependency on successful operation of a project, or
the income stream of a borrower for repayment, and greater
oversight efforts compared to mortgage loans. Commercial real
estate loans often do not require full amortization of the loan
over their term, and require successfully developing and/or
selling the property. Commercial business loans often involve
collateral in the form of intangible assets and/or inventory
<PAGE 6> which is subject to market obsolescence. Each of these
risks can be significantly affected by economic conditions.
Rising Interest Rates May Hurt Our Profits
Our ability to make a profit largely depends on our net
interest income. Net interest income is the difference between
what we earn on loans and investments and what we pay on deposits
and borrowings. The rates we earn on our assets and pay on our
liabilities are generally established for a contractual period of
time. We, like many savings institutions, have liabilities that
generally have shorter contractual maturities than our assets.
This imbalance can create significant earnings volatility,
because market interest rates change over time. In a period of
rising interest rates, the interest income earned on our assets
may not increase as rapidly as the interest paid on our
liabilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability
Management" and "Business of IGA."
Changes in interest rates can also affect the average life
of loans and mortgage-backed and related securities. A reduction
in interest rates results in increased prepayments of loans and
mortgage-backed and related securities, as borrowers refinance
their debt in order to reduce their borrowing cost. This causes
reinvestment risk. This means that we may not be able to
reinvest prepayments at rates which are comparable to the rates
we earned on the prepaid loans or securities.
The Creation of the Charitable Foundation Will Reduce Our
Earnings
The contribution of cash and a number of shares with a total
value equal to 5% of the shares of JADE FINANCIAL sold in the
offering is subject to the approval of our members at the special
meeting of members called to vote upon the conversion. If
approved by members, this stock contribution will be made within
12 months following the completion of the conversion and will be
recorded as an expense when the conversion is completed, which is
expected in the third quarter of 1999. This expense will
decrease our earnings in the quarter and year recorded. The
stock contribution to the foundation means that your ownership
and voting interest in JADE FINANCIAL will be reduced by 3.24%.
If our Computer Systems Do Not Properly Work on January 1, 2000,
our Business Operations Will be Disrupted
If our computer systems and the computer systems operated by
our third party vendors do not properly work on January 1, 2000,
then we could experience a disruption in our business operations.
As a result, our financial condition and results of operations
could be weakened. In addition, if we do not do a good job
preparing for the January 1, 2000 date change, then regulators
may take action against us. See "Management's Discussion and
<PAGE 7> Analysis of Financial Condition and Results of
Operations - Year 2000 Issues."
The Amount of Common Stock We Will Control, Our Articles of
Incorporation and Bylaws and State and Federal Statutory
Provisions Could Discourage Hostile Acquisitions of Control
Our board of directors and executive officers intend to
purchase approximately 7.95% of our common stock at the maximum
of the offering range. These purchases, together with the
purchase of 8% of the shares by the employee stock ownership
plan, as well as the potential acquisition of common stock
through the proposed stock option plan and restricted stock plan
will result in significant inside ownership of JADE FINANCIAL.
This inside ownership and provisions in our articles of
incorporation and bylaws contain may have the effect of
discouraging a sale of JADE FINANCIAL, a proxy contest for
control of JADE FINANCIAL, the assumption of control of JADE
FINANCIAL by a holder of a large block of common stock and the
removal of JADE FINANCIAL's management, all of which certain
shareholders might think are in their best interests. These
provisions include, among other things:
- the classification of the terms of the members of
the Board of Directors;
- an 80% voting requirement for the approval of a
sale of JADE FINANCIAL and for the amendment of
its articles of incorporation or bylaws;
- a prohibition on any holder of common stock voting
more than 10% of the outstanding common stock;
- elimination of cumulative voting by shareholders
in the election of directors;
- restrictions on the acquisition of our equity
securities; and
- the issuance of 5,000,000 shares of preferred
stock that could be issued without shareholder
approval on terms or in circumstances that could
deter a future takeover attempt.
In addition, the Pennsylvania Business Corporation Law
provides for certain restrictions on acquisition of JADE
FINANCIAL, and federal laws contain restrictions on acquisitions
of control of savings and loan holding companies such as JADE
FINANCIAL.
<PAGE 8>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
In 1998, IGA changed its fiscal year from a period ending
June 30 to a period ending December 31. Accordingly, the summary
information presented below under "Selected Financial Condition
Data" and "Selected Operations Data" for, and as of the end of,
each of the years ended June 30 and the six moths ended
December 31, 1998 is derived from IGA's audited financial
statements. The summary information presented below under those
headings for, and as of the end of, the six months ended
December 31, 1997 and each of the three month periods ended
March 31, 1999 and 1998 is unaudited but, in the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial
condition and results of operations for such periods have been
included. The following information is only a summary and you
should read it in conjunction with our financial statements and
notes beginning on page F-1.
<TABLE>
<CAPTION>
At March 31, At December 31, At June 30,
1999 1998 1998 1997 1998 1997 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $177,470 $159,637 $171,091 $152,759 $159,852 $164,752 $159,463 $156,231 $146,964
Cash and cash equivalents 18,113 17,763 18,351 18,941 12,981 16,587 1,561 1,375 1,173
Loans receivable, net 105,320 96,186 102,900 97,885 98,096 100,371 94,671 83,958 76,451
Mortgage-backed securities;
Held-to-maturity 5,594 10,598 6,635 11,895 9,071 14,320 16,535 9,745 10,500
Available-for-sale 15,529 15,641 10,176 11,223 14,267 13,724 19,198 13,157 15,092
Investment securities:
Held-to-maturity 0 500 0 500 500 7,731 7,115 29,229 19,498
Available-for-sale 28,240 14,480 28,726 8,920 19,340 7,199 15,411 14,258 19,519
Deposits 161,429 143,911 154,888 137,223 143,934 149,846 145,818 144,016 136,771
Equity 15,096 15,074 15,276 14,991 15,080 14,246 12,918 11,624 9,756
</TABLE>
<PAGE 9>
<TABLE>
<CAPTION>
At March 31, At December 31, Year Ended At June 30,
1999 1998 1998 1997 1998 1997 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income $ 2,942 $ 2,821 $ 5,789 $ 5,880 $11,476 $11,660 $11,799 $11,236 $10,361
Total interest expense 1,325 1,310 2,762 2,805 5,475 5,655 5,705 4,954 4,163
Net interest income 1,617 1,511 3,027 3,075 6,001 6,005 6,094 6,282 6,198
Provision for possible
loan losses 135 376 300 397 1,038 847 355 330 270
Net interest income after
provision for possible
loan losses 1,482 1,135 2,727 2,678 4,963 5,158 5,739 5,952 5,928
Service fees 125 51 338 58 887 767 248 257 317
Gain (loss) on sales of
investment securities 0 0 198 26 0 (7) 11 (70) 122
Other non-interest income 99 51 268 139 71 91 147 112 251
Total non-interest income 224 102 804 223 958 851 406 299 690
Total non-interest expense 1,518 1,200 3,119 2,331 5,258 4,983 4,659 4,508 4,325
Income tax expense 58 0 146 0 0 0 0 0 0
Net income $ 130 $ 37 $ 266 $ 570 $ 663 $ 1,026 $ 1,486 $ 1,743 $ 2,293
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE 10>
<TABLE>
<CAPTION>
At March 31, At December 31, Year Ended At June 30,
1999 1998 1998 1997 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Financial and Other Data:
Performance Ratios:
Return on assets (ratio of net
income to average total
assets)(1) 0.30% 0.09% 0.32% 0.72% 0.42% 0.64% 0.94% 1.17% 1.59%
Return on equity (ratio of net
income to average equity)(1) 3.41% 0.97% 3.46% 7.61% 4.52% 7.55% 12.11% 16.30% 25.71%
Interest rate spread 3.84% 3.76% 3.74% 3.82% 3.66% 3.64% 3.77% 4.22% 4.33%
Net interest margin 3.97% 4.01% 3.90% 4.06% 3.93% 3.86% 3.99% 4.37% 4.44%
Operating expenses to average
total assets(1) 3.64% 3.07% 3.95% 2.96% 3.33% 3.10% 2.96% 3.04% 3.00%
Average interest-earning assets
to average interest-bearing
liabilities 103.77% 107.40% 104.13% 106.64% 107.58% 106.17% 105.71% 104.36% 103.63%
Quality Ratios:
Non-performing assets to total
assets at end of period 0.11% 0.20% 0.10% 0.64% 0.14% 0.49% 0.34% 0.30% 0.22%
Allowance for loan losses to
non-performing assets 549.75% 227.30% 631.76% 106.87% 419.47% 124.69% 101.45% 192.63% 268.81%
Allowance for loan losses to
gross loans receivable 1.05% 0.76% 1.03% 1.05% 0.96% 0.99% 0.59% 1.08% 1.14%
Capital Ratios:
Equity to total assets at end
of period 8.51% 9.44% 8.93% 9.81% 9.43% 8.65% 8.10% 7.44% 6.64%
Average equity to average assets 8.79% 9.75% 9.30% 9.50% 9.29% 8.45% 7.79% 7.21% 6.18%
Other Data:
Number of full service offices 5 5 5 5 5 5 5 5 5
<FN>
(1) Annualized where applicable.
</TABLE>
<PAGE 11>
JADE FINANCIAL CORP.
JADE FINANCIAL was incorporated under the laws of the
Commonwealth of Pennsylvania at IGA's direction for the purpose
of acquiring all of the capital stock of IGA issued in connection
with the conversion. JADE FINANCIAL has received OTS approval to
acquire control of IGA. Prior to the conversion, JADE FINANCIAL
has not engaged in any material operations. Upon completion of
the conversion, JADE FINANCIAL will have no significant assets
other than all of the outstanding capital stock of IGA, a note
payable from the employee stock ownership plan and 50% of the net
proceeds of the conversion less the amount loaned to the employee
stock ownership plan and the amount contributed to the
foundation. JADE FINANCIAL's principal business will be managing
the operations of IGA.
The holding company structure will permit us to expand the
financial services currently offered through IGA, although there
are no definitive plans or arrangements for such expansion at
present. As a holding company, we will have greater flexibility
to diversify our business activities through existing or newly
formed subsidiaries or through acquisition or merger with other
financial institutions. At the present time, however, we do not
have any plans, agreements, arrangements or understandings with
respect to any such acquisitions or mergers.
JADE FINANCIAL's executive offices are located at 213 West
Street Road, Feasterville, Pennsylvania 19053, and its main
telephone number is (215) 322-9000.
IGA FEDERAL SAVINGS
We are a community-oriented federal mutual savings bank. We
currently operate through five offices:
- Our main office located in Feasterville, Bucks
County;
- 23rd and Market Streets in Center City,
Philadelphia (the branch is located in the PECO
headquarters building);
- Grays Ferry in Southwest Philadelphia;
- Chesterbrook in Chester County; and
- Media in Delaware County.
Our market area consists of the Philadelphia metropolitan area,
although we have a number of out-of-market customers who are
retirees or employees of PECO or its affiliates who are located
at out-of-market facilities. At March 31, 1999, we had total
assets of $177.47 million, deposits of $161.43 million and total
equity of $15.09 million. <PAGE 12>
We are primarily engaged in the business of attracting
retail deposits from the general public and originating consumer
loans, including home equity, auto, credit card and personal
loans and one- to four-family first mortgage loans on owner-
occupied residences in our market area. We also offer a variety
of commercial loan products.
At March 31, 1999, our gross loan portfolio totaled
$106.44 million, consisting principally of $62.81 million in
consumer loans, including home equity loans, and $40.74 million
of first mortgage loans. We also had on that date $28.24 million
of investment securities and $21.12 million of mortgage-backed
securities.
IGA is subject to examination and regulation by the Office
of Thrift Supervision and its savings deposits are insured up to
applicable limits by the FDIC. IGA is a member of, and owns
capital stock in, the Federal Home Loan Bank of Pittsburgh, which
is one of 12 regional banks in the Federal Home Loan Bank System.
See "Regulation -- Regulation of IGA."
HOW WE INTEND TO USE THE PROCEEDS
The actual net proceeds from the sale of the common stock
cannot be determined until the conversion is completed. We
presently anticipate, however, that the net proceeds will be
between $11.63 million and $15.73 million, or up to
$18.09 million if the estimated value is increased by 15%. See
"Pro Forma Data" and "The Conversion -- How We Determined Our
Price and Number of Shares to be Issued in the Stock Offering"
for the assumptions used to arrive at these amounts.
JADE FINANCIAL will contribute approximately 50% of the net
proceeds received from the sale of the common stock in exchange
for all of the common stock of IGA issued in the conversion. The
proceeds IGA receives in exchange for the common stock of IGA
will become part of IGA's general funds for use in our business
and will be used to support our existing operations. We
anticipate initially investing these proceeds in short-term
assets similar to those currently in our portfolio. Thereafter,
we will redirect the net proceeds to the origination of loans,
the purchase of investment and mortgage-backed securities, and
the possible expansion of our branch system, subject to market
conditions.
Furthermore, JADE FINANCIAL also intends to lend a portion
of the net proceeds to the employee stock ownership plan to fund
the employee stock ownership plan's purchase of 8% of the common
stock. Based upon the initial purchase price of $10.00 per
share, the dollar amount of the employee stock ownership plan
loan would range from $986,000 to $1.33 million, or up to
$1.53 million if the estimated value is increased by 15%. The
interest rate to be charged by JADE FINANCIAL on the employee
stock ownership plan loan will be based upon the IRS prescribed
applicable federal rate at the time of origination. It is
<PAGE 13> anticipated that the employee stock ownership plan will
repay the loan through periodic tax-deductible contributions from
IGA over a [seven]-year period.
The remainder of the net proceeds will be retained by JADE
FINANCIAL. Initially the remaining proceeds will be invested in
short-term investments similar to those currently in IGA's
portfolio. These funds would be available for general corporate
purposes that may include:
- the payment of dividends;
- expansion of operations through acquisitions of other
financial service organizations and diversification
into other related or unrelated businesses;
- investment purposes; and
- contribution of additional capital into IGA when and if
appropriate.
See "Regulation -- Holding Company Regulation" for a discussion
of Office of Thrift Supervision activity restrictions.
Currently, there are no specific plans being considered for the
expansion of the business of JADE FINANCIAL.
JADE FINANCIAL also may use a portion of the proceeds to
fund a restricted stock plan, subject to shareholder approval of
such plan. Compensation expense related to the restricted stock
plan will be recognized as share awards made under the plan vest.
See "Pro Forma Data." Following shareholder approval of the
restricted stock plan, the plan will be funded either with shares
purchased in the open market or with authorized but unissued
shares. Based upon the initial purchase price of $10.00 per
share, the amount required to fund the restricted stock plan
through open-market purchases would range from $493,000 to
$667,000, or up to $767,000 if the estimated value is increased
by 15%. In the event that the price of the common stock
increases above the initial $10.00 per share purchase price
following completion of the offering, the amount necessary to
fund the restricted stock plan would also increase.
Following the six-month anniversary of the completion of the
conversion, to the extent permitted by the Office of Thrift
Supervision and based upon then existing facts and circumstances,
JADE FINANCIAL's board of directors may determine to repurchase
shares of common stock, subject to any applicable statutory and
regulatory requirements. Such facts and circumstances may
include but not be limited to:
- 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 based on the rate of return and risk
involved in the investment, the ability to increase the
<PAGE 14> book value and/or earnings per share of the
remaining outstanding shares, and an improvement in
JADE FINANCIAL's return on equity;
- the avoidance of dilution to shareholders by not
having to issue additional shares to cover the exercise
of stock options or to fund employee stock benefit
plans; and
- any other circumstances in which repurchases would be
in the best interests of JADE FINANCIAL.
Any stock repurchases will be subject to the determination of
JADE FINANCIAL's board of directors that IGA will be capitalized
in excess of all applicable regulatory requirements after any
such repurchases.
OUR POLICY REGARDING DIVIDENDS
We intend to adopt a policy of paying cash dividends on the
common stock. The Board of Directors intends to declare
quarterly dividends, commencing after the first full calendar
quarter following completion of the conversion of between $0.20
and $0.30 per year. This equals an annual yield of 2%-3% on the
initial $10.00 per share purchase price. Dividends, when and if
paid, will be subject to determination and declaration by our
board of directors at its discretion, which will take into
account our consolidated financial condition and results of
operations, tax considerations, industry standards, economic
conditions, regulatory restrictions, general business practices
and other factors. We will not make a distribution as a tax-free
return of capital. No assurances can be given that dividends
will be declared.
We do not presently anticipate that we will conduct
significant operations independent of those of IGA for some time
following the conversion. Therefore, we do not expect to have
any significant source of income other than earnings on the net
proceeds from the conversion retained by JADE FINANCIAL and
dividends from IGA, if any. Consequently, our ability to pay
cash dividends to our shareholders will be dependent upon these
retained proceeds, income generated from these retained
proceeds, and the ability of IGA to pay dividends to JADE
FINANCIAL.
IGA, like all savings institutions regulated by the Office
of Thrift Supervision, is subject to certain restrictions on
capital distributions, including the payment of dividends, based
on its net income, its capital in excess of the regulatory
capital requirements, and the amount of regulatory capital
required for the liquidation account to be established in
connection with the conversion. See "How We Are Regulated -
Limitations on Dividends and Other Capital Distributions" and
Other Capital Distributions" and "-- Federal and State Taxation."
<PAGE 15> At March 31, 1999, IGA had available $4.14 million
which could be distributed pursuant to Office of Thrift
Supervision regulations.
Unlike IGA, JADE FINANCIAL is not subject to regulatory
restrictions on the payment of dividends to shareholders. JADE
FINANCIAL is subject, however, to the Pennsylvania Business
Corporation Law which permits dividends or distributions to be
paid as long as the corporation will be able to pay its debts in
the ordinary course of business after making the dividend or
distribution.
MARKET FOR THE COMMON STOCK
We have never issued common stock to the public.
Consequently, there is no established market for the common
stock. The common stock has been approved for quotation on the
Nasdaq National Market under the symbol "IGAF" upon completion of
the conversion. The development of a public market having the
desirable characteristics of depth, liquidity and orderliness,
however, depends upon the presence in the marketplace of a
sufficient number of willing buyers and sellers at any given
time, over which neither JADE FINANCIAL, IGA nor any market maker
has any control. Accordingly, there can be no assurance that an
established and liquid market for the common stock will develop,
or if one develops, that it will continue. Furthermore, there
can be no assurance that purchasers will be able to resell their
shares of common stock at or above the price they paid for such
common stock. Purchasers of common stock should consider the
potentially illiquid and long-term nature of their investment.
CAPITALIZATION
The following table sets forth the historical
capitalization, including deposits, of IGA at March 31, 1999, and
the pro forma consolidated capitalization of JADE FINANCIAL based
on the sale of the common stock at the minimum, midpoint, maximum
and the adjusted maximum of the estimated valuation range and the
assumptions set forth under "Pro Forma Data" below.
<PAGE 16>
CAPITALIZATION
<TABLE>
<CAPTION>
Company Pro Forma
Based upon sale at $10.00 per share
IGA Adjusted
Existing Minimum Midpoint Maximum Maximum
Capitalization Shares Shares Shares Shares
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1)................. $161,429 $161,429 $161,429 $161,429 $161,429
Shareholders' Equity:
common stock ($0.01 par
value) authorized -
10,000,000 shares; to be
outstanding (as shown)(2) -- 13 15 17 20
Additional paid-in
capital................. -- 11,614 13,663 15,713 18,070
Shares issued to the
foundation(3)........... -- 411 483 556 639
Retained earnings......... 15,690 15,690 15,690 15,690 15,690
Net unrealized loss on
securities available
for sale................ (594) (594) (594) (594) (594)
Less:
Foundation contribution
expense, net of tax
benefit(4).............. -- (201) (237) (273) (313)
common stock acquired by
ESOP(5)................. -- (986) (1,160) (1,334) (1,534)
(1,534)
common stock acquired by
restricted stock
plan(6)................. -- (493) (580) (667) (767)
Total Shareholders' _______ ________ ________ ________ ________
Equity.................... $ 15,096 $ 25,453 $ 27,281 $ 29,109 $ 31,210
</TABLE>
____________
(1) No effect has been given to withdrawals from deposit
accounts for the purpose of purchasing common stock in the
conversion. Any such withdrawals will reduce pro forma
deposits by the amount of such withdrawals.
(2) Reflects the issuance of the shares of common stock to be
sold in the offering, including the issuance of additional
shares of common stock to the foundation. Does not reflect
the issuance of shares of common stock pursuant to the
proposed stock option plan.
(3) Reflects shares contributed to the foundation at an assumed
value of $10.00 per share.
(4) Represents the tax effect of the contribution of common
stock to the foundation based on a 34% tax rate. The
realization of the tax benefit is limited annually to 10% of
<PAGE 17> JADE FINANCIAL's annual taxable income, subject to
the ability of JADE FINANCIAL to carry forward any unused
portion of the deduction for five years following the year
in which the contribution is made.
(5) Assumes that 8% of the shares issued in the conversion will
be purchased by the employee stock ownership plan. The
funds used to acquire the employee stock ownership plan
shares will be borrowed from JADE FINANCIAL. The amount to
be borrowed by the employee stock ownership plan is
reflected as a reduction of shareholders' equity. See
"Management -- Benefit Plans -- Employee Stock Ownership
Plan" and "-- Other Stock Benefit Plans."
(6) JADE FINANCIAL intends to adopt the restricted stock plan
and to submit such plan to shareholders at an annual or
special meeting of shareholders held at least six months
following the completion of the conversion. If the plan is
approved by shareholders, JADE FINANCIAL intends to
contribute sufficient funds to the restricted stock plan to
enable the plan to purchase a number of shares of common
stock equal to 4.0% of the common stock sold in the
offerings. Assumes that shareholder approval has been
obtained and that the shares have been purchased in the open
market at the purchase price. However, in the event JADE
FINANCIAL issues authorized but unissued shares of common
stock to the restricted stock plan in the amount of 4.0% of
the common stock sold in the offerings, the voting interests
of existing shareholders would be diluted approximately
3.8%. The shares are reflected as a reduction of
shareholders' equity. See "Pro Forma Data" and
"Management - Benefits - Other Stock Benefit Plans."
IGA
EXCEEDS ALL REGULATORY CAPITAL REQUIREMENTS
At March 31, 1999, IGA exceeded all of the regulatory
capital requirements applicable to it. The following table sets
forth the historical regulatory capital of IGA at March 31, 1999
and the pro forma regulatory capital of IGA after giving effect
to the stock issuance, based upon the sale of the number of
shares shown in the table. The pro forma regulatory capital
amounts reflect the receipt by IGA of 50% of the net stock
issuance proceeds, minus expenses. The pro forma risk-based
capital amounts assume the investment of the net proceeds
received by IGA in assets which have a risk-weight of [20%] under
applicable regulations, as if such net proceeds had been received
and so applied at March 31, 1999.
<PAGE 18>
<TABLE>
<CAPTION>
Pro Forma at March 31, 1999
1,232,500 1,450,000 1,667,500 1,917,625
Historical Shares Sold at Shares Sold at Shares Sold at Shares Sold at
at March 31, 1999 Minimum Midpoint Maximum Adjusted Maximum
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital and Retained
Earnings Under
Generally Accepted
Accounting Principles $15,096 8.51% $19,743 10.78% $20,562 11.17% $21,382 11.55% $22,325 11.99%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tangible Capital
Capital level....... $15,496 8.71% $20,143 10.98% $20,962 11.36% $21,782 11.74% $22,725 12.18%
Requirement......... 2,668 1.50% 2,752 1.50% 2,767 1.50% 2,782 1.50% 2,799 1.50%
Excess.............. $12,828 7.21% $17,390 9.48% $18,195 9.86% $19,000 10.24% $19,926 10.68%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Core Capital
Capital level....... $15,496 8.71% $20,143 10.98% $20,962 11.36% $21,782 11.74% $22,725 12.18%
Requirement......... 5,336 3.00% 5,505 3.00% 5,535 3.00% 5,565 3.00% 5,599 3.00%
Excess.............. $10,160 5.71% $14,638 7.98% $15,428 8.36% $16,218 8.74% $17,127 9.18%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital
Capital level....... $16,612 16.58% $21,259 20.99% $22,078 21.75% $22,898 22.52% $23,841 23.39%
Requirement......... 8,013 8.00% 8,103 8.00% 8,119 8.00% 8,135 8.00% 8,153 8.00%
Excess.............. $ 8,599 8.58% $13,155 12.99% $13,959 13.75% $14,763 14.52% $15,688 15.39%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
____________
(1) Tangible and core capital figures are determined as a
percentage of total adjusted assets; risk-based capital
figures are determined as a percentage of risk-weighted
assets.
PRO FORMA DATA
The following tables set forth the historical and pro forma
consolidated income, shareholders' equity and other data of JADE
FINANCIAL after giving effect to the conversion at or for the
three month period ended March 31, 1999 and the six month period
ended December 31, 1998. Unaudited pro forma consolidated income
and related data have been calculated assuming:
- common stock had been sold at the beginning of such
period, and yielded net proceeds to JADE FINANCIAL as
indicated,
- an amount equal to 5% of the dollar value of shares
sold in the conversion were donated to the foundation
and this donation was comprised of 2/3 shares of stock
and 1/3 cash,
- 50% of such net proceeds were retained by JADE
FINANCIAL and the remainder were used to purchase all
of the stock of IGA, and
<PAGE 19>
- such net proceeds, less the cash contributed to the
foundation and the amounts necessary to fund the
employee stock ownership plan and restricted stock plan
were invested at 4.70% and 4.52% at the beginning of
each of the periods ended March 31, 1999 and
December 31, 1998, respectively.
The foregoing yields approximate the yields on the one-year U.S.
Treasury bill at the applicable period end, net of tax. The use
of the treasury rate is viewed to be more relevant than the use
of an arithmetic average of the weighted average yield earned by
IGA on its interest-earning assets and the weighted average rate
paid on its interest-bearing liabilities during such periods.
The pro forma after-tax yields for JADE FINANCIAL that is used to
tax-effect historical earnings and the earnings on estimated net
proceeds is based on a combined federal and state effective tax
rate of 34% for the period.
In calculating the fees to be paid as part of the offering,
the table assumes that expenses equal 4% of the offering. Actual
conversion expenses may be more or less than those estimated
because the fees paid to Webb and other brokers will depend upon
the categories of purchasers, the purchase price and market
conditions and other factors.
The shareholders' equity and related data presented herein
are not intended to represent the fair market value of the common
stock, the current value of assets or liabilities or the amounts,
if any, that would be available for distribution to shareholders
in the event of liquidation. For additional information
regarding the liquidation account, see "The Conversion - Effects
of Conversion on Depositors and Borrowers of IGA -- Liquidation."
The pro forma income and related data derived from the
assumptions set forth above should not be considered indicative
of the actual results of operations of JADE FINANCIAL for the
period and the assumptions regarding investment yields should not
be considered indicative of the actual yields expected to be
achieved during any future period. Such pro forma data may be
materially affected by a change in the number of shares to be
issued in the conversion and other factors.
The following tables assume that the common stock
contribution to the foundation is approved as part of the
conversion and therefore gives effect to the issuance of
authorized but unissued shares of the common stock to the
foundation concurrently with the completion of the conversion.
Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the
indicated number of shares of common stock, as adjusted to give
effect to the shares purchased by the employee stock ownership
plan and the effect of the issuance of shares to the foundation.
See Notes 1 and 4 to the tables below. No effect has been given
in the pro forma shareholders' equity calculations for the
assumed earnings on the net proceeds. As discussed under "How We
<PAGE 20> Intend to Use the Proceeds," JADE FINANCIAL intends to
make a loan to fund the purchase of 8.0% of the common stock by
the employee stock ownership plan and intends to retain 50% of
the net proceeds from the offering.
No effect has been given in the tables to the issuance of
additional shares of common stock pursuant to the proposed stock
option plan. See "Management - Benefits - Other Stock Benefit
Plans." The table below gives effect to the restricted stock
plan which is expected to be adopted by JADE FINANCIAL following
the reorganization and presented along with the stock option plan
to shareholders for approval at an annual or special meeting of
shareholders to be held at least six months following the
completion of the conversion. If the restricted stock plan is
approved by shareholders, the restricted stock plan intends to
acquire an amount of common stock equal to 4.0% of the shares of
common stock sold in the offering, either through open market
purchases or from authorized but unissued shares of common stock,
if permissible. The table below assumes that shareholder
approval has been obtained, as to which there can be no
assurance, and that the shares acquired by the restricted stock
plan are purchased in the open market at the purchase price. No
effect has been given to JADE FINANCIAL's results of operations
after the reorganization, the market price of the common stock
after the reorganization or a less than 4.0% purchase by the
restricted stock plan.
<PAGE 21>
<TABLE>
<CAPTION>
At or for the Three Months Ended March 31, 1999
1,232,500 1,450,000 1,667,500 1,917,625
shares at shares at shares at shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
(Dollars in thousands
except per share amounts)
<S> <C> <C> <C> <C>
Gross Proceeds............................ $ 12,325 $ 14,500 $ 16,675 $ 19,176
Plus: Shares Issued to the foundation(1). 411 483 556 639
Pro Forma Market Capitalization........... $ 12,736 $ 14,983 $ 17,231 $ 19,815
Gross Proceeds............................ 12,325 14,500 16,675 19,176
Less Expenses............................. 493 580 667 767
Less Cash Contributions to foundation..... 205 242 278 320
Estimated net proceeds.................. 11,627 13,678 15,730 18,090
Less ESOP funded by JADE FINANCIAL........ (986) (1,160) (1,334) (1,534)
Less restricted stock plan shares......... (493) (580) (667) (767)
Estimated investable net proceeds(2).... 10,148 11,938 13,729 15,788
Net income:
Historical earnings..................... $ 128 $ 128 $ 128 $ 128
Pro forma earnings on net proceeds(3)... 79 93 106 122
Pro forma ESOP adjustment(4)............ (16) (19) (22) (25)
Restricted stock plan(5)................ (16) (19) (22) (25)
Pro forma net income (6).............. $ 175 $ 183 $ 190 $ 200
Net income per share:
Historical earnings..................... $ 0.11 $ 0.09 $ 0.08 $ 0.07
Pro forma earnings on net proceeds...... 0.07 0.07 0.07 0.07
Pro forma ESOP adjustment(4)............ (0.01) (0.01) (0.01) (0.01)
Restricted stock plan(5)................ (0.01) (0.01) (0.01) (0.01)
Pro forma earnings per share(6)....... $ 0.16 $ 0.14 $ 0.13 $ 0.12
Ratio of offering price to pro forma net
annualized income per share............. 15.63 17.86 19.23 20.83
Number of shares used in calculating
pro forma earnings per share.......... 1,177,448 1,385,233 1,593,018 1,831,971
Estimated net proceeds.................... 11,627 13,678 15,730 18,090
Shareholders' equity:
Historical.............................. 15,094 15,094 15,094 15,094
Plus shares issued to foundation........ 411 483 556 639
Less contribution to foundation......... (411) (483) (556) (639)
Plus tax benefit of stock
contribution.......................... 210 246 283 326
Less: common stock acquired by
ESOP(4)........................ (986) (1,160) (1,334) (1,534)
common stock acquired by
restricted stock plan(5)....... (493) (580) (667) (767)
Pro forma shareholders' equity........ $ 25,451 $ 27,279 $ 29,107 $ 31,208
Shareholders' equity per share:
Historical.............................. $ 11.85 $ 10.07 $ 8.76 $ 7.62
Pro forma increase due to the sale
of common stock in the conversion..... 9.13 9.13 9.13 9.13
Plus shares issued to foundation........ 0.32 0.32 0.32 0.32
Less contribution to foundation......... (0.32) (0.32) (0.32) (0.32)
Plus tax benefit of stock contribution.. 0.16 0.16 0.16 0.16
<PAGE 22>
Less: common stock acquired by ESOP(4). (0.77) (0.77) (0.77) (0.77)
common stock acquired by
restricted stock plan(5)....... (0.39) (0.39) (0.39) (0.39)
Pro forma shareholders' equity
per share........................... $ 19.98 $ 18.20 $ 16.89 $ 15.75
Offering price as a percentage of pro
forma shareholders' equity per share..... 50.05% 54.95% 59.21% 63.49%
Number of shares (including foundation
shares) used to calculate shareholders
equity per share........................ 1,273,583 1,498,333 1,723,083 1,981,545
_________________________
</TABLE>
<PAGE 23>
<TABLE>
<CAPTION>
At or for the Six Months Ended December 31, 1998
1,232,500 1,450,000 1,667,500 1,917,625
shares at shares at shares at shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
(Dollars in thousands
except per share amounts)
<S> <C> <C> <C> <C>
Gross Proceeds............................ $ 12,325 $ 14,500 $ 16,675 $ 19,176
Plus: Shares Issued to the Foundation(1). 411 483 556 639
Pro Forma Market Capitalization........... $ 12,736 $ 14,983 $ 17,231 $ 19,815
Gross Proceeds............................ 12,325 14,500 16,675 19,176
Less Expenses............................. 493 580 667 767
Less Cash Contributions to Foundation..... 205 342 278 320
Estimated net proceeds.................. 11,627 13,678 15,730 18,090
Less ESOP funded by JADE FINANCIAL........ (986) (1,160) (1,334) (1,534)
Less restricted stock plan shares......... (493) (580) (667) (767)
Estimated investable net proceeds(2).... 10,148 11,938 13,729 15,788
Net income:
Historical earnings..................... $ 266 $ 266 $ 266 $ 266
Pro forma earnings on net proceeds(3)... 152 178 205 236
Pro forma ESOP adjustment(4)............ (33) (39) (44) (51)
Restricted stock plan(5)................ (33) (39) (44) (51)
Pro forma net income (6).............. $ 353 $ 367 $ 383 $ 401
Net income per share:
Historical earnings..................... $ 0.23 $ 0.19 $ 0.17 $ 0.14
Pro forma earnings on net proceeds...... 0.13 0.13 0.13 0.13
Pro forma ESOP adjustment(4)............ (0.03) (0.03) (0.03) (0.03)
Restricted stock plan(5)................ (0.03) (0.03) (0.03) (0.03)
Pro forma earnings per share(6)....... $ 0.30 $ 0.26 $ 0.24 $ 0.21
Ratio of offering price to pro forma net
annualized income per share............. 16.67 19.23 20.83 23.81
Number of shares used in calculating
pro forma earnings per share.......... 1,179,913 1,388,133 1,596,353 1,835,806
Estimated net proceeds.................... 11,627 13,678 15,730 18,090
Shareholders' equity:
Historical.............................. 15,276 15,276 15,276 15,276
Plus shares issued to foundation........ 411 483 556 639
Less contribution to foundation......... (411) (483) (556) (639)
Plus tax benefit of stock
contribution.......................... 210 246 283 326
Less: common stock acquired by
ESOP(4)........................ (986) (1,160) (1,334) (1,534)
common stock acquired by
restricted stock plan(5)....... (493) (580) (667) (767)
Pro forma shareholders' equity........ $ 25,633 $ 27,461 $ 29,289 $ 31,390
Shareholders' equity per share:
Historical.............................. $ 11.99 $ 10.20 $ 8.87 $ 7.71
Pro forma increase due to the sale
of common stock in the conversion..... 9.13 9.13 9.13 9.13
Plus shares issued to foundation........ 0.32 0.32 0.32 0.32
Less contribution to foundation......... (0.32) (0.32) (0.32) (0.32)
Plus tax benefit of stock contribution.. 0.16 0.16 0.16 0.16
<PAGE 24>
Less: common stock acquired by ESOP(4). (0.77) (0.77) (0.77) (0.77)
common stock acquired by
restricted stock plan(5)....... (0.39) (0.39) (0.39) (0.39)
Pro forma shareholders' equity
per share........................... $ 20.12 $ 18.33 $ 17.00 $ 15.84
Offering price as a percentage of pro
forma shareholders' equity per share..... 49.70% 54.56% 58.82% 63.13%
Number of shares (including foundation
shares) used to calculate shareholders
equity per share........................ 1,273,583 1,498,333 1,723,083 1,981,545
_________________________
</TABLE>
_________________________
(1) Subject to member approval, JADE FINANCIAL intends to
contribute shares of common stock to the foundation within
12 months following the completion of the conversion in an
amount equal to 8% of the shares sold in the offering. See
"The Conversion -- Stock Contribution to the Charitable
Foundation." The contributed shares will be donated or sold
for nominal consideration, accordingly, they will not add to
the gross proceeds. Such shares are, however, issued and
outstanding and therefore add to JADE FINANCIAL's market
capitalization. The amount of the common stock contributed
to the foundation will be accrued as an expense in the
fiscal quarter in which the conversion is completed. The
pro forma earnings data does not reflect such non-recurring
accrual. Both the historical and pro forma per share data
assume that the common stock contribution to the foundation
is made.
(2) Reflects a reduction to net proceeds for the cost of the
employee stock ownership plan and the restricted stock plan
(assuming shareholder ratification is received) which it is
assumed will be funded from the net proceeds retained by
JADE FINANCIAL.
(3) No effect has been given to withdrawals from savings
accounts for the purpose of purchasing common stock in the
conversion. For purposes of calculating pro forma net
income, proceeds attributable to purchases by the employee
stock ownership plan and restricted stock plan, that will be
funded by JADE FINANCIAL have been deducted from net
proceeds.
(4) It is assumed that 8% of the shares of common stock issued
in the conversion will be purchased by the employee
ownership plan. The funds used to acquire such shares will
be borrowed by the employee stock ownership plan from JADE
FINANCIAL. IGA intends to make contributions to the
employee stock ownership plan in amounts at least equal to
<PAGE 25> the principal and interest requirements necessary
to pay the debt. IGA's payment of the employee stock
ownership plan debt will offset the interest paid by IGA.
Accordingly, the only expense to JADE FINANCIAL on a
consolidated basis will be related to the allocations of
earned employee stock ownership plan shares which will be
based on the number of shares committed to be released to
participants for the year at the average market value of the
shares during the year tax-effected at 34%. The amount of
employee stock ownership plan debt is reflected as a
reduction of shareholders' equity. In the event that the
employee stock ownership plan were to receive a loan from an
independent third party, both employee stock ownership plan
expense and earnings on the proceeds retained by JADE
FINANCIAL would be expected to increase. For purposes of
calculating earnings per share, unallocated, employee stock
ownership plan shares are not considered to be outstanding.
In addition, the employee stock ownership plan shares
committed to be released at the end of the year are assumed
to be outstanding at the beginning of the year.
(5) Adjustments to both book value and net earnings have been
made to give effect to the proposed open market purchase
(based upon an assumed purchase price of $10.00 per share)
following conversion by the restricted stock plan (assuming
shareholder ratification of such plan is received) of an
amount of shares equal to 4% of the shares of common stock
issued in the conversion for the benefit of directors and
officers. It is assumed that the sale of the shares to the
restricted stock plan occurred at the beginning of the
period. Funds used by the restricted stock plan to purchase
the shares will be contributed to the restricted stock plan
by JADE FINANCIAL if the restricted stock plan is ratified
by shareholders following the conversion. Therefore, this
funding is assumed to reduce the proceeds available for
reinvestment. For financial accounting purposes, the amount
of the contribution will be recorded as a compensation
expense (although not an actual expenditure of funds) over
the period of vesting. These grants are expected to vest in
equal annual installments over a period of years following
shareholder ratification of the restricted stock plan. In
the event the restricted stock plan is unable to purchase a
sufficient number of shares of common stock to fund the
restricted stock plan, JADE FINANCIAL may issue authorized
but unissued shares of common stock to fund the remaining
balance. In the event the restricted stock plan is funded
by the issuance of authorized but unissued shares in an
amount equal to 4% of the shares sold in the conversion, the
interests of existing shareholders would be diluted up to
approximately 3.8%.
In the event that the restricted stock plan is funded
through authorized but unissued shares, for the three months
ended March 31, 1999, pro forma net income per share would
be $0.14, $0.13, $0.11 and $0.10, respectively, and
<PAGE 26> pro forma shareholders' equity per share would be
$19.23, $17.52, $16.26 and $15.16, respectively, in each
case at the minimum, midpoint, maximum and adjusted maximum
of the estimated valuation range. In the event that the
restricted stock plan is funded through authorized but
unissued shares, for the six months ended December 31, 1998,
pro forma net income per share would be $0.29, $0.25, $0.23
and $0.21, respectively, and pro forma shareholders' equity
per share would be $19.38, $17.64, $16.36 and $15.25,
respectively, in each case at the minimum, midpoint, maximum
and adjusted maximum of the estimated valuation range.
(6) No effect has been given to the shares to be reserved for
issuance under the proposed stock option plan which is
expected to be adopted by JADE FINANCIAL following the
conversion, subject to shareholder approval. In the event
the stock option plan is funded by the issuance of
authorized but unissued shares in an amount equal to 10% of
the shares sold in the conversion, at $10.00 per share, the
interests of existing shareholders would be diluted as
follows:
- pro forma net income per share for the three months
ended March 31, 1999 would be $0.13, $0.12, $0.11, and
$0.10, respectively, and pro forma shareholders' equity
per share would be $19.10, $17.48, $16.28 and $15.24,
respectively, in each case at the minimum, maximum and
adjusted maximum of the estimated valuation range.
- pro forma net income per share for the six months ended
December 31, 1999 would be $0.27, $0.24, $0.22 and
$0.20, respectively, and pro forma shareholders' equity
per share would be $19.23, $17.59, $16.38 and $15.33,
respectively, in each case at the minimum, maximum and
adjusted maximum of the estimated valuation range.
In the alternative, JADE FINANCIAL may purchase shares in
the open market to fund the stock option plan following
shareholder approval of such plan. To the extent the entire
10% of the shares to be reserved for issuance under the
stock option plan is funded through open market purchases at
the purchase price of $10.00 per share, proceeds available
for reinvestment would be reduced by $1.23 million,
$1.45 million, $1.67 million and $1.92 million at the
minimum, midpoint, maximum and adjusted maximum of the
estimated valuation range. See "Management -- Benefit
Plans -- Other Stock Benefit Plans."
<PAGE 27>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH NO FOUNDATION
In the event that the common stock contribution to the
Foundation is not made, RP Financial has estimated that the
amount of common stock offered for sale in the conversion would
increase by approximately $750,000 and that the overall market
capitalization would increase by $267,000, all at the midpoint of
the estimated valuation range. Under such circumstances,
pro forma shareholders' equity at March 31, 1999 of JADE
FINANCIAL would be approximately $28.09 million, at the midpoint,
which is approximately $630,000 greater than the pro forma
shareholders' equity of JADE FINANCIAL would be if the common
stock contribution is made to the foundation. In preparing this
estimate, it has been assumed that the pro forma price to
earnings ratio would be approximately the same under both the
current appraisal and the estimate of the value of JADE FINANCIAL
without the common stock contribution to the foundation at the
midpoint of the estimated valuation range. Further, assuming the
midpoint of the estimated valuation range, pro forma
shareholders' equity per share and pro forma earnings per share
would be substantially the same with the common stock
contribution as without such contribution. In this regard, pro
forma shareholders' equity and pro forma net income per share at
and for the period ended March 31, 1999 would be $18.42 and $0.27
respectively, at the midpoint of the estimate, assuming no common
stock contribution. The pro forma price to book value ratio and
the pro forma price to earnings ratio at and for the period ended
March 31, 1999 are 54.29% and 18.52x, respectively, at the
midpoint of the estimate, assuming no common stock contribution,
and are 54.56% and 19.23x, respectively, with the common stock
contribution. This estimate by RP Financial is solely for
purposes of providing members with sufficient information with
which to make an informed decision on the common stock
contribution. There is no assurance that in the event the common
stock contribution is not approved at the special meeting of
members that the appraisal prepared at that time would conclude
that the pro forma market value of JADE FINANCIAL would be the
same as that estimated herein.
For comparative purposes only, set forth below are certain
pricing ratios and financial data and ratios, with and without a
foundation at the minimum, midpoint, maximum and adjusted maximum
of the estimated valuation range, assuming the conversion was
completed at March 31, 1999.
<PAGE 28>
<TABLE>
<CAPTION>
At the Maximum
At the Minimum At the Midpoint At the Maximum As Adjusted
With Stock No Stock With Stock No Stock With Stock No Stock With Stock No Stock
Contribution Contribution Contribution Contribution Contribution Contribution Contribution Contribution
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering
amount.................... $ 12,325 $ 12,963 $ 14,500 $ 15,250 $ 16,675 $ 17,538 $ 19,176 $ 20,168
Pro forma market
capitalization............ 12,736 12,963 14,983 15,250 17,231 17,538 19,815 20,168
Total assets............... 187,825 188,356 189,653 190,278 191,481 192,199 193,582 194,409
Total liabilities.......... 162,374 162,374 162,374 162,374 162,374 162,374 162,374 162,374
Pro forma shareholders'
equity.................... 25,633 26,164 27,461 28,086 29,289 30,007 31,390 32,217
Pro forma consolidated
net earnings.............. 353 361 367 376 383 393 401 413
Pro forma shareholders'
equity per share.......... 20.12 20.18 18.33 18.42 17.00 17.11 15.84 15.97
Pro forma consolidated
net earnings per
share..................... 0.30 0.30 0.26 0.27 0.24 0.24 0.21 0.22
Pro forma pricing ratios:
Offering price as a
percentage of pro
forma shareholders'
equity per share......... 49.70% 49.55% 54.56% 54.29% 58.82% 58.45% 63.13% 62.62%
Offering price to pro
forma net earnings
per share................ 16.67 16.67 19.23 18.52 20.83 20.83% 23.81% 22.73%
Offering price to assets.. 6.78% 6.88% 7.90% 8.01% 9.00% 9.12% 10.24% 10.37%
Pro forma financial ratios:
Return on assets.......... 0.38% 0.38% 0.39% 0.40% 0.40% 0.41% 0.41% 0.42%
Return on shareholders'
equity................... 2.75% 2.76% 2.67% 2.68% 2.62% 2.62% 2.55% 2.56%
Shareholders' equity
to assets................ 13.65% 13.89% 14.48% 14.76% 15.30% 15.61% 16.22% 16.57%
</TABLE>
<PAGE 29>
THE CONVERSION
The board of directors of IGA and the Office of Thrift
Supervision have approved the plan of conversion. The Office of
Thrift Supervision approval is subject to approval of the plan of
conversion by IGA's members, and subject to the satisfaction of
certain other conditions imposed by the Office of Thrift
Supervision. The Office of Thrift Supervision approval does not
constitute a recommendation or endorsement of the plan of
conversion.
General
On May 26, 1999, IGA adopted a plan of conversion, pursuant
to which IGA proposes converting from a federally chartered
mutual savings institution to a federally chartered stock savings
institution. IGA will be a wholly owned subsidiary of JADE
FINANCIAL immediately after the conversion. The conversion will
include adoption of the proposed federal stock charter and
bylaws, which will authorize IGA to issue capital stock. Under
the plan, IGA's common stock will be sold to JADE FINANCIAL and
JADE FINANCIAL's common stock is being offered to IGA's eligible
depositors and other members and then to the public. The
conversion will be accounted for at historical cost in a manner
similar to a pooling of interests. The Office of Thrift
Supervision has approved JADE FINANCIAL's application to become a
savings and loan holding company and to acquire all of IGA's
common stock to be issued in the conversion.
JADE FINANCIAL's common stock is first being offered in a
subscription offering to holders of subscription rights. To the
extent shares of common stock remain available after the
subscription offering, shares of JADE FINANCIAL's common stock
may be offered in a community offering and/or a syndicated
community offering on a best efforts basis through Charles Webb &
Company in a manner designed to promote a wide distribution of
the shares. The community offering and the syndicated community
offering, if any, may commence with, at any time during, or as
soon as practicable after the subscription offering. If there
are any unsold shares of common stock after the subscription
offering, community offering and syndicated community offering,
JADE FINANCIAL may offer the remaining shares in a public
offering conducted on a best efforts basis by Charles Webb &
Company. JADE FINANCIAL has the right, in its sole discretion,
to accept or reject, in whole or in part, any orders to purchase
shares of the common stock received in the community offering,
the syndicated community offering and the public offering. See
"- Offering of common stock."
Subscriptions for shares of common stock will be subject to
the maximum and minimum purchase limitations set forth in the
plan of conversion.
<PAGE 30>
The completion of the offering is subject to market
conditions and other factors beyond JADE FINANCIAL's control. No
assurance can be given as to the length of time JADE FINANCIAL
will need to complete the sale of common stock being offered in
the conversion following approval of the plan of conversion at
the meeting of IGA's members. If delays are experienced,
significant changes may occur in the estimated valuation range
with corresponding changes in the offering price and the net
proceeds to be realized by JADE FINANCIAL from the sale of the
shares. In the event the conversion is terminated, IGA will
charge all conversion expenses against current income and any
funds collected by IGA in the offering will be promptly returned,
with interest, to each subscriber.
Our Reasons for the Corporate Change
As a mutual institution, IGA has no authority to issue
shares of capital stock and consequently has no access to market
sources of equity capital. Only by generating and retaining
earnings from year to year is IGA able to increase its capital
position.
As a stock corporation upon completion of the conversion,
IGA will be organized in the form used by commercial banks, most
major corporations and a majority of savings institutions. The
ability to raise new equity capital through the issuance and sale
of IGA or JADE FINANCIAL's capital stock will allow IGA the
flexibility to increase its capital position more rapidly than by
accumulating earnings and at times deemed advantageous by the
board of directors of IGA. It will also support future growth
and expanded operations, including increased lending and
investment activities, as business and regulatory needs require.
The ability to attract new capital also will help IGA address the
needs of the communities it serves and enhance its ability to
make acquisitions or expand into new businesses. The acquisition
alternatives available to IGA are quite limited as a mutual
institution, because of a requirement in Office of Thrift
Supervision regulations that the surviving institution in a
merger involving a mutual institution generally must be in mutual
form. After the conversion, IGA will have increased ability to
merge with other stock institutions and we may acquire control of
other stock savings associations and retain the acquired
institution as our separate subsidiary. Finally, the ability to
issue capital stock will enable us to establish stock
compensation plans for directors, officers and employees, giving
them equity interests in JADE FINANCIAL and greater incentive to
improve IGA's performance. For a description of the stock
compensation plans which will be adopted by us in connection with
the conversion, see "Management -- Benefit Plans."
After considering the advantages and disadvantages of the
conversion, as well as applicable fiduciary duties and
alternative transactions, the board of directors of IGA
unanimously approved the conversion as being in the best
interests of IGA and equitable to its account holders. <PAGE 31>
Effects of the Conversion
General. The conversion will have no effect on IGA's
present business of accepting deposits and investing its funds in
loans and other investments permitted by law. The conversion
will not result in any change in the existing services provided
to depositors and borrowers, or in existing offices, management
and staff. IGA will continue to be subject to regulation,
supervision and examination by the Office of Thrift Supervision
and the FDIC.
Deposits and Loans. Each holder of a deposit account in IGA
at the time of the conversion will continue as an account holder
in IGA after the conversion, and the conversion will not affect
the deposit balance, interest rate or other terms of such
accounts. Each account will be insured by the FDIC to the same
extent as before the conversion. Depositors in IGA will continue
to hold their existing certificates, passbooks and other evidence
of their accounts. The conversion will not affect the loan terms
of any borrower from IGA. The amount, interest rate, maturity,
security for and obligations under each loan will remain as they
existed prior to the conversion.
Continuity. During the conversion and stock issuance
process, the normal business of IGA of accepting deposits and
making loans will continue without interruption. Following
completion of the conversion, IGA will continue to be subject to
regulation by the Office of Thrift Supervision, and FDIC
insurance of accounts will continue without interruption. After
the conversion, IGA will continue to provide services for
depositors and borrowers under current policies and by its
present management and staff.
The board of directors presently serving IGA will serve as
the board of directors of IGA after the conversion. The initial
members of the board of directors of JADE FINANCIAL will consist
of five individuals currently serving on the board of directors
of IGA. After the conversion, the voting shareholders of JADE
FINANCIAL will elect approximately one-third of JADE FINANCIAL's
directors annually, and the directors of IGA will be elected
annually by JADE FINANCIAL's board of directors. All current
officers of IGA will retain their positions with IGA. See
"Management -- Management of JADE FINANCIAL."
Voting Rights. Currently, depositors and certain borrowers
of IGA have voting rights to elect IGA's directors and control
IGA's affairs. After the conversion, JADE FINANCIAL will be the
sole shareholder of IGA and, therefore, possess exclusive voting
rights with respect to IGA. JADE FINANCIAL's shareholders will
be entitled to vote on any matters to be considered by JADE
FINANCIAL's shareholders. See "Description of Capital Stock of
JADE FINANCIAL."
Depositors' Rights if IGA Liquidates. There are currently
no plans to liquidate IGA or JADE FINANCIAL before or after
<PAGE 32> completion of the conversion. However, in the event
IGA liquidates before or after the conversion, deposit account
holders would be entitled to the benefits of FDIC insurance up to
applicable limits. In addition, liquidation rights before or
after conversion would be as follows:
- Liquidation Rights in IGA Before Conversion. In
the event IGA is liquidated before the conversion,
each deposit account holder would receive his or
her pro rata share of any assets of IGA remaining
after payment of claims of all creditors
(including the claims of all depositors in the
amount of the withdrawal value of their accounts).
Such holder's pro rata share of such remaining
assets, if any, would be in the same proportion of
such assets as the balance in his or her deposit
account was to the aggregate balance in all
deposit accounts at IGA at the time of
liquidation.
- Liquidation Rights in IGA After Conversion. In
the event IGA is liquidated after the conversion,
each deposit account holder would have a claim in
the amount of the balance in his or her deposit
account plus accrued interest. A deposit account
holder would have no interest in the assets of
IGA.
Under the plan of conversion, IGA is required to
establish a "liquidation account" upon completion
of the conversion for the benefit of eligible
account holders (i.e., eligible depositors at
March 31, 1998) and supplemental account holders
(i.e., eligible depositors at June 30, 1999). In
the event IGA is liquidated after the conversion,
each eligible account holder and supplemental
eligible account holder that maintains his or her
deposit account with IGA would be entitled a pro
rata distribution from the liquidation account.
However, if the amount in an eligible account
holder's or supplemental eligible account holder's
deposit account on December 31, 1998 and any
December 31 thereafter is less than the lesser of
(a) the deposit balance in such account on any
prior December 31, or (b) the deposit balance in
such account on the respective qualifying dates
(i.e., March 31, 1998 for eligible account holders
and June 30, 1999 for supplement eligible account
holders), then the interest in this special
liquidation account would be reduced at that time
by an amount proportionate to any such reduction,
and the interest would cease to exist if such
deposit account was closed. The interest in the
special liquidation account will never be
increased despite any increase in the related
<PAGE 33> deposit account after the respective
qualifying dates.
Any assets remaining after the above liquidation
rights of eligible account holders and
supplemental eligible account holders are
satisfied would be distributed to JADE FINANCIAL
as the sole shareholder of IGA.
Other than for payment of certain expenses incident to the
conversion, none of IGA's assets will be distributed in the
conversion. IGA is a member of the Federal Home Loan Bank of
Pittsburgh and IGA's deposit accounts will continue to be insured
by the FDIC. IGA's affairs will continue to be directed by IGA's
existing Board of Directors and management.
Tax Effects of the Conversion and JADE FINANCIAL's Stock
Offering. IGA has received an opinion from Stevens & Lee, P.C.,
Wayne, Pennsylvania, as to the material federal income tax
consequences of the conversion and the stock offering to IGA and
JADE FINANCIAL, and as to the generally applicable material
federal income tax consequences of the conversion and stock
offering to IGA account holders and to persons who purchase
common stock in the offering.
The opinion provides that, among other things, for federal
income tax purposes:
- IGA's adoption of a charter in stock form, known as the
conversion, will qualify as a tax-free reorganization
under Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended;
- No gain or loss will be recognized by IGA solely as a
result of its conversion from mutual to stock form;
- No gain or loss will be recognized by IGA's account
holders upon the issuance to them of accounts in IGA,
in stock form, immediately after the conversion, in the
same dollar amounts and on the same terms and
conditions as their accounts at IGA, in mutual form,
immediately prior to the conversion;
- The tax basis of each account holder's interest in the
liquidation account received in the conversion will be
equal to the value, if any, of that interest on the
date and at the time of the conversion;
- The tax basis of the common stock purchased in the
conversion will be equal to the amount paid therefor;
increased, in the case of common stock acquired
pursuant to the exercise of subscription rights, by the
fair market value, if any, of such subscription rights;
<PAGE 34>
- The holding period of the common stock purchased
pursuant to the exercise of subscription rights will
commence upon the exercise of such holder's
subscription rights and, in all other cases, the
holding period of purchased common stock will commence
on the day following the date of such purchase; and
- Gain or loss will be recognized by account holders upon
the receipt of an interest in the liquidation account
and the receipt of subscription rights in the
conversion, to the extent such holder's interest in the
liquidation account and subscription rights are deemed
to have value, as discussed below.
The opinion of Stevens & Lee is based in part upon, and
subject to the continuing validity in all material respects
through the date of the conversion of, various representations of
IGA and upon certain assumptions and qualifications, including
the assumption that the conversion is completed in the manner and
according to the terms provided in the plan of conversion. This
opinion is also based upon the Internal Revenue Code, regulations
now in effect or proposed thereunder, current administrative
rulings and practice and judicial authority, all of which are
subject to change, which change may be made with retroactive
effect. Unlike private letter rulings received from the IRS, an
opinion of counsel is not binding upon the IRS, and there can be
no assurance that the IRS will not take a position contrary to
the positions reflected in such opinion, or that such opinion
will be upheld by the courts if challenged by the IRS.
Stevens & Lee has advised IGA that an interest in a
liquidation account has been treated by the IRS, in a series of
private letter rulings which may not be used or cited as
precedent, as having nominal, if any, fair market value and,
therefore, it is likely that the interests in the liquidation
account established by IGA as part of the conversion will also be
treated as having nominal, if any, fair market value.
Accordingly, it is likely that depositors of IGA who receive an
interest in the liquidation account established by IGA pursuant
to the conversion will not recognize any gain or loss upon
receipt of such interest.
Stevens & Lee has also advised IGA that the federal income
tax treatment of the receipt, exercise and lapse of subscription
rights pursuant to the offering is uncertain, and that several
private letter rulings issued by the IRS that have addressed the
tax effects of the receipt, exercise and lapse of subscription
rights, in comparable transactions, have been in conflict. For
instance, the IRS adopted the position in one private ruling that
subscription rights will be deemed to have been received to the
extent of the sum of the minimum pro rata distribution of such
rights, plus the rights actually exercised in excess of such pro
rata distribution, and that gain must be recognized to the extent
of the combined fair market value of the pro rata distribution of
subscription rights plus the subscription rights actually
<PAGE 35> exercised. While the issues are not free from doubt,
persons who do not exercise their subscription rights under this
analysis would recognize gain upon receipt of rights equal to the
fair market value of such rights, regardless of exercise, and
these persons should recognize a corresponding loss upon the
expiration of unexercised rights that may be allowable to offset
the gain recognized on unexercised rights; although, the loss may
not be of the same character as the gain. Under another IRS
private letter ruling, subscription rights were deemed to have
been received only to the extent actually exercised. This
private letter ruling required that gain be recognized only if
the holder of such rights exercised such rights, and that no loss
would be recognized if such rights were allowed to expire
unexercised. There is no authority that clearly resolves this
conflict on the tax effects of the receipt, exercise and lapse of
subscriptions rights. However, based upon express provisions of
the Internal Revenue Code and in the absence of controlling
authority, Stevens & Lee has provided in its opinion that gain
should be recognized upon the receipt, rather than the exercise,
of subscription rights. This gain should be capital gain if the
unexercised subscription rights were a capital asset in the hands
of the account holder. While the issue is not free from doubt,
account holders should be allowed to recognize a loss upon the
lapse of unexercised subscription rights, which would be
deductible as a capital loss if the unexercised subscription
rights were a capital asset in the hands of the account holder.
Notwithstanding the foregoing and the uncertainty of the law
governing the tax effects of the receipt, exercise and lapse of
subscription rights, the actual tax consequences or tax effects
to account holders will depend upon the value of the subscription
rights, as discussed below.
IGA has also obtained an opinion from Stevens & Lee that IGA
will recognize no gain or loss for purposes of the Pennsylvania
mutual thrift institutions tax solely as a result of the
conversion; although, certain accounting adjustments may be
required as a result of the conversion and offering transactions
that may result in certain adjustments which will create some
items of taxable income and expense.
IGA and JADE FINANCIAL have received a letter from RP
Financial, stating its belief that the subscription rights do not
have any value, based on the fact that these rights are acquired
by the recipients without cost, are nontransferable and of short
duration, and give the recipients the right only to purchase the
common stock at a price equal to its estimated fair market value,
which will be the same price as the purchase price for the
unsubscribed shares of common stock. Unlike private letter
rulings, the letter of RP Financial is not binding on the IRS,
and the IRS could disagree with conclusions reached in the
letter. In the event of any disagreement, there can be no
assurance that the IRS would not prevail in a judicial or
administrative proceeding. If the subscription rights are deemed
to have a fair market value, the receipt of such rights will be
taxable to eligible account holders, supplemental eligible
<PAGE 36> account holders, and other persons who receive
subscription rights, even though such persons would have received
no cash from which to pay taxes on such taxable income. IGA
could also be required to recognize gain on the distribution of
such subscription rights in an amount equal to their aggregate
fair market value if IGA is treated as distributing the
subscription rights to persons who participate in the offering.
Eligible account holders, supplemental eligible account holders
and other members are encouraged to consult with their own tax
advisors as to the tax consequences in the event that the
subscription rights are deemed to have a fair market value.
Because the fair market value, if any, of the subscription rights
issued in the conversion depends primarily upon the existence of
certain facts rather than the resolution of legal issues,
Stevens & Lee has neither adopted the opinion of RP financial as
its own nor incorporated the opinion of RP Financial in its tax
opinion issued in connection with the conversion.
The Federal income tax discussion set forth above does not
purport to consider all aspects of Federal income taxation which
may be relevant to each eligible account holder, supplemental
eligible account holder and other members entitled to special
treatment under the Internal Revenue Code, such as trusts,
individual retirement accounts, other employment benefit plans,
insurance companies, and eligible account holders, supplemental
eligible account holders and other members who are not citizens
or residents of the United States. Due to the individual nature
of tax consequences, each eligible account holder, supplemental
eligible account holder and other member is urged to consult his
or her own tax and financial advisor as to the effect of such
Federal income tax consequences on his or her own particular
facts and circumstances, including the receipt, exercise and
lapse of subscription rights, and also as to any state, local,
foreign or other tax consequences arising out of the conversion.
Charitable Foundation
General. Continuing IGA's commitment to the communities
that it serves, the plan of conversion provides that IGA and JADE
FINANCIAL will establish the foundation, which will be
incorporated under Pennsylvania law as a non-stock corporation.
JADE FINANCIAL will fund the foundation with cash and common
stock in an amount up to 5.0% of the total value of shares of
common stock sold in the conversion. IGA believes that the
foundation will improve the long-term value of IGA's community
banking franchise by increasing IGA's visibility and reputation
in the communities that it serves.
Purpose of the Foundation. The purpose of the foundation is
to provide funding to support charitable purposes including,
community development grants, affordable housing activities,
nonprofit community groups and other charitable purposes within
the communities served by IGA. Traditionally, IGA has emphasized
community lending and community development activities within the
communities that it serves. The foundation is being formed as a
<PAGE 37> complement to IGA's existing community activities. IGA
believes that the foundation will enable IGA and JADE FINANCIAL
to assist their local communities in areas beyond community
development and lending.
The boards of directors of IGA and JADE FINANCIAL believe
the establishment of a charitable foundation is consistent with
IGA's commitment to community service. The boards of directors
also believe that the funding of the foundation with common stock
of JADE FINANCIAL is a means of enabling the communities served
by IGA to share in the growth and success of JADE FINANCIAL long
after the completion of the conversion. The establishment of the
foundation will also enable IGA and JADE FINANCIAL to develop a
unified charitable donation strategy. IGA, however, does not
expect the contribution to the foundation to take the place of
IGA's traditional community charitable activities. In this
respect, subsequent to the conversion, IGA may continue to make
contributions to other charitable organizations and/or it may
make additional contributions to the foundation.
Structure of the Foundation. The foundation will be
incorporated under Pennsylvania law as a non-stock corporation.
The authority for the officers of the foundation is vested in its
members and its board of directors. Pursuant to the foundation's
bylaws, the foundation's initial board of directors will be
comprised of three members of JADE FINANCIAL and IGA's boards of
directors (Messrs. John J. O'Connell, Mario L. Incollingo, Jr.
and Edward D. McBride) and two other individuals chosen in light
of their commitment and service to charitable and community
purposes. The other persons expected to serve as directors of
the foundation are and Pennsylvania State Representative John M.
Perzel and either Pennsylvania State Senator Vincent J. Fumo or
Mr. Anthony DiSandro.
There are no plans to change the size of the foundation's
board of directors during the one-year period after completion of
the conversion. Although all of the foundation's initial
directors were selected by us, future foundation directors may be
nominated and elected only by the foundation's directors. As a
result, the board of directors is self-perpetuating. The board
of directors may be expanded following the conversion to include
additional IGA directors and other community members as
directors, but it is currently anticipated that at least a
majority of the foundation's board of directors will consist of
persons who are the current or former directors of IGA.
No determination has been made as to what, if any,
compensation the foundation directors will receive. The
certificate of incorporation of the foundation provides that the
corporation is organized exclusively for charitable purposes,
including community development, as set forth in
Section 501(c)(3) of the Internal Revenue Code. The foundation's
certificate of incorporation also provides that no part of the
net earnings of the foundation will inure to the benefit of, or
be distributable to its directors, officers or members. No
<PAGE 38> award, grant or distribution will be made by the
foundation to any director, officer or employee of JADE FINANCIAL
or IGA or any affiliate thereof. In addition, any of these
persons, to the extent that they serve as an officer, directors
or employee of the foundation will be subject to the conflict of
interest regulations of the Office of Thrift Supervision. In
addition, it is anticipated that the foundation will adopt a
conflicts of interest policy to protect against inappropriate
insider benefits.
The board of directors of the foundation will be responsible
for establishing the policies of the foundation with respect to
grants or donations by the foundation, consistent with the
purposes for which the foundation was established. Although no
formal policy governing foundation grants exists at this time,
the foundation's board of directors will adopt such a policy upon
establishment of the foundation. Directors of the foundation
will at all times be bound by their fiduciary duty to advance the
foundation's charitable goals, to protect the assets of the
foundation and to act in a manner consistent with the charitable
purposes for which the foundation is established. The directors
of the foundation will also be responsible for directing the
activities of the foundation, including the management of the
common stock of JADE FINANCIAL held by the foundation. However,
it is expected that as a condition to receiving the approval of
the Office of Thrift Supervision to IGA's conversion, the
foundation will be required to commit to the Office of Thrift
Supervision that all shares of common stock held by the
foundation will be voted in the same ratio as all other shares
of JADE FINANCIAL's common stock on all proposals considered by
shareholders of JADE FINANCIAL; provided, however, that,
consistent with this expected condition, the Office of Thrift
Supervision would waive this voting restriction under certain
circumstances if compliance with the voting restriction would:
- cause a violation of the law of the Commonwealth of
Pennsylvania and the Office of Thrift Supervision
determines that federal law would not preempt the
application of the laws of Pennsylvania to the
foundation;
- would cause the foundation to lose its tax-exempt
status, or cause the IRS to deny the foundation's
request for a determination that it is an exempt
organization or otherwise have a material and adverse
tax consequence on the foundation; or
- would cause the foundation to be subject to an excise
tax under Section 4941 of the Internal Revenue Code.
In order for the Office of Thrift Supervision to waive such
voting restriction, JADE FINANCIAL's or the foundation's legal
counsel would be required to render an opinion satisfactory to
the Office of Thrift Supervision that compliance with the voting
requirement would have the effect described above. Under those
<PAGE 39> circumstances, the Office of Thrift Supervision would
grant a waiver of the voting restriction upon submission of such
legal opinion(s) by JADE FINANCIAL or the foundation that are
satisfactory to the Office of Thrift Supervision. In the event
that the Office of Thrift Supervision were to waive the voting
requirement, the trustees would direct the voting of the common
stock held by the foundation.
The foundation's place of business is expected to initially
be located at IGA's executive offices. The foundation will
utilize the employees of IGA and will pay IGA for the value of
these services. The board of directors of the foundation will
appoint any officers as may be necessary to manage the operations
of the foundation. In this regard, it is expected that IGA will
be required to provide the Office of Thrift Supervision with a
commitment that, to the extent applicable, IGA will comply with
the affiliate restrictions set forth in Sections 23A and 23B of
the Federal Reserve Act with respect to any transactions between
IGA and the foundation.
JADE FINANCIAL intends to capitalize the foundation with an
amount of cash and common stock equal to 5% of the value of
shares of common stock sold in the conversion, 33.33% in cash and
66.67% in common stock, which would have a total market value of
$616,250 to $833,750 ($958,813 at the maximum, as adjusted),
based on the purchase price of $10.00 pre share. The initial
trustees of the foundation and their affiliates intend to
purchase subject to availability, an aggregate of _______ shares
of common stock. The shares of common stock to be acquired by
the foundation, when combined with the proposed purchases of
shares of common stock by the foundation directors and their
affiliates will total ________ shares or ____% of the total
number of shares of common stock to be issued and outstanding
(assuming the issuance of _____ million shares of common stock)
after completion of the conversion.
The foundation will receive working capital from any
dividends that may be paid on the common stock in the future, and
subject to applicable federal and state laws, loans
collateralized by the common stock or from the proceeds of the
sale of any of the common stock in the open market from time to
time as may be permitted to provide the foundation with
additional liquidity. As a private foundation under
Section 501(c)(3) of the Internal Revenue Code, the foundation
will be required to distribute annually in grants or donations, a
minimum of 5% of the average fair market value of its net
investment assets. Failure to distribute this minimum return
will require substantial federal taxes to be paid. Upon
completion of the conversion and the contribution of shares of
common stock to the foundation, JADE FINANCIAL would have
1,273,585 shares, 1,498,335 shares, 1,723,086 shares and
1,981,549 shares issued and outstanding based on the minimum,
midpoint, maximum and maximum, as adjusted, of the estimated
offering range.
<PAGE 40>
Tax Considerations. IGA believes that an organization
created for the above purposes will qualify as an organization
exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code, and will likely be classified as a private
foundation. A private foundation typically receives its support
from one person or one corporation whereas a public charity
receives its support from the public. The foundation will submit
an application to the IRS to be recognized as an exempt
organization. If the foundation files such an application within
15 months from the date of its organization, and if the IRS
approves the application, the effective date of the foundation's
status as a Section 501(c)(3) organization will be retroactive to
the date of its organization. Stevens & Lee, however, has not
rendered any advice on the condition to the contribution to be
agreed to by the foundation which requires that all shares of
common stock held by the foundation must be voted in the same
ratio as all other outstanding shares of common stock on all
proposals considered by shareholders of JADE FINANCIAL.
Consistent with this condition, in the event that JADE FINANCIAL
or the foundation receives an opinion of its legal counsel that
compliance with this voting restriction would have the effect of
causing the foundation to lose its tax-exempt status or otherwise
have a material and adverse tax consequence on the foundation, or
subject the foundation to an excise tax for "self-dealing" under
Section 4941 of the Internal Revenue Code, the Office of Thrift
Supervision will waive such voting restriction upon submission by
JADE FINANCIAL or the foundation of a legal opinion to that
effect satisfactory to the Office of Thrift Supervision. See "--
Regulatory Conditions Imposed on the Foundation."
A legal opinion of the Office of Thrift Supervision which
addresses the establishment of charitable foundations by savings
associations opines that as a general rule funds contributed to a
charitable foundation should not exceed the deductible limitation
set forth in the Internal Revenue Code, and if an association's
contributions exceed the deductible limit, such action must be
justified by the board of directors. In addition, under
Pennsylvania law, JADE FINANCIAL is authorized by statute to make
charitable contributions and case law has recognized the benefits
of such contributions to a Pennsylvania corporation. In this
regard, Pennsylvania case law provides that a charitable gift
must merely be within reasonable limits as to amount and purpose
to be valid. Under the Internal Revenue Code, JADE FINANCIAL may
deduct up to 10% of its taxable income in any one year and any
contributions made by JADE FINANCIAL in excess of the deductible
amount will be deductible for federal tax purposes over each of
the five succeeding taxable years. We believe that the
conversion presents a unique opportunity to make the stock
contribution given the substantial amount of additional capital
being raised in the conversion. In making such a determination,
we considered the dilutive impact of the stock contribution on
the conversion appraisal. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution." based on such
considerations, we believe that the stock contribution to the
foundation in excess of the 10% annual limitation is justified
<PAGE 41> given our capital position and earnings, the
substantial additional capital being raised in the conversion and
the potential benefits of the foundation to our community. In
this regard, assuming the sale of the common stock at the
midpoint of the estimated valuation range, at March 31, 1999 JADE
FINANCIAL would have pro forma shareholders' equity of $27.28
million and our pro forma tangible, core and risk-based capital
ratios would be 11.30%, 11.30% and 21.64%, respectively. See
"Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Stock
Contribution." Thus, the amount of the stock contribution will
not adversely impact our financial condition, and we therefore
believe that the amount of the charitable contribution is
reasonable given the and our pro forma capital positions. As
such, we believe that the stock contribution does not raise
safety and soundness concerns.
We have received an opinion of Stevens & Lee that JADE
FINANCIAL's contribution of its own stock to the foundation will
be deductible subject to a limitation based on 10% of JADE
FINANCIAL's annual taxable income. JADE FINANCIAL, however,
would be able to carry forward any unused portion of the
deduction for five years following the year in which the
contribution is made for federal and Pennsylvania tax purposes.
JADE FINANCIAL currently estimates that substantially all of
the stock contribution should be deductible. However, no
assurances can be made that JADE FINANCIAL will have sufficient
pre-tax income over the periods following the year in which the
contributions are made to utilize fully the carryover related to
the excess contribution.
In cases of willful, flagrant or repeated acts or failures
to act which result in violations of the IRS rules governing
private foundations, a private foundation's status as a private
foundation may be involuntarily terminated by the IRS. In such
event, the managers of a private foundation could be liable for
excise taxes based on such violations and the private foundation
could be liable for a termination tax under the Internal Revenue
Code. The foundation's certificate of incorporation provide that
it shall have a perpetual existence. In the event, however, the
foundation were subsequently dissolved as a result of a loss of
its tax exempt status, the foundation would be required under the
Internal Revenue Code and its articles of incorporation to
distribute any assets remaining in the foundation at that time
for one or more exempt purposes within the meaning of Section
501(c)(3) of the Internal Revenue Code, or to distribute such
assets to the federal government, or to a state or local
government, for a public purpose.
In general, the income of a private foundation is exempt
from federal and state taxation. However, investment income,
such as interest, dividends and capital gains, will be subject to
a federal excise tax of 2.0%. The foundation will be required to
make an annual filing with the IRS within four and one-half
<PAGE 42> months after the close of the foundation's taxable year
to maintain its tax-exempt status. The foundation will also be
required to publish a notice that the annual information return
will be available for public inspection for a period of 180 days
after the date of such public notice. The information return for
a private foundation must include, among other things, an
itemized list of all grants made or approved, showing the amount
of each grant, the recipient, any relationship between a grant
recipient and the foundation's managers, and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation.
Establishment of the foundation is expected to be subject to the
following conditions being agreed to by the foundation in writing
as a condition to receiving the Office of Thrift Supervision's
approval for the conversion:
1. the foundation will be subject to examination by the
Office of Thrift Supervision;
2. the foundation must comply with supervisory directives
imposed by the Office of Thrift Supervision;
3. the foundation will operate in accordance with written
policies adopted by its board of trustees, including a
conflict of interest policy;
4. any shares of common stock held by the foundation must
be voted in the same ratio as all other shares of
common stock voting on all proposals considered by
shareholders of JADE FINANCIAL; provided, however, that
consistent with the condition, the Office of Thrift
Supervision would waive this voting restriction under
certain circumstances of compliance with the voting
restriction would:
- cause a violation of the law of the Commonwealth
of Pennsylvania and the Office of Thrift
Supervision determines that federal law would not
preempt the application of the laws of
Pennsylvania to the foundation;
- cause the foundation to lose its tax-exempt status
or otherwise have a material and adverse tax
consequence on the foundation; or
- cause the foundation to be subject to an excise
tax under Section 4941 of the Internal Revenue
Code; and
5. any shares of common stock subsequently purchased by
the foundation will be aggregated with any shares
repurchased by JADE FINANCIAL or IGA for purposes of
calculating the number of shares which may be
<PAGE 43> repurchased during the three-year period
subsequent to conversion.
In order for the Office of Thrift Supervision to waive the voting
restriction, JADE FINANCIAL's or the foundation's legal counsel
would be required to give an opinion satisfactory to the Office
of Thrift Supervision. While there is no current intention for
JADE FINANCIAL or the foundation to seek a waiver from the Office
of Thrift Supervision from these restrictions, there can be no
assurances that a legal opinion addressing these issues could be
given, or if given, that the Office of Thrift Supervision would
grant an unconditional waiver of the voting restriction. If the
voting restriction is waived or becomes unenforceable, the Office
of Thrift Supervision may either impose a condition that provides
a certain portion of the members of the foundation's board of
directors shall be persons who are not directors, officers or
employees of JADE FINANCIAL, IGA or any affiliate or impose other
conditions relating to control of the foundation's common stock
as are determined by the Office of Thrift Supervision to be
appropriate at the time. In no event would the voting
restriction survive the sale of shares of the common stock held
by the foundation.
Various Office of Thrift Supervision regulations may be
deemed to apply to the foundation including regulations
regarding:
- transactions with affiliates;
- conflicts of interest;
- capital distributions; and
- repurchases of capital stock within the three-year
period subsequent to the stock issuance.
JADE FINANCIAL and IGA anticipate that the foundation's affairs
will be conducted in a manner consistent with the Office of
Thrift Supervision's conflict of interest regulations. IGA has
provided information to the Office of Thrift Supervision
demonstrating that the initial contribution of common stock to
the foundation would within the amount which IGA would be
permitted to make as a capital distribution assuming such
contribution is deemed to have been made by IGA.
How We Determined Our Price and the Number of Shares to be Issued
in the Stock Offering
The plan of conversion and federal regulations require that
the purchase price of the common stock must be based on the
appraised pro forma market value of IGA and JADE FINANCIAL, as
determined on the basis of an independent valuation. IGA has
retained RP Financial to make this valuation. For its services
in making this appraisal, RP Financial's fees and out-of-pocket
expenses are estimated to be $_______. IGA has agreed to
indemnify RP Financial and any employees of IGA who act for or on
<PAGE 44> behalf of RP Financial in connection with the appraisal
against any and all loss, cost, damage, claim, liability or
expense of any kind, including claims under federal and state
securities laws, arising out of any misstatement or untrue
statement of a material fact or an omission to state a material
fact in the information supplied by IGA to RP financial, unless
RP Financial is determined to be negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon
the information contained in this prospectus, including IGA's
financial statements. RP Financial also considered the following
factors, among others:
- the present and projected operating results and
financial condition of IGA and JADE FINANCIAL and
the economic and demographic conditions in IGA's
existing marketing areas;
- certain historical, financial and another
information relating to IGA; a comparative
evaluation of the operating and financial
statistics of IGA with those of other similarly
situated publicly traded savings and loan holding
companies;
- the aggregate size of the offering of the common
stock;
- the impact of the conversion on IGA's net worth
and earnings potential;
- the proposed dividend policy of IGA and JADE
FINANCIAL; and
- the trading market for securities of comparable
institutions and general conditions in the market
for such securities.
In its review of the appraisal provided by RP Financial, IGA's
board of directors reviewed the methodologies and the
appropriateness of the assumptions used by RP Financial in
addition to the factors listed above, and the board of directors
believes that these assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised IGA
and JADE FINANCIAL that in RP Financial's opinion, dated
_________, 1999, the estimated pro forma market value of the
common stock on a fully converted basis, assuming a contribution
to a charitable foundation in an amount equal to 5.0% of the
shares sold, ranged from a minimum of $12.33 million to a maximum
of $16.68 million with a midpoint of $14.50 million. The boards
of directors of IGA and JADE FINANCIAL determined that the common
stock should be sold at $10.00 per share. Based on the estimated
valuation range and the purchase price, the number of shares of
common stock that we will issue, not including shares to be
<PAGE 45> issued to the foundation, will range from between
1,232,500 shares to 1,677,500 shares, with a midpoint of
1,450,000 shares. The estimated valuation range may be amended
with the approval of the Office of Thrift Supervision, if
required, or if necessitated by subsequent developments in the
financial condition of IGA and JADE FINANCIAL or market
conditions generally, or to fill the order of our tax-qualified
employee plans. In the event the estimated valuation range is
updated to amend the value of the common stock below the current
minimum estimated valuation range of $12.33 million or above the
current maximum of the estimated valuation range of
$16.68 million, the new appraisal will be filed with the SEC.
Based upon current market and financial conditions and
recent practices and policies of the Office of Thrift
Supervision, in the event we receive orders for common stock in
excess of $16.68 million (the maximum of the estimated valuation
range) and up to $19.18 million (the maximum of the estimated
valuation range, as adjusted by 15%), we may be required by the
Office of Thrift Supervision to accept all such orders. No
assurances, however, can be made that we will receive orders for
common stock in excess of the maximum of the estimated valuation
range or that, if such orders are received, that all such orders
will be accepted because our final valuation and number of shares
to be issued are subject to the receipt of an updated appraisal
from RP Financial which reflects such an increase in the
valuation and the approval of such increase by the Office of
Thrift Supervision. In addition, an increase in the number of
shares above 1,677,500 shares will first be used, if necessary,
to fill the order of our employee stock ownership plan. There is
no obligation or understanding on the part of management to take
and/or pay for any shares in order to complete the conversion.
RP Financial's valuation is not intended, and must not be
construed, as a recommendation of any kind as to the advisability
of purchasing these shares. RP Financial did not independently
verify the consolidated financial statements and other
information provided by IGA, nor did RP Financial value
independently the assets or liabilities of IGA. The valuation
considers IGA as a going concern and should not be considered as
an indication of the liquidation value of IGA. Moreover, because
this valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons
purchasing common stock in the offering will thereafter be able
to sell such shares at prices at or above the purchase price or
in the range of the valuation described above.
Prior to the completion of the conversion the maximum of the
estimated valuation range may be increased up to 15% and the
number of shares of common stock may be increased to 1,917,625
shares to reflect changes in market and financial conditions or
to fill the order of our tax-qualified employee plans, without
the resolicitation of subscribers. See "-- Limitations on Stock
Purchases" as to the method of distribution and allocation of
<PAGE 46> additional shares that may be issued in the event of an
increase in the estimated valuation range to fill unfilled orders
in the subscription offering.
No sale of shares of common stock in the conversion may be
consummated unless prior to such completion RP Financial confirms
that nothing of a material nature has occurred which, taking into
account all relevant factors, would cause it to conclude that the
aggregate value of the common stock to be issued is materially
incompatible with the estimate of the aggregate consolidated pro
forma market value of IGA and JADE FINANCIAL. If this
confirmation is not received, we may cancel the offering, extend
the offering and establish a new estimated valuation range and/or
estimated price range, extend, reopen or hold a new offering or
take any other action the Office of Thrift Supervision may
permit.
Depending upon market or financial conditions following the
start of the subscription offering, the total number of shares of
common stock may be increased or decreased without a
resolicitation of subscribers, provided that the product of the
total number of shares times the purchase price is not below the
minimum or more than 15% above the maximum of the estimated
valuation range. In the event market or financial conditions
change so as to cause the aggregate purchase price of the shares
to be below the minimum of the estimated valuation range or more
than 15% above the maximum of such range, purchasers will be
resolicited and be permitted to continue their orders, in which
case they will need to reconfirm their subscriptions prior to the
expiration of the resolicitation valuation or their subscription
funds will be promptly refunded with interest at IGA's passbook
rate of interest, or be permitted to modify or rescind their
subscriptions. Any change in the estimated valuation range must
be approved by the Office of Thrift Supervision. If the number
of shares of common stock issued in the conversion is increased
due to an increase of up to 15% in the estimated valuation range
to reflect changes in market or financial conditions or to fill
the order of our tax-qualified employee plans, persons who
subscribed for the maximum number of shares will be given the
opportunity to subscribe for the adjusted maximum number of
shares. See "-- Limitations on Stock Purchases."
An increase in the number of shares of common stock as a
result of an increase in the estimated pro forma market value
would decrease both a subscriber's ownership interest and our pro
forma net income and shareholders' equity on a per share basis
while increasing pro forma net income and shareholders' equity on
an aggregate basis. A decrease in the number of shares of common
stock would increase both a subscriber's ownership interest and
our pro forma net income and shareholders' equity on a per share
basis while decreasing pro forma net income and shareholders'
equity on an aggregate basis. See "Risk Factors - Our Board of
Directors, Management and Employee Plans May Have Voting Control
of JADE FINANCIAL" and "Pro Forma Data."
<PAGE 47>
Copies of the appraisal report of RP Financial, including
any amendments, and the detailed report of the appraiser setting
forth the method and assumptions for the appraisal are available
for inspection at the main office of IGA and the other locations
specified under "Additional Information."
Subscription Offering and Subscription Rights
Under the plan of conversion, rights to subscribe for the
purchase of common stock have been granted to the following
persons in the following order of descending priority:
- depositors of IGA as of the close of business on
March 31, 1998 ("Eligible Account Holders"),
- Tax-qualified employee plans ("Tax-Qualified
Employee Plans"),
- depositors of IGA as of the close of business on
June 30, 1999 ("Supplemental Eligible Account
Holders"), and
- members of IGA as of the close of business on
__________, 1999 other than Eligible Account
Holders or Supplemental Eligible Account Holders
("Other Members").
All subscriptions received will be subject to the availability of
common stock after satisfaction of all subscriptions of all
persons having prior rights in the subscription offering and to
the maximum and minimum purchase limitations set forth in the
plan of conversion and as described below under "-- Limitations
on Stock Purchases."
Preference Category No. 1: Eligible Account Holders. Each
Eligible Account Holder shall receive, without payment, first
priority, nontransferable subscription rights to subscribe for
shares of common stock in an amount equal to the greater of:
(1) $300,000 of common stock;
(2) one-tenth of one percent of the total offering of
shares of common stock in the subscription offering; or
(3) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of
shares of common stock offered in the subscription
offering by a fraction, of which the numerator is the
amount of the qualifying deposits of the Eligible
Account Holder and the denominator is the total amount
of qualifying deposits of all Eligible Account Holders
in IGA in each case as of the close of business on
March 31, 1998 (the "Eligibility Record Date"), subject
to the overall purchase limitations.
<PAGE 48>
See "-- Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase a number of
shares sufficient to make his total allocation equal to the
lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining after each subscribing Eligible
Account Holder has been allocated the lesser of the number of
shares subscribed for or 100 shares will be allocated among the
subscribing Eligible Account Holders pro rata whose subscriptions
remain unfilled in the proportion that the amounts of their
respective qualifying deposits of all subscribing Eligible
Account Holders whose subscriptions remained unfulfilled.
Subscription Rights of Eligible Account Holders will be
subordinated to the priority rights of IGA and JADE FINANCIAL's
employee stock ownership plan to purchase shares in excess of the
maximum of the estimated valuation range.
To ensure proper allocation of stock, each Eligible Account
Holder must list on his subscription order form all accounts in
which he has an ownership interest. Failure to list an account
could result in fewer shares being allocated than if all accounts
had been disclosed. The subscription rights of Eligible Account
Holders who are also directors of officers of IGA and their
associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to
increased deposits in the year preceding March 31, 1998.
Preference Category No. 2: Tax-Qualified Employee Plans.
Each Tax-Qualified Employee Plan, including the employee stock
ownership plan, shall be entitled to receive, without payment
therefor, second priority, nontransferable subscription rights to
purchase up to 10% of the common stock, provided that
individually or in the aggregate such plans (other than that
portion of such plans which is self-directed) shall not purchase
more than 10% of the shares of common stock, including any
increase in the number of shares of common stock after the date
hereof as a result of an increase in the maximum of the estimated
valuation range of the total number of shares of common stock to
be issued in the conversion. The employee stock ownership plan
intends to purchase 8.0% of the shares of common stock sold in
the offering, or 110,500 shares and 149,500 shares based on the
minimum and maximum of the estimated valuation range
respectively. Shares of common stock purchased by any individual
participant in a Tax Qualified Employee Plan using funds therein
pursuant to the exercise of subscription rights granted to such
participant in his individual capacity as an Eligible Account
Holder and/or Supplemental Eligible Account Holder and/or
purchases by such participant in the community offering shall not
be deemed to be purchases by a Tax-Qualified Employee Plan for
purposes of calculating the maximum amount of common stock that
Tax-Qualified Employee Plans may purchase if the individual
participant controls or directs the investment authority.
<PAGE 49> Subscription rights received pursuant to this Category
shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided,
however, that notwithstanding any other provision of the plan of
conversion to the contrary, the Tax-Qualified Employee Plans
shall have a first priority subscription right to the extent that
the total number of shares of common stock sold in the offering
exceeds the maximum of the estimated valuation range as set forth
in this prospectus. In the event that the total number of shares
offered in the offering is increased to an amount greater than
the number of shares representing the maximum of the estimated
valuation range, the employee stock ownership plan will have a
priority right to purchase any such shares exceeding the maximum
of the estimated valuation range up to an aggregate of 8% of the
common stock sold in the offering. See "Limitations on Stock
Purchases" and "Management - Benefit Plans -- Employee Stock
Ownership Plan."
Preference Category No. 3: Supplemental Eligible Account
Holders. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account
Holders and the Tax-Qualified Employee Plans, each Supplemental
Eligible Account Holder shall be entitled to receive, without
payment therefor, third priority, nontransferable subscription
rights to subscribe for shares of common stock in an amount equal
to the greater of:
(1) $300,000 shares of common stock (or such maximum
purchase limitation as may be established for the
community offering and/or syndicated community
offering or public offering);
(2) one-tenth of one percent of the total offering of
shares of common stock in the subscription
offering; or
(3) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total
number of shares of common stock offered in the
subscription offering by a fraction, of which the
numerator is the amount of the qualifying deposits
of the Supplemental Eligible Account Holder and
the denominator of which is the total amount of
qualifying deposits of all Supplemental Eligible
Account Holders in IGA in each case on the close
of business on June 30, 1999 (the "Supplemental
Eligibility Record Date"), subject to the overall
purchase limitations.
See "-- Limitations on Stock Purchases.
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders,
available shares first will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such
<PAGE 50> Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his
total allocation (including the number of shares, if any,
allocated in accordance with Category No. 1) equal to the lesser
of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining available will be allocated
among the Supplemental Eligible Account Holders pro rata whose
subscriptions remain unfilled in the proportion that the amounts
of their respective qualifying deposits bear to the total amount
of qualifying deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled.
Preference Category No. 4: Other Members. To the extent
that there are sufficient shares remaining after satisfaction of
subscriptions by Eligible Account Holders, the Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, each
Other Member shall receive, without payment therefor, fourth
priority, nontransferable subscription rights to subscribe for
shares of common stock, up to the greater of $300,000 of common
stock (or such maximum purchase limitation as may be established
for the community offering and/or syndicated community offering
or public offering) or one-tenth of one percent of the total
offering of shares of common stock in the subscription offering,
subject to the overall purchase limitations. See "-- Limitations
on Stock Purchases."
In the event the Other Members subscribe for a number of
shares which, when added to the shares subscribed for by Eligible
Account Holders, the Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders, is in excess of the total
number of shares of common stock offered in the offering, shares
shall be allocated so as to permit each such Other Member, to the
extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of
shares subscribed for or 100 shares. Any shares remaining will
be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on an equal number of shares
basis per order until all orders have been filled or the
remaining shares have been allocated.
Expiration Date for the Subscription Offering. The
subscription offering will expire at noon, Philadelphia,
Pennsylvania time, on _______, 1999 (the "Subscription Expiration
Date"), unless extended for up to 45 days or for such additional
periods by JADE FINANCIAL and IGA as may be approved by the
Office of Thrift Supervision. The subscription offering may not
be extended beyond _________, 2001. Subscription rights which
have not been exercised prior to the Subscription Expiration Date
(unless extended) will become void.
JADE FINANCIAL and IGA will not execute orders for the
purchase of common stock until at least the minimum number of
shares of common stock, 1,232,500 shares, have been subscribed
for or otherwise sold. If all shares have not been subscribed
for or sold within 45 days after the Subscription Expiration
<PAGE 51> Date, unless this period is extended with the consent
of the Office of Thrift Supervision, all funds delivered to IGA
pursuant to this subscription offering will be returned promptly
to the subscribers with interest at IGA's passbook rate and all
withdrawal authorizations will be canceled. If an extension
beyond the 45-day period following the Subscription Expiration
Date is granted, JADE FINANCIAL and IGA will notify subscribers
of the extension of time and of any rights of subscribers to
modify or rescind their subscriptions.
Community Offering
To the extent that shares remain available for purchase
after satisfaction of all subscriptions of Eligible Account
Holders, the Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders and Other Members, JADE FINANCIAL and IGA
anticipate that they will offer shares pursuant to the plan of
conversion in a community offering to certain members of the
general public, with preference given to natural persons residing
in counties in Pennsylvania in which IGA has a branch office.
These natural persons are referred to as Preferred Offerees.
No persons, together with an associate or group of persons
acting in concert with such persons, may subscribe for or
purchase in the community offering more than the greater of
(i) $300,000 of common stock or (ii) one-tenth of 1% of the total
offering of shares in the subscription offering, provided,
however, that this amount may be increased to 5% of the total
offering of shares in the subscription offering, subject to any
required regulatory approval but without the further approval of
IGA's members.
The opportunity to subscribe for shares of common stock in
the community offering will be subject to the right of JADE
FINANCIAL and IGA in their sole discretion, to accept or reject
any such orders in whole or in part from any person either at the
time of receipt of an order or as soon as practicable following
completion of the community offering. The community offering, if
any, will commence concurrently with, during or promptly after
the subscription offering, and must be completed within 45 days
after the completion of the subscription offering, unless
extended by JADE FINANCIAL and IGA with any required regulatory
approval.
Available shares first will be allocated among Preferred
Offerees whose orders are accepted, so as to permit each such
Preferred Subscriber, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to
the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining will be allocated among the
Preferred Offerees whose subscriptions remain unsatisfied on an
equal number of shares basis per order until all orders have been
filled or the remaining shares have been allocated. If there are
any shares remaining after all subscriptions by Preferred
Offerees have been satisfied, such remaining shares shall be
<PAGE 52> allocated to other members of the general public who
purchase in the community offering applying the same allocation
described above for Preferred Offerees.
Syndicated Community Offering
To the extent that shares remain available for purchase
after satisfaction of all subscriptions in the subscription
offering and the community offering, JADE FINANCIAL and IGA
anticipate that they will offer shares pursuant to the plan of
conversion to members of the general public in a syndicated
community offering (i.e., an offering by JADE FINANCIAL and IGA
conducted through a syndicate of broker/dealers).
No persons, together with an associate or group of persons
acting in concert with such persons, may subscribe for or
purchase in the syndicated community offering more than $250,000
of common stock; provided, however, that this amount may be
increased to 5% of the total offering of shares in the
subscription offering, subject to any required regulatory
approval but without the further approval of IGA's members;
provided further that orders for common stock in the syndicated
community offering shall first be filled to a maximum of 2% of
the total number of shares of common stock sold in the conversion
and thereafter any remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been
filled.
The opportunity to subscribe for shares of common stock in
the syndicated community offering will be subject to the right of
JADE FINANCIAL and IGA, in their sole discretion, to accept or
reject any such orders in whole or in part from any person either
at the time of receipt of an order or as soon as practicable
following completion of the syndicated community offering. The
syndicated community offering, if any, will commence concurrently
with, during or promptly after the subscription and/or community
offering, and must be completed within 45 days after the
completion of the subscription offering, unless extended by JADE
FINANCIAL and IGA with any required regulatory approval.
Public Offering
As a final step in the offerings, the plan of conversion
provides that, if feasible, all shares of common stock not
purchased in the subscription and community offerings may be
offered for sale to the general public in a public offering
through Charles Webb & Company. We call this the public
offering. It is expected that the public offering will commence
as soon as practicable after termination of the subscription
offering and the community offerings, if any. JADE FINANCIAL and
IGA, in their sole discretion, have the right to reject orders in
whole or in part received in the public offering. Neither
Charles Webb & Company nor any registered broker-dealer shall
have any obligation to take or purchase any shares of common
stock in the public offering; however, Charles Webb & company has
<PAGE 53> agreed to use its best efforts in the sale of shares in
the public offering.
The price at which common stock is sold in the public
offering will be the same price at which shares are offered and
sold in the subscription and community offerings.
Charles Webb & Company may enter into agreements with
broker-dealers to assist in the sale of the shares in the public
offering, although no such agreements exist as of the date of
this prospectus. No orders may be placed or filled by or for a
selected dealer during the subscription offering. After the
close of the subscription offering, Charles Webb & Company will
instruct selected dealers as to the number of shares to be
allocated to each selected dealer. Only after the close of the
subscription offering and upon allocation of shares to selected
dealers may selected dealers take orders from their customers.
During the subscription offering, community offering, and
syndicated community offering, selected dealers may only solicit
indications of interest from their customers to place orders with
JADE FINANCIAL as of a certain order date for the purchase of
shares of JADE FINANCIAL common stock. When, and if, Charles
Webb & Company and IGA believe that enough indications of
interest and orders have not been received in the subscription
offering, community offering and syndicated community offering to
consummate the conversion, Charles Webb & Company will request,
as of the order date, selected dealers to submit orders to
purchase shares for which they have previously received
indications of interest from their customers. Selected dealers
will send confirmations of the orders to such customers on the
next business day after the order date. Selected dealers will
debit the accounts of their customers on the "Settlement Date"
which date will be three business days from the order 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 deposit funds to the account
established by IGA for each selected dealer. Each customer's
funds forwarded to IGA, along with all other accounts held in the
by the FDIC up to $100,000 in accordance with applicable FDIC
regulations. After payment has been received by IGA from
selected dealers, funds will earn interest at IGA's passbook rate
until the completion or termination of the conversion. Funds
will be promptly returned, with interest, in the event conversion
is not consummated as described above.
Persons Who are Not Permitted to Participate in the Offering
JADE FINANCIAL and IGA will make reasonable efforts to
comply with the securities laws of all states in the United
States in which persons entitled to subscribe for stock pursuant
to the plan of conversion reside. However, JADE FINANCIAL and
IGA 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: <PAGE 54>
- the number of persons otherwise eligible to subscribe
for shares under the plan of conversion who reside in
such jurisdiction is small;
- the granting of subscription rights or the offer or
sale of shares of common stock to such persons would
require any of JADE FINANCIAL and IGA or their
officers, directors or employees, under the laws of
such jurisdiction to register as a broker, dealer,
salesman or selling agent or to register or otherwise
qualify its securities for sale in such jurisdiction or
to qualify as a foreign corporation or file a consent
to service of process in such jurisdiction; and
- such registration, qualification or filing in the
judgment of JADE FINANCIAL and IGA would be
impracticable or unduly burdensome for reasons of cost
or otherwise.
Where the number of persons eligible to subscribe for shares in
one state is small, JADE FINANCIAL and IGA will base their
decision as to whether or not to offer the common stock in that
state on a number of factors, including but not limited to the
size of accounts held by account holders in the state, the cost
of registering or qualifying the shares or the need to register
their officers, directors or employees as brokers, dealers or
salesmen.
Limitations on Stock Purchases
The plan of conversion includes the following limitations on
the number of shares of JADE FINANCIAL common stock which may be
purchased in the offering:
(1) No fewer than 25 shares of common stock may be
purchased, to the extent shares are available;
(2) Except for the Tax-Qualified Employee Plans and certain
Eligible Account Holders and Supplemental Eligible
Account Holders whose subscription rights are based
upon the amount of their deposits, the maximum number
of shares of our common stock subscribed for or
purchased in all categories of the offering by any
person, together with associates of and groups of
persons acting in concert with such persons, shall not
exceed 2.5% of the common stock offered in the
offering; and
(3) No more than 22% of the total number of shares offered
for sale in the subscription offering may be purchased
by directors, officers and employees of IGA in the
fifth priority category in the subscription offering.
No more than 32% of the total number of shares offered
for sale in the offering may be purchased by directors
and officers of IGA and their associates in the
<PAGE 55> aggregate, excluding purchases by the Tax-
Qualified Employee Plans.
Subject to any required regulatory approval and the
requirements of applicable laws and regulations, but without
further approval of the members of IGA, the boards of directors
of JADE FINANCIAL and IGA may increase or decrease the individual
purchase limitations to a percentage which does not exceed 5% or
fall below .10% of the total offering of shares in the
subscription offering and increase the aggregate purchase
limitation to a percentage which does not exceed 5% of the total
shares offered in the conversion.
The term "associate" when used to indicate a relationship
with any person means:
- any corporation or organization (other than IGA, JADE
FINANCIAL or a majority-owned subsidiary of any of IGA)
of which such person is a director, 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 such person has a
substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary
capacity; provided, however, that Tax-Qualified or Non-
Tax Qualified Employee Plans of JADE FINANCIAL or IGA
in which such person has a substantial beneficial
interest or serves as trustee or in a similar fiduciary
capacity shall not be deemed to be an associate of such
person;
- 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 IGA, JADE FINANCIAL or
any subsidiary of IGA or JADE FINANCIAL; and
- any person acting in concert with any of the persons or
entities specified above;
The term "acting in concert" is defined to mean knowing
participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to
an express agreement, or 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 or company which acts in concert with another person or
company shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other
party, expect that the Tax-Qualified Employee Plans 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
each plan will be aggregated. The determination of whether a
<PAGE 56> group is acting in concert shall be made solely by the
board of directors of IGA or officers delegated by such board of
directors and may be based on any evidence upon which such board
or delegatee chooses to rely.
Marketing Arrangements
JADE FINANCIAL and IGA have retained Charles Webb & Company
to consult with and to advise IGA, and to assist JADE FINANCIAL,
on a best efforts basis, in the distribution of the shares of
common stock in the distribution of the shares of common stock in
the offering. The services that Charles Webb & Company will
provide include, but are not limited to:
- training the employees of IGA who will perform
certain ministerial functions in the offering
regarding the mechanics and regulatory
requirements of the stock offering process;
- managing the stock information centers by
assisting interested stock subscribers and by
keeping records of all stock orders;
- preparing marketing materials; and
- assisting in the solicitation of proxies from
IGA's members for use at the special meeting.
For its services, Charles Webb & Company has received a
management fee of $25,000 and will receive a success fee of 1.4%
of the aggregate purchase price of the shares of our common stock
sold in the offering, excluding shares purchased by the Tax-
Qualified Employee Plans, and officers, directors and employees
of IGA and members of their immediate families as well as shares
issued to the foundation. The success fee paid to Charles Webb &
Company will be reduced by the amount of the management fee. In
the event that selected dealers are used to assist in the sale of
shares of our common stock in the offering, these dealers will be
paid a fee of up to _________% of the total purchase price of the
shares sold by such dealers. IGA has agreed to indemnify Charles
Webb & Company against certain claims or liabilities, including
certain liabilities under the Securities Act of 1933, as amended,
and will contribute to payments Charles Webb & Company may be
required to make in connection with any such claims or
liabilities.
Sales of shares of our common stock will be made by
registered representatives affiliated with Charles Webb & Company
or by the broker-dealers managed by Charles Webb & Company.
Charles Webb & Company has undertaken that the shares of our
common stock will be sold in a manner which will ensure that the
distribution standards of the Nasdaq Stock Market will be met. A
stock information center will be established at the main office
of IGA in Feasterville, Pennsylvania. We will rely on Rule 3a4-1
of the Securities Exchange Act of 1934, as amended, and sales of
<PAGE 57> our common stock will be conducted within the
requirements of this Rule, so as to permit officers, directors
and employees to participate in the sale of our common stock in
those states where the law permits. No officer, director or
employee of IGA or JADE FINANCIAL 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 Offering
To ensure that each purchaser receives a prospectus at least
48 hours before the Subscription Expiration Date (unless
extended) in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended, no prospectus will be mailed
any later than five days prior to such date or hand delivered any
later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order forms will only be distribution with a
prospectus.
To purchase shares in the Subscription Offering, an executed
order form with the required payment for each share subscribed
for, or with appropriate authorization for withdrawal from a
deposit account at IGA, which may be given by completing the
appropriate blanks in the order form, must be received by IGA by
noon, Philadelphia, Pennsylvania time, on or before the
Subscription Expiration Date, unless extended. In addition, JADE
FINANCIAL and IGA will require a prospective purchaser to execute
a certification in the form required by applicable Office of
Thrift Supervision regulations in connection with any sale of
common stock. Order forms which are not received by this time or
are executed defectively or ar received without full payment or
appropriate withdrawal instructions are not required to be
accepted. In addition, IGA will not accept orders submitted on
photocopied or facsimilied order forms nor order forms
unaccompanied by an executed certification form. IGA has the
right to waive or permit the correction of incomplete or
improperly executed forms, but does not represent that it will do
so. Once received, an executed order form may not be modified,
amended or rescinded without the consent of IGA, unless the
conversion has not been completed within 45 days after the end of
the subscription offering, or this period has been extended.
In order to ensure that Eligible Account Holders, Tax-
Qualified Employee Plans, Supplemental Eligible Account Holders
and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the
Eligibility Record Date (March 31, 1998) or the Supplemental
Eligibility Record Date (June 30, 1999) and depositors and
certain borrowers as of the close of business on the voting
record date (__________________, 1999) must list all accounts on
the stock order form giving all names in each account and the
account numbers.
<PAGE 58>
Payment for subscriptions may be made:
- by check or money order;
- by authorization of withdrawal from deposit
accounts maintained with IGA (including a
certificate of deposit); or
- in cash, if delivered in person at any full-
service banking office of IGA, although we request
that you exchange cash for a check with any of our
tellers.
IGA, in its sole discretion, may also elect to receive payments
by wire transfer. Interest will be paid on payments made by
cash, check or money order at our then-current passbook yield
from the date payment is received until completion of the
offering. 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 rate, but may not be used by the subscriber until all
of our common stock has been sold or the plan of conversion is
terminated, whichever is earlier.
If a subscriber authorizes IGA to withdraw the amount of the
purchase price from his deposit account, IGA will do so as of the
effective date of the conversion. IGA will waive any applicable
penalties for early withdrawal from certificate accounts.
In the event of an unfilled amount of any subscription
order, IGA will make an appropriate refund or cancel an
appropriate portion of the related withdrawal authorization,
after completion of the offering. If for any reason the offering
is not consummated, purchasers will have refunded to them all
payments made, with interest, and all withdrawal authorizations
will be canceled in the case of subscription payments authorized
from accounts at IGA.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified
Employee Plans subscribe for shares during the subscription
offering, these plans will not be required to pay for the shares
subscribed for at the time they subscribe, but rather, may pay
for shares of common stock subscribed for at the purchase price
upon completion of the subscription offering, community offering
and syndicated community offering, if all shares are sold, or
upon completion of the public offering if shares remain to be
sold in such offering. In the event that, after the completion
of the subscription offering the amount of shares to be issued is
increased above the maximum of the estimated valuation range
included in this prospectus, the Tax-Qualified Employee and Non-
Tax-Qualified Employee Plans will be entitled to increase their
subscriptions by a percentage increase in the amount of shares to
be issued above the maximum of the estimated valuation range
provided that such subscription will continue to be subject to
applicable purchase limits and stock allocation procedures.
<PAGE 59>
Owners of self-directed IRAs may use the assets of such IRAs
to purchase shares of our common stock in the subscription
offering, community offering and syndicated community offering.
ERISA provisions and IRS regulations require that officers,
directors and 10% shareholders who use self-directed IRA funds to
purchase shares of common stock in the offering make such
purchases for the exclusive benefit of the IRAs. IRAs maintained
at IGA are not self-directed IRAs and any interested parties
wishing to use IRA funds for stock purchases are advised to
contact the stock information center at (_________) for
additional information.
The records of IGA will be deemed to control with respect to
all matters related to the existence of subscription rights
and/or one's ability to purchase shares of common stock in the
subscription offering.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the Office of
Thrift Supervision, no person with subscription rights may
transfer or enter into any agreement or understanding to transfer
the legal or beneficial ownership of the subscription rights
issued under the plan of conversion or the shares of common stock
to be issued upon their exercise. Such rights may be exercised
only by the person to whom they are granted and only for such
person's account. Each person exercising such subscription
rights will be required to certify that the person is purchase
shares solely for the person's own account and that such person
has no agreement or understanding regarding the sale or transfer
of such shares. Federal regulations also prohibit any person
from offering or making an announcement of an offer or intent to
make an offer to purchase such subscription rights or shares of
common stock prior to the completion of the conversion.
IGA will refer to the Office of Thrift Supervision any
situations that it believes may involve a transfer of
subscription rights and will not honor orders believed by it to
involve the transfer of such rights.
Delivery of Certificates
Certificates representing common stock issued in the
offering will be mailed by our transfer agent to the persons
entitled thereto at the addresses of such persons appearing on
the stock order form as soon as practicable following completion
of the conversion. Any certificates claimed by persons legally
entitled to them or otherwise disposed of in accordance with
applicable law. Until certificates for common stock are
available and delivered to subscribers, they may not be able to
sell the shares of common stock for which they have subscribed,
even though trading of the common stock may have commenced.
<PAGE 60>
Required Approvals
Various approvals of the Office of Thrift Supervision are
required in order to consummate the conversion. The Office of
Thrift Supervision has approved the plan of conversion, subject
to approval by IGA's members and other standard conditions. JADE
FINANCIAL's holding company application is currently pending with
the Office of Thrift Supervision.
We are required to make certain filings with state
securities regulatory authorities in connection with the issuance
of our common stock in the offering.
Judicial Review
Any person hurt by a final action of the Office of Thrift
Supervision which approves, with or without conditions, or
disapproves a plan of conversion may obtain review of this action
by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of the person
is located, or in the United States Court of Appeals for the
District of Columbia, a written petition asking that the final
action of the Office of Thrift Supervision be modified,
terminated or set aside. This petition must be filed within
30 days after the publication of notice of 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.
Section 563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is promptly
transmitted to the Office of Thrift Supervision by the clerk of
the court and then 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 these 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 Supreme Court upon certiorari as provided in
Section 1254 of Title 28 of the United States Code.
Restrictions on Purchase or Transfer of Shares After the
Conversion
Common stock received in the conversion by persons who are
not "affiliates" of JADE FINANCIAL may be resold without
registration.
Shares received by affiliates of JADE FINANCIAL (primarily
the directors, officers and principal shareholders of JADE
FINANCIAL) will be subject to the resale restrictions of Rule 144
<PAGE 61> under the Securities Act of 1933, as amended. Rule 144
generally requires that there be publicly available certain
information concerning JADE FINANCIAL, and that sales thereunder
be made in routine brokerage transactions or through a market
maker. If the conditions of Rule 144 are satisfied, each
affiliate (or group of persons acting in concert with one or more
affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which
does not exceed the greater of (i) 1% of the number of
outstanding shares of common stock, or (ii) if the stock is
admitted to trading on a national securities exchange or reported
through the automated quotation system of a registered securities
bank, the average weekly reported volume of trading during the
four weeks preceding the sale.
In addition, all shares of common stock purchased in
connection with the conversion by a director or an executive
officer of JADE FINANCIAL and IGA will be subject to a
restriction that the shares not be sold for a period of one year
following the conversion except in the event of the death of the
director or officer or pursuant to a merger of similar
transaction approved by the Office of Thrift Supervision. Each
certificate for restricted shares will bear a legend giving
notice of this restriction on transfer, and instructions will be
issued to the effect that any transfer within such time period of
any certificate or record ownership of the shares other than as
provided above is a violation of the restriction. Any shares of
common stock issued at a later date within this one year period
as a stock dividend, stock split or otherwise with respect to the
restricted stock will be subject to the same restrictions.
Purchases of our common stock of JADE FINANCIAL by
directors, executive officers and their associates during the
three-year period following completion of the conversion may be
made only through a broker or dealer registered with the SEC,
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 our outstanding
common stock or to certain purchases of stock pursuant to an
employee stock benefit plan.
Pursuant to Office of Thrift Supervision regulations, JADE
FINANCIAL will generally be prohibited from repurchasing any
shares of the common stock for a period of three years following
the conversion other than pursuant to (a) an offer to all
shareholders on a pro rata basis which is approved by the Office
of Thrift Supervision or (b) the repurchase of qualifying shares
of a director, if any.
The above limitations are subject to Office of Thrift
Supervision policies which generally provide that JADE FINANCIAL
may repurchase its capital stock provided:
- no repurchases occur within the first six months
following the conversion; <PAGE 62>
- repurchases during the second six months following
the conversion do not exceed 5% of its outstanding
capital stock (subject to certain exceptions) and
repurchases prior to the third anniversary of the
conversion do not exceed 25% of its outstanding
capital stock;
- repurchases prior to the third anniversary of the
conversion are part of an open-market stock
repurchase program;
- if the repurchases do not cause IGA to become
undercapitalized; and
- IGA provides to the Regional Director of the
Office of Thrift Supervision no later than 10 days
prior to the commencement of a repurchase program
written notice containing a full description of
the program to be undertaken and such program is
not disapproved by the Regional Director.
The Office of Thrift Supervision may permit stock repurchases in
excess of such amounts prior to the third anniversary of the
conversion if exceptional circumstances are shown to exist.
Risk of Delay in Completion of the Offering
The completion of the sale of all unsubscribed shares of
common stock in the offering will be dependent, in part, upon
IGA's operating results and market conditions at the time of the
offering. Under the plan of conversion, all shares of common
stock offered in the conversion must be sold within a period
ending 24 months from the date of the special meeting. While
JADE FINANCIAL and IGA anticipate completing the sale of shares
offered in the conversion within this period, if JADE FINANCIAL
and IGA's Boards of Directors are of the opinion that economic
conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the common stock,
then the offering may be delayed until such conditions improve.
If the offering is extended beyond __________________, 1999, all
subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with
interest. There can be no assurance that the offering will not
be extended as set forth above.
A material delay in the completion of the sale of all
unsubscribed shares in the offering or otherwise may result in a
significant increase in the costs of completing the conversion.
Significant changes in our operations and financial condition,
the aggregate market value of the shares to be issued in the
conversion and general market conditions may occur during such
material delay. In the event the conversion is not consummated
within 24 months after the date of the special meeting, IGA would
charge accrued conversion costs to then current period
operations. <PAGE 63>
Approval, Interpretation, Amendment and Termination
All interpretations of the plan of conversion, as well as
the completeness and validity of order forms and stock order and
account withdrawal authorizations, will be made by JADE FINANCIAL
and IGA and will be final, subject to the authority of the Office
of Thrift Supervision and the requirements of applicable law.
The plan of conversion provides that, if deemed necessary or
desirable by the Boards of Directors of IGA and JADE FINANCIAL,
the plan of conversion may be substantively amended by the Boards
of Directors of IGA and JADE FINANCIAL, as a result of comments
from regulatory authorities or otherwise, at any time with the
concurrence of the Office of Thrift Supervision. In the event
the plan of conversion is substantially amended, other than a
change in the maximum purchase limits set forth herein, we intend
to notify subscribers of the change and to refund subscription
funds with interest unless subscribers affirmatively elect to
increase, decrease or maintain their subscriptions. The plan of
conversion will terminate if the sale of all shares is not
completed within 24 months after the date of the special meeting.
The plan of conversion may be terminated by IGA's Board of
Directors at any time prior to the special meeting, and at any
time following such special meeting with the concurrence of the
Office of Thrift Supervision.
PROPOSED PURCHASES BY MANAGEMENT
The following table sets forth, for each of IGA's directors
and for all of the directors and senior officers as a group, the
proposed purchases of common stock, assuming sufficient shares
are available to satisfy their subscriptions. The amounts
include shares that may be purchased through individual
retirement accounts and by associates.
<PAGE 64>
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated of the Estimated
Offering Range Offering Range
As a Percent As a Percent
Number of of Shares of Shares
Name Amount Shares Offered Offered
<S> <C> <C> <C> <C>
Robert E. Adelsberger $ 50,000 5,000 0.41% 0.30%
Dorothy M. Bourlier 100,000 10,000 0.81 0.60
Thomas P. Calabrese 20,000 2,000 0.16 0.12
William L. Harm 100,000 10,000 0.81 0.60
Mario L. Incollingo, Jr. 200,000 20,000 1.62 1.20
Edward D. McBride 80,000 8,000 0.65 0.48
Francis J. Moran 75,000 7,500 0.61 0.45
John J. O'Connell 300,000 30,000 2.43 1.80
Clyde A. Warden 300,000 30,000 2.43 1.80
Dennis P. Wesley 100,000 10,000 0.81 0.60
All directors and
senior officers as
a group (10 persons) $1,325,000 132,500 10.75% 7.95%
</TABLE>
___________________
<PAGE 65>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IGA
General
JADE FINANCIAL has only recently been formed and,
accordingly, has no results of operations. As a result, this
discussion relates to IGA. We are primarily engaged in the
business of attracting deposits from the general public and
originating consumer loans, including home equity, auto, credit
card and personal loans, and residential real estate loans
secured by first mortgages on owner-occupied, one- to four-family
residences in our market area. IGA originates a limited amount
of commercial loans. IGA also invests in investment and mortgage
related securities.
Our net income is dependent primarily on our net interest
income, which is the difference between interest earned on loans
and investments and the interest paid on our deposits and
borrowings. IGA's interest rate spread is also affected by
regulatory, economic and competitive factors that influence
interest rates, loan demand and deposit flows. Our net income is
also affected by the generation of non-interest income, which
primarily consists of fees and service charges. In addition, net
income is affected by the level of operating expenses and
provisions for loan losses.
The operations of financial institutions, including IGA, are
significantly affected by prevailing economic conditions,
competition and regulatory policies, and the monetary and fiscal
policies of the U.S. Government. Lending activities are
influenced by the demand for, and supply of housing, competition
among lenders, the level of interest rates and the availability
of funds. Deposit flows and costs of funds are influenced by
prevailing market rates of interest primarily on competing
investments, account maturities and the levels of personal income
and savings in our market area.
This analysis of our financial condition and results of
operations should be read in conjunction with the consolidated
financial statements and the other financial data found elsewhere
in this Prospectus. Prior to June 30, 1998, IGA's fiscal year
ended on June 30. After the fiscal year ended June 30, 1998, IGA
changed its fiscal year to end on December 31. Therefore, the
discussion covers IGA's financial condition and results of
operation for the three month periods ended March 31, 1999 and
1998, the six month transition period ended December 31, 1998,
and the six month comparative period ended December 31, 1997 as
well as each of its fiscal years in the three-year period ended
June 30, 1998.
<PAGE 66>
Business Strategy
Our strategy is to be an independent, consumer oriented
financial institution that provides retail loan and deposit
products to individuals and small businesses. Highlights of this
strategy include the following:
-- Consumer Lending - Historically we have concentrated on
the origination of consumer loans as our primary loan
product, including home equity, automobile, credit card
and personal loans. At March 31, 1999, consumer loans
totalled $62.81 million, or 59.01% of our loan
portfolio.
-- Home Mortgage Lending - In recent years, residential
first mortgage loans have become an increasingly
important component of our lending activities. We
expect this trend to continue. At March 31, 1999,
residential first mortgage loans totalled $40.74
million, or 38.28% of our loan portfolio.
-- Commercial Real Estate and Commercial Business Loans -
We plan to selectively increase our commercial real
estate and commercial business lending with a focus on
small and medium-sized borrowers. We have hired an
experienced commercial lender to manage our expansion
in this area. We believe a cautious and prudent
expansion in these areas will diversify our loan
portfolio and increase the average yield of our
interest earning assets. At March 31, 1999, we had
$2.1 million in commercial real estate loans and
$760,000 in commercial business loans.
-- Expanded Customer Base - Prior to June 30, 1998, under
our federal credit union charter, we were limited in
the customers that we could service. The cornerstone
of our strategy as a saving bank is to maintain our
base of customers who were credit union members and
expand our customer base by marketing to the
communities served by our branches. We believe we have
maintained our original customer base. In addition,
since June 30, 1998 we have entered into more than
1,901 loan or deposit relationships.
Comparison of Results of Operations for the Three Months Ended
March 31, 1999 and March 31, 1998.
The table that follows is called an average balance sheet.
This table provides an analysis of our net interest income for
the three-month periods ended March 31, 1999 and March 31, 1998
setting forth:
- our average assets, liabilities, and equity,
<PAGE 67>
- our interest income earned on interest-earning assets
and interest expense paid on interest-bearing
liabilities,
- our average yields earned on interest-earning assets
and average rates paid on interest-bearing liabilities,
- our interest rate spread (the difference between the
average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities), and
- our net interest margin assets (net interest income as
a percentage of average total interest earning assets).
For purposes of this table, loan balances include non-
accrual loans and interest income on loans includes
loan fees or amortization of such fees which have been
deferred as well as interest recorded on non-accrual
loans as cash is received once the principal has been
fully paid.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $105,990 $ 2,154 8.13% $ 97,150 $ 2,137 8.80%
Investments 57,002 788 5.53% 53,719(2) 684 5.09%
Total earning assets 162,992 2,942 7.20% 150,869 2,821 7.48%
Non-interest earning assets 10,366 5,496
Total assets $173,358 $156,365
======== ========
Interest-bearing liabilities:
Savings deposits $ 70,861 $ 377 2.13% $ 66,426 $ 432 2.60%
NOW accounts 10,167 0 0.00% 8,894 0 0.00%
Money market accounts 10,144 77 3.04% 8,470 80 3.78%
Certificates of deposit 65,899 871 5.29% 56,685 798 5.63%
Total interest-bearing
liabilities 157,071 1,325 3.36% 140,475 1,310 3.72%
Non-interest bearing
liabilities 1,043 651
Total liabilities 158,114 141,126
Equity 15,244 15,239
Total liabilities and
equity $173,358 $156,365
======== ========
Net interest-earning assets $ 5,921 $ 10,394
======== ========
Net interest spread(3) $ 1,617 3.84% $ 1,511 3.76%
======= ==== ======= ====
Net interest margin(4) 3.97% 4.01%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 103.77% 107.40%
======== ========
</TABLE>
<PAGE 68>
(1) Average loan balances include non-accrual loans and loans
held for resale.
(2) Includes interest-earning deposits with the National Credit
Union Administration Share Insurance Fund.
(3) Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Represents net interest earnings divided by average
interest-earning assets.
Net Income.
Our net income for the three months ended March 31, 1999,
was $130,000, an increase of 251.35% over the $37,000 we earned
for the three months ended March 31, 1998. The increase resulted
from higher interest and noninterest income in the three months
ended March 31, 1999 and a higher provision for possible loan
losses in the three months ended March 31, 1998. These changes
were partially offset by higher noninterest expense in the three
months ended March 31, 1999 compared to the same period in 1998.
Net Interest Income.
Net interest income for the three months ended March 31,
1999 was $1.62 million as compared to $1.51 million for the three
months ended March 31, 1998. This increase of $106,000, or
7.02%, resulted from an increase in the average balance of
interest earning assets as well as an increase in the difference
between the rate we earned on our interest earning assets and the
rate we paid on interest bearing liabilities.
Interest income increased to $2.94 million for the three
months ended March 31, 1999, from $2.82 million for the three
months ended March 31, 1998. This increase of $121,000, or
4.29%, resulted from an increase in average interest earning
assets of $12.12 million, or 8.03%, to $162.99 million for the
three month period ended March 31, 1999 from $150.87 million for
the same period in 1998. This increase in average
interest-earned assets is a direct result of our ability to serve
additional customers under our savings bank charter. This
increase was partially offset by a decrease of 28 basis points in
the average yield on interest earnings assets to 7.20% in the
1999 period from 7.48% in the comparable 1998 period due to
decreasing interest rates in 1998. The yield on average net
loans, decreased to 8.13% for the three-month period ended
March 31, 1999 from 8.80% for the comparable 1998 period but the
balance of average loans increased $8.84 million, or 9.10%, over
the same comparable periods. Interest income from investment
securities increased $103,000 in the three months ended March 32,
1999 compared to the same period in 1998. This increase resulted
from a 44 basis point increase in the average yield earned on
investment securities from 5.09% in 1998 to 5.53% in 1999 and an
<PAGE 69> increase in the average balance of investment
securities of $3.28 million, or 6.11%, from $53.72 million in
1998 to $57.00 million in 1999.
For the three months ended March 31, 1999, interest expense
increased $16,000, or 1.53%, to $1.33 million compared to
$1.31 million for the three months ended March 31, 1998. The
small increase in interest expense between the comparable three-
month periods in 1999 and 1998 was due to an increase of
$16.59 million, or 11.81%, in the average balance of deposits
from $140.48 million in 1998 to $157.07 million in 1999 which was
almost completely offset by a 36 basis point decline in the
average rate paid on deposits from 3.72% in 1998 to 3.36% in
1999.
Provision for Possible Loan Losses.
The provision for possible loan losses decreased from
$376,000 for the three months ended March 31, 1998 to $135,000
for the three months ended March 31, 1999. The decrease in
provision for possible loan losses represents a return to a more
normalized amount in 1999 compared to 1998 when the provision was
uncharacteristically high. The high provision in 1998 conformed
our allowance for loan losses policy to the more stringent
practices of other savings institutions compared to those of
credit unions. See "Description of IGA -- Allowance and
Provision for Possible Loan Losses" for a discussion of how
management determines the provision for possible loan losses.
Noninterest Income.
Noninterest income was $224,000 for the three months ended
March 31, 1999 compared to $102,000 for the three months ended
March 31, 1998. This 119.61% increase resulted primarily from an
increase in service charges and ATM interchange income from
higher ATM usage.
Noninterest Expense.
Total noninterest expense increased $320,000, or 26.67%, to
$1.52 million for the three months ended March 31, 1999 from
$1.20 million for the three months ended March 31, 1998. This
increase was primarily attributable to increased compensation and
employee benefits expenses of $92,000 associated with normal
salary and benefit increases and an increased lending staff, and
an increase in bank and ATM charges of $161,000 due to increased
usage. We expect noninterest expense to increase in future
periods because of increased staffing need as we continue to
expand our lending and credit administration staff, and costs
associated with our status as a public company.
<PAGE 70>
Income Taxes.
Prior to July 1, 1998, IGA was a tax-exempt entity.
Therefore no income taxes were paid for the three months ended
March 31, 1998. For the three months ended March 31, 1999, we
accrued income tax expense of $58,000.
Comparison of Results of Operations for the Six Months Ended
December 31, 1998 and December 31, 1997.
The following table is our average balance sheet for the
six-month periods ended December 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $100,915 $ 4,275 8.47% $ 99,837 $ 4,511 9.04%
Investments 54,501 1,514 5.56% 51,725(2) 1,369 5.29%
Total earning assets 155,416 5,789 7.44% 151,562 5,880 7.76%
Non-interest earning assets 10,026 6,001
Total assets $165,442 $157,563
======== ========
Interest-bearing liabilities:
Savings deposits $ 68,852 $ 8342 2.42% $ 71,405 $ 1,090 3.05%
NOW accounts 9,277 0 0.00% 8,462 0 0.00%
Money market accounts 9,038 160 3.54% 8,138 157 3.86%
Certificates of deposit 62,082 1,767 5.69% 54,119 1,558 5.76%
Total interest-bearing
liabilities 149,249 2,761 3.70% 142,124 2,805 3.94%
Non-interest bearing
liabilities 799 467
Total liabilities 150,048 142,591
Equity 15,394 14,972
Total liabilities and
equity $165,442 $157,563
======== ========
Net interest-earning assets $ 6,167 $ 9,438
======== ========
Net interest spread(3) $ 3,028 3.74% $ 3,075 3.82%
======= ==== ======= ====
Net interest margin(4) 3.90% 4.06%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 104.13% 106.64%
======== ========
</TABLE>
(1) Average loan balances include non-accrual loans and loans
held for resale.
(2) Includes interest-earning deposits with the National Credit
Union Administration Share Insurance Fund.
<PAGE 71>
(3) Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Represents net interest earnings divided by average
interest-earning assets.
Net Income.
Our net income for the six months ended December 31, 1998,
was $266,000, a decrease of 53.33% from the $570,000 we earned
for the six months ended December 31, 1997. The decrease
resulted principally from one-time expenses associated with our
charter conversion and the fact that the six-month period ended
December 31, 1997 did not contain any provision for income taxes
because, as a credit union, IGA was exempt from income tax.
Net Interest Income.
Net interest income for the six months ended December 31,
1998 was $3.03 million as compared to $3.08 million for the six
months ended December 31, 1997. This negligible decrease of
$50,000 resulted from an increase in average interest-earning
assets that was more than offset by a 16 basis point decrease in
the net interest margin.
Interest income decreased to $5.79 million for the six
months ended December 31, 1998 from $5.88 million for the six
months ended December 31, 1997. This decrease of $91,000, or
1.53%, resulted from a decline of thirty-two basis points in the
average yield on interest earning assets to 7.44% in the six
months ended December 31, 1998 from 7.76% for the same period in
1997 due to declining interest rates in 1998. This decline was
partially offset by an increase in average interest earning
assets of $7.88 million, or 5.00%, to $165.44 million in the six
months ended December 31, 1998 from $157.56 million for the same
period in 1997. The yield on average net loans decreased to
8.47% in the 1998 period from 9.04% in the comparable 1997 period
and the balance of average loans increased $1.08 million or 9.04%
over the same comparable periods. Interest income from
investment securities increased $145,000, or 10.59%, from
$1.37 million in the six months ended December 31, 1997 to
$1.51 million in for the same period 1998. This increase
resulted from a 27 basis point increase in the average yield
earned on investment securities from 5.29% to 5.56% and an
increase in the average balance of investment securities of
$2.78 million, or 5.37%, from $51.72 million in the 1997 period
to $54.50 million in the 1998 period.
For the six months ended December 31, 1998, interest expense
decreased $44,000, or 1.57%, to $2.76 million compared to
$2.81 million for the six months ended December 31, 1997. The
decrease in interest expense between 1998 and 1997 was due
entirely to a decrease in the average rate paid on deposits which
declined to 3.70% in 1998 from 3.94% in 1997 while the average
<PAGE 72> balance of deposits increased $7.13 million, or 5.01%,
to $149.25 million in the 1998 period compared to $142.12 million
in the 1997 period.
Provision for Possible Loan Losses.
The provision for possible loan losses decreased from
$397,000 for the six months ended December 31, 1997 to $300,000
for the six months ended December 31, 1998. The decrease in
provision for possible loan losses occurred primarily because the
provision was larger than usual in 1997.
Noninterest Income.
Noninterest income was $804,000 for the six months ended
December 31, 1998 compared to $223,000 for the six months ended
December 31, 1997. This $581,000, or 261%, increase resulted
primarily from a $200,000 increase in loan fees in 1998 compared
to 1997 and a $172,000 increase in securities gains.
Noninterest Expense.
Total noninterest expense increased $790,000 to
$3.12 million for the six months ended December 31, 1998 from
$2.33 million for the six months ended December 31, 1997. This
increase was primarily attributable to one-time expenses
associated with our charter conversion.
Income Taxes.
Prior to July 1, 1998 IGA was a tax-exempt entity.
Therefore no income taxes were paid for the six months ended
December 31, 1997. For the six months ended December 31, 1998,
IGA accrued income tax expense of $146,000.
Comparison of Results of Operations for the Fiscal Years Ended
June 30, 1998 and 1997.
The following table is our average balance sheet for the
years ended June 30, 1998, June 30, 1997 and June 30, 1996.
<PAGE 73>
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 99,342 $ 8,734 8.79% $ 99,634 $ 8,651 8.68%
Investments(2) 53,456 2,742 5.13% 55,749 3,009 5.40%
Total earning assets 152,798 11,476 7.51% 155,383 11,660 7.50%
Non-interest earning assets 5,007 5,391
Total assets $157,805 $160,774
======== ========
Interest-bearing liabilities:
Savings deposits $ 63,361 $ 1,682 2.65% $ 62,097 $ 1,640 2.64%
NOW accounts 8,661 0 0.00% 8,585 0 0.00%
Money market accounts 8,298 316 3.81% 8,316 300 3.61%
Certificates of deposit 61,713 3,477 5.63% 67,354 3,715 5.52%
Total interest-bearing
liabilities 142,033 5,475 3.85% 146,352 5,655 3.86%
Non-interest bearing
liabilities 1,109 840
Total liabilities 143,142 147,192
Equity 14,663 13,582
Total liabilities and
equity $157,805 $160,774
======== ========
Net interest-earning assets $ 10,765 $ 9,031
======== ========
Net interest spread(3) $ 6,001 3.66% $ 6,005 3.64%
======= ==== ======= ====
Net interest margin(4) 3.93% 3.86%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 107.58% 106.17%
======== ========
</TABLE>
(1) Average loan balances include non-accrual loans and loans
held for resale.
(2) Includes interest-earning deposits with the National Credit
Union Administration Share Insurance Fund.
(3) Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Represents net interest earnings divided by average
interest-earning assets.
Net interest income is affected by the volume of interest-
earning assets and the yield from interest-earning assets and by
the volume of interest-bearing liabilities and the rates paid on
interest-bearing liabilities. The following table presents the
dollar amount of changes in income and expense attributable to
changes in volume and the dollar amount attributable to changes
in rate.
<PAGE 74>
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended December 31, Year Ended June 30,
1999 vs. 1998 1998 vs. 1997 1998 vs. 1997
Increase (decrease) due to Total Increase (decrease) due to Total Increase (decrease) due to Total
Rate/ Increase Rate/ Increase Rate/ Increase
Rate Volume Volume (Decrease) Rate Volume Volume (Decrease) Rate Volume Volume (Decrease)
(In Thousands) (In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $(534) $763 $(184) $ 45 $(563) $ 97 $230 $(236) $ 218 $ (26) $ 0 $ 192
Investments(2) 230 168 (295) 103 136 147 (138) 145 (148) (124) 6 (266)
Total earning assets (304) 931 (479) 148 (427) 244 92 (91) 70 (150) 6 (74)
Interest-bearing liabilities:
Savings deposits (311) 115 142 (54) (450) (78) 272 (256) 8 33 1 42
NOW accounts 0 0 0 0 0 0 0 0 0 0 0 0
Money market accounts (63) 63 (3) (3) (26) 35 (6) 3 17 (1) 0 16
Certificates of deposit (195) 519 (251) 73 (35) 458 (214) 209 80 (311) (7) (238)
Total interest-bearing
liabilities (569) 697 (312) 16 $(511) 415 52 $ (44) 105 (279) (6) (180)
Change In
net interest income $265 $234 $(367) $132 $ 84 $(171) $ 40 $ (47) $ (35) $ 129 $ 12 $ 106
==== ==== ====== ==== ===== ===== ===== ====== ===== ===== ===== =====
</TABLE>
(1) Includes non-accrual loans and loans held for resale.
(2) Includes interest-earning deposits and investment and
mortgage-backed securities.
Net Income.
Our net income for the year ended June 30, 1998, was
$663,000, a decrease of 35.63% from the $1.03 million we earned
for the year ended June 30, 1997. The decrease resulted from
flat net interest income, a higher provision for possible loan
losses and higher noninterest expense in 1998 compared to 1997
that was only partially offset by higher noninterest income.
Prospective investors should be aware that our net income for
these periods do not contain any provision for income taxes
because, as a credit union, IGA was exempt from income tax.
Accordingly, on a tax-adjusted basis, net income would have been
materially less.
Net Interest Income.
Net interest income for the fiscal year ended June 30, 1998
was $6.00 million as compared to $6.01 million for the fiscal
year ended June 30, 1997.
Interest income decreased to $11.48 million for the fiscal
year ended June 30, 1998 from $11.66 million for the fiscal year
ended June 30, 1997. This decrease of $184,000, or 1.58%,
resulted from a decline in average interest earning assets of
$2.58 million, or 1.66%, to $152.80 million in 1998 from
$155.38 million in 1997 and is evidence of our inability to grow
under our credit union charter because of stagnant membership
growth. This decline was partially offset by an increase of one
basis point in the average yield on interest earning assets to
<PAGE 75> 7.51% in 1998 from 7.50% in 1997. The yield on average
net loans, increased to 8.79% in 1998 from 8.68% in 1997 and the
balance of average loans decreased $292,000 or 0.29% over the
same period. Interest income from investment securities
decreased $270,000, or 8.97% from $3.01 million in 1997 to
$2.74 million in 1998. This decrease resulted from a 27 basis
point decrease in the average yield earned on investment
securities from 5.40% in 1997 to 5.13% in 1998 and a decrease in
the average balance of investment securities of $2.29 million, or
4.11%, from $55.75 million in 1997 to $53.46 million in 1998.
For the fiscal year ended June 30 1998, interest expense
decreased $180,000, or 3.18%, to $5.48 million compared to
$5.66 million for the fiscal year ended June 30, 1997. The
decrease in interest expense between 1998 and 1997 was due almost
entirely to a decrease of $4.32 million, or 2.95%, in the average
balance of deposits from $146.35 million in 1997 to $142.03
million in 1998 while the average rate paid on deposits declined
to 3.85% in 1998 from 3.86% in 1997.
Provision for Possible Loan Losses.
The provision for possible loan losses increased from
$847,000 for the fiscal year ended June 30, 1997 to $1.04 million
for the fiscal year ended June 30, 1998. The increase in
provision for possible loan losses occurred primarily to conform
the policies for establishing IGA's allowance for loan losses to
the more stringent practices of other savings institutions
compared to those of credit unions. The provision in 1997 also
was historically high and reflected a restoration of the
allowance after 1996 charge-offs related to an increase in
personal bankruptcies of members. These occurred after a
significant reduction in force by PECO and the resulting charge-
off of unsecured personal loans. [Based on the current level of
loan delinquencies, the state of the economy, and our tightening
of underwriting criteria for unsecured personal loans, management
believes the provision for possible loan losses will decline
materially in 1999, although no assurance can be given that this
will occur.] See "Description of IGA -- Allowance and Provision
for Possible Loan Losses" for a discussion of how management
determines the provision for possible loan losses.
Noninterest Income.
Noninterest income was $958,000 for the fiscal year ended
June 30, 1998 compared to $851,000 for the fiscal year ended
June 30, 1997. This 12.57% increase resulted primarily from an
increase in ATM interchange income over the same period.
Noninterest Expense.
Total noninterest expense increased $280,000 to
$5.26 million for the fiscal year ended June 30, 1998 from
$4.98 million for the fiscal year ended June 30, 1997. This
increase was primarily attributable to increased compensation and
<PAGE 76> employee benefits expenses of $99,000 associated with
normal salary and benefit increases and an increased lending
staff, an increase in bank and ATM charges of $131,000 due to
higher utilization. Management expects noninterest expense to
increase in future periods because of increased staffing needs,
including the chairman becoming a full time employee, and costs
associated with the Company's status as a public company.
Income Taxes.
Prior to July 1, 1998 IGA was a tax-exempt entity, therefore
no income taxes were paid in prior periods. However, IGA
estimates that if we had been taxable for the fiscal years ended
June 30, 1998 and 1997, we would have paid state and federal
income taxes of $279,000 and $586,000, respectively, resulting in
net income after taxes of approximately $384,000 and $440,000,
respectively.
Financial Condition
March 31, 1999 Compared to December 31, 1998
Our total assets increased 3.73% from $171.09 million at
December 31, 1998 to $177.47 million at March 31, 1999. During
the same period, net loans increased by 2.35% from
$102.90 million to $105.32 million while investment and mortgage
backed securities increased by 8.39% from $45.54 million to
$49.36 million. This increase in securities represents a
continuation of our policy, started in 1997, to initially
decrease and then maintain the amount of funds we hold in
interest bearing deposits at other banks to an amount we believe
sufficient to meet our liquidity needs. We redeployed those
funds and new funds received into higher yielding investment and
mortgage-backed securities.
Cash and cash equivalents, which include cash due from
banks, interest-bearing deposits in other financial institutions,
and federal funds sold, are all liquid funds. In a reflection of
our decision to deploy new funds into higher-yielding assets and
maintain short-term investments principally for liquidity
purposes, the aggregate amount in these three categories remained
essentially unchanged, decreasing by only $238,000 to
$18.11 million at March 31, 1999 from $18.35 million at
December 31, 1998. Prepaid expenses and other assets increased
by $164,000, from $593,000 at December 31, 1998 to $757,000 at
March 31, 1999.
Total liabilities increased by $6.55 million, or 4.20%, from
$155.82 million at December 31, 1998 to $162.37 million at
March 31, 1999. During this period, deposits increased by 4.22%
from $154.89 million at year-end 1998 to $161.43 at March 31,
1999. Within deposit categories the largest increase occurred in
savings accounts which increased from $90.07 million to
$95.12 million, or 5.6%, while time deposits only increased from
$64.82 million to $66.31, or 2.30%. <PAGE 77>
Retained earnings increased $140,000, or 0.90%, to
$15.70 million at March 31, 1999 from $15.56 million at
December 31, 1998. The increase in retained earnings is solely
attributable to earnings. The change in net unrealized
depreciation on investment and mortgage-backed securities
available for sale was ($310,000) from ($284,000) at December 31,
1998 to ($594,000) at March 31, 1999. This increase was caused
by the general increase in interest rates during the period.
December 31, 1998 Compared to June 30, 1998
Our total assets increased 7.03% from $159.85 million at
June 30, 1998 to $171.09 million at December 31, 1998. During
the same period, net loans increased by 4.89% from $98.10 million
to $102.90 million and investment and mortgage-backed securities
increased by 5.47% to $45.54 million from $43.18 million. Cash
and cash equivalents increased by $5.37 million to $18.35 million
at December 31, 1998 from $12.98 million at June 30, 1998. Total
deposits increased by $10.96 million, or 7.61%, from
$143.93 million at June 30, 1998 to $154.89 million at
December 31, 1998. This increase in deposits and cash and cash
equivalents reflects the influx of deposits that has occurred
since our conversion from a credit union to a savings bank and is
directly attributable to our ability to attract new customers who
were not credit union members.
Retained earnings increased $20,000, or 1.33%, to
$15.28 million at December 31, 1998 from $15.08 million at
June 30, 1998. The increase in retained earnings is attributable
to earnings. The change in net unrealized depreciation on
investment and mortgage-backed securities available for sale was
($70,000) from ($214,000) at June 30, 1998 to ($284,000) at
December 31, 1998.
June 30, 1998 Compared to June 30, 1997
Our total assets decreased 2.97% from $164.75 million at
June 30, 1997 to $159.85 million at June 30, 1998. During the
same period, net loans decreased by 2.29% to $98.10 million and
investment and mortgage-backed securities increased by 22.51% to
$43.18 million. The increase in securities was due to our
decision to invest funds previously held in interest bearing
deposits in other financial institutions into higher yielding
available for sale investment and mortgage-backed securities.
Cash due from banks, interest-bearing deposits in other financial
institutions, and federal funds sold are all liquid funds. The
aggregate amount in these three categories decreased by $3.61
million to $12.98 million at June 30, 1998 from $16.59 million at
June 30, 1997 reflecting the previously mentioned shift to
available for sale investment and mortgage-backed securities.
Equipment and leasehold improvements, net of accumulated
depreciation, increased from $1.69 million at year-end 1997 to
$1.88 million at year-end 1998. The increase of $190,000 was
mainly attributable to costs associated with the new Chesterbrook
branch site. Prepaid expenses and other assets increased by
<PAGE 78> $198,000, from $743,000 at June 30, 1997 to $941,000 at
June 30, 1998.
Total liabilities decreased by $5.74 million, or 3.81%, from
$150.51 million at June 30, 1997 to $144.77 million at June 30,
1998. During this period, deposits decreased by 3.95% from
$149.85 million at year-end 1997 to $143.93 at year-end 1998.
The deposit mix changed considerably during 1998 because
approximately $13.00 million in savings account deposits held in
a retirement account administered by PECO were withdrawn and
transferred to higher yield investments at other financial
institutions. As a result, savings accounts decreased from
$80.23 million at June 30, 1997 to $68.26 million at June 30,
1998. The decrease in savings accounts was partially offset by a
$1.15 million increase in NOW accounts and a $5.18 million
increase in certificates of deposit.
Retained earnings increased $660,000, or 4.51%, to $15.29
million at June 30, 1998 from $14.63 million at June 30, 1997.
The increase in retained earnings is solely attributable to
earnings. The change in net unrealized depreciation on
investment and mortgage-backed securities available for sale was
$170,000 from ($385,000) at June 30, 1997 to ($215,000) at
June 30, 1998. This increase was caused by the general decrease
in interest rates during the period. When interest rates fall,
the fair market value of debt securities generally increases,
thereby increasing equity.
Asset Quality
Non-performing assets decreased from $806,000 at June 30,
1997 to $203,000 at March 31, 1999 because a number of credit
card and unsecured personal loans were charged off. Many of
these loans were to individuals that declared personal bankruptcy
that resulted, in part, from PECO Energy layoffs of our members.
Because of this increase in bankruptcies, we tightened our credit
standards and implemented credit scoring criteria for these types
of loans. As a percentage of total assets, non-performing assets
decreased from 0.49% at June 30, 1997 to 0.11% at March 31, 1999.
Non-performing assets are comprised of non-accrual loans,
accruing loans that are 90 days or more past due which are
insured for credit loss, foreclosed real estate (assets acquire
in foreclosures), and restructured loans. It is our policy to
classify a loan, other than a loan insured for credit loss, as
non-accrual after the loan becomes 90 days past due for either
principal or interest.
The balance in the allowance for loan losses was
$1.12 million or 1.06% of total loans at March 31, 1999, compared
to $1.01 million, or 1.00% of total loans at June 30, 1997. The
ratio of the allowance for loan losses to non-performing loans
was 549.75% at March 31, 1999, 631.76% at December 31, 1998,
419.47% at June 30, 1998 and 124.69% at June 30, 1997.
<PAGE 79>
As a financial institution which assumes lending and credit
risk as a principal element of its business, we anticipate that
credit losses will be experienced in the normal course of
business. Accordingly, we make a quarterly determination as to
an appropriate provision from earnings necessary to maintain an
allowance for loan losses that is adequate for potential yet
undetermined losses. The amount charged against earnings is
based upon several factors including, at a minimum, each of the
following:
- a continuing review of delinquent, classified and non-
accrual loans, large loans, and overall portfolio
quality. This continuous review assesses the risk
characteristics of both individual loans and the total
loan portfolio;
- analytical review of loan charge-off experience,
delinquency rates and other relevant historical and
peer statistical ratios;
- our judgment with respect to local and general economic
conditions and their impact on the existing loan
portfolio;
- regular examinations and reviews of the loan portfolio
by our regulators.
When it is determined that the prospect for recovery of the
principal of a loan has significantly diminished, that portion of
the loan is immediately charged against the allowance account.
Subsequent recoveries, if any, are credited to the allowance
account. In addition, non-accrual and large delinquent loans are
reviewed monthly to determine potential losses.
We believe the allowance for loan losses was adequate to
cover risks inherent in our loan portfolio at March 31, 1999.
However, there can be no assurance that we will not have to
increase our provision for loan losses in the future as a result
of changes in economic conditions or for other reasons. Any such
increase could adversely affect our results of operations.
Liquidity
Pursuant to federal regulations, financial institutions must
maintain liquidity to meet day-to-day requirements of depositor
and borrower customers, take advantage of market opportunities,
and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities.
Sources of asset liquidity are provided by investments in
U.S. Government and agency securities, time deposits with banks
and federal funds sold. These assets totaled $18.11 million at
March 31, 1999, compared to $18.35 million at December 31, 1998,
$12.98 million at June 30, 1998 and $16.59 million at June 30,
1997. Maturing and prepayment of loans as well as the monthly
<PAGE 80> cash flow associated with certain mortgage-backed
securities are other sources of asset liquidity.
Sources of liability liquidity are provided by attracting
deposits with competitive rates, using repurchase agreements,
buying federal funds or utilizing the facilities of the Federal
Home Loan Bank System. We historically have relied exclusively
on deposits. However, we expect that the influx of capital from
the conversion will cause us to begin to borrow funds in order to
increase earning assets and achieve an acceptable return on
equity for our shareholders.
We believe that IGA maintains and has maintained
sufficient short-term and liquid assets (including securities
available-for-sale) to meet liquidity requirements of its
operations.
Asset/Liability Management
As stated above, we derive our income primarily from the
excess of interest collected over interest paid. The rates of
interest we earn on assets and pay on liabilities generally are
established contractually for a period of time. Market interest
rates change over time. Accordingly, our results of operations,
like those of many financial institutions, are affected by
changes in interest rates and the interest rate sensitivity of
our assets and liabilities.
In an attempt to manage our exposure to changes in interest
rates and comply with applicable regulations, we monitor IGA's
interest rate risk. In monitoring interest rate risk, we
continually analyze and manage assets and liabilities based on
their payment streams and interest rates, the timing of their
maturities, and their sensitivity to actual or potential changes
in market interest rate.
An asset or liability is interest-rate sensitive within a
specific time period if it will mature or reprice within that
time period. If our assets mature or reprice more rapidly or to
a greater extent than our liabilities, then net portfolio value
and net interest income would tend to increase during periods of
rising interest rates and decrease during periods of falling
interest rates. Conversely, if our assets mature or reprice more
slowly or to a lesser extent than our liabilities, then net
portfolio value and net interest income would tend to increase
during periods of rising interest rates and decrease during
periods of rising interest rates and increase during periods of
falling interest rates. Our policy has been to address the
interest rate risk inherent in the historical savings institution
business of originating long-term loans funded by short-term
deposits by maintaining sufficient liquid assets for material and
prolonged changes in interest rates.
Management regularly reviews our asset and liability
position including our interest rate risk and trends, liquidity
<PAGE 81> and capital ratios and related regulatory requirements.
In addition, management reviews simulations of the effect of
changes in interest rates on IGA's capital, net interest income
and net income.
Net Portfolio Value
In order to encourage savings associations to reduce their
interest rate risk, the Office of Thrift Supervision adopted a
rule incorporating an interest rate risk ("IRR") component into
the risk-based capital rules. The IRR component is a dollar
amount that will be deducted from total capital for the purpose
of calculating an institution's risk-based capital requirement
and is measured in terms of the sensitivity of its net portfolio
value ("NPV") to changes in interest rates. NPV is the
difference between incoming and outgoing discounted cash flows
from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured by the change to its NPV as result
of a hypothetical 200 basis point ("bp") change in market
interest rates. A resulting change in NPV of more than 2% of the
estimated present value of total assets ("PV") will require the
institution to deduct from its capital 50% of that excess change.
Based on IGA's asset size and risk-based capital, we have been
informed by the Office of Thrift Supervision that IGA is exempted
from this rule. Nevertheless, the following table presents an
estimate of the change in our NPV at March 31, 1999 as calculated
by our personnel, based on quarterly financial information.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio % Change
- -------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
+300 bp 12,496 -4,656 -27% 7.19% -234 bp
+200 bp 14,026 -3,126 -18% 7.98% -155 bp
+100 bp 15,539 -1,612 -9% 8.74% -79 bp
0 bp 17,152 9.53%
- -100 bp 19,865 2,714 +16% 10.85% +131 bp
- -200 bp 22,859 5,707 +33% 12.24% +271 bp
- -300 bp 26,192 9,040 +53% 13.74% +420 bp
</TABLE>
In the above table, the first column on the left presents
the basis point increments of yield curve shifts. The second
column presents the overall dollar amount of NPV at each basis
point increment. The fifth column presents IGA's ratio of NPV to
total assets. The remaining columns present IGA's actual
position in dollar change and percentage change in NPV at each
basis point increment.
Were IGA subject to the IRR component at March 31, 1999, it
would not have been considered to have had a greater than normal
level of interest rate exposure and a deduction from capital
would not have been required. Although we have been advised by
<PAGE 82> the Office of Thrift Supervision that IGA is not
subject to the IRR component discussed above, it is still subject
to interest rate risk and, as can be seen above, rising interest
rates will reduce IGA's NPV. The Office of Thrift Supervision
has the authority to require otherwise exempt institutions to
comply with the rule concerning interest rate risk. See
"Regulation - Regulatory Capital Requirements."
Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including
interest rates, loan prepayment rates, deposit decay rates, and
the market values of certain assets under the various interest
rate scenarios and should not be relied upon as indicative of
actual results. Certain shortcomings are inherent in the method
of analysis presented in the computation of NPV. Although
certain assets and liabilities may have similar maturities or
periods within which they reprice, they may react differently to
changes in market interest rates. 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. In the event of a
change in interest rates, prepayments and early withdrawal levels
could deviate significantly from those assumed in making the
calculations set forth above.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein
have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial
position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of
money over time due to inflation. The primary impact of
inflation on our operations is reflected in increased operating
costs. Unlike most industrial companies, virtually all of 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
does inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and
services.
Year 2000 Issues
Year 2000 issues result from the inability of many computer
programs or computerized equipment to accurately calculate, store
or use a date after December 31, 1999 (the "Y2K Issue"). The
erroneous date can be interpreted in a number of different ways;
typically the year 2000 is interpreted as the year 1900.
Correctly identifying the year 2000 as a leap year may also be an
issue. These misidentifications could result in a system failure
or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions, track important customer account information,
<PAGE 83> provide convenient access to this information or engage
in normal business operations.
IGA's board of directors and management have addressed the
Y2K issue by developing a Y2K Compliance Plan. This plan
involves five separate phases: awareness, assessment,
renovation, validation and implementation.
During 1997, IGA completed the assessment phase, identifying
each internal and external system that could potentially be
affected by the Y2K issue. Those systems include IGA's internal
data processing system as well as equipment such as bank alarms
that may contain microprocessors. For each such system, a
determination was made whether or not the system is Y2K
compliant. Those determinations involved obtaining Y2K compliant
certification from third-party processors and outside vendors.
As of December 31, 1998, IGA has completed its "awareness,"
"assessment," "renovation" and "validation" phases.
In November 1998, IGA conducted in-house testing of its data
processing system. IGA performed various banking transactions on
customers' accounts using the dates September 30, 1998,
January 1, 2000, January 30, 2000, January 31, 2000, February 29,
2000, September 9, 1999. All transactions were completed
successfully. IGA's data processing software vendor has
completed much of its Y2K testing but will continue testing and
renovation throughout 1999. IGA will be obligated to incur only
the hardware costs associated with implementing the changes
required by our vendor; hardware costs are not expected to be
material.
IGA believes that all other material outside vendors will be
Y2K compliant by August 31, 1999. If any vendor is not compliant
by this date, IGA will consider contracting with alternative
vendors.
In certain cases, however, such as the potential loss of
electrical power or telecommunications services due to Y2K
problems, testing by IGA is either not practical or not possible.
In those cases, contingency plans are being designed that specify
how IGA will deal with each such potential situation. IGA has
developed a contingency plan that addresses failure of the data
processing service bureau system. IGA has determined that if the
service bureau system were to fail, IGA would implement manual
systems until the service bureau system could be reestablished.
IGA does not anticipate the potential use of short-term manual
systems would have a material impact upon the operations of IGA.
In addition to expenses related to our own systems, we could
incur losses if loan payments are delayed due to year 2000
problems affecting any of our significant borrowers or impairing
the payroll systems of large employers in our market area. We
have been communicating with our vendors and, to the extent
appropriate, with borrowers to assess their progress in
<PAGE 84> evaluating their systems and implementing any
corrective measures required by them to be prepared for the year
2000. To date, we have not been advised by such parties that
they do not have plans in place to address and correct the issues
associated with the year 2000 problem; however, no assurance can
be given as to the adequacy of such plans or to the timeliness of
their implementation.
We estimate the expenses that we will incur in connection
with year 2000 issues at $50,000.
Recent Accounting Pronouncements
FASB Statement on Reporting Comprehensive Income. In
June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
130. SFAS No. 130 will require JADE FINANCIAL to classify items
of other comprehensive income by their nature in the financial
statements 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 equity. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The adoption of this standard is not
expected to have a material impact on JADE FINANCIAL's
consolidated financial statements.
FASB Statement on Disclosure of Information about Capital
Structure. In February 1997, the FASB issued SFAS No. 129. SFAS
No. 129 incorporates the disclosure requirements of APB Opinion
No. 15, Earnings per Share, and makes them applicable to all
public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires
disclosure of descriptive information about securities that is
not necessarily related to the computation of earnings per share.
This statement continues the previous requirements to disclose
certain information about an entity's capital structure found in
APB Opinions No. 10, Omnibus Opinion-1966, and No. 15, Earnings
per Share, and FASB Statement No. 47, Disclosure of Long-Term
Obligations, for entities that were subject to the requirements
of those standards. SFAS No. 129 eliminates the exemption of
nonpublic entities from certain disclosure requirements of
Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by
Nonpublic Enterprises. It supersedes specific disclosure
requirements of Opinions No. 10 and No. 15 and FASB Statement
No. 47 and consolidates them in this Statement for ease of
retrieval and for greater visibility to nonpublic entities. FASB
No. 129 is effective for financial statements for periods ending
after December 15, 1997. SFAS No. 129 will be adopted by JADE
FINANCIAL in the initial period following consummation of the
offering.
FASB Statement on Disclosures about Segments of an
Enterprise and Related Information. In June 1997, the FASB
issued SFAS No. 131. SFAS No. 131 establishes standards for the
<PAGE 85> way public enterprises are to report information about
operating segments in annual financial statements and requires
those enterprises to report selected information about operating
segments in interim financial reports. SFAS No. 131 is effective
for financial statements for periods beginning after December 15,
1997. The adoption of this standard is not expected to have a
material impact on JADE FINANCIAL's consolidated financial
statements.
FASB Statement on Employers' Disclosures about Pensions and
Other Post-retirement Benefits. In February 1998, the FASB
issued SFAS No. 132. SFAS No. 132 revises employers' disclosures
about pension and other post-retirement benefit plans. SFAS
No. 132 does not change the measurement or recognition of those
plans and is effective for fiscal years beginning after
December 15, 1997. The adoption of this standard is not expected
to have a material impact on JADE FINANCIAL's consolidated
financial statements.
FASB Statement on Accounting for Derivative Instruments and
Hedging Activities. In June 1998, the FASB issued SFAS No. 133.
SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
imbedded in other contracts (collectively referred to as
"derivatives") and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met,
a derivative may be specifically designated as (i) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (ii) a hedge of the
exposure of variable cash flows of a forecasted transaction, or
(iii) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-
currency-denominated forecasted transaction. The accounting for
changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. JADE
FINANCIAL has no activity subject to SFAS 133.
FASB Statement on Accounting for Mortgage-backed Securities
Retained After the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise. In October 1998, the FASB
issued SFAS No. 134 which changes the way mortgage banking firms
account for certain securities and other interests they retain
after securitizing mortgage loans that were held for sale. Under
current practice, a bank that securitizes credit card receivables
has a choice in how it classifies any retained securities based
on its intent and ability to hold or sell those investments.
SFAS No. 134 gives mortgage banking firms the opportunity to
apply the same intent-based accounting that is applied by other
companies. SFAS No. 134 is effective for the fiscal quarter
beginning after December 15, 1998. The adoption of SFAS No. 134
<PAGE 86> has not had a material impact on JADE FINANCIAL's
financial condition or results of operations.
BUSINESS OF JADE FINANCIAL
JADE FINANCIAL was organized at the direction of the Board
of Directors of IGA for the purpose of becoming a holding company
to own all of the outstanding capital stock of IGA. Upon
completion of the conversion, IGA will become a wholly-owned
subsidiary of JADE FINANCIAL. For additional information, see
"JADE FINANCIAL CORP."
Following the conversion, JADE FINANCIAL will be primarily
engaged in the business of directing, planning and coordinating
the business activities of IGA. In the future, JADE FINANCIAL
may become an operating company or acquire or organize other
operating subsidiaries, including other financial institutions,
though there are no current plans in this regard. Initially,
JADE FINANCIAL will not maintain offices separate from those of
IGA or employ any persons other than its officers who will not be
separately compensated for such service.
BUSINESS OF IGA
General
IGA originally was established in 1975 as IGA Federal Credit
Union. The credit union initially served the Independent Group
Association, a labor organization comprised of employees of PECO
Energy, Inc., the electric utility serving the Philadelphia
metropolitan area. Over time, IGA's membership grew to include
other employee groups. However, as a credit union, IGA was
legally restricted to serve only customers who shared a "common
bond" such as a common employer. However, members that were
employees of PECO or its affiliates (or retirees or family
members of PECO or its affiliates) continued to be a large
majority of IGA's members.
As a credit union, IGA did not experience membership growth
in recent years due to a reduction in the number of PECO
employees from approximately 12,500 to 6,500. Moreover, IGA
anticipated that membership would decline in the future due to
the nationwide consolidation of the electric utility industry and
the 1996 deregulation of the electric utility industry in
Pennsylvania. Therefore, after receiving the approval of the
National Credit Union Administration and IGA's members, on
July 1, 1998, IGA converted from a credit union to IGA Federal
Savings, a federal mutual savings association. IGA can now serve
the general public in our community, rather than being limited to
serving only distinct employee groups.
IGA is primarily engaged in the business of attracting
deposits from the general public and originating consumer loans,
including home equity, auto, credit card and personal loans, and
residential real estate loans, secured by first mortgages on
<PAGE 87> owner-occupied, one- to four-family residences in our
market area. IGA also originates a limited amount of commercial
loans and invests in investment and mortgage-related securities.
IGA's revenues are derived principally from interest on
mortgage loans, consumer loans and investment and mortgage-
related securities.
IGA offers a variety of deposit accounts having a wide range
of interest rates and terms, which generally include passbook and
statement savings accounts, money market deposit accounts, NOW
and non-interest bearing checking accounts and certificates of
deposit with varied terms ranging from 91 days to 60 months. IGA
only solicits deposits in its market areas and it has not
accepted brokered deposits.
Market Areas
IGA currently operates, through:
- Its main office located in Feasterville, Bucks
County;
- 23rd and Market Streets in Center City,
Philadelphia in the PECO office building;
- Grays Ferry in Southwest Philadelphia;
- Chesterbrook in Chester County; and
- Media in Delaware County.
IGA's market area consists of certain portions of the
Philadelphia metropolitan area although it has a number of out-
of-market customers who are retirees or PECO employees at out-of-
market locations. At March 31, 1999, IGA had total assets of
$177.47 million, deposits of $161.43 million and total equity of
$15.09 million. In addition, IGA participates in MAC, a regional
automatic teller machine network. IGA owns and operates three
automatic teller machines. Our deposits are insured by the
Savings Association Insurance Fund of the FDIC up to applicable
limits.
Lending Activities
General.
IGA is primarily engaged in the business of attracting
deposits from the general public and originating consumer loans,
including home equity, auto, credit card and personal loans and
residential real estate loans, secured by first mortgages on
owner-occupied, one- to four-family residences in our market
areas. IGA also originates a limited amount of commercial loans.
<PAGE 88>
The following table sets forth the composition of IGA's loan
portfolio at March 31, 1999 and 1998, December 31, 1998 and 1997
(to reflect the recent change in IGA's fiscal year-end from
June 30 to December 31), and June 30, 1998 and 1997. For the
periods presented, there is no significant concentration of loans
in any one industry. No loans have been made to borrowers
outside the United States.
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $ 40,740 38.28% $ 32,529 33.58% $ 40,114 38.57% $ 30,627 30.96% $35,799 36.15% $ 31,429 31.02%
Commercial 2,131 2.00% 0 0.00 1,408 1.35% 0 0.00 256 0.26% 0 0.00%
Construction 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Total real estate loans 42,871 40.28% 32,529 33.58% 41,522 39.92% 30,627 30.96% 36,055 36.41% 31,429 31.02%
Consumer Loans:
Home equity 23,085 21.69% 23,707 24.47% 22,421 21.56% 24,505 24.77% 23,174 23.40% 24,154 23.84%
Automobile 20,762 19.51% 18,871 19.48% 18,746 18.03% 19,610 19.82% 18,844 19.03% 20,470 20.20%
Credit cards 9,870 9.27% 10,127 10.45% 10,920 10.50% 11,917 12.05% 10,269 10.37% 10,700 10.56%
Unsecured loans 5,462 5.13% 7,280 7.52% 6,329 6.09% 9,329 9.43% 6,577 6.64% 9,307 9.18%
Other 3,634 3.41% 4,160 4.29% 3,658 3.52% 2,742 2.77% 3,871 3.91% 5,264 5.20%
Commercial loans 760 0.71% 197 0.21% 400 0.38% 197 0.20% 237 0.24 0 0.00
Total consumer loans 63,573 59.72% 64,342 66.42% 62,474 60.08% 68,300 69.04% 62,972 63.59% 69,895 68.98%
Total loans 106,444 100.00% 96,871 100.00% 103,996 100.00% 98,927 100.00% 99,027 100.00% 101,324 100.00%
====== ====== ====== ====== ======
Less:
Deferred fees
and discounts (8) 56 (22) 0 17 52
Allowance for losses (1,116) (741) (1,074) (1,042) (948) (1,005)
Total loans
receivable, net $105,320 $ 96,186 $102,900 $ 97,885 $98,096 $100,371
======== ======== ======== ======== ======= ========
</TABLE>
<PAGE 89>
The following table shows the composition of IGA's loan
percentages portfolio by fixed- and adjustable-rate at March 31,
1999 and 1998, December 31, 1998 and 1997 (to reflect the recent
change in IGA's fiscal year-end from June 30 to December 31), and
June 30, 1998 and 1997.
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family $39,155 36.78% $30,220 31.20% $38,446 36.97% $28,067 28.37% $33,755 34.09% $ 28,675 28.30%
Commercial loans 2,131 2.00% 0 0.00% 1,408 1.35% 0 0.00% 256 0.26% -- --
Home equity 17,533 16.47% 16,962 17.51% 17,054 16.40% 17,528 17.72% 17,164 17.33% 16,818 16.60%
Automobile 20,762 19.51% 18,871 19.48% 18,746 18.03% 19,610 19.82% 18,844 19.03% 20,470 20.20%
Unsecured loans 5,462 5.13% 7,280 7.52% 6,329 6.09% 9,329 9.43% 6,577 6.64% 9,307 9.19%
Other 4,037 3.79% 4,035 4.17% 3,684 3.54% 2,594 2.62% 3,315 3.35% 4,466 4.41%
Total fixed-rate loans 89,080 83.69% 77,368 79.87% 85,667 82.38% 77,128 77.96% 79,911 80.70% 79,736 78.69%
Adjustable Rate Loans:
Real estate:
One- to four-family 1,585 1.49% 2,309 2.38% 1,668 1.60% 2,560 2.59% 2,044 2.06% 2,754 2.72%
Home equity 5,552 5.22% 6,745 6.96% 5,367 5.16% 6,977 7.05% 6,010 6.07% 7,336 7.24%
Credit cards 9,870 9.27% 10,127 10.45% 10,920 10.50% 11,917 12.05% 10,269 10.37% 10,700 10.56%
Other 357 0.34% 322 0.33% 374 0.36% 345 0.35% 793 0.80% 798 0.79%
Total adjustable-rate
loans 17,364 16.31% 19,503 20.13% 18,329 17.62% 21,799 22.04% 19,116 19.30% 21,588 21.31%
Total loans 106,444 100.00% 96,871 100.00% 103,996 100.00% 98,927 100.00% 99,027 100.00% 101,324 100.00%
====== ====== ====== ====== ====== ======
Less:
Deferred fees
and discounts (8) 56 (22) 0 17 52
Allowance for losses (1,116) (741) (1,074) (1,042) (948) (1,005)
Total loans
receivable, net $105,320 $96,186 $102,900 $97,885 $98,096 $100,371
======== ======= ======== ======= ======= ========
</TABLE>
<PAGE 90>
Maturities and Sensitivities of Loans to Changes in Interest
Rates
The following schedule illustrates the contractual maturity
of IGA's loan portfolio at March 31, 1999. Mortgages which have
adjustable or negotiable interest rates are shown as maturing in
the period during which the contract is due. The schedule does
not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
One- to Four-Family Commercial Consumer Commercial Business Total
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During Year
Ending March 31,
2000(1) 1,824 7.64 - - 12,593 12.09 - - 14,410 11.53
2001 and 2002 3,989 7.17 - - 13,956 8.81 81 10.42 18,018 8.46
2003 to 2004 4,766 7.12 1,758 8.25 18,313 8.05 38 9.49 24,867 7.89
2005 to 2019 24,589 6.98 373 8.50 17,983 8.66 608 8.61 43,544 7.71
2020 and beyond 5,572 6.80 - - - - 33 9.85 5,605 6.82
__________________________
</TABLE>
(1) Includes demand loans, loans having no stated maturity and
overdraft loans.
The total amount of loans due after March 31, 1999 which
have predetermined interest rates is $89.08 million, while the
total amount of loans due after such date which have floating or
adjustable interest rates is $17.36 million.
Residential Mortgage Lending.
IGA originates substantially all of its mortgage loans
through its retail branch network. IGA generally underwrites
one- to four-family loans based on the applicant's employment,
credit history, and appraised value of the subject property.
Presently, IGA lends up to 95% of the lesser of the appraised
value or purchase price for one- to four-family residential
loans. For loans with a loan-to-value ratio in excess of 80%,
IGA requires the borrowers to obtain private mortgage insurance.
As a result, IGA has not experienced any material loss with
respect to residential mortgage loans having a loan-to-value
ratio of greater than 80%. All first mortgage loans require
title and hazard insurance, and flood insurance, if necessary, in
an amount not less than the value of the property improvements.
IGA also requires title insurance on properties securing mortgage
loans, in accordance with local practice. <PAGE 91>
In order to approve a property as security for a loan, IGA
requires a satisfactory appraisal by an approved independent
appraiser. Independent appraisers must abide by IGA's appraisal
policies and must be approved by IGA's Board of Directors.
IGA currently originates one- to four-family mortgage loans
on either a fixed or adjustable basis, as consumer demand
dictates. IGA's pricing strategy for mortgage loans includes
setting interest rates that are competitive with Fannie Mae and
Freddie Mac, other local financial institutions, and IGA's
internal needs. Adjustable rate mortgage ("ARM") loans are
offered with either a one-year or three-year term to the initial
repricing date. After the initial period, the interest rate for
each ARM loan generally adjusts annually for the remainder of the
term of the loan. IGA uses the United States Treasury Constant
Maturity Index to reprice ARM loans. For the three months ended
March 31, 1999 and 1998, IGA originated no one- to four-family
ARM loans, and $1.92 million and $3.15 million, respectively, of
one- to four-family fixed rate mortgage loans. For the six
months ended December 31, 1999 and 1998, IGA originated no one-
to four-family ARM loans, and $7.0 million and $5.54 million,
respectively, of one- to four-family fixed rate mortgage loans.
For the fiscal year ended June 30, 1998, IGA originated $229,000
of one- to four-family ARM loans and $13.57 million of one- to
four-family fixed-rate mortgage loans. For the fiscal year ended
June 30, 1997, IGA originated no one- to four-family ARM loans
and $3.93 million of one- to four-family fixed-rate mortgage
loans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset and Liability
Management and Market Risk."
Fixed-rate loans secured by one- to four-family residences
have contractual maturities of up to 30 years, and are fully
amortizing, with payments due monthly. These loans normally
remain outstanding, however, for a substantially shorter period
of time because of refinancing and other prepayments. A
significant change in the current level of interest rates could
alter considerably the average life of a residential loan in
IGA's portfolio. IGA's one- to four-family loans are generally
not assumable, do not contain prepayment penalties and do not
permit negative amortization of principal. IGA's real estate
loans generally contain a "due on sale" clause allowing IGA to
declare the unpaid principal balance due and payable upon the
sale of the security property.
IGA's one- to four-family residential ARM loans are fully
amortizing loans with contractual maturities of up to 30 years,
with payments due monthly. IGA's ARM loans generally provide for
specified minimum and maximum interest rates, with a lifetime cap
and floor, and an annual adjustment on the interest rate over the
rate in effect on the date of origination. As a consequence of
using caps, the yield on these loans may not be as rate sensitive
as is our cost of funds. IGA's ARM loans are not convertible
into fixed-rate loans.
<PAGE 92>
In order to remain competitive in its market areas, IGA
currently originates ARM loans at initial rates below the fully
indexed rate, and qualifies borrowers based on this initial
discounted rate for IGA's three year ARMs and at 2% over the
initial rate for one-year ARMs.
ARM loans generally pose different credit risks than fixed-
rate loans, primarily because as interest rates rise, the
borrower's payment rises, increasing the potential for default.
IGA has not experienced difficulty with the payment history for
these loans. See "-Asset Quality --Non-Performing Assets" and "-
Asset Quality -- Delinquent Loans."
Mortgage loans must be approved by the Vice President of
Lending. Mortgage loans exceeding $250,000 must be approved by
the President.
At March 31, 1999, $40.74 million, or 38.27%, of IGA's total
loan portfolio consisted of residential mortgage loans. At that
date the fixed-rate one- to four-family mortgage loan portfolio
totaled $39.16 million, or 36.78% of our gross loan portfolio,
and IGA's one- to four-family ARM loan portfolio totaled $1.59
million, or 1.49% of its gross loan portfolio.
IGA also makes a limited number of construction loans to
individuals for the construction of their residences. These
loans generally have a construction phase of six to nine months
during which the borrower pays only interest on the loan. Upon
completion of the construction phase, the loan becomes a standard
one- to four-family mortgage loan. These loans are underwritten
using the same criteria as IGA's other one- to four-family
mortgage loans. All of these loans are secured by property
located within our market areas. At March 31, 1999, IGA had no
residential construction loans outstanding.
Although IGA is committed to expanding its residential
mortgage lending, the number of consumer loan originations still
significantly exceed residential first mortgage loans. To
facilitate liquidity and interest rate risk management, IGA on
occasion has sold fixed rate loans in the secondary mortgage
market. However, in order to increase its mortgage loan
portfolio, IGA is presently holding most new loans in its
portfolio. IGA services the loans it originates, including the
loans it sells in the secondary mortgage market. As of March 31,
1999, IGA serviced a portfolio consisting of $14.51 million of
residential mortgage loans owned by Fannie Mae, holders of Fannie
Mae mortgage-backed securities and other investors.
Commercial Loans
General. IGA recently took steps to expand its commercial
real estate and commercial business lending program by adopting a
commercial lending policy and hiring staff experienced in this
area. IGA believes there is significant opportunity in small
<PAGE 93> business lending due to the consolidation of financial
institutions in IGA's market area.
Multi-family and Commercial Real Estate Lending. IGA offers
a variety of multi-family and commercial real estate loans.
These loans are secured primarily by multi-family dwellings,
small retail establishments and small office buildings located in
IGA's market areas. IGA may, from time to time, participate in
commercial real estate construction loans with other lenders. At
March 31, 1999, multi-family and commercial real estate loans
totaled $2.13 million or 2.00% of IGA's gross loan portfolio.
IGA's loans secured by multi-family and commercial real
estate are originated with either a fixed or adjustable interest
rate. The interest rate on adjustable-rate loans is based on a
variety of indices, generally determined through negotiation with
the borrower. Loan-to-value ratios on IGA's multi-family and
commercial real estate loans typically do not exceed 80% of the
appraised value of the property securing the loan. These loans
typically require monthly payments and have maximum maturities of
25 years. While maximum maturities may extend to 30 years, loans
frequently have shorter maturities and may not be fully
amortizing, requiring balloon payments of unamortized principal
at maturity.
Loans secured by multi-family and commercial real estate are
granted based on the income producing potential of the property
and the financial strength of the borrower. The net operating
income, which is the income derived from the operation of the
property less all operating expenses, must be sufficient to cover
the payments related to the outstanding debt. IGA generally
require personal guarantees of the borrowers covering a portion
of the debt in addition to the security property as collateral
for such loans. IGA generally requires an assignment of rents or
leases in order to be assured that the cash flow from the project
will be used to repay the debt. Appraisals on properties
securing multi-family and commercial real estate loans are
performed by independent state certified fee appraisers approved
by the board of directors. See "--Loan Originations, Purchases,
Sales and Repayments."
IGA generally maintains a tax or insurance escrow account
for its loans secured by multi-family and commercial real estate.
In order to monitor the adequacy of cash flows on
income-producing properties of $1.0 million or more, the borrower
is notified annually to provide financial information including
rental rates and income, maintenance costs and an update of real
estate property tax payments, as well as personal financial
information.
Loans secured by multi-family and commercial real estate
properties are generally larger and involve a greater degree of
credit risk than one-to four-family residential mortgage loans.
Such loans typically involve large balances to single borrowers
or groups of related borrowers. Because payments on loans
<PAGE 94> secured by multi-family and commercial real estate
properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the
economy. If the cash flow from the project is reduced, or if
leases are not obtained or renewed, the borrower's ability to
repay the loan may be impaired. See "- Asset Quality --
Non-performing Loans."
Commercial Business Lending. IGA offers commercial business
loans in the form of lines of credit and fixed or adjustable rate
term loans. These loans are generally secured by commercial
assets, the borrower's personal guarantees and/or personal
assets. At March 31, 1999, commercial business loans totaled
$760,000 or .71% of our gross loan portfolio.
Commercial business loans typically require monthly payments
and have maximum maturities of ten years.
Consumer Loans.
General. IGA offers a variety of consumer loans, including
home equity loans, auto loans, credit card loans, unsecured
personal loans and loans secured by a deposit account. At
March 31, 1999, consumer loans accounted for $62.81 million or
59.72% of IGA's total loan portfolio. Of this amount,
approximately 23.09 million, or 21.69% consisted of home equity
loans, $20.76 million, or 19.61%, consisted of auto loans,
$9.87 million, or 9.27%, consisted of credit card loans and
$5.46 million or 5.13% consisted of unsecured personal loans.
Consumer loans generally have shorter terms to maturity,
which reduces IGA's exposure to changes in interest rates, and
carry higher rates of interest than do one- to four-family
residential mortgage loans. In addition, management believes
that offering consumer loan products helps to expand and create
stronger ties to our existing customer base by increasing the
number of customer relationships and providing cross-marketing
opportunities.
We do not originate any consumer loans on an indirect basis.
Indirect loans are contracts purchased from retailers of goods or
services which have extended credit to their customers.
The underwriting standards employed by IGA for consumer
loans include a determination of the applicant's payment history
on other debts and an assessment of the ability to meet existing
obligations and payments on the proposed loan. Although
creditworthiness of the applicant is a primary consideration,
with respect to any secured consumer loan the underwriting
process also includes a comparison of the value of the security
in relation to the proposed loan amount.
Home Equity. IGA originates home equity loans secured by
second mortgages on owner-occupied, one- to four-family
<PAGE 95> residences. These loans are originated as fixed-rate
loans with terms of from one to fifteen years or as adjustable
rate lines of credit. Second mortgage loans are generally
subject to a 80% combined loan-to-value ratio limitation,
including any other outstanding first mortgages or liens. Home
equity loans are underwritten based on the borrower's income and
equity in the home. As of March 31, 1999, we had $23.09 million
in home equity loans outstanding.
Auto Lending. IGA continues to grow its auto lending
portfolio through traditional car financing and with the addition
of the "Alt-Lease" program, which is a balloon term loan program
started by IGA as an alternative to leasing. IGA will finance up
to 100% of the purchase price of a new or used vehicle, subject
to valuations from official new and used car guides. All auto
loans are secured by title encumbrances. IGA requires that the
borrower maintain proper auto insurance coverage to protect the
collateral. Borrowers are fully underwritten for
creditworthiness.
Credit Cards. IGA has maintained an independent credit card
program for over 15 years as part of its mission to provide a
full range of financial services and products to customers. The
credit card program has been successfully introduced through
cross-selling opportunities within IGA. IGA's credit cards have
no annual fee and currently carry an annual percentage interest
rate equal to the prime rate plus 4.65% on outstanding credit
card balances. Management continues to consider expansion of the
program through marketing campaigns, pre-approval screenings,
direct mail and affinity relationships.
Consumer loans may entail greater risk than do one- to four-
family residential mortgage loans, particularly in the case of
unsecured consumer loans and consumer loans which are secured by
rapidly depreciable assets, such as automobiles.
Loan Originations, Sales and Repayments
IGA originates loans through referrals from real estate
brokers and builders, its marketing efforts, and its existing and
walk-in customers. While IGA originates both adjustable-rate and
fixed-rate loans, its ability to originate loans is dependent
upon the relative customer demand for loans in its market.
Demand is affected by local competition and the interest rate
environment. Competition from other lenders in our market area
limits, to a certain extent, the volume of loans IGA has been
able to originate and place in its portfolio. IGA sells a
limited amount of loans and, as a result, loans are originated
according to secondary market guidelines. Furthermore, during
the past few years, IGA, like many other financial institutions,
has experienced significant prepayments on loans and mortgage-
backed and related securities due to the sustained low interest
rate environment prevailing in the United States.
<PAGE 96>
In periods of economic uncertainty, the ability of financial
institutions, including IGA, to originate large dollar volumes of
loans may be substantially reduced or restricted, with a
resultant decrease in related interest income.
The following table shows the loan origination, sale and
repayment activities of IGA for the three months ended March 31,
1999 and 1998, the six-month transition periods ended
December 31, 1998 and 1997 to reflect the recent change in IGA's
fiscal year-end from June 30 to December 31, and the years ended
June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, December 31, Year Ended June 30,
1999 1998 1998 1997 1998 1997
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Originations by type:
Adjustable rate(1):
Real estate - one- to four-family $ 0 $ 0 $ 0 $ 0 $ 229 $ 0
Total adjustable rate 0 0 0 0 229 0
Fixed Rate:
Real estate - one- to four-family 1,916 3,148 7,000 5,539 13,574 3,927
Commercial 745 0 1,408 0 0 0
Consumer 7,876 4,536 12,656 10,372 20,379 31,869
Total fixed-rate 10,537 7,684 21,064 15,911 33,953 35,796
Total loans originated 10,537 7,684 21,064 15,911 34,182 35,796
Sales and Repayments:
Principal repayments (8,410) (9,807) (16,140) (18,224) (31,606) (27,566)
Loans sold 0 (298) 0 (4,576) (4,873) (2,073)
Increase (decrease) in other items, net 0 0 (77) 0 22 (457)
Net increase (decrease) $ 2,127 ($2,421) $ 4,847 ($6,889) ($2,275) $ 5,700
======= ======= ======= ======= ======= =======
</TABLE>
_______________
(1) For the three months ended March 31, 1999 and 1998, IGA also
originated home equity lines of credit under which borrowers
are permitted to borrow up to an aggregate of $504,000 and
$200,000, respectively.
Asset Quality
Delinquent Loans. Delinquent real estate loans are
comprised of loans that are 30 to 89 days past due and all other
loans that are 31-89 days past due. When a borrower fails to
make a payment on a loan on or before the default date, a late
charge notice is mailed 15 days after the due date. When the
loan is 30 days past due, IGA mails a delinquent notice to the
borrower. All delinquent accounts are reviewed by a collection
officer, who attempts to cause the delinquency to be cured by
contacting the borrower. If the loan becomes 60 days delinquent,
the collection officer will generally send a personal letter to
the borrower requesting payment of the delinquent amount in full,
or the establishment of an acceptable repayment plan to bring the
<PAGE 97> loan current within the next 90 days. If the account
becomes 90 days delinquent, and an acceptable repayment plan has
not been agreed upon, the collection officer will generally refer
the account to legal counsel, with instructions to prepare a
notice of intent to foreclose with respect to real estate loans
or to a collection agency with respect to other loans. The
notice of intent to foreclose allows the borrower up to 30 days
to bring the account current. During this 30-day period, the
collection officer may accept a written repayment plan from the
borrower which would bring the account current within the next 90
days. Once the loan becomes 120 days delinquent, and an
acceptable repayment plan has not been agreed upon, the
collection officer, after receiving approval from the appropriate
officer as designed by IGA's board of directors, will turn over
the account to IGA's counsel with instructions to initiate
foreclosure.
The following table sets forth IGA's loans delinquent 30-89
days by type, number, amount and percentage of type at March 31,
1999.
<TABLE>
<CAPTION>
Real Estate
Loans Delinquent for
30-89 Days
Percent of
Total Delinquent
Number Amount Loans
(Dollars in Thousands)
<S> <C> <C> <C>
Real Estate:
One- to four-family 3 $258 41.6%
construction 0 0 0.00%
commercial 0 0 0.00%
Total 3 258 41.6%
Non-Real Estate Loans Delinquent for 31-89 Days
Consumer:
Home equity 3 128 20.6%
Automobile 9 75 12.1%
Credit cards 27 63 10.1%
Unsecured loans 20 96 15.6%
Total 59 362 58.4%
</TABLE>
Nonperforming Assets. Non-performing assets are comprised
of non-accrual loans, accruing loans that are 90 days or more
past due which are insured for credit loss, foreclosed real
estate (assets acquire in foreclosures), and restructured loans.
It is IGA's policy to classify a loan, other than a loan insured
for credit loss, as non-accrual after the loan becomes 90 days
past due for either principal or interest. Accrual of interest
is discontinued for those loans which are 90 days or more
<PAGE 98> delinquent, or sooner if IGA believes, after
considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Upon discontinuance of
interest accrual, all unpaid accrued interest is reversed.
The following table sets forth the amounts and categories of
non-performing assets at March 31, 1999 and 1998, December 31,
1998 and 1997 (to reflect the recent change in IGA's fiscal year-
end from June 30 to December 31), and June 30, 1998 and 1997. At
all dates presented, IGA had no troubled debt restructurings
which involve forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than that of
market rates.
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family $ 47 $ 0 $ 16 $ 59 $ 16 $ 0
Home equity 65 201 64 233 110 294
Automobile 21 41 39 81 40 42
Credit cards 16 32 41 259 39 174
Unsecured loans 54 52 10 343 21 296
Other 0 0 0 0 0 0
Total 203 326 170 975 226 806
Accruing loans delinquent more
than 90 days:
One- to four-family $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Home equity 0 0 0 0 0 0
Automobile 0 0 0 0 0 0
Credit cards 0 0 0 0 0 0
Unsecured loans 0 0 0 0 0 0
Other 0 0 0 0 0 0
Total 0 0 0 0 0 0
Foreclosed assets $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Renegotiated loans 0 0 0 0 0 0
Total non-performing assets $203 $326 $170 $975 $226 $806
Non-performing assets
as a percent of
total loans 0.19% 0.34% 0.16% 0.99% 0.23% 0.80%
Non-performing assets
as a percent of
total assets 0.11% 0.20% 0.10% 0.64% 0.14% 0.49%
</TABLE>
IGA has no other material loans which are classified under
applicable regulatory guidelines. With respect to all other
<PAGE 99> loans that were current with respect to principal and
interest payments at March 31, 1999, IGA, at present, does not
have serious doubt as to the ability of substantially all
borrowers to comply with present loan repayment terms. IGA does
not currently anticipate significant deterioration in the
economic conditions in our market area. If there is a material
deterioration in economic conditions, delinquencies may increase
which would adversely affect IGA's results of operations.
Allowance and Provision for Possible Loan Losses
IGA makes a quarterly determination as to an appropriate
provision from earnings necessary to maintain an allowance for
loan losses that is adequate for potential yet undetermined
losses. The amount charged to earnings is based upon several
factors including a continuing review of delinquent, classified
and non-accrual loans, large loans, and overall portfolio
quality, regular examination and review of the loan portfolio by
regulatory authorities, analytical review of loan charge-off
experience, delinquency rates, other relevant historical and peer
statistical ratios and IGA's judgment with respect to local and
general economic conditions and their impact on the existing loan
portfolio.
Assessing the adequacy of the allowance for loan losses is
inherently subjective as it requires making material estimates,
including the amount and timing of future cash flows expected to
be received on impaired loans, that may be susceptible to
significant change. In the opinion of management, the allowance
when taken as a whole, is adequate to absorb reasonable estimated
loan losses inherent in IGA's loan portfolios.
The following table presents the activity in the allowance
for possible loan losses for the three months ended March 31,
1999 and 1998, the six-month transition periods ended
December 31, 1998 and 1997 to reflect the recent change in IGA's
fiscal year-end from June 30 to December 31, and the years ended
June 30, 1998 and 1997.
<PAGE 100>
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended Year Ended
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $1,074 $1,042 $948 $1,005 $1,005 $ 558
Charge-offs:
Real estate 0 0 $ 27 10 36 0
Credit cards 72 283 137 128 479 208
Other consumer loans 64 423 90 254 757 282
136 706 254 392 1,272 490
Recoveries:
Real estate 16 0 0 0 0 0
Credit cards 0 0 0 0 0 0
Other consumer loans 27 29 80 33 177 90
43 29 80 33 177 90
Net charge-offs (93) (677) (174) (359) (1,095) (400)
Provision for possible loan losses 135 $ 376 300 396 1,038 847
Balance at end of period $1,116 $ 741 $1,074 $1,042 $ 948 $1,005
Ratio of net charge-offs during the
period to average loans
outstanding during the period .09% .68% 0.17% .36% 1.10% 0.40%
Ratio of net charge-offs during
the period to average
non-performing assets 57.06% 245.29% 102.35% 36.82% 212.21% 59.00%
</TABLE>
The following table sets forth the distribution of IGA's
allowance for losses on loans at March 31, 1999 and 1998,
December 31, 1998 and 1997 (to reflect the recent change in IGA's
fiscal year-end from June 30 to December 31), and June 30, 1998
and 1997.
<PAGE 101>
<TABLE>
<CAPTION>
March 31,
1999 1998
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One - to four-family $ 33 $ 40,740 38.27% $ 22 $32,529 33.58%
Home Equity 279 23,085 21.69% 185 23,707 24.47%
Automobile 56 20,762 19.51% 37 18,871 19.48%
Credit cards 279 9,870 9.27% 185 10,127 10.45%
Unsecured loans 246 5,462 5.13% 163 7,280 7.52%
Other 223 6,525 6.13% 223 4,357 4.50%
Unallocated 0 0 0.00% 0 0 0.00%
Total $1,116 $106,444 100.00% $ 741 $96,871 100.00%
====== ======== ====== ====== ======= ======
<CAPTION>
December 31
1998 1997
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One - to four-family $ 32 $40,114 38.57% $ 31 $30,627 30.96%
Home Equity 269 22,421 21.56% 261 24,505 24.77%
Automobile 54 18,746 18.03% 52 19,610 19.82%
Credit cards 269 10,920 10.50% 261 11,917 12.05%
Unsecured loans 236 6,329 6.09% 229 9,329 9.43%
Other 214 5,465 5.26% 208 2,939 2.97%
Unallocated 0 - 0.00% 0 0 0.00%
Total $1,074 $103,995 100.00% $1,042 $98,927 100.00%
====== ======== ====== ====== ======= ======
<CAPTION>
June 30,
1998 1997
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One - to four-family $ 11 $35,799 36.15% $ 5 $ 31,429 31.02%
Home Equity 59 23,174 23.40% 198 24,154 23.84%
Automobile 26 18,844 19.03% 34 20,470 20.20%
Credit cards 69 10,269 10.37% 120 10,700 10.56%
Unsecured loans 35 6,577 6.64% 258 9,307 9.19%
Other 0 4,364 4.41% 0 5,264 5.20%
Unallocated 748 - 0.00% 390 - 0.00%
Total $948 $99,027 100.00% $1,005 $101,324 100.00%
==== ======= ====== ====== ======== ======
</TABLE>
<PAGE 102>
Investment Activities
IGA must maintain minimum levels of investments that qualify
as liquid assets under Office of Thrift Supervision regulations.
Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in
relation to the return on loans. Historically, IGA has
maintained liquid assets at levels above the minimum requirements
imposed by the Office of Thrift Supervision regulations and above
levels believed adequate to meet the requirements of normal
operations, including potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that
adequate liquidity is maintained. At March 31, 1999, our
liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 25%.
Federally chartered savings institutions have the authority
to invest in various types of liquid assets, including United
States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and
savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their
assets in investment grade commercial paper and corporate debt
securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is
otherwise authorized to make directly. IGA generally invests in
the foregoing types of investments. See "How We Are Regulated --
IGA" for a discussion of additional restrictions on our
investment activities.
Mr. Mario Incollingo, IGA's President and Chief Executive
Officer, and Ms. Dorothy Bourlier, IGA's Senior Vice President
and Chief Financial Officer, are responsible for the management
of IGA's investment portfolio, subject to the direction and
guidance of the asset/liability committee of IGA's board of
directors. Such officers consider various factors when making
investment decisions, including the marketability, maturity and
tax consequences of the proposed investment. The maturity
structure of investments will be affected by various market
conditions, including the current and anticipated slope of the
yield curve, the level of interest rates, the trend of new
deposit inflows, and the anticipated demand for funds via deposit
withdrawals and loans.
The general objectives of IGA's investment portfolio are to:
- provide and maintain liquidity within the guidelines
prescribed by Office of Thrift Supervision regulations;
- provide liquidity when loan demand is high and to
assist in maintaining earnings when loan demand is low;
and
<PAGE 103>
- maximize earnings while satisfactorily managing risk,
including credit risk, reinvestment risk, liquidity
risk and interest rate risk. See "Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Asset/Liability Management."
IGA's securities portfolio consists primarily of obligations
of the U.S. Government and its agencies, including mortgage-
backed and related securities. At March 31, 1999, IGA had $50.20
million in investment securities, $43.77 million of which were
classified as available for sale.
IGA's mortgage-backed securities portfolio consists of
securities issued under government-sponsored agency programs. At
March 31, 1999, we held $21.12 million of mortgage-backed
securities, $5.59 million of which were classified as held to
maturity and $15.53 million of which were classified as available
for sale.
At March 31, 1999, IGA held collateralized mortgage
obligations ("CMOs") totalling $5.87 million, all of which were
secured by underlying collateral issued under government agency-
sponsored programs. CMOs are special types of pass-through debt
securities in which the stream of principal and interest payments
on the underlying mortgages or mortgage-backed securities is used
to create classes with different maturities and, in some cases,
amortization schedules, as well as a residual interest, with each
class possessing different risk characteristics.
IGA's policy is to purchase only CMOs that are in the first
or second repayment tranche (investment class) and are AAA rated.
The expected life of IGA's CMOs is typically under five years at
the time of purchase. Premiums associated with CMOs purchased
are not significant; therefore, the risk of significant yield
adjustments because of accelerated prepayments is limited. Yield
adjustments are encountered as interest rates rise or decline,
which in turn slows or increases prepayment rates and affects the
average lives of the CMOs. The purpose of IGA's CMO investment
strategy is to:
- assist in maintaining IGA's Qualified Thrift Lender
Status (see "How We Are Regulated -- Qualified Thrift
Lender");
- generate high cash flow to lessen liquidity and
reinvestment risk;
- preserve asset quality; and
- generate additional interest income.
At March 31, 1999, $2.84 million of CMOs were classified as held
to maturity and $3.03 million were classified as available for
sale. At March 31, 1999, IGA's CMOs did not qualify as high risk
<PAGE 104> mortgage securities as defined under Office of Thrift
Supervision regulations.
While mortgage-backed and mortgage-related securities (such
as CMOs) carry a reduced credit risk as compared to whole loans,
such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may
alter the prepayment rate of such mortgage loans and so affect
both the prepayment speed, and value, of such securities.
The following tables set forth the composition of IGA's
investment and mortgage-backed and related securities portfolio
at March 31, 1999 and 1998, December 31, 1998 and 1997 (to
reflect the recent change in IGA's fiscal year-end from June 30
to December 31), and June 30, 1998 and 1997. IGA's investment
securities portfolio at March 31, 1999, contained neither tax-
exempt securities nor securities of any issuer with an aggregate
book value in excess of 10% of IGA's retained earnings, excluding
those issued by the United States Government or its agencies.
<PAGE 105>
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1998 1997
Book % of Book % of Book % of Book % of
Value Total Value Total Value Total Value Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds $ 8,315 13.92% $ 11,060 19.36% $ 8,726 15.49 $ 8,402 17.66%
Securities held-to-maturity:
Interest-bearing deposits
in other financial institutions 1,234 2.07% 4,862 8.51% 1,237 2.20% 7,137 15.00%
Mortgage-backed securities(1) 5,594 9.36% 11,097 19.42% 6,634 11.78% 11,895 25.00%
FHLB Stock 834 1.40% 0 0.00% 834 1.48% 0 0.00%
Securities available-for-sale:
U.S. Government and agency
obligations $23,126 38.71% $14,480 25.34% $23,824 42.29% $ 8,920 18.75%
Municipal securities 5,114 8.56% 0 0.00% 4,902 8.70% 0 0.00%
Mortgage-backed securities(2) $15,529 25.98% 15,641 27.37% 10,176 18.06% 11,223 23.59%
Total investments and Federal funds $59,746 100.00% $57,140 100.00% $56,333 100.00% $47,577 100.00%
<CAPTION>
June 30,
1998 1997
Book % of Book % of
Value Total Value Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Federal funds $ 5,034 9.79% $15,714 26.78%
Securities held-to-maturity:
Interest-bearing deposits in
other financial institutions 3,205 6.24% 7,731 13.17%
Mortgage-backed securities(1) 9,570 18.61% 14,320 24.40%
Securities available-for-sale:
U.S. Government and agency
obligations 19,340 37.61% 7,199 12.27%
Mortgage-backed securities(2) 14,267 27.75% 13,724 23.38%
Total investments and Federal funds $51,416 100.00% $58,688 100.00%
======= ====== ======= ======
_______________
</TABLE>
(1) At March 31, 1999 and 1998, mortgage-backed securities
included $2.84 million and $6.65 million of CMOs,
respectively. At December 31, 1998 and 1997, mortgage-
backed securities included $3.62 million and $7.62 million
of CMOs, respectively. At June 30, 1998 and 1997, mortgage-
backed securities included $5.49 million and $9.01 million
of CMOs, respectively.
(2) At March 31, 1999 and 1998, mortgage-backed securities
included $3.03 million and $4.33 million of CMOs,
respectively. At December 31, 1998 and 1997, mortgage-
backed securities included $3.08 million and $4.52 million
of CMOs, respectively. At June 30, 1998 and 1997, mortgage-
backed securities included $3.90 million and $5.01 million
of CMOs, respectively.
The following table sets forth the contractual maturities
and weighted average yield of IGA's investment securities at
March 31, 1999. <PAGE 106>
<TABLE>
<CAPTION> Less Than 1 to 5 5 to 10 Over 10
1 Year Years Years Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government and agency
securities........................ $ 0 0 $ 0 0 $ 0 0 $ 0 0 $ 0 0
Other securities.................... 0 0 1,020 6.45% 148 6.00% 4,354 6.43% $ 5,522 6.42%
Total securities held-to-maturity. $ 5,522 6.42%
Securities available for sale:
U.S. government and agency
securities........................ $1,000 4.27% $ 6,503 5.81% $16,010 6.09% 0 0.00% $23,513 5.97%
Mortgage backed securities.......... 220 7.50% 7,948 6.99% 1,413 5.08% 1,601 5.39% 11,182 6.41%
Other securities.................... 0 0.00% 0 0.00% 9,169 5.24% 0 0.00% 9,169 5.24%
Total securities available
for sale........................ $1,220 4.85% $14,451 6.59% $26,592 5.74% $1,601 5.39% $43,769 5.94%
</TABLE>
Sources of Funds
General. IGA's sources of funds are deposits, payment of
principal and interest on loans, interest earned on or maturation
of other investment securities and short-term investments, and
funds provided from operations.
Deposits. IGA offers a variety of deposit accounts having a
wide range of interest rates and terms. IGA's deposits consist
of savings accounts, money market deposit accounts, NOW accounts
and certificate of deposit accounts currently ranging in terms
from 91 days to five years. IGA only solicits deposits from its
market area and does not use brokers to obtain deposits. IGA
primarily relies on competitive pricing policies, advertising and
customer service to attract and retain these deposits.
The flow of deposits is influenced significantly by general
economic conditions, changes in money market and prevailing
interest rates, and competition.
IGA attracts deposits from new customers primarily by
offering a wide variety of services and accounts, competitive
interest rates and convenient service hours. IGA has become more
susceptible to short-term fluctuations in deposit flows, as
customers have become more interest rate conscious. IGA
endeavors to manage the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability
objectives. Based on IGA's experience, management believes that
IGA's savings and checking accounts are relatively stable sources
of funds. However, IGA's ability to attract and maintain
certificates of deposit and the rates paid on these deposits has
been and will continue to be significantly affected by market
conditions.
The following table sets forth the deposit flows at IGA for
the three months ended March 31, 1999 and 1998, the six-month
transition periods ended December 31, 1998 and 1997 to reflect
<PAGE 107> the recent change in IGA's fiscal year-end from
June 30 to December 31, and the years ended June 30, 1998 and
1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, December 31,
1999 1998 1998 1997
(In Thousands)
<S> <C> <C> <C> <C>
Beginning balance $154,888 $137,223 $143,934 $149,846
Net increase (decrease) before
interest credited 5,215 5,378 (8,192) (15,428)
Interest credited 1,326 1,309 2,762 2,805
Ending balance $161,429 $143,910 $154,888 $137,223
======== ======== ======== ========
Net increase $ 6,541 $ 6,687 $ 10,954 $(12,623)
======== ======== ======== ========
<CAPTION>
Year Ended June 30,
1998 1997
(In Thousands)
<S> <C> <C>
Beginning balance $149,846 $145,828
Net increase (decrease) before
interest credited (11,387) (1,627)
Interest credited 5,475 5,655
Ending balance $143,934 $149,846
Net increase $ (5,912) $ 4,028
</TABLE>
The following table sets forth the dollar amount of savings
deposits in the various types of deposit programs IGA offered at
March 31, 1999 and 1998, December 31, 1998 and 1997 (to reflect
the recent change in IGA's fiscal year-end from June 30 to
December 31), and June 30, 1998 and 1997.
<PAGE 108>
<TABLE>
<CAPTION>
March 31,
1999 1998
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts $ 74,129 45.92% $ 69,032 47.97%
NOW accounts 10,746 6.66% 9,166 6.37%
Money market accounts 10,240 6.34% 8,560 5.95%
Total non-certificates 95,115 58.92% 86,758 60.29%
Certificates (by rate):
3.00 - 3.99% 2,736 1.69% 0 0.00%
4.00 - 4.99% 23,001 14.25% 2,015 1.40%
5.00 - 5.99% 31,113 19.27% 44,329 30.80%
6.00 - 6.99% 7,931 4.91% 9,354 6.50%
7.00 - 7.99% 1,533 0.95% 1,455 1.01%
Total certificates 66,314 41.08% 57,153 39.17%
Total Deposits $161,429 100.00% $143,911 100.00%
======== ====== ======== ======
<CAPTION>
December 31,
1998 1997
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts $ 70,282 45.38% $ 63,790 46.49%
NOW accounts 10,526 6.80% 8,929 6.51%
Money market accounts 9,265 5.98% 9,581 6.98%
Total non-certificates 90,073 58.15% 82,300 59.98%
Certificates (by rate):
3.00 - 3.99% 1,622 1.05% O 0.00%
4.00 - 4.99% 11,171 7.21% 1,985 1.45%
5.00 - 5.99% 41,900 27.05% 42,609 31.05%
6.00 - 6.99% 8,608 5.56% 8,315 6.06%
7.00 - 7.99% 1,514 0.98% 2,014 1.47%
Total certificates 64,815 41.85% 54,923 40.02%
Total Deposits $154,888 100.00% $137,223 100.00%
======== ====== ======== ======
<CAPTION>
June 30,
1998 1997
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts $ 68,268 47.43% $ 80,233 53.55%
NOW accounts 9,305 6.46% 8,162 5.45%
Money market accounts 8,311 5.78% 8,577 5.72%
Total non-certificates 85,884 59.67% 96,972 64.72%
Certificates (by rate):
4.00 - 4.99% 2,025 1.41% 2,771 1.85%
5.00 - 5.99% 44,850 31.16% 41,170 27.47%
6.00 - 6.99% 9,700 6.74% 7,243 4.83%
7.00 - 7.99% 1,475 1.02% 1,690 1.13%
Total certificates 58,050 40.33% 52,874 35.28%
Total Deposits $143,934 100.00% $149,846 100.00%
======== ====== ======== ======
</TABLE> <PAGE 109>
The following table shows rate and maturity information for IGA's
certificates of deposit as of March 31, 1999.
<TABLE>
<CAPTION>
Less Than 1 to 2 2 to 3 3 to 4 4 to 5
1 Year Years Years Years Years Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99% $ 2,736 - - - - $ 2,736
4.00 - 4.99% 19,863 $ 3,028 $ 110 - - 23,001
5.00 - 5.99% 22,395 6,660 1,010 52 996 31,113
6.00 - 6.99% 1,649 4,781 253 574 674 7,931
7.00 - 7.99% 610 923 - - - 1,533
Total certificates
of deposit $47,253 $15,392 $1,373 $626 $1,670 $66,314
======= ======= ====== ==== ====== =======
</TABLE>
The following table presents the amount of our certificates
of deposit of $100,000 or more by the time remaining until
maturity at March 31, 1999.
Maturity Amount
(In Thousands)
Three months or less $4,638
3 to 6 months 526
6 to 12 months 897
Over 12 months 2,919
Total $8,980
======
Borrowings. IGA is a member of the Federal Home Loan Bank
of Pittsburgh. As a member of the Federal Home Loan Bank of
Pittsburgh, IGA is eligible to obtain advances from the Federal
Home Loan Bank of Pittsburgh upon the security of the Federal
Home Loan Bank of Pittsburgh common stock IGA owns, provided
certain standards related to creditworthiness have been met. See
"How We Are Regulated -- Federal Home Loan Bank System." Such
advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities.
Federal Home Loan Bank of Pittsburgh advances are generally
available to meet seasonal demand and other withdrawals of
deposit accounts and to expand lending, as well as to aid the
efforts of members to establish better asset and liability
management through the extension of maturities of liabilities.
IGA had no borrowings from the Federal Home Loan Bank of
Pittsburgh or under its line of credit during the three months
ended March 31, 1999 and 1998, the six-month transition periods
ended December 31, 1998 and 1997, or the years ended June 30,
1998 and 1997.
<PAGE 110>
Subsidiary Activities
As a federally chartered savings bank, IGA is permitted by
the Office of Thrift Supervision regulations to invest up to 2%
of its assets, or $3.5 million at March 31, 1999, in the stock
of, or unsecured loans to, service corporation subsidiaries. IGA
may invest an additional 1% of its assets in service corporations
where such additional funds are used for inner-city or community
development, purposes. IGA's only subsidiary is CUIGA Services
Corporation, a wholly-owned Pennsylvania corporation, which is
presently inactive.
Competition
IGA faces strong competition, both in originating consumer
and residential real estate loans and in attracting deposits.
Competition in originating real estate loans comes primarily from
other savings institutions, commercial banks, credit unions and
mortgage bankers. Other savings institutions, commercial banks,
credit unions and finance companies provide vigorous competition
in consumer lending.
IGA attracts all of its deposits through IGA's five branch
offices. Competition for those deposits is principally from
other savings institutions, commercial banks and credit unions
located in the same region, as well as mutual funds. IGA
competes for these deposits by offering a variety of deposit
accounts at competitive rates and superior service.
Employees
At March 31, 1999, IGA had a total of 74 employees,
including 4 part-time employees. IGA's employees are not
represented by any collective bargaining group. Management
considers its employee relations to be good.
Properties
IGA conducts its business through IGA's branch offices. All
property is owned or leased by IGA. IGA believes that its
current facilities are adequate to meet the present and
foreseeable needs of IGA and JADE FINANCIAL. The total net book
value of IGA's premises and equipment (including land, building
and leasehold improvements and furniture, fixtures and equipment)
at March 31, 1999 was $1.88 million. See Note 2 of Notes to
Consolidated Financial Statements.
IGA owns the branch office located at 213 West Street Road,
Feasterville, Pennsylvania. This facility is approximately
23,000 square feet and also serves as IGA and JADE FINANCIAL's
executive offices. IGA also owns the branch office located at
1501 S. Newkirk Street, Philadelphia, Pennsylvania. This
facility is approximately 1,000 square feet.
<PAGE 111>
IGA leases a space of approximately 1,000 square feet for
the branch office located at 606 East Baltimore Pike, Media,
Pennsylvania. IGA's annual lease expense in calendar year 1998
was $18,052. Effective August 1, 1999, IGA will move this branch
into an approximately 2,500 square feet space at 521 E. Baltimore
Pike, Media, pennsylvania. IGA will lease this space for a term
of 5 years at an annual lease expense of $45,000.
IGA leases a space of approximately 1,800 square feet for
the branch office located at 2301 Market Street, Philadelphia,
Pennsylvania. IGA's annual Lease expense in calendar year 1998
was $22,644, and will be $22,800 in calendar year 1999.
IGA leases a space of approximately 1,800 square feet for
the branch office located at 500 Chesterbrook Boulevard, Wayne,
Pennsylvania. IGA's annual lease expense in calendar year 1998
was $27,127, and will be $34,000 in calendar year 1999. This
Lease has a five year term expiring on March 31, 2003.
Legal Proceedings
From time to time IGA is involved as plaintiff or defendant
in various legal actions arising in the normal course of
business. Presently, IGA is not involved as a defendant in any
legal proceedings.
MANAGEMENT
Management of JADE FINANCIAL
The Board of Directors of JADE FINANCIAL consists of John J.
O'Connell, Mario L. Incollingo, Jr., Edward D. McBride,
Francis J. Moran and Dennis P. Wesley, each of whom is also a
director of IGA. Each director of JADE FINANCIAL has served as
such since JADE FINANCIAL's incorporation in July 1998.
Directors of JADE FINANCIAL will serve staggered three-year terms
so that approximately one-third of the directors will be elected
at each annual meeting of shareholders. One class of directors,
consisting of Edward D. McBride, has a term of office expiring at
JADE FINANCIAL's first annual meeting of shareholders, a second
class, consisting of Mario L. Incollingo, Jr. and Francis J.
Moran, has a term of office expiring at JADE FINANCIAL's second
annual meeting of shareholders, and a third class, consisting of
John J. O'Connell and Dennis P. Wesley, has a term expiring at
JADE FINANCIAL's third annual meeting of shareholders. For
biographical information regarding each director of JADE
FINANCIAL, see "-- Management of IGA."
The following individuals are executive officers of JADE
FINANCIAL and hold the offices set forth below opposite their
names.
<PAGE 112>
Executive Position Held with JADE FINANCIAL
John J. O'Connell Chairman of the Board and Chief
Executive Officer
Mario L. Incollingo, Jr. President and Chief Operating
Officer
Dorothy M. Bourlier Senior Vice President and Chief
Financial Officer
The executive officers of JADE FINANCIAL are elected
annually and hold office until their respective successors have
been elected and qualified or until death, resignation or removal
by the Board of Directors. Information concerning the principal
occupations, employment and compensation of the directors and
officers of JADE FINANCIAL is set forth under " - Management of
IGA." Directors of JADE FINANCIAL initially will not be
compensated by JADE FINANCIAL but will serve and be compensated
by IGA. JADE FINANCIAL may determine that such compensation is
appropriate in the future.
Management of IGA
Because IGA is a mutual savings association, its members
have elected its board of directors. Upon completion of the
conversion, the directors of IGA immediately prior to the
conversion, will continue to serve as directors of IGA after the
conversion. The board of directors of IGA after the conversion
will consist of nine directors divided into three classes, with
approximately one-third of the directors elected at each annual
meeting of shareholders. Because JADE FINANCIAL will own all the
issued and outstanding capital stock of IGA after the conversion,
the board of directors of JADE FINANCIAL will elect the directors
of IGA.
Each executive officer of IGA will continue as an executive
officer of IGA after the conversion. Officers of IGA are elected
annually by the board of directors of IGA.
The following table sets forth certain information regarding
the directors of JADE FINANCIAL and IGA.
<PAGE 113>
<TABLE>
<CAPTION>
Term of
Position(s) Director Office
Name Age(1) Held with IGA(2) Since Expires
<S> <C> <C> <C> <C>
Robert E. Adelsberger 68 Director 1977 2001
Thomas P. Calabrese 56 Director 1976 2001
William L. Harm 48 Director 1984 2002
Mario L. Incollingo, Jr. 60 Director and 1998 2002
Chief
Executive
Officer
Edward D. McBride 48 Director 1981 2000
Frances J. Moran 59 Director 1998 2000
John J. O'Connell 63 Director and 1975 2000
Chairman of
the Board
Clyde A. Warden 57 Director 1980 2001
Dennis P. Wesley 46 Director, 1975 2002
Vice
Chairman
__________________
<FN>
(1) As of March 31, 1999
(2) Includes time as a director of IGA Federal Credit Union.
</TABLE>
The following table sets forth certain information regarding
the executive officers of IGA who are not directors of IGA.
Executive officers of IGA are elected annually by the board of
directors of IGA and serve at the pleasure of the board of
directors.
<TABLE>
<CAPTION>
Position(s)
Name Age(1) Held with IGA
<S> <C> <C>
Dorothy M. Bourlier 39 Senior Vice
President and
Chief Financial
Officer
</TABLE>
__________________
(1) As of March 31, 1999
The business experience of each director and executive
officer for at least the past five years is set forth below.
Robert E. Adelsberger. Mr. Adelsberger was a founding
member of IGA Federal Credit Union in 1975. In 1990,
Mr. Adelsberger retired from PECO Energy where he was employed as
a salesman for 38 years. Mr. Adelsberger volunteers his time to
the Abington memorial Hospital and the Germantown Meals on Wheels
program.
<PAGE 114>
Thomas P. Calabrese. In 1995, Mr. Calabrese retired from
PECO Energy where he was employed as an Estimator/Designer of
Electrical Installation for 38 years.
William L. Harm. Mr. Harm has been employed since 1974 as
Senior Engineer of System Planning for PJM Interconnection, LLC
the electrical control center for the Mid-Atlantic states.
Mario L. Incollingo, Jr. Mr. Incollingo has served as
President and Chief Executive Office of IGA since 1992. In 1988,
Mr. Incollingo joined IGA as Vice President of Lending. Prior
thereto, he served as Executive Vice President of Pennsylvania
Savings Bank from 1985 to 1988. Mr. Incollingo is active in the
local community with memberships in the Feasterville
Businessmen's Association and Rotary Club. Mr. Incollingo serves
as Treasurer of the Playwicki Foundation, a local foundation
dedicated to preservation of the Playwicki Historic Farm.
Edward D. McBride. Mr. McBride has been employed since 1969
as the County Affairs Manager for Philadelphia County for PECO
Energy. Mr. McBride is Chairman of the Board of the Variety
Club, a Delaware Valley organization dedicated to assisting
handicapped children. He also is a member of the Executive Board
of the West Philadelphia Partnership, a community organization
dedicated to safety, education, and economic development; the
Executive Board of the Central Philadelphia Development
Corporation, whose goal is to improve quality of life and
economic development in the center city area; and the Board of
Directors of the Greater Northeast Chamber of Commerce.
Francis J. Moran. Mr. Moran has worked as a self-employed
attorney since 1962. Mr. Moran has served as general counsel to
IGA since 1976.
John J. O'Connell. Mr. O'Connell was a founding member of
IGA Federal Credit Union in 1975. Mr. O'Connell was a registered
lobbyist and, until July 1, 1998, was employed as Manager of
State and Regional Governmental Affairs at PECO Energy.
Mr. O'Connell elected to accept early retirement from PECO
Energy, and as of July 1, 1998 he became the full-time Chairman
of the Board of IGA. Mr. O'Connell has been appointed by
Pennsylvania Governor Ridge to the Governor's Commission on
Economic Development through Labor Management Partnerships. He
also serves as Legislative Advisor to the American Cancer Society
of Southeastern Pennsylvania.
Clyde A. Warden. Since 1995, Mr. Warden has served as
President of Cable Management Consulting Associates, Inc., a
training company specializing in electrical cable. Mr. Warden
retired from PECO Energy in 1995 where he was employed as a
Safety Instructor for 28 years.
Dennis P. Wesley. Mr. Wesley was a founding member of IGA
Federal Credit Union in 1975. Since 1997, Mr. Wesley has been
employed by PECO Energy as Manager of Acquisition Integration.
<PAGE 115> From 1984 to 1997, Mr. Wesley was employed by PECO
Energy as Manager, Business Services, of the Limerick Generating
Station.
Dorothy M. Bourlier. Ms. Bourlier has served as Senior Vice
President and Chief Financial Officer of IGA since 1993.
Ms. Bourlier has been employed by IGA since 1981.
Director Compensation
Prior to July 1, 1998, IGA was a credit union. Under
National Credit Union Administration regulations, directors
receive no compensation. Moreover, for a period of two years
after the conversion of a credit union, directors may not receive
any fees. Therefore, directors do not currently receive any
compensation for their service as directors of IGA.
Executive Compensation
The executive officers of JADE FINANCIAL have received no
compensation from JADE FINANCIAL since its formation. The
following table sets forth information regarding the compensation
of Mr. Incollingo, President and Chief Executive Officer of IGA
and Mr. John J. O'Connell, Chairman of the Board of IGA, for each
of the fiscal years ended December 31, 1998 and June 30, 1998 and
1997. The amounts below represent the aggregate compensation.
No other executive officer of IGA received compensation in excess
of $100,000 for the fiscal year ended December 31, 1998 or
June 30, 1998.
<TABLE>
<CAPTION>
Summary Compensation Table(1)
Annual All Other
Compensation(2) Compensa-
Name and Principal Salary($) tion($)
Position Year (3)(4) Bonus($) (5)(6)(7)(8)
<S> <C> <C> <C> <C>
Mario L. Incollingo, Jr. December 31, 1998 $131,823 $ 20,000 $ 52,043
President and CEO June 30, 1998 78,453 10,000 52,099
June 30, 1997 75,304 9,500 52,733
John J. O'Connell December 31, 1998 $109,268 $ 20,000 $ 0
Chairman June 30, 1998 47,091 5,000 0
June 30, 1997 49,707 0 0
</TABLE>
(1) In 1998, IGA's fiscal year-end was changed from June 30 to
December 31. Accordingly, compensation for 1998 is
presented for the twelve-month period ended December 31,
1998 to reflect IGA's new fiscal year-end, and for the prior
fiscal years ended June 30, 1998 and 1997. Compensation
paid from January 1, 1998 through June 30, 1998 is included
in the compensation reported for the fiscal years ended
December 31, 1998 and June 30, 1998. <PAGE 116>
(2) As a mutual institution, IGA does not have any stock
compensation plans. JADE FINANCIAL intends to adopt stock
compensation plans following the conversion, subject to
shareholder approval. See "-- Benefit Plans."
(3) Includes amounts which were deferred pursuant to IGA's
401(k) plan. Under the 401(k) plan, employees who elect to
participate may elect to have earnings reduced and to cause
the amount of such reduction to be contributed to the 401(k)
plan's related trust in an amount up to 15% of earnings.
Any employee who has completed 1 year of service and
attained the age of 21 is eligible to participate in the
401(k) plan.
(4) IGA provided other benefits to Messrs. Incollingo and
O'Connell in connection with their employment. The value of
such personal benefits, which is not directly related to job
performance, is not included in the table above because the
value of such benefits does not exceed the lesser of $50,000
or 10% of the salary and bonus paid to them.
(5) Includes $0, $937, and $3,083 accrued by IGA for the benefit
of Mr. Incollingo under IGA's defined contribution pension
plan in fiscal years ended December 31, 1998, June 30, 1998,
and 1997, respectively. Mr. O'Connell did not participate
in IGA's defined contribution pension plan in the reported
periods.
(6) Includes $3,549, $2,668 and $1,156 contributed by IGA under
IGA's 401(k) plan for the benefit of Mr. Incollingo in
fiscal years ended December 31, 1998 and June 30, 1998 and
1997, respectively. IGA makes a matching contribution equal
to 100% of the employee's salary reduction up to a maximum
of 3% of the employee's salary. Mr. O'Connell did not
participate in IGA's 401(k) in the reported periods.
(7) Includes $36,494 of insurance premiums paid by IGA in each
of the years in the three fiscal years ended December 31,
1998 and June 30, 1998 and 1997 with respect to a split
dollar term life insurance policy.
(8) Includes $12,000 of deferred compensation paid by IGA in
each of the years in the three fiscal years ended
December 31, 1998 and June 30, 1998 and 1997 under a
deferred compensation agreement for Mr. Incollingo.
Benefits
General. IGA currently provides health and welfare benefits
to its employees, including hospitalization, major medical,
dental, life and disability insurance, subject to certain
deductibles and copayments by employees.
IGA Federal Savings 401(k) Plan. IGA maintains the IGA
Federal Savings 401(k) Plan which is a qualified, tax-exempt
<PAGE 117> profit sharing plan with a cash-or-deferred feature
under Section 401(k) of the Internal Revenue Code. All employees
who have attained age 21 and have completed one year of
employment are eligible to participate. Assets of the 401(k)
Plan are managed by the 401(k) Plan's trustees. John J.
O'Connell, Edward D. McBride and Clyde A. Warden presently serve
as trustees to the 401(k) Plan.
Under the 401(k) Plan, participants are permitted to make
pre-tax salary reduction contributions to the plan equal to a
percentage of up to 15 % of compensation. "Compensation"
includes total compensation (including salary reduction
contributions made under the 401(k) Plan sponsored by IGA), but
does not include compensation in excess of the Internal Revenue
Code Section 401(a)(17) limits (presently $160,000). IGA may
also annually make a discretionary profit sharing contribution to
the 401(k) Plan.
All employee contributions and profit sharing contributions
to the 401(k) plan and earnings thereon are fully and immediately
vested.
Plan benefits will be paid to each participant as a joint
and survivor or single life annuity. In addition, a participant
may, under certain circumstances, elect a lump sum or period
certain payment upon normal retirement, death or disability, or
after termination of employment. During the years ended
December 31, 1998 and June 30, 1998 and 1997, IGA made matching
contributions of $2,668 and $1,156, respectively, to the account
of Mr. Incollingo.
Employee Stock Ownership Plan and Trust. JADE FINANCIAL has
established the employee stock ownership plan for eligible
employees of JADE FINANCIAL and IGA. The employee stock
ownership plan is a tax-qualified plan subject to the
requirements of the Internal Revenue Code. Employees with a
12-month period of employment with JADE FINANCIAL or IGA during
which they worked at least 1,000 hours and who have attained
age 21 are eligible to participate. The employee stock ownership
plan will borrow funds from JADE FINANCIAL and use the funds to
purchase up to 8% of the common stock of JADE FINANCIAL to be
issued in the conversion, or 110,500 shares and 149,500 shares at
the minimum and maximum of the estimated valuation range. If
there are insufficient shares available in the conversion to
satisfy the employee stock ownership plan's purchase order, then
the employee stock ownership plan may, following the conversion,
purchase shares of common stock in the open market.
The common stock purchased by the employee stock ownership
plan will serve as collateral for the employee stock ownership
plan loan to the employee stock ownership plan. The loan will be
repaid principally from IGA's contributions to the employee stock
ownership plan over a period of up to ten years. Shares
purchased by the employee stock ownership plan will be held in a
suspense account for allocation among participants as the loan is
<PAGE 118> repaid. Shares released from the suspense account in
an amount proportional to the repayment of the loan to the
employee stock ownership plan will be allocated among
participants on the basis of compensation in the year of
allocation, up to an annual adjusted maximum level of
compensation (currently $160,000).
Benefits under the employee stock ownership plan generally
become 100% vested after the third year of service or upon normal
retirement (as defined in the employee stock ownership plan),
disability or death of the participant. If a participant
terminates employment for any other reason prior to fully
vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating
employees in the same proportion as contributions. Benefits may
be payable upon death, retirement, early retirement, disability
or separation from service. JADE FINANCIAL's contributions to
the employee stock ownership plan will not be fixed, so benefits
payable under the employee stock ownership plan cannot be
estimated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of New
Accounting Standards."
A committee appointed by the Board of Directors will
administer the employee stock ownership plan. An unrelated
corporate trustee for the employee stock ownership plan will be
appointed prior to the completion of the conversion. The
employee stock ownership plan committee may instruct the trustee
regarding investment of funds contributed to the employee stock
ownership plan. The employee stock ownership plan trustee must
vote all allocated shares held in the employee stock ownership
plan in accordance with the instructions of the participating
employees, and unallocated shares and shares held in the suspense
account in a manner calculated to most accurately reflect the
instructions the employee stock ownership plan trustee has
received from participants regarding the allocated stock, subject
to and in accordance with the fiduciary duties under ERISA owed
by the employee stock ownership plan trustee to the employee
stock ownership plan participants. If no shares are allocated to
participants' accounts at the time common stock of JADE FINANCIAL
is to be voted or if no direction is received by the trustee from
a participant with respect to allocated shares, the trustee will
vote the shares of common stock in its discretion.
GAAP requires that any third party borrowing by the employee
stock ownership plan be reflected as a liability on JADE
FINANCIAL's statement of financial condition. Since the employee
stock ownership plan is borrowing from JADE FINANCIAL, such
obligation is not treated as a liability, but will be excluded
from shareholders' equity. If the employee stock ownership plan
purchases newly issued shares from JADE FINANCIAL, total
shareholders' equity would neither increase nor decrease, but per
share shareholders' equity and per share net earnings would
decrease as the newly issued shares are allocated to the employee
stock ownership plan participants. <PAGE 119>
The employee stock ownership plan will be subject to the
requirements of ERISA, and the regulations of the IRS and the
Department of Labor thereunder.
Stock Compensation Plan. The Board of Directors of JADE
FINANCIAL intends to approve a stock compensation plan prior to
the 2000 annual meeting of shareholders of JADE FINANCIAL; and,
at such meeting, the Board intends to seek shareholder approval
of the stock compensation plan. The stock compensation plan
cannot be presented to the shareholders for approval until at
least six months after completion of the conversion. Certain
officers and employees of JADE FINANCIAL will be eligible to
participate in the stock compensation plan. The stock
compensation plan will authorize the grant of stock options,
stock appreciation rights and restricted stock awards equal to up
to 10% of the number of shares of common stock sold in the
conversion. Pursuant to the stock compensation plan, a committee
of the Board, upon recommendation of the Chief Executive Officer
and subject to ratification by the disinterested members of the
Board, may make grants of options to purchase common stock
intended to qualify as incentive stock options under Internal
Revenue Code Section 422, options that do not so qualify and are
referred to as nonqualified or compensatory stock options, stock
appreciation rights and restricted stock awards. No stock
options, stock appreciation rights or restricted stock awards
will be granted under the stock compensation plan until July 1,
2000.
The purpose of the stock compensation plan is to provide
additional incentive to directors and employees of JADE FINANCIAL
by facilitating their ownership of stock. The stock compensation
plan will have a term of ten years from the date of its approval
by JADE FINANCIAL shareholders (unless the plan is earlier
terminated by the Board of Directors of JADE FINANCIAL) after
which no awards may be made. Pursuant to the stock compensation
plan, a number of shares equal to 10% of the shares of common
stock that are issued in the conversion would be reserved for
future issuance by JADE FINANCIAL, in the form of newly-issued or
treasury shares, upon exercise of stock options or stock
appreciation rights, or the grant of restricted stock. If
options, stock appreciation rights, and restricted stock should
expire, become unexercisable or be forfeited for any reason
without having been exercised or without becoming vested in full,
the shares of common stock will, unless the stock compensation
plan has been terminated, be available for the grant of
additional stock options, stock appreciation rights and
restricted stock awards under the stock compensation plan.
The stock compensation plan will be administered by a
committee of at least three directors of JADE FINANCIAL who are
designated by the Board of Directors and who are "non-employee
directors" within the meaning of the federal securities laws. It
is expected that the compensation committee will initially
consist of Directors ___________________________________. The
compensation committee will select the employees for <PAGE 120>
participation, the number of shares to be granted or awarded, and
the terms and conditions attached to such shares (provided that
any discretion exercised by the compensation committee must be
consistent with the terms of the stock compensation plan).
It is intended that options granted under the stock
compensation plan will constitute both incentive stock options
(options that afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of
the Internal Revenue Code, and that do not result in tax
deductions to the Company unless participants fail to comply with
Section 422 of the Internal Revenue Code) and options that do not
so qualify. The stock compensation plan permits the compensation
committee to impose transfer restrictions, such as a right of
first refusal, on the common stock that optionees may purchase.
It is possible that the compensation committee will impose
transfer restrictions on shares subject to options granted on the
stock compensation plan's effective date. No option shall be
exercisable after the expiration of ten years from the date it is
granted; provided, however, that in the case of any employee who
owns more than 10% of the outstanding common stock at the time an
incentive stock option is granted, the option price for the
incentive stock option shall not be less than 110% of the price
at which the common stock is sold in the offering, and the
incentive stock option shall not be exercisable after the
expiration of five years from the date it is granted. An
otherwise unexpired option, unless otherwise determined by the
compensation committee, shall cease to be exercisable upon an
employee's termination of employment for "just cause" (as defined
in the compensation plan), the date three months after an
employee terminates service for a reason other than just cause,
death, or disability, the date one year after an employee
terminates service due to disability, or the date two years after
termination of such service due to the employee's death. Options
granted to non-employee directors will automatically expire one
year after termination of service on the Board of Directors (two
years in the event of death). Options granted at the time of the
implementation of the stock compensation plan are expected to be
exercisable six months after the date such options are granted.
A stock appreciation right may be granted in tandem with all
or any part of any option or without any relationship to any
option. Whether or not a stock appreciation right is granted in
tandem with an option, exercise of the stock appreciation right
will entitle the optionee to receive, as the compensation
committee prescribes in the grant, all or a percentage of the
excess of the then fair market value of the shares of common
stock subject to the stock appreciation right at the time of its
exercise, over the aggregate exercise price of the shares subject
to the stock appreciation right. Payment to the optionee may be
made in cash or shares of common stock, as determined by the
compensation committee.
Restricted stock is common stock which is nontransferable
and forfeitable until a grantee's interest vests. Nevertheless,
<PAGE 121> the grantee is entitled to vote the restricted stock
and to receive dividends and other distributions made with
respect to the restricted stock. To the extent that a grantee
becomes vested in his restricted stock at any time during the
restriction period (as defined in the stock compensation plan)
and has satisfied applicable income tax withholding obligations,
JADE FINANCIAL may deliver unrestricted shares of common stock to
the grantee. Vesting of restricted stock may be accelerated at
the discretion of the compensation committee. At the end of the
restriction period, the grantee will forfeit to JADE FINANCIAL
any shares of restricted stock as to which he did not earn a
vested interest during the restriction period.
JADE FINANCIAL will receive no monetary consideration for
the grants under the stock compensation plan, and will receive no
monetary consideration other than the option exercise price for
each share issued to optionees upon the exercise of options. The
option exercise price may be paid in cash or common stock. The
exercise of options and stock appreciation rights and the
conditions under which restricted stock vests will be subject to
such terms and conditions established by the compensation
committee as are set forth in a written agreement between the
compensation committee and the optionee (to be entered into at
the date of grant). In the event that the fair market value per
share of the common stock falls below the option price of
previously granted options or stock appreciation rights, the
compensation committee will have the authority, with the consent
of the optionee, to cancel outstanding options or stock
appreciation rights and to reissue new options or stock
appreciation rights at the then current fair market price per
share of the common stock.
Although directors and officers of JADE FINANCIAL generally
would be prohibited under the federal securities laws from
profiting from certain purchases and sales of shares of common
stock within any six-month period, they generally will not be
prohibited by such laws from exercising options and immediately
selling the shares they receive. As a result, JADE FINANCIAL
directors and officers generally will be permitted to benefit in
the event the market price for the shares exceeds the exercise
price of their options, without being subject to loss in the
event the market price falls below the exercise price.
Notwithstanding the provisions of any option, stock
appreciation right or restricted stock award that provides for
its exercise or vesting in installments, all shares of restricted
stock shall become fully vested upon a "change in control" (as
defined in the stock compensation plan) and, for a period of 60
days beginning on the date of such change in control, all options
and stock appreciation rights shall be immediately exercisable
and fully vested. In the event of a change in control, the
compensation committee may permit the holders of exercisable
options to surrender their options in exchange for cash in an
amount equal to the excess of the fair market value of the common
stock subject to the options over their exercise price. Stock
<PAGE 122> options, stock appreciation rights and restricted
stock awards are not assignable or transferable except by will or
the laws of descent and distribution, or pursuant to the terms of
a "qualified domestic relations order" (within the meaning of
Section 414(p) of the Code and the regulations and rulings
thereunder).
The initial grant of options under the stock compensation
plan is expected to take place on the date of the receipt of
shareholder and regulatory approval of the stock compensation
plan, and the option exercise price would be the price at which
the common stock is sold in the offering. No decisions
concerning the number of options to be granted to any director or
officer have been made at this time. No stock appreciation
rights or restricted stock awards are expected to be granted when
the stock compensation plan becomes effective, and no Awards
would be made prior to the receipt of shareholder approval of the
stock compensation plan.
The exercise price of the incentive stock options and
nonqualified options granted under the stock option plan will be
at least equal to the fair market value of the common stock at
the date the option is awarded. Options will generally be
exercisable only after a period of employment from the date of
grant specified in the option agreement. Except in the case of
retirement, death, permanent total disability or termination
deemed to be "at the convenience of JADE FINANCIAL," the option
holder must be employed at the time of exercise. Options may be
exercised within limited times specified in the stock option plan
following termination of employment as a result of death,
permanent and total disability or at the convenience of JADE
FINANCIAL (as determined in the sole discretion of the stock
option committee).
Options will expire on the date specified in the option
agreement entered into at the time of the award, unless the
holder is earlier terminated, dies, retires, becomes totally and
permanently disabled or ceases to be employed by JADE FINANCIAL.
In no event will the term of an incentive stock option extend
beyond ten years from the grant date (five years if held by a 10%
or greater shareholder of JADE FINANCIAL). The term of a
nonqualified stock option must expire not later than ten years
and one month from the grant date.
The number of shares subject to unexercised options and
exercise prices on outstanding options will be adjusted in the
event of certain capital changes such as stock splits, stock
dividends and reclassifications. Because the exercise of options
may result in the issuance of authorized but unissued shares of
common stock, such exercise may have a dilutive effect on the
common stock holdings of existing shareholders.
Under current federal income tax law, an option holder will
not recognize taxable income upon grant or exercise of any
incentive stock option, provided that such shares are not
<PAGE 123> disposed of by such option holder within two years
after the date of grant or within one year after the date of
exercise. No compensation deduction may be taken by JADE
FINANCIAL as a result of the grant or exercise of incentive stock
options. In the case of a nonqualified stock option, an option
holder will be deemed to receive ordinary income upon exercise of
the stock option in an amount equal to the difference between the
exercise price and the fair market value of the common stock
purchased by exercising the option on the date of exercise. The
amount of any ordinary income recognized by an option holder upon
the exercise of a nonqualified stock option or due to a
disposition of common stock acquired upon the exercise of an
incentive stock option prior to the expiration of two years from
the date the incentive option was granted or one year from the
date the common stock was so acquired will be a deductible
compensation expense for tax purposes for JADE FINANCIAL.
Management Recognition Plan. JADE FINANCIAL intends to
establish a management recognition plan as a method of providing
senior officers of JADE FINANCIAL with a proprietary interest in
JADE FINANCIAL and to reward such persons for their service and
encourage such persons to remain in the service of JADE
FINANCIAL. Pursuant to the management recognition plan, the
board of directors will award certain senior officers of JADE
FINANCIAL with "plan share awards" representing the right to earn
shares of common stock over a period of five years from the date
of the plan share award. Each year, participants in the
management recognition plan will earn (become vested in) 20% of
the common stock represented by each plan share award.
No awards will be granted under the management recognition
plan until July 1, 2000, subject to shareholder approval of this
plan. The board of directors intends to present the management
recognition plan for shareholder approval at the 2000 annual
meeting of shareholders of JADE FINANCIAL. The management
recognition plan cannot be presented to the shareholders for
approval until six months after completion of the conversion.
Unless an officer is terminated for cause (as defined in the
management recognition plan), awards will continue to vest
according to the vesting schedule following termination of
employment or service or if JADE FINANCIAL is involved in a
business combination. Termination of employment by a participant
for reasons other than retirement, death or disability
constitutes a revocation of the participant's plan share award.
When a participant's shares become vested in accordance with
the management recognition plan, the participant will recognize
income equal to the fair market value of the common stock so
vested at that time, unless the participant has made an
irrevocable election to be taxed on the shares of common stock
awarded to him in the year of the award. The amount of
compensation income recognized by a participant will be a
deductible expense of JADE FINANCIAL for Federal income tax
purposes. <PAGE 124>
When shares become vested and are actually distributed in
accordance with the management recognition plan, participants
will also receive amounts equal to any accrued dividends with
respect thereto. Prior to vesting, recipients of awards under
the management recognition plan may vote the shares of common
stock allocated to them. The management recognition plan
committee will vote shares as to which no instructions are
received and any unallocated shares in the same proportion as
allocated shares for which instructions are given are voted.
JADE FINANCIAL intends to contribute sufficient funds so
that the management recognition plan's trustee can purchase a
number of shares of common stock equal to up to 4% of the common
stock issued in the conversion. The management recognition plan
may purchase such shares from authorized but unissued shares of
JADE FINANCIAL, treasury shares or in the open market. In the
event that the management recognition plan acquires shares of
common stock from authorized but unissued shares, existing
shareholders will experience dilution of their ownership
interest.
Certain Transactions
Loans to directors and executive officers are made in the
ordinary course of business and on the same terms and conditions
as those of comparable transactions with the general public
prevailing at the time, in accordance with our underwriting
guidelines, and do not involve more than the normal risk of
collectibility or present other unfavorable features.
All loans we make to our directors and executive officers
are subject to the Office of Thrift Supervision regulations
restricting loan and other transactions with affiliated persons
of IGA. Loans to all directors and executive officers and their
associates totaled approximately $1.12 million at March 31, 1999,
which was 7.42% of our equity at that date. All loans to
directors and executive officers were performing in accordance
with their terms at March 31, 1999.
HOW WE ARE REGULATED
Set forth below is a brief description of certain laws
and regulations which are applicable to IGA and JADE FINANCIAL.
The description of these laws and regulations, as well as
descriptions of laws and regulations contained elsewhere herein,
does not purport to be complete and is qualified in its entirety
by reference to the applicable laws and regulations.
Legislation is introduced from time to time in the
United States Congress that may affect the operations of IGA and
JADE FINANCIAL. In addition, the regulations governing IGA and
JADE FINANCIAL may be amended from time to time by the Office of
Thrift Supervision. Any such legislation or regulatory changes
in the future could adversely affect IGA or JADE FINANCIAL. No
<PAGE 125> assurance can be given as to whether or in what form
any such changes may occur.
General
IGA, as a federally chartered savings institution, is
subject to federal regulation and oversight by the Office of
Thrift supervision extending to all aspects of its operations.
IGA also is subject to regulation and examination by the FDIC,
which insures the deposits of IGA to the maximum extent permitted
by law, and requirements established by the Federal Reserve
Board. Federally chartered savings institutions are required to
file periodic reports with the Office of Thrift Supervision and
are subject to periodic examinations by the Office of Thrift
Supervision and the FDIC. The investment and lending authority
of savings institutions are prescribed by federal laws and
regulations, and such institutions are prohibited from engaging
in any activities not permitted by such laws and regulations.
Such regulation and supervision primarily is intended for the
protection of depositors and not for the purpose of protecting
shareholders. This regulatory oversight will continue to apply
to IGA following the conversion.
The Office of Thrift Supervision regularly examines IGA
and prepares reports for the consideration of IGA's board of
directors on any deficiencies that it may find in IGA's
operations. The FDIC also has the authority to examine IGA in
its role as the administrator of the Savings Association
Insurance Fund. IGA's relationship with its depositors and
borrowers also is regulated to a great extent by both federal and
state laws, especially in such matters as the ownership of
savings accounts and the form and content of IGA's mortgage
requirements. Any change in such regulations, whether by the
FDIC, Office of Thrift Supervision or Congress, could have a
material adverse impact on IGA or JADE FINANCIAL and their
operations.
JADE FINANCIAL
Upon completion of the conversion, JADE FINANCIAL will
become a unitary savings and loan holding company. As such, JADE
FINANCIAL will be required to register with and be subject to
Office of Thrift Supervision examination and supervision as well
as certain reporting requirements.
In addition, the Office of Thrift Supervision has
enforcement authority over JADE FINANCIAL which also permits the
Office of Thrift Supervision to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary
savings bank.
As a unitary savings and loan holding company, JADE
FINANCIAL generally is not subject to activity restrictions. If
JADE FINANCIAL acquires control of another savings bank as a
separate subsidiary, it would become a multiple savings and loan
<PAGE 126> holding company, and the activities of JADE FINANCIAL
and any of its subsidiaries (other than IGA or any other Savings
Association Insurance Fund - insured savings bank) would become
subject to activity restrictions by the Office of Thrift
Supervision.
If IGA fails the qualified thrift lender test, JADE
FINANCIAL must obtain the approval of the Office of Thrift
Supervision prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than
those approved for multiple savings and loan holding companies or
their subsidiaries. In addition, within one year of such
failure, JADE FINANCIAL must register as, and will become subject
to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple
savings and loan holding company. See "--Qualified Thrift Lender
Test."
JADE FINANCIAL must obtain approval from the Office of
Thrift Supervision before acquiring control of any other Savings
Association Insurance Fund-insured association. Such
acquisitions are generally prohibited if they result in a
multiple savings and loan holding company controlling savings
banks in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization
or in a supervisory acquisition of a failing savings bank.
IGA
The Office of Thrift Supervision has extensive
authority over the operations of savings institutions. As part
of this authority, IGA is required to file periodic reports with
the Office of Thrift Supervision and is subject to periodic
examinations by the Office of Thrift Supervision and the FDIC.
The last regular Office of Thrift Supervision examination of IGA
was as of May 1999. Under agency scheduling guidelines, it is
likely that another examination will be initiated within 12 to 18
months after the most recent examination. When these
examinations are conducted by the Office of Thrift Supervision
and the FDIC, the examiners may require IGA to provide for higher
general or specific loan lose reserves. All savings institutions
are subject to a semi-annual assessment, based upon the savings
institution's total assets, to fund the operations of the Office
of Thrift Supervision. IGA was not required to pay an assessment
to the Office of Thrift Supervision in 1998. The Office of
Thrift Supervision assessment for the six month period ended
June 30, 1999 was $21,252.
The Office of Thrift Supervision also has extensive
enforcement authority over all savings institutions and their
holding companies, including JADE FINANCIAL. This enforcement
authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these
<PAGE 127> enforcement actions may be initiated for violations of
laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the
Office of Thrift Supervision. Except under certain
circumstances, public disclosure of final enforcement actions by
the Office of Thrift Supervision is required.
In addition, the investment, lending and branching
authority of IGA is prescribed by federal laws and IGA is
prohibited from engaging in any activities not permitted by such
laws. For instance, no savings institution may invest in non-
investment grade corporate debt securities. In addition, the
permissible level of investment by federal institutions in loans
secured by non-residential real property may not exceed 400% of
total capital, except with approval of the Office of Thrift
Supervision. Federal savings institutions are also generally
authorized to branch nationwide. IGA is in compliance with the
noted restrictions.
IGA's general permissible lending limit for loans-to-
one-borrower is equal to 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable
collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At March 31, 1999, IGA's
lending limit under this restriction was $2.52 million. IGA is
in compliance with the loans-to-one-borrower limitation.
The Office of Thrift Supervision has adopted guidelines
establishing safety and soundness standards on such matters as
loan underwriting and documentation, asset quality, earnings
standards, internal controls and audit systems, interest rate
risk exposure and compensation and other employee benefits. Any
institution which fails to comply with these standards must
submit a compliance plan.
Insurance of Accounts and Regulation by the FDIC
IGA is a member of the Savings Association Insurance
Fund, which is administered by the FDIC. Deposits are insured up
to the applicable limits by the FDIC and such insurance is backed
by the full faith and credit of the United States Government. As
insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of, and to require reporting
by, FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the
Savings Association Insurance Fund or Bank Insurance Fund. The
FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the Office of Thrift
Supervision an opportunity to take such action, and may terminate
the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
<PAGE 128>
The FDIC's deposit insurance premiums are assessed
through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and
supervisory evaluation. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at
least 5%, a ratio of Tier 1 or core capital to risk-weighted
assets ("Tier 1 risk-based capital") of at least 6% and a risk-
based capital ratio of at least 10%) and considered healthy pay
the lowest premium while institutions that are less than
adequately capitalized (i.e., core or Tier 1 risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than
8%) and considered of substantial supervisory concern pay the
highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on
a semi-annual basis, if it determines that the reserve ratio of
the Savings Association Insurance Fund will be less than the
designated reserve ratio of 1.25% of Savings Association
Insurance Fund insured deposits. In setting these increased
assessments, the FDIC must seek to restore the reserve ratio to
that designated reserve level, or such higher reserve ratio as
established by the FDIC. The FDIC may also impose special
assessments on Savings Association Insurance Fund members to
repay amounts borrowed from the United States Treasury or for any
other reason deemed necessary by the FDIC. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," for an explanation on the special Savings
Association Insurance Fund assessment amount paid by IGA.
Effective January 1, 1999, the premium schedule for
Bank Insurance Fund and Savings Association Insurance Fund
insured institutions ranged from 0 to 27 basis points. IGA is in
the category of institutions that pay no deposit insurance
premiums. However, all insured institutions are required to pay
a Financing Corporation assessment, in order to fund the interest
on bonds issued to resolve thrift failures in the 1980s. The
current rate for Savings Association Assurance Fund insured
institutions is 6.1 basis points for each $100 in domestic
deposits, while Bank Insurance Fund insured institutions pay an
assessment equal to 1.22 basis points for each $100 in domestic
deposits. After January 1, 2000, Savings Association Insurance
Fund and Bank Insurance Fund insured institutions will be the
same. These assessments, which may be revised based upon the
level of Bank Insurance Fund and Savings Association Insurance
Fund deposits, will continue until the bonds mature in the year
2017.
Regulatory Capital Requirements
Federally insured savings institutions, such as IGA,
are required to maintain a minimum level of regulatory capital.
The Office of Thrift Supervision has established capital
standards, including a tangible capital requirement, a leverage
<PAGE 129> ratio, or core capital, requirement and a risk-based
capital requirement applicable to such savings institutions.
These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The Office
of Thrift Supervision is also authorized to impose capital
requirements in excess of these standards on individual
institutions on a case-by-case basis.
The capital regulations require tangible capital of at
least 1.5% of adjusted total assets, as defined by regulation.
Tangible capital generally includes common shareholders' equity
and retained income, and certain noncumulative perpetual
preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for
calculating compliance with the requirement. At March 31, 1999,
IGA did not have any intangible assets.
At March 31, 1999, IGA had tangible capital of $15.50
million, or 8.71% of adjusted total assets, which is
approximately $12.83 million above the minimum requirement of
1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal
to at least 3% of adjusted total assets. Core capital generally
consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action
provisions discussed below, however, a savings institution must
maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At March 31, 1999, IGA had
no intangibles which were subject to these tests.
At March 31, 1999, IGA had core capital equal to $15.50
million, or 8.71% of adjusted total assets, which is $10.16
million above the minimum leverage ratio requirement of 3% as in
effect on that date.
The Office of Thrift Supervision risk-based requirement
requires savings institutions to have total capital of at least
8.0% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing
capital instruments that do not qualify as core capital and
general valuation loan and lease loss allowances up to a maximum
of 1.25% of risk-weighted assets. Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of
core capital. The Office of Thrift Supervision is also
authorized to require a savings institution to maintain an
additional amount of total capital to account for concentration
of credit risk and the risk of non-traditional activities. At
March 31, 1999, IGA had $1.12 million of general loan loss
reserves, which was less than 1.25% maximum of risk-weighted
assets permitted. <PAGE 130>
In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet items, will be
multiplied by a risk weight, ranging from O% to 100%, based on
the risk inherent in the type of asset. For example, the Office
of Thrift Supervision has assigned a risk weight of 50% for
prudently underwritten permanent one- to four-family first lien
mortgage loans not more than 90 days delinquent and having a loan
to value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by the Fannie Mae or Freddie
Mac.
On March 31, 1999, IGA had total risk-based capital of
$16.61 million (including $15.50 million in core capital and
$1.11 million in supplementary capital) and risk-weighted assets
of $100.17 million; or total capital of 16.58% of risk-weighted
assets. This amount was $8.60 million above the 8.0% requirement
in effect on that date.
The Office of Thrift Supervision and the FDIC are
authorized and, under certain circumstances required, to take
certain actions against savings institutions that fail to meet
their capital requirements. The Office of Thrift Supervision is
generally required to take action to restrict the activities of
"undercapitalized institution," which is an institution with less
than either a 4% core capital ratio, a 4% Tier 1 risked-based
capital ratio or an 8.0% risk-based capital ratio. Any such
institution must submit a capital restoration plan and until
such plan is approved by the Office of Thrift Supervision may not
increase its assets, acquire another institution, establish a
branch or engage in any new activities, and generally may not
make capital distributions. The Office of Thrift Supervision is
authorized to impose the additional restrictions that are
applicable to significantly undercapitalized institutions.
As a condition to the approval of the capital
restoration plan, any company controlling an undercapitalized
institution must agree that it will enter into a limited capital
maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings institution that fails to comply with its
capital plan or has Tier 1 risk-based or core capital ratios of
less than 3% or a risk-based capital ratio of less than 6% and is
considered "significantly undercapitalized" must be made subject
to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and
include a forced merger or acquisition of the institution. An
institution that becomes "critically undercapitalized" because it
has a tangible capital ratio of 2% or less is subject to further
mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized institutions. In
addition, the Office of Thrift Supervision must appoint a
receiver, or conservator with the concurrence of the FDIC, for a
savings institution, with certain limited exceptions, within 90
days after it becomes critically undercapitalized. Any
<PAGE 131> undercapitalized institution is also subject to the
general enforcement authority of the Office of Thrift Supervision
and the FDIC, including the appointment of a conservator or a
receiver.
The Office of Thrift Supervision is also generally
authorized to reclassify an institution into a lower capital
category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.
The imposition by the Office of Thrift Supervision or
the FDIC of any of these measures on IGA may have a substantial
adverse effect on its operations and profitability.
Limitations on Dividends and Other 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.
A savings institution may make a capital distribution
without prior 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, and the
aggregate distribution in any calendar year is less than the net
income for that year to date, plus the retained earnings for the
prior two years. As IGA will be a subsidiary of a holding
company, it will need to give thirty days prior notice to the
Office of Thrift Supervision before making any dividend. 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. A savings institution
may not make a capital distribution without prior approval of the
Office of Thrift Supervision and the FDIC if it is
undercapitalized before, or as a result of, such a distribution.
The Office of Thrift Supervision may object to a capital
distribution if it would constitute an unsafe or unsound
practice.
Liquidity
All savings institutions, including IGA, are required
to maintain an average daily balance of liquid assets equal to a
certain percentage of the average daily balance of its liquidity
base during the preceding calendar quarter or a percentage of the
amount of its liquidity base at the end of the preceding quarter.
For a discussion of what IGA includes in liquid assets, see
<PAGE 132> "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Commitments."
This liquid asset ratio requirement may vary from time to time
between 4% and 10% depending upon economic conditions and savings
flows of all savings institutions. At the present time, the
minimum liquid asset ratio is 4%.
Penalties may be imposed upon institutions for
violations of the liquid asset ratio requirement. At March 31,
1999, IGA was in compliance with the requirement, with an overall
liquid asset ratio of 25%.
Qualified Thrift Lender Test
All savings institutions, including IGA, are required
to meet a qualified thrift lender test to avoid certain
restrictions on their operations. This test requires a savings
institution to have at least 65% of its portfolio assets, 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 institution 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 March 31, 1999, IGA met the
test and has always met the test since its effectiveness.
Any savings institution 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 institution
does not requalify and converts to a national bank charter, it
must remain Savings Association Insurance Fund insured until the
FDIC permits it to transfer to the Bank Insurance Fund. If such
an institution has not yet requalified or converted to a national
bank, its new investments and activities are limited to those
permissible for both a savings institution and a national bank,
and it is limited to national bank branching rights in its home
state. In addition, the institution is immediately ineligible to
receive any new Federal Home Loan Bank borrowings and is subject
to national bank limits for payment of dividends. If such an
institution has not requalified or converted to a national bank
within three years after the failure, it must divest itself 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 institution 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. See "--JADE FINANCIAL."
<PAGE 133>
Community Reinvestment Act
Under the Community Reinvestment Act, every FDIC
insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate
income neighborhoods. The Community Reinvestment Act does not
establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to
develop the types of products and services that it believes are
best suited to its particular Community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act
requires the Office of Thrift Supervision, in connection with the
examination of IGA, to assess the institution's record of meeting
the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a
merger or the establishment of a branch, by IGA. An
unsatisfactory rating may be used as the basis for the denial of
an application by the Office of Thrift Supervision. Due to the
heightened attention being given to the Community Reinvestment
Act in the past few years, IGA may be required to devote
additional funds for investment and lending in its local
community. IGA was examined for Community Reinvestment Act
compliance in May 1999, and received a rating of _______________.
Transactions with Affiliates
Generally, transactions between a savings institution
or its subsidiaries and its affiliates are required to be on
terms as favorable to the institution as transactions with non-
affiliates. In addition, certain of these transactions, such as
loans to an affiliate, are restricted to a percentage of the
institution's capital. Affiliates of IGA include JADE FINANCIAL
and any company which is under common control with IGA. In
addition, a savings institution may not lend to any affiliate
engaged in activities not permissible for a bank holding company
or acquire the securities of most affiliates. The Office of
Thrift Supervision has the discretion to treat subsidiaries of
savings institutions as affiliates on a case by case basis.
Certain transactions with directors, officers or
controlling persons are also subject to conflict of interest
regulations enforced by the Office of Thrift Supervision. These
conflict of interest regulations and other statutes also impose
restrictions on loans to such persons and their related
interests. Among other things, such loans must generally be made
on terms substantially the same as for loans to unaffiliated
individual.
Federal Securities Law
The stock of JADE FINANCIAL will be registered with the
SEC under the Securities Exchange Act of 1934, as amended. JADE
FINANCIAL will be subject to the information, proxy solicitation,
<PAGE 134> insider trading restrictions and other requirements of
the SEC under the Securities Exchange Act of 1934.
JADE FINANCIAL stock held by persons who are affiliates
of JADE FINANCIAL may not be resold without registration or
unless sold in accordance with certain resale restrictions.
Affiliates are generally considered to be officers, directors and
principal shareholders. If JADE FINANCIAL meets specified
current public information requirements, each affiliate of JADE
FINANCIAL is able to sell in the public market, without
registration, a limited number of shares in any three-month
period.
Federal Reserve System
The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at
specified levels against their transaction accounts, primarily
checking, NOW and Super NOW checking accounts. At March 31,
1999, IGA was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by
the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the office of Thrift
Supervision. See "--Liquidity."
Savings institutions are authorized to borrow from the
Federal Reserve Bank "discount window," but Federal Reserve Board
regulations require institutions to exhaust other reasonable
alternative sources of funds, including Federal Home Loan Bank
borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
IGA is a member of the Federal Home Loan Bank of
Pittsburgh which is one of 12 regional Federal Home Loan Banks,
that administers the home financing credit function of savings
institutions. Each Federal Home Loan Bank serves as a reserve or
central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of
consolidated obligations of the Federal Home loan Bank System.
It makes loans or advances to members in accordance with policies
and procedures, established by the board of directors of the
Federal Home Loan Bank, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the Federal
Home Loan Bank are required to be fully secured by sufficient
collateral as determined by the Federal Home Loan Bank. in
addition, all long-term advances are required to provide funds
for residential home financing.
As a member, IGA is required to purchase and maintain
stock in the Federal Home Loan Bank of Pittsburgh. For the
calendar year ended December 31, 1998, IGA had an average
outstanding balance of $833,500 in Federal Home Loan Bank stock,
which-was in compliance with this requirement. In the past
calendar year such dividends have averaged 6.50%. <PAGE 135>
Under federal law the Federal Home Loan Banks are
required to provide funds for the resolution of troubled savings
institutions and to contribute to low- and moderately-priced
housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-
income housing projects. These contributions have affected
adversely the level of Federal Home Loan Bank dividends paid and
could continue to do so in the future. These contributions could
also have an adverse effect on the value of Federal Home Loan
Bank stock in the future. A reduction in value of IGA's Federal
Home Loan Bank stock may result in a corresponding reduction in
IGA's capital.
For the calendar year ended December 31, 1998,
dividends paid by the Federal Home Loan Bank of Pittsburgh to IGA
totaled $21,225.
TAXATION
Federal Taxation
General. JADE FINANCIAL and IGA will be subject to federal
income taxation in the same general manner as other corporations
with some exceptions discussed below. The following discussion
of federal taxation is intended only to summarize certain
pertinent federal income tax matters and is not a comprehensive
description of the tax rules applicable to JADE FINANCIAL or IGA.
IGA was not subject to federal income tax prior to July 1, 1998.
Following the conversion, JADE FINANCIAL anticipates that it
will file a consolidated federal income tax return with IGA,
commencing with the first taxable year after completion of the
conversion. Accordingly, it is anticipated that any cash
distributions made by JADE FINANCIAL to its shareholders would be
considered to be taxable dividends and not as a non-taxable
return of capital to shareholders for federal and state tax
purposes.
Method of Accounting. For federal income tax purposes, IGA
currently reports its income and expenses on the accrual method
of accounting and uses a calendar year for filing its federal
income tax return.
Bad Debt Reserves. As a result of the Small Business Job
Protection Act, savings associations must now use the specific
chargeoff method in computing bad debt deductions.
Minimum Tax. The Internal Revenue Code imposes an
alternative minimum tax at a rate of 20% on a base of regular
taxable income plus certain tax preferences, called alternative
minimum taxable income. The alternative minimum tax is payable
to the extent such alternative minimum taxable income is in
excess of an exemption amount. Net operating losses can offset
no more than 90% of alternative minimum taxable income. Certain
payments of alternative minimum tax may be used as credits
<PAGE 136> against regular tax liabilities in future years. IGA
has not been subject to the alternative minimum tax nor does IGA
have any such amounts available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may
carryback net operating losses to the preceding two taxable years
and forward to the succeeding 20 taxable years. This provision
applies to losses incurred in taxable years beginning after
August 6, 1997. For losses incurred in the taxable years prior
to August 6, 1997, the carryback period was three years and the
carryforward period was 15 years. At March 31, 1999, IGA had no
net operating loss carryforwards for federal income tax purposes.
Corporation Dividends-Received Deduction. JADE FINANCIAL
may eliminate from its income dividends received from IGA as a
wholly-owned subsidiary of JADE FINANCIAL if, as expected, it
elects to file a consolidated return with IGA.
State Taxation
JADE FINANCIAL will be subject to Pennsylvania's mutual
thrift institutions tax, which is generally levied upon "taxable
net income" from all sources, as determined in accordance with
generally accepted accounting principles, at the rate of 11.5%.
"taxable net income" is net income after apportionment and any
deduction for net operating loss carryover. Income or loss from
(i) U.S. obligations, which by federal law are exempt from state
and local taxation, and (ii) Pennsylvania obligations that by
state law are exempt from taxation by Pennsylvania, are excluded
from "taxable net income."
RESTRICTIONS ON ACQUISITION
OF JADE FINANCIAL AND IGA
The principal federal regulatory restrictions which
affect the ability of any person, firm or entity to acquire JADE
FINANCIAL, IGA or their respective capital stock are described
below. Also discussed are certain provisions of Pennsylvania's
Business Corporation Law and JADE FINANCIAL's articles of
incorporation and bylaws which may be deemed to affect the
ability of a person, firm or entity to acquire JADE FINANCIAL.
Federal Law
The Change in Bank Control Act provides that no person,
acting directly or indirectly or through or in concert with one
or more other persons, may acquire control of a savings
institution unless the Office of Thrift Supervision has been
given 60 days prior written notice. The Home Owners Loan Act
provides that no company may acquire "control" of a savings
institution 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.
Pursuant to federal regulations, control of a savings institution
<PAGE 137> is conclusively deemed to have been acquired by, among
other things, the acquisition of more than 25% of any class of
voting stock of the institution or the ability to control the
election of a majority of the directors of an institution.
Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of
voting stock, or of more than 25% of any class of stock of a
savings institution, where certain enumerated "control factors"
are also present in the acquisition. The Office of Thrift
Supervision may prohibit an acquisition of control if:
- it would result in a monopoly or substantially
lessen competition;
- the financial condition of the acquiring person
might jeopardize the financial stability of the
institution; or
- the competence, experience or integrity of the
acquiring person indicates that it would not be in
the interest of the depositors or of the public to
permit the acquisition of control by such person.
These restrictions do not apply to the acquisition of a savings
institution's capital stock by one or more tax-qualified employee
stock benefit plans, provided that the plans do not have
beneficial ownership of more than 25% of any class of equity
security of the savings institution.
For a period of three years following completion of the
conversion, Office of Thrift Supervision regulations generally
prohibit any person from acquiring or making an offer to acquire
beneficial ownership of more than 10% of the stock of JADE
FINANCIAL or IGA without Office of Thrift Supervision approval.
Pennsylvania Law
Chapter 25 of the Pennsylvania Business Corporation Law
contains certain "anti-takeover" provisions which apply to a
"registered corporation," unless the registered corporation
elects not to be governed by such provisions. The Company will
be a "registered corporation" within the meaning of Chapter 25 of
the Pennsylvania Business Corporation Law because the common
stock of JADE FINANCIAL is entitled to vote generally in the
election of directors and will be registered under the Securities
Exchange Act of 1934, as amended. The relevant provisions are
contained in Subchapters 25E through 25H of the Pennsylvania
Business Corporation Law.
Subchapter 25E of the Pennsylvania Business Corporation Law
(relating to control transactions) provides that if any person or
group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such
person or group the fair value of their shares, including a
proportionate amount of any control premium. <PAGE 138>
Subchapter 25F of the Pennsylvania Business Corporation Law
(relating to business combinations) delays for five years and
imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions
utilizing a corporation's assets for purchase price amortization
or refinancing purposes. For this purpose, an "interested
shareholder" is defined generally as the beneficial owner of at
least 20% of a corporation's voting shares.
Subchapter 25G of the Pennsylvania Business Corporation Law
(relating to control-share acquisitions) prevents a person who
has acquired 20% or more of the voting power of a covered
corporation from voting such shares unless the "disinterested"
shareholders approve such voting rights. Failure to obtain such
approval exposes the owner to the risk of a forced sale of the
shares to the issuer.
Subchapter 25H of the Pennsylvania Business Corporation Law
(relating to disgorgement) applies in the event that (i) any
person or group publicly discloses that the person or group may
acquire control of the corporation or (ii) a person or group
acquires (or publicly discloses an offer or intent to acquire)
20% or more of the voting power of the corporation and, in either
case, sells shares within 18 months thereafter. Any profits from
sales of equity securities of the corporation by, the person or
group during such 18-month period belong to the corporation if
the securities that were sold were acquired during the 18-month
period or within 24 months prior thereto.
Subchapter 25I of the Pennsylvania Business Corporation Law
(relating to severance payments) provides for a minimum severance
payment to certain employees terminated within two years of the
approval of a control-share acquisition under Subchapter 25G of
the Pennsylvania Business Corporation Law. Subchapter 25J of the
Pennsylvania Business Corporation Law (relating to labor
contracts) prohibits, in connection with a control-share
acquisition under Subchapter 25G of the Pennsylvania Business
Corporation Law, the abrogation of certain labor contracts, if
any, prior to their stated date of expiration.
JADE FINANCIAL has elected not to "opt out" of coverage
under Subchapter 25 of the Pennsylvania Business Corporation Law,
and therefore, the foregoing provisions of Subchapter 25 of the
Pennsylvania Business Corporation Law will be applicable to JADE
FINANCIAL. Subchapters 25E through 25H of the Pennsylvania
Business Corporation Law contain a wide variety of transactional
and status exemptions, exclusions and safe harbors.
<PAGE 139>
Articles of Incorporation and Bylaws of JADE FINANCIAL
The following discussion is a summary of certain provisions
of JADE FINANCIAL's articles of incorporation and bylaws that
relate to corporate governance. The description is necessarily
general and qualified by reference to the articles of
incorporation and bylaws.
Directors. Certain provisions of JADE FINANCIAL's articles
of incorporation and bylaws will impede changes in majority
control of JADE FINANCIAL's board of directors. JADE FINANCIAL's
articles of incorporation provide that the board of directors of
JADE FINANCIAL will be divided into three classes, with directors
in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of three directors
or more, it would take two annual elections to replace a majority
of JADE FINANCIAL's Board.
JADE FINANCIAL's bylaws provide that any vacancy occurring
in the board of directors, including a vacancy created by an
increase in the number of directors, shall be filled for the
remainder of the unexpired term by a majority vote of the
directors then in office. In addition, the bylaws impose certain
notice and information requirements in connection with the
nomination by shareholders of candidates for election to JADE
FINANCIAL's board of directors or the proposal by shareholders of
business to be acted upon at an annual meeting of shareholders.
The articles of incorporation provide that a director may
only be removed by shareholders for cause and upon the
affirmative vote of at least a majority of the votes cast by
shareholders.
Restrictions on Call of Special Meetings. JADE FINANCIAL's
articles of incorporation provide that a special meeting of
shareholders may be called only pursuant to a resolution of JADE
FINANCIAL's board of directors and for only such business as
directed by the board of directors. Shareholders are not
authorized to call a special meeting.
Absence of Cumulative Voting. JADE FINANCIAL's articles of
incorporation does not provide for cumulative voting rights in
the election of directors.
Authorization of Preferred Stock. The articles of
incorporation of JADE FINANCIAL authorizes 5,000,000 shares of
preferred stock, $.01 par value. JADE FINANCIAL is authorized to
issue preferred stock from time to time in one or more series
subject to applicable provisions of law, and JADE FINANCIAL's
board of directors is authorized to fix the designations, powers,
preferences and relative participating, optional and other
special rights of such shares, including voting rights (which
could be multiple or as a separate class) and conversion rights.
In the event of a proposed merger, tender offer or other attempt
to gain control of JADE FINANCIAL that the board of directors
<PAGE 140> does not approve, it might be possible for the board
of directors to authorize the issuance of a series of preferred
stock with rights and preferences that would impede the
completion of such a transaction. If JADE FINANCIAL issued any
preferred stock which disparately reduced the voting rights of
the common stock within the meaning of Rule 19c-4 under the
Exchange Act of 1934, as amended, the common stock could be
required to be delisted from the Nasdaq Stock Market. An effect
of the possible issuance of preferred stock, therefore, may be to
deter a future takeover attempt. The board of directors has no
present plans or understandings for the issuance of any preferred
stock and does not intend to issue any preferred stock except on
terms which the board deems to be in the best interests of JADE
FINANCIAL and its shareholders.
Limitation on Voting Rights. JADE FINANCIAL's articles of
incorporation provide that in no event shall any record owner of
any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of common stock (the
"Limit"), be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. This limitation would not
inhibit any person from soliciting (or voting) proxies from other
beneficial owners for more than 10% of the common stock or from
voting such proxies. Beneficial ownership is to be determined
pursuant to Rule 13d-3 of the General Rules and Regulations of
the Exchange Act of 1934, as amended, and includes shares
beneficially owned by any affiliate of such person, shares which
such person or his affiliates (as defined in the articles of
incorporation) have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person
and his affiliates have or share investment or voting power, but
shall not include shares beneficially owned by directors,
officers and employees of JADE FINANCIAL or IGA. This provision
will be enforced by the board of directors to limit the voting
rights of persons beneficially owning more than 10% of the stock
and thus could be utilized in a proxy contest or other
solicitation to defeat a proposal that is desired by a majority
of the shareholders.
Procedures for Certain Business Combinations. JADE
FINANCIAL's articles of incorporation require that certain
business combinations (including transactions initiated by
management) between JADE FINANCIAL (or any majority-owned
subsidiary thereof) and a 5% or more shareholder be approved by
at least 80% of the total number of outstanding voting shares,
voting as a single class, if the transaction is not approved, in
advance, by board of directors.
It should be noted that, since the board or directors and
management (10 persons) intend to purchase approximately $1.33
million of the shares offered in the conversion and may control
the voting of additional shares through the employee stock
ownership plan and proposed restricted stock plan and stock
option plan, the board and management may be able to block the
<PAGE 141> approval of combinations requiring an 80% vote even
where a majority of the shareholders vote to approve such
combinations.
Amendment to Articles of Incorporation and Bylaws.
Amendments to JADE FINANCIAL's articles of incorporation must be
approved by JADE FINANCIAL's board of directors and also by a
majority of the outstanding shares of JADE FINANCIAL's voting
stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain
provisions (i.e., provisions relating to number, classification,
election and removal of directors; amendment of bylaws; call of
special shareholder meetings; offers to acquire and acquisitions
of control; director liability; certain business combinations;
power of indemnification and amendments to provisions relating to
the foregoing in the articles of incorporation).
The bylaws may be amended by the board of directors, subject
to the right of shareholders to change such action by the
affirmative vote of at least 66-2/3% of the total votes eligible
to be voted at a duly constituted meeting of shareholders;
provided, however, that bylaw provisions relating to limitations
on directors' liabilities and indemnification may not be amended
to increase exposure to liability for directors or to decrease
indemnification of directors and officers except by the
affirmative vote of 66-2/3% of the board of directors or by the
affirmative vote of shareholders entitled to cast at least 80% of
the votes all shareholders are entitled to cast.
Purpose and Takeover Defensive Effects of JADE FINANCIAL's
Articles of Incorporation and Bylaws. We believe that the
provisions described above are prudent and will reduce JADE
FINANCIAL's 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 us in
the orderly deployment of the conversion proceeds into productive
assets during the initial period after the conversion. We
believe these provisions are in the best interest of JADE
FINANCIAL and IGA and JADE FINANCIAL's shareholders. In our
judgment, JADE FINANCIAL's board will be in the best position to
determine the true value of JADE FINANCIAL and to negotiate more
effectively for what may be in the best interests of its
shareholders. Accordingly, we believe that it is in the best
interests of JADE FINANCIAL and its shareholders to encourage
potential acquirors to negotiate directly with the board of
directors of JADE FINANCIAL and that these provisions will
encourage such negotiations and discourage hostile takeover
attempts. It is also our view that these provisions should not
discourage persons from proposing a merger or other transaction
at prices reflective of the true value of JADE FINANCIAL and
which is in the best interests of all shareholders.
Attempts to take over financial institutions and their
holding companies have recently become increasingly common.
Takeover attempts which have not been negotiated with and
<PAGE 142> approved by the board of directors present to
shareholders 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 for JADE
FINANCIAL and its shareholders, with due consideration given to
matters such as the management and business of the acquiring
corporation and maximum strategic development of JADE FINANCIAL's
assets.
An unsolicited takeover proposal can seriously disrupt the
business and management of a corporation and cause it great
expense. Although a tender offer or other takeover attempt may
be made at a price substantially above then current market
prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result,
shareholders 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 objectives may not
be similar to those of the remaining shareholders. The
concentration of control, which could result from a tender offer
or other takeover attempt, could also deprive JADE FINANCIAL's
remaining shareholders of the benefits of certain protective
provisions of the Exchange Act of 1934, as amended, if the number
of beneficial owners becomes less than the 300 required for
Exchange Act registration.
Despite our belief as to the benefits to shareholders of
these provisions of JADE FINANCIAL's articles of incorporation
and bylaws, these provisions may also have the effect of
discouraging a future takeover attempt which would not be
approved by JADE FINANCIAL's board, but pursuant to which
shareholders may receive a substantial premium for their shares
over then current market prices. As a result, shareholders 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 JADE FINANCIAL's board of directors and of management
more difficult. JADE FINANCIAL will enforce the voting
limitation provisions of the articles of incorporation in proxy
solicitations and accordingly could utilize these provisions to
defeat proposals that are favored by a majority of the
shareholders. We, however, have concluded that the potential
benefits outweigh the possible disadvantages.
DESCRIPTION OF CAPITAL STOCK OF JADE FINANCIAL
General
JADE FINANCIAL is authorized to issue 10,000,000 shares of
common stock, par value $.01 per share, and 5,000,000 shares of
preferred stock, having such par value as the board of directors
of JADE FINANCIAL shall fix and determine. JADE FINANCIAL
currently expects to issue between 1,273,585 and 1,723,086 shares
<PAGE 143> (or, as permitted by the plan of conversion, in the
event the employee stock ownership plan purchases shares in
excess of the maximum of the estimated valuation range in order
to satisfy its 8% subscription, up to 1,981,549 shares), subject
to adjustment, of the common stock and no shares of preferred
stock in the conversion. JADE FINANCIAL has reserved for future
issuance under the stock option plan, the employee stock
ownership plan and management recognition plan an amount of
authorized but unissued shares of common stock equal to 10% of
the shares to be issued in the conversion.
Common Stock
Voting Rights
Each share of the common stock will have the same relative
rights and will be identical in all respects with every other
share of the common stock. The holders of the common stock will
possess exclusive voting rights in JADE FINANCIAL, except to the
extent that shares of preferred stock issued in the future may
have voting rights, if any. Each holder of shares of the common
stock will be entitled to one vote for each share held of record
on all matters submitted to a vote of holders of shares of the
common stock. Holders of common stock will not be entitled to
cumulate their votes for election of directors.
Dividends
We may, from time to time, declare dividends to the holders
of common stock, who will be entitled to share equally in any
such dividends. For additional information as to cash dividends,
see "Dividend Policy."
Liquidation
In the event of any liquidation, dissolution or winding up
of any or all of IGA, JADE FINANCIAL, as holder of all of the
capital stock of IGA, would be entitled to receive all assets of
IGA after payment of all debts and liabilities of IGA and after
distribution of the balance in the liquidation account to
Eligible Account Holders and Supplemental Eligible Account
Holders. In the event of a liquidation, dissolution or winding
up of JADE FINANCIAL, each holder of shares of common stock would
be entitled to receive, after payment of all debts and
liabilities of JADE FINANCIAL, a pro rata portion of all assets
of JADE FINANCIAL available for distribution to holders of common
stock. If any preferred stock is issued, the holders thereof may
have a priority in liquidation or dissolution over the holders of
the common stock.
<PAGE 144>
Other Characteristics
Holders of the common stock will not have preemptive rights
with respect to any additional shares of common stock that may be
issued. The common stock is not subject to call for redemption,
and the outstanding shares of common stock, when issued and upon
receipt by JADE FINANCIAL of the full purchase price therefor,
will be fully paid and nonassessable.
Preferred Stock
None of the 5,000,000 authorized shares of preferred stock
of JADE FINANCIAL will be issued in the conversion. After the
conversion is completed, the board of directors of JADE FINANCIAL
will be authorized, without shareholder approval, to issue
preferred stock and to fix and state voting powers, designations,
preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. The
preferred stock may rank prior to the common stock as to dividend
rights or liquidation preferences, or both, and may have full or
limited voting rights. The board of directors has no present
intention to issue any of the preferred stock. Should the board
of directors of JADE FINANCIAL subsequently issue preferred
stock, no holder of any such stock shall have any preemptive
right to subscribe for or purchase any stock or any other
securities of JADE FINANCIAL other than such, if any, as the
board of directors, in its sole discretion, may determine and at
such price or prices and upon such other terms as the board of
directors, in its sole discretion, may fix.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for JADE FINANCIAL's
common stock is ________________________.
EXPERTS
The financial statements of IGA as of December 31, 1998
and for the six months ended December 31, 1998, as of June 30,
1998 and 1997 and for each of the three years in the period ended
June 30, 1998 included in this prospectus have been audited by
Stockton Bates & Company, P.C., independent auditors, as stated
in their report appearing herein and elsewhere in the
registration statement, and have been so included in reliance
upon the report of such firm given upon their authority as
experts in accounting and auditing.
RP Financial has consented to the publication herein of
the summary of its report to IGA setting forth its opinion as to
the estimated pro forma market value of the common stock upon
conversion and its letter with respect to subscription rights.
<PAGE 145>
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal and
Pennsylvania income tax consequences of the conversion will be
passed upon for IGA by Stevens & Lee, P.C., Wayne, Pennsylvania,
special counsel to IGA and JADE FINANCIAL. The federal income
tax consequences of the deductibility of a contribution of JADE
FINANCIAL common stock to the private foundation, and
applicability of the self-dealing rules to such contribution will
be passed upon for IGA by Stevens & Lee, P.C. Certain legal
matters will be passed upon for Charles Webb & Company by Silver,
Freedman & Taff, L.L.P., Washington, D.C.
ADDITIONAL INFORMATION
JADE FINANCIAL has filed with the SEC a Registration
Statement under the Securities Act of 1933, as amended, with
respect to the common stock offered hereby. As permitted by the
rules and regulations of the SEC, this prospectus does not
contain all the information set forth in the Registration
Statement. Such information, including the Appraisal Report
which is an exhibit to the Registration Statement, can be
examined without charge at the public reference facilities of the
SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at
prescribed rates. In addition, the SEC maintains a web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC, including JADE FINANCIAL. The
statements contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the
Registration Statement are, of necessity, brief descriptions
thereof and are not necessarily complete; each such statement is
qualified by reference to such contract or document.
JADE FINANCIAL has filed an Application for conversion
with the Office of Thrift Supervision. This prospectus omits
certain information contained in the Application. The
Application may be examined at the principal office of the Office
of Thrift Supervision, 1700 G Street, N.W., Washington, D.C.
20552 and at the Central Regional Office of the Office of Thrift
Supervision located at 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606.
JADE FINANCIAL will register its common stock with the
SEC under Section 12 of the Securities Exchange Act of 1934, as
amended, and, upon such registration JADE FINANCIAL and the
holders of its stock will become subject to the proxy
solicitation rules, reporting requirements and restrictions on
stock purchases and sales by directors, officers and greater than
10% shareholders, the annual and periodic reporting and certain
other requirements of the Securities Exchange Act of 1934. Under
the plan of conversion, JADE FINANCIAL has undertaken that it
will not terminate such registration for a period of at least
three years following the conversion. <PAGE 146>
A copy of the plan of conversion and the articles of
incorporation and bylaws of JADE FINANCIAL and IGA are available
without charge from IGA. Requests for such information should be
directed to: Shareholder Relations, IGA Federal Savings, 213
West Street Road, Feasterville, Pennsylvania 19053. <PAGE 147>
IGA FEDERAL SAVINGS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report ............................. F-2
Consolidated Statements of Financial Condition
at March 31, 1999 (Unaudited), December 31, 1998 and
June 30, 1998 ............................................ F-3
Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998 (Unaudited),
for the Six Months Ended December 31, 1998 and 1997
(Unaudited) and for the Years Ended June 30, 1998
and 1997 ................................................. F-4
Consolidated Statements of Equity for the Three Months
Ended March 31, 1999 and 1998 (Unaudited), for the Six
Months Ended December 31, 1998 and 1997 (Unaudited)
and for the Years Ended June 30, 1998 and 1997 ........... F-5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 (Unaudited),
for the Six Months Ended December 31, 1998
and for the Years Ended June 30, 1998 and 1997 ........... F-7
Notes to Consolidated Financial Statements ............... F-11
All schedules are omitted because the required information
is not applicable or is included in the Consolidated Financial
Statements and related Notes.
The financial statements of JADE FINANCIAL have been omitted
because JADE FINANCIAL has not yet issued any stock, has no
assets, no liabilities and has not conducted any business other
than that of an organizational nature.
<PAGE F-1>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
IGA Federal Savings Bank
213 West Street Road
Feasterville, Pennsylvania 19053
We have audited the accompanying consolidated statements of
financial condition of IGA Federal Savings Bank and Subsidiary as
of December 31, 1998 and June 30, 1998 and the related
consolidated statements of income, equity and cash flows for the
six months ended December 31, 1998 and the years ended June 30,
1998 and 1997. These consolidated financial statements are the
responsibility of the Savings Bank's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of IGA Federal Savings Bank and Subsidiary as
of December 31, 1998 and June 30, 1998 and the results of their
operations and their cash flows for the six months ended
December 31, 1998, and the two years ended June 30, 1998 and 1997
in conformity with generally accepted accounting principles.
Certified Public Accountants
Philadelphia, Pennsylvania
March 18, 1999
May 26, 1999 with respect to (Note 18)
<PAGE F-2>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998
Unaudited
(Dollars in Thousands)
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 8,564 $ 8,388 $ 4,742
Interest bearing deposits in other
financial institutions 1,234 1,237 3,205
Federal funds 8,315 8,726 5,034
Restricted cash 760
Investment securities,
available-for-sale, 28,240 28,726 19,340
Mortgage-backed securities
available-for-sale 15,529 10,176 14,267
Investment securities held-to-maturity
(fair value of $-0-, $-0- and $499) 499
Mortgage-backed securities
held-to-maturity (fair value of
$5,521, $6,541 and $8,950) 5,594 6,635 9,071
Loans receivable, net 105,320 102,900 98,096
Property, equipment and leasehold
improvements, net of accumulated
depreciation 1,879 1,962 1,883
Federal home loan bank stock, at cost 834 834
Accrued interest receivable 964 646 695
Share insurance fund 29 1,316
Reorganization costs, net 194 195 144
Deferred tax asset, net 46 44
Prepaid expenses and other assets 757 593 797
TOTAL ASSETS $177,470 $171,091 $159,852
LIABILITIES AND EQUITY
LIABILITIES:
Deposits $161,429 $154,888 $143,934
Advances from borrowers for taxes 574 521 571
Accounts payable and accrued expenses 371 406 267
Total liabilities 162,374 155,815 144,772
EQUITY:
Commitments and contingencies (Note 16)
Retained earnings, (See Notes 11 and 12) 15,690 15,560 15,294
Accumulated other comprehensive income ( 594) ( 284) ( 214)
Total Equity 15,096 15,276 15,080
Total Liabilities and Equity $177,470 $171,091 $159,852
</TABLE>
See Accompanying Notes
<PAGE F-3>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, December 31,
1999 1998 1998 1997
Unaudited Unaudited
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $2,154 $2,137 $4,275 $4,510
Investments and mortgage-backed
securities 645 489 1,210 842
Interest-earning deposits 15 22 51 56
Federal funds 128 173 253 472
Total interest income 2,942 2,821 5,789 5,880
INTEREST EXPENSE:
Interest on deposits 1,325 1,310 2,762 2,805
Net interest income 1,617 1,511 3,027 3,075
PROVISION FOR POSSIBLE LOAN LOSSES 135 376 300 397
Net interest income after pro-
vision for possible loan losses 1,482 1,135 2,727 2,678
NONINTEREST INCOME:
Loan fees 33 22 258 58
Service charges 92 29 80 139
Other income 99 51 268
Gain on securities 198 26
Total noninterest income 224 102 804 223
NONINTEREST EXPENSES:
Compensation and employee benefits 733 656 1,496 1,328
Office and occupancy costs 478 355 817 441
Printing and postage 15 15 28 26
Loan servicing 44 43 77 87
Professional fees 43 30 312 64
Bank and MAC charges 126 32 264 253
Advertising, marketing and promotions 42 22 102 112
Insurance expenses 8 11 23 20
Other 29 36
Total noninterest expenses 1,518 1,200 3,119 2,331
INCOME BEFORE PROVISION FOR INCOME TAXES 188 37 412 570
Provision for federal and state income
taxes: (See Note 1 - Income Taxes)
Current 60 N/A 190 N/A
Deferred ( 2) N/A ( 44) N/A
Total income tax provision 58 N/A 146 N/A
NET INCOME $ 130 $ 37 $ 266 $ 570
</TABLE>
See Accompanying Notes
<PAGE F-4>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Income
Year Ended
June 30,
1998 1997
(Dollars in Thousands)
INTEREST INCOME:
Interest on loans $ 8,734 $ 8,651
Investments and mortgage-backed
securities 2,002 2,595
Interest-earning deposits 430 364
Federal funds 310 50
Total interest income 11,476 11,660
INTEREST EXPENSE:
Interest on deposits 5,475 5,655
Net interest income 6,001 6,005
PROVISION FOR POSSIBLE LOAN LOSSES 1,038 847
Net interest income after provision
for possible loan losses 4,963 5,158
NONINTEREST INCOME:
Loan fees 295 251
Service charges 592 509
Other income 71 91
Total noninterest income 958 851
NONINTEREST EXPENSES:
Compensation and employee benefits 2,612 2,513
Office and occupancy costs 942 842
Printing and postage 246 241
Loan servicing 183 167
Professional fees 165 143
Bank and MAC charges 642 626
Advertising, marketing and promotions 104 145
Insurance expenses 155 123
Other 209 183
Total noninterest expenses 5,258 4,983
INCOME BEFORE PROVISION FOR INCOME TAXES
Provision for federal and state
income taxes:
(See Note 1 - Income Taxes)
Current N/A N/A
Deferred N/A N/A
Total income tax provision N/A N/A
NET INCOME $ 663 $ 1,026
See Accompanying Notes
<PAGE F-5>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Equity
<TABLE>
<CAPTION>
Restricted, Accumulated
Regular Unrestricted Other
Reserve Undivided Comprehensive Total
Fund Earnings Income Equity
<S> <C> <C> <C> <C>
BALANCE, June 30, 1996 $ 3,925 $ 9,680 $ (687) $ 12,918
Transfers to reflect provision
for possible loan losses (847) 847
Transfers to regular reserve
fund in accordance with Section
116 of the Federal Credit Union Act 602 (602)
Net income 1,026 1,026
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes 302 302
BALANCE, June 30, 1997 3,680 10,951 (385) 14,246
Transfers to reflect provision
for possible loan losses (1,038) 1,038
Transfers to regular reserve fund in
accordance with Section 116 of the
Federal Credit Union Act 604 (604)
Net income 663 663
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes 171 171
BALANCE, June 30, 1998 3,246 12,048 (214) 15,080
Transfers of balance on 7/1/98
when Credit Union converted
to Savings Bank (3,246) 3,246
Net income 266 266
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes (70) (70)
BALANCE, December 31, 1998 15,560 (284) 15,276
Net income (unaudited) 130 130
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes (unaudited) (310) (310)
BALANCE, March 31, 1999 $ $15,690 $ (594) $15,096
(UNAUDITED)
</TABLE>
See Accompanying Notes
<PAGE F-6>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, December 31,
1999 1998 1998 1997
Unaudited Unaudited
(Dollars in Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 130 $ 37 $ 266 $ 570
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of premiums
on investments and mortgage-
backed securities 44 31 82 73
Depreciation and amortization 97 85 134 93
Discount on first mortgage sales 1
(Gain) loss on sale of investment
securities (198) (26)
Gain on sale/disposal of asset 7
Provision for losses on loans 135 376 300 397
Change in operating assets and
liabilities:
Increase in deferred taxes (2) (44)
(Increase) decrease in accrued
interest receivable (318) (59) 49 41
Increase in prepaid expenses and
other assets (165) (16) (204) (46)
Increase (decrease) in accounts
payable and accrued expenses (35) 68 139 (24)
Net cash provided by (used in)
operating activities (114) 523 524 1,085
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities,
available-for-sale (7,128) (8,105) (42,810) (2,253)
Purchase of FHLB Stock (834)
Sales of investment securities,
available-for-sale 27,000
Mortgage-backed security purchases (2,547) (3,013) (502)
Mortgage-backed security maturities
and principal repayments 1,065 868 6,539 3,809
Maturities and principal repayments
of investment securities,
available-for-sale 4,297 1,000 7,278 1,500
(Increase) decrease in total loans
receivable, net (2,420) 1,699 (4,804) 2,486
Capital expenditures (14) (242) (478) (109)
(Increase) decrease in Share
Insurance Fund 29 (635) 1,291 713
Net cash provided by (used in)
investing activities (6,718) (8,428) (6,818) 5,644
</TABLE> <PAGE F-7>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, December 31,
1999 1998 1998 1997
Unaudited Unaudited
(Dollars in Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net 6,541 6,688 10,954 (12,623)
Net increase (decrease) in advances
for borrowers' taxes and insurance 53 39 (50) 92
Net cash provided by (used in)
financing activities 6,594 6,727 10,904 (12,531)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 238 (1,178) 4,610 (5,802)
Cash and cash equivalents, beginning
of period 18,351 18,941 13,741 24,743
CASH AND CASH EQUIVALENTS, END OF
PERIOD $18,113 $17,763 $ 18,351 $ 18,941
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest on deposits $ 1,325 $ 1,310 $ 2,762 $ 2,805
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in unrealized
loss on investment mortgage-backed
securities available-for-sale, net
of taxes $ 310 $ 46 $ 69 $ 173
</TABLE>
See Accompanying Notes
<PAGE F-8>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Year Ended June 30,
1998 1997
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 663 $ 1,026
Adjustments to reconcile net income to
net provided by in operating
activities:
Amortization of premiums on
investments and mortgage-backed
securities 90 330
Depreciation and amortization 334 282
Write-down and expenses of real
estate owned 9
Loss on sale of investment
securities 7
(Premium) discount on first mortgage
sales 19 (4)
(Gain) loss on sale/disposal of
asset 17 (5)
Provision for losses on loans 1,038 847
Change in operating assets and
liabilities:
(Increase) decrease in accrued
interest receivable (135) 142
Increase in prepaid expenses and
other assets (197) (272)
Increase (decrease) in accounts
payable and accrued expenses 59 (104)
Net cash provided by operating
activities 1,897 2,249
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities,
available-for-sale (15,500) (6,000)
Sales of investment securities,
available-for-sale 11,143
Mortgage-backed security purchases (5,776)
Mortgage-backed security sales 1,853
Mortgage-backed security maturities
and principal repayments 9,543 5,864
Maturities and principal repayments of
investment securities, available-
for-sale 3,881 3,005
Increase in total loans receivable,
net (3,848) (8,620)
Proceeds from sale of real estate <PAGE F-9>
owned net of expenses 203
Proceeds from sale of loans 4,854 2,078
Proceeds from sale of equipment 50 22
Capital expenditures (590) (301)
Increase in Share Insurance Fund 78 9
Net cash provided by (used in)
investing activities (7,105) 9,053
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (5,912) 4,028
Net increase in advances for
borrowers' taxes and insurance 119 37
Net cash provided by (used in)
financing activities (5,793) 4,065
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (11,001) 15,367
Cash and cash equivalents, beginning
of year 24,742 9,375
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,741 $24,742
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest
on deposits $ 5,475 $ 5,655
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Loans transferred to real estate owned $ 247 $ -
Increase (decrease) in unrealized loss
on investment mortgage-backed
securities available-for-sale, net
of taxes $ (171) $ 302
See Accompanying Notes
<PAGE F-10>
IGA Federal Savings Bank And Subsidiary
Notes To Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Organization:
IGA Federal Savings Bank & Subsidiary (the "Bank") is
organized as a federal mutual savings bank primarily serving
customers in the Southeastern Pennsylvania, counties of
Philadelphia, Bucks, Chester and Delaware. The Bank,
through its five branches provide financial services to
individuals, families and small business. Historically the
Bank has emphasized the origination of consumer loans,
including auto, credit card and personal loans, and real
estate loans, including home equity loans and one-to-four
family first mortgage loans, the Bank is also starting to
offer a variety of commercial loan products.
IGA Federal Savings originally was established in 1975
as IGA Federal Credit Union. The Bank on July 1, 1998
converted from a credit union to IGA Federal Savings, a
federal mutual savings bank.
The Bank competes with other banking and financing
institutions in its primary market. Commercial banks,
savings banks, savings and loan associations, mortgage
bankers and brokers, credit unions and money market funds
actively compete for deposits and loans in the Bank's market
area. Such institutions, as well as consumer finance,
mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of
the Bank with respect to one or more of the services it
renders.
Principles of Presentation:
The consolidated financial statements include the
accounts of IGA and its wholly-owned subsidiary, CUIGA
Services Corporation, d/b/a Members Edge, a Pennsylvania
corporation established to provide credit life and credit
disability insurance to IGA. All significant intercompany
accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with the
requirements for presentation of interim financial
statements and, therefore, do not include all information
and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in
conformity with generally accepted accounting principals.
In the opinion of management, all adjustments consisting
only of normal recurring adjustments that are necessary for
<PAGE F-11> a fair presentation for interim periods
presented have been reflected.
Year 2000 Issue:
Year 2000 issues result from the inability of many
computer programs or computerized equipment to accurately
calculate, store or use a date after December 31, 1999 (the
"Y2K Issue"). The erroneous date can be interpreted in a
number of different ways; typically the year 2000 is
interpreted as the year 1900. Correctly identifying the
year 2000 as a leap year may be an issue. These
misidentifications could result in a system failure or
miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions, track important customer account information,
provide convenient access to this information or engage in
normal business operations.
The Bank's Board of Directors and management have
addressed the Y2K issue by developing a Y2K Compliance Plan.
This plan involves four separate phases: awareness,
assessment, renovation, validation and implementation.
During 1997, the Bank completed the systems assessment
phase, identifying each internal and external system that
could potentially be affected by the Y2K issue. Those
systems include alarms, etc, that may contain
microprocessors. For each such system, a determination was
made whether or not the system is Y2K compliant. Those
determinations involved obtaining Y2K compliant
certification from third-party processors and outside
vendors.
As of December 31, 1998, the Bank has completed its
"awareness", "assessment", "renovation" and "validation"
phases.
On November 11-13, the Bank conducted in-house testing
of their present Aftech data processing system. The Bank
performed various banking transactions on customers'
accounts using the dates September 30, 1998, January 1,
2000, January 30, 2000, January 31, 2000, February 29, 2000,
September 9, 1999. All transactions were completed
successfully. Aftech representatives have completed much of
its Y2K testing but will continue testing throughout 1999.
The Bank will be obligated to incur only the hardware costs
associated with implementing the changes required by Aftech;
however, hardware costs are not expected to be material.
The Bank expects that all other outside vendors will be
Y2K compliant by March 31, 1999. If any vendor is not
compliant by this date the Bank will consider contracting
with alternative vendors.
<PAGE F-12>
In certain cases, however, such as the potential loss
of electrical power or telecommunications services due to
Y2K problems, testing by the Bank is either not practical or
not possible. In those cases, contingency plans are being
designed that specify how the Bank will deal with each such
potential situation. The Bank has developed a contingency
plan which will address failure of the data processing
bureau system. The Bank has determined that is the service
bureau system were to fail, the Bank would implement manual
systems until such systems could be reestablished. The Bank
does not anticipate the potential use of short-term manual
systems would have a material impact upon the operations of
the Bank. Aftech also has developed their own contingency
plan.
To the extent the Bank systems are not fully Year 2000
compliant, there can be no assurance that potential system
interruptions would not have a materially adverse effect on
the Bank's business, financial condition, results of
operations and business prospects. Further, any Year 2000
failure on part of the Bank customers could result in
additional expense or loss to the Bank.
Cash and Cash Equivalents:
Cash and cash equivalents include unrestricted cash on
hand, demand deposits maintained in depository institutions,
other readily convertible investments with original
contractual terms to maturity of three months or less and
restricted cash.
Restricted Cash:
At June 30, 1998 Federal regulations require IGA, at
the time a Credit Union, to set aside specified amounts of
cash as reserves against transaction and time deposits. The
reserve funds were held in a noninterest-bearing account
with Mid-Atlantic Corporate Credit Union.
Securities:
The Bank divides its securities portfolio into two
segments: (a) held-to-maturity and (b) available-for-sale.
Securities in the held-to-maturity category are accounted
for at cost, adjusted for amortization of premiums and
accretion of discounts, using the level yield method, based
on the Bank's intent and ability to hold the securities
until maturity. Marketable securities included in the
available-for-sale category are accounted for at fair value,
with unrealized gains or losses, net of taxes, being
reflected as adjustments to equity. The fair value of
marketable securities available-for-sale is determined from
publicly quoted market prices. Securities available for
sale which are not readily marketable, which include Federal
<PAGE F-13> Home Loan Bank of Pittsburgh stock, are carried
at cost which approximates liquidation value.
At the time of purchase, the Bank makes a determination
of whether or not it will hold the securities to maturity,
based upon an evaluation of the probability of future
events. Securities, which the Bank believes may be involved
in interest rate risk, liquidity, or other asset/liability
management decisions, which might reasonably result in such
securities not being held-to-maturity, are classified as
available-for-sale. If securities are sold, a gain or loss
is determined by specific identification method and is
reflected in the operating results in the period the trade
occurs.
Loans and Allowance for Loan Losses:
Loans that IGA has the intent and ability to hold for
the foreseeable future or until maturity or payoff are
stated at the amount of unpaid principal, reduced by
deferred loan fees and an allowance for possible loan losses
and increased by deferred loan origination costs. Interest
on loans is recognized over the term of the loan and is
calculated using the simple-interest method on principal
amounts outstanding. The allowance for possible loan losses
is established through a provision for possible loan losses
charged to expenses. Loans are charged against the
allowance for possible loan loss when management believes
that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrower's
ability to pay.
Accrual of interest is discontinued for those loans
which are 90 days or more delinquent, or sooner if
management believes, after considering economic and business
conditions and collection efforts, that the borrower's
financial condition is such that the collection of interest
is doubtful. When a loan is placed on nonaccrual, all
uncollected interest is charged off.
Loan Origination Fees and Loan Origination Costs:
Loan origination fees received in excess of loan
origination costs are deferred and amortized over the
contract lives of the loans, using a method which
approximates the level yield method. In the event that the
related loans are sold, such deferred fees are recognized as
income in the period of sale. Deferred origination costs
<PAGE F-14> relating to consumer loans are amortized over
the estimated life of the consumer loan portfolio.
Property, Equipment and Leasehold Improvements:
Land is carried at cost. Property, equipment and
leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation is computed
based on cost using the straight-line method over estimated
useful lives of 35 years for buildings and improvements,
2-15 years for office furniture, equipment and leasehold
improvements and 3 years for transportation equipment.
Improvements to leased property are amortized over the
lesser of the life of the lease or life of the improvements.
Maintenance and repairs of property, equipment and
leasehold improvements are charged to operations and major
improvements are capitalized. Upon retirement, sale or
other disposition of property, equipment and leasehold
improvements, the cost and accumulated depreciation and
amortization are eliminated from the accounts and gain or
loss is included in operations.
Financial Statement Presentation:
Certain items in prior years financial statements have
been reclassified to conform with the presentation in these
consolidated financial statements. These classifications
did not effect previously reported net income or retained
earnings.
Advertising:
Advertising costs are charged to operations when
incurred and amounted to $42,000 and $22,000 for the three
months ended March 31, 1999 and 1998 (unaudited),
respectively, and $102,000 and $112,000 for the 6 months
ended December 31, 1998 and 1997 (unaudited), respectively,
and $104,000 and $145,000 for the years ended June 30, 1998
and 1997, respectively.
Reorganization Costs:
On April 24, 1998, the IGA Board of Directors approved
a resolution to convert to a Federal Mutual Savings
Association. Costs incurred with this conversion were
capitalized and will be amortized over 15 years using the
straight-line method beginning July 1, 1998, the date of
conversion.
Use of Estimates:
The preparation of financial estimates in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
<PAGE F-15> amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The principal estimate that is susceptible to
significant change in the near term relates to the allowance
for loan losses. The evaluation of the adequacy of the
allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size
of the different loan portfolios, and takes into
consideration current economic and market condition, the
capability of specific borrowers to pay specific loan
obligations, as well as current loan collateral values.
However, actual losses on specific loans, which also are
encompassed in the analysis, may vary from estimated losses.
Mortgage Servicing Rights:
The Bank recognizes mortgage servicing rights as
assets, regardless of how such assets were acquired.
Impairment of mortgage servicing rights is assessed based
upon a fair market valuation of those rights on a
disaggregated basis. Impairment, if any, is recognized in
the statement of operations. There has been no impairment
reflected in the mortgage servicing rights.
Cash Deposited in Financial Institutions:
IGA maintains cash balances at other financial
institutions. Accounts at these financial institutions are
insured by the Federal Deposit Insurance Corporation up to
one hundred thousand dollars. In the normal course of
business, IGA may have deposits that exceed the insured
balance.
Effect of New Accounting Standards:
Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, is effective for
the Bank for the period beginning July 1, 1998, and
establishes reporting and display of comprehensive income in
the financial statements. Comprehensive income represents
net earnings and certain amounts reported directly in
stockholders' equity, such as the net unrealized gain or
loss on available-for-sale securities. The Bank adopted
SFAS No. 130 effective June 30, 1998.
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, will be effective for the Bank for years
beginning July 1, 1999. The Bank currently has no activity
subject to SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134,
Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held-for-Sale by a Mortgage
<PAGE F-16> Banking Enterprise. SFAS No. 134 changes the
way mortgage banking firms account for certain securities
and other interests they retain after securitizing mortgage
loans that were held for sale. Under current practice, a
bank that securitizes credit card receivables has a choice
in how it classifies any retained securities based on its
intent and ability to hold or sell those investments. SFAS
No. 134 gives the mortgage banking firms the opportunity to
apply the same intent-based accounting that is applied by
other companies. SFAS No. 134 is effective for the fiscal
quarter beginning after December 15, 1998. Management of
the Bank anticipates that the implementation of SFAS No. 134
will not have a material impact on the Bank's financial
condition or results of operations.
Loans Available-For-Sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or market
calculated on an aggregate basis with any unrealized losses
reflected in the statement of operations. There were no
loans available-for-sale.
Income Taxes:
The Bank utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to difference
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
Additionally, the recognition of net deferred tax assets is
based upon the likelihood of realization of tax benefits in
the future. A valuation allowance would be provided for
deferred tax assets which are determined more than likely
not to be realized.
Prior to July 1, 1998 IGA Credit Union was exempt, by
statute, from federal and state income taxes.
CUIGA Services Corporation, (The Company), d/b/a
Member's Edge, a wholly-owned subsidiary of IGA, is subject
to federal and state income taxes. At December 31, 1998,
net operating loss carryforwards approximately $85,374 are
available for federal income tax purposes. These
carryforwards are available to offset future federal taxable
income of the Company and expire in varying amounts between
December 31, 2003 and June 30, 2013.
The Company incurred a net loss of $2,600 for the three
month period ended March 31, 1999, a $4,114 net loss for the
<PAGE F-17> six month period ended December 31, 1998 and a
$7,275 net loss for the year ended June 30, 1998.
2. INVESTMENTS AND MORTGAGE-BACKED SECURITIES:
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities as of
March 31, 1999.
<PAGE F-18>
Available-for-Sale
March 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands) - Unaudited
Investment Securities:
Debt:
FHLB Notes $18,012 $ 1 $(287) $17,726
FHLMC 500 (2) 498
FNMA
Federal Farm Credit 5,000 (98) 4,902
Municipals 5,157 (43) 5,114
28,669 1 (430) 28,240
Mortgage-backed
Securities:
Collateralized
mortgage
obligations 3,105 - (72) 3,033
FHLMC 926 (7) 919
GNMA 2,547 2,547
Small Business
Associations 4,137 (44) 4,093
FNMA 4,979 (42) 4,937
15,694 (165) 15,529
Total available-
for-sale
Securities 44,363 1 (595) 43,769
<PAGE F-19>
<PAGE>
Held-to-Maturity
March 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands) - Unaudited
Mortgage-backed
Securities:
Collateralized mortgage
obligations 2,840 (1) 2,839
FNMA 475 (6) 469
GNMA 2,279 (66) 2,213
Total Held-to-
Maturity
Securities 5,594 (73) 5,521
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $49,957 $ 1 $(668) $49,290
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities:
Available-for-Sale
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands)
Investment
Securities:
Debt:
FHLB Notes $14,924 $11 $(125) $14,810
FHLMC 500 (4) 496
Federal Farm Credit 6,000 1 (25) 5,976
Small Business
Associations 2,568 (26) 2,542
Municipals 4,908 (6) 4,902
28,900 12 (186) 28,726
Mortgage-backed
Securities:
Collateralized mortgage
obligations 3,148 (68) 3,080
FHLMC 1,277 (6) 1,271
FNMA 5,861 (36) 5,825
10,286 (110) 10,176
Total available-
for-sale
Securities 39,186 12 (296) 38,902
<PAGE F-20>
Held-to-Maturity
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands)
Investment Securities:
Mortgage-backed
Securities:
Collateralized
mortgage
obligations $ 3,617 $ 1 $ - $ 3,618
FNMA 538 (2) 536
GNMA 2,480 (93) 2,387
Total Held-to-
Maturity
Securities 6,635 1 (95) 6,541
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $45,821 $13 $(391) $45,443
<PAGE F-21>
The following is a summary of the investment in
available-for-sale and held-to-maturity securities as of
June 30, 1998:
Available-for-Sale
June 30, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands)
Investment Securities:
Debt:
FHLB Notes $ 8,504 $ 3 $ (23) $ 8,484
SLMA 998 1 999
FHLMC 4,000 (25) 3,975
FNMA 2,501 2 (5) 2,498
Federal Farm Credit 1,501 1,501
Small Business
Associations 1,892 (9) 1,883
19,396 6 (62) 19,340
Mortgage-backed
Securities:
Collateralized
mortgage
obligations 4,032 3 (137) 3,898
FHLMC 2,614 2 (6) 2,610
FNMA 7,779 10 (30) 7,759
14,425 15 (173) 14,267
Total available-
for-sale
securities 33,821 21 (235) 33,607
<PAGE F-22>
Held-to-Maturity
June 30, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands) - Unaudited
Investment Securities:
Debt:
FNMA $ 499 $ - $ (1) $ 498
Mortgage-backed
Securities:
Collateralized
mortgage
obligations 5,487 (35) 5,452
FNMA 613 (6) 607
GNMA 2,971 (80) 2,891
Total Held-to-
Maturity
Securities 9,570 (122) 9,448
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $43,391 $21 $(357) $43,055
The amortized cost and estimated market values of
securities at March 31, 1999 by contractual maturities are
as follows. Expected maturities will differ from
contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Amortized Market
Cost Value
Unaudited
(Dollars in Thousands)
March 31, 1999:
Due less than one year $ 1,000 $ 986
Due after one year through five years 3,500 3,474
Due after five years through ten years 19,854 19,512
Due after ten years 4,315 4,268
28,669 28,240
Mortgage-backed securities 21,288 21,050
$49,957 $49,290
Proceeds from sales and maturities of securities
available-for-sale during the year ended March 31, 1999
totaled $6,420,000. Of the proceeds, $96,000 were from
maturities, $3,500,000 were from security call options, and
<PAGE F-23> $2,824,000 were from principal repayments. No
gains or losses were realized from those transactions.
The amortized cost and market value of securities at
December 31, 1998 by contractual maturities, are as follows:
Estimated
Amortized Market
Cost Value
(Dollars in Thousands)
December 31, 1998:
Due less than one year $ 500 $ 496
Due after one year through five years 9,492 9,463
Due after five years through ten years 15,678 15,540
Due after ten years 3,230 3,227
28,900 28,726
Mortgage-backed securities 16,921 16,717
$45,851 $45,443
Proceeds from sales and maturities of securities
available-for-sale during the year ended December 31, 1998
totaled $34,277,935 of the proceeds, $-0- were from
maturities, $1,500,000 were from security call options, and
$3,326,316 were from principal repayments. No gains or
losses were realized from those transactions.
The amortized cost and estimated market values of
securities at June 30, 1998 by contractual maturities are as
follows. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
(Dollars in Thousands)
June 30, 1998:
Due less than one year $ 1,996 $ 1,990
Due after one year through five years 13,002 12,977
Due after five years through ten years 3,006 2,988
Due after ten years 1,892 1,883
19,896 19,838
Mortgage-backed securities 23,496 23,217
$43,392 $43,055
Proceeds from sales and maturities of securities
available-for-sale during the year ended June 30, 1998
totaled $8,756,044. Of the proceeds, $1,500,000 were from
maturities, $2,500,000 were from security call options, and
$4,756,044 were from principal repayments. No gains or
losses were realized from those transactions.
<PAGE F-24>
3. LOANS RECEIVABLE:
Loans receivable consist of the following:
March 31, December 31, June 30,
1999 1998 1998
(Dollars in Thousands)
Unaudited
Real Estate Loans:
One-to-four family $ 40,740 $ 40,114 $ 35,799
Commercial 2,131 1,408 256
42,871 41,522 36,055
Consumer Loans:
Automobile 20,762 18,746 18,844
Signature loans 5,462 6,329 6,577
Credit card loans 9,870 10,920 10,269
Home equity loans 23,085 22,421 23,174
Other 3,634 3,658 3,871
62,813 62,474 62,735
Commercial Loans 760 400 237
106,444 103,996 99,027
Less allowance for
possible loan losses (1,116) (1,074) (948)
Less deferred loan costs,
net (8) (22) 17
$105,320 $102,900 $ 98,096
Loans receivable at March 31, 1999, December 31, 1998
and June 30, 1998 includes $88,079,822, $85,667,043 and
$79,910,631 of fixed rate loans and $17,363,601, $18,329,158
and $19,116,366 of adjustable rate loans, respectively.
<PAGE F-25>
A summary of loan maturities at March 31, 1999 is as
follows:
Commer- Consumer
One to cial and
Four Real Home Commercial Total
Family Estate Equity Business Loans
(Dollars in Thousands - Unaudited)
Amounts due:
Non-accrual $ 47 $ - $ 65 $ 91 $ 203
Within one year 1,737 203 12,307 14,247
After one year:
1 to 3 years 3,738 2,213 11,643 17,594
4 to 5 years 4,350 1,758 4,711 14,202 25,021
6 to 10 years 15,760 373 8,348 2,074 26,555
Over 10 years 15,108 7,545 171 22,824
Total due after
one year 38,956 2,131 22,817 28,090 91,994
TOTAL AMOUNTS
DUE $40,740 $2,131 $23,085 $40,488 $106,444
A summary of loan maturities at December 31, 1998 is as
follows:
Commer- Consumer
One to cial and
Four Real Home Commercial Total
Family Estate Equity Business Loans
(Dollars in Thousands)
Amounts due:
Non-accrual $ - $ - $ 64 $ 90 $ 154
Within one year 2,375 190 13,573 16,138
After one year:
1 to 3 years 3,738 2,335 11,299 17,372
4 to 5 years 4,350 4,192 12,972 21,514
6 to 11 years 15,760 635 8,924 2,449 27,818
Over 11 years 13,891 373 6,716 20 21,000
Total due after
one year 37,739 1,008 22,167 26,790 87,704
TOTAL AMOUNTS DUE $40,114 $1,008 $22,421 $40,453 $103,996
<PAGE F-26>
A summary of loan maturities at June 30, 1998 is as
follows:
Commer- Consumer
One to cial and
Four Real Home Commercial Total
Family Estate Equity Business Loans
(Dollars in Thousands - Unaudited)
Amounts due:
Non-accrual $ - $ - $ 109 $ 100 $ 209
Within one year 1,623 6 3,054 13,615 18,298
After one year:
1 to 3 years 4,001 13 5,911 17,707 27,631
4 to 5 years 4,853 14 4,260 7,818 16,946
6 to 11 years 17,362 60 6,405 474 24,301
Over 11 years 7,960 163 3,435 84 11,642
Total due after
one year 34,176 250 20,011 26,083 80,520
TOTAL AMOUNTS DUE $35,799 $ 256 $23,174 $39,798 $ 99,027
A summary of changes in the allowance for possible loan
losses is as follows:
March 31, December 31, June 30,
1999 1998 1998
Unaudited (Dollars in Thousands)
BALANCE, BEGINNING OF PERIOD $1,074 $ 948 $ 1,005
Provision charged to
operation 135 300 1,038
Recoveries of amounts charged
off and other 43 80 178
1,252 1,328 2,221
Amounts charged off (136) (254) (1,273)
BALANCE, END OF PERIOD $1,116 $1,074 $ 948
The provision for loan losses charged to expense is
based upon past loan and loss experience and an evaluation
of potential losses in the current loan portfolio, including
the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon
current information and events, it is probable that IGA will
be unable to collect all amounts due according to the
contractual terms of the loan. As of March 31, 1999,
December 31, 1998 and June 30, 1998, 100% of the impaired
loan balance was measured for impairment based on the fair
value of the loans' collateral. Impairment losses are
included in the provision for loan losses. SFAS Nos. 114
and 118 do not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for
<PAGE F-27> impairment, except for those loans restructured
under a trouble debt restructuring. Loans collectively
evaluated for impairment include consumer loans and
residential real estate loans. At March 31, 1999
(unaudited), December 31, 1998 and June 30, 1998, the Bank's
impaired loans consisted of smaller loans and residential
real estate loans.
Loans on which the accrual of interest has been
discontinued amounted to $203,309, $170,835 and $225,790 at
March 31, 1999 (unaudited), December 31, 1998 and June 30,
1998, respectively. If interest on those loans had been
accrued, accrued interest would have increased by $2,743,
$2,988 and $2,307 at March 31, 1999, December 31, 1998 and
June 30, 1998, respectively. The amount by which income
would have increased by for the periods ended December 31,
1998 and 1997 had interest been accrued is immaterial.
Certain directors and officers of IGA have loans with
IGA. Such loans were made in the ordinary course of
business and do not represent more than a normal risk of
collection. Loans to officers and directors amounted to
$1,119,777, $1,203,636 and $1,080,195 at March 31, 1999
(unaudited), December 31, 1998 and June 30, 1998,
respectively. During the period ended March 31, 1999,
December 31, 1998 and June 30, 1998, loans of $-0-, $62,000
and $178,709, respectively, were disbursed to executive
officers and board of directors, while principal repayments
of $84,231, $86,529 and $104,703 were received in those
years, respectively.
4. LOAN SERVICING:
Mortgage loans serviced for others are not included in
the accompanying statement of financial condition. The
unpaid principal balances of these loans are summarized as
follows:
Mortgage Loan Servicing Portfolios:
March 31, December 31, June 30,
1999 1998 1998
(Dollars in Thousands)
Federal National Mortgage
Association $13,850 $14,025 $15,131
First Nationwide 489 514 644
$14,339 $14,539 $15,775
Custodial escrow balances maintained in connection with
the foregoing loan servicing portfolio totaled $208,683,
$200,000 and $279,817 as of March 31, 1999, December 31,
1998 and June 30, 1998, respectively.
<PAGE F-28>
5. ACCRUED INTEREST RECEIVABLE:
A summary of accrued interest receivable is as follows:
March 31, December 31, June 30,
1999 1998 1998
Unaudited (Dollars in Thousands)
Loans $ 356 $ 325 $ 322
Mortgage-backed securities 136 119 121
Investment securities 472 202 252
$ 964 $ 646 $ 695
6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET:
The major classes of property, equipment and leasehold
improvements and the total accumulated depreciation and
amortization are as follows:
March 31, December 31, June 30,
1999 1998 1998
Unaudited (Dollars in Thousands)
Land $ 150 $ 150 $ 150
Buildings and improvements 1,920 1,726 1,726
Office furniture, equipment
and leasehold improvements 1,673 1,661 1,384
Transportation equipment 99 99 99
3,842 3,636 3,359
Less accumulated depreciation
and Amortization 1,771 1,674 1,476
$2,071 $1,962 $1,883
7. DEPOSITS:
Deposits at March 31, 1999, December 31, 1998 and
June 30, 1998 are summarized as follows:
<PAGE F-29>
<TABLE>
<CAPTION>
Weighted
Average March 31, December 31, June 30,
Interest 1999 1998 1998
Rate Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C>
Types of Deposits:
Savings accounts:
1999 2.70% $ 74,129 45.92%
1998 2.82 $ 70,281 45.38%
1998 2.82 $ 68,268 47.36%
Checking accounts:
1999 0.0 10,746 6.66
1998 0.0 10,526 6.80
1998 0.0 9,305 6.59
Money market accounts:
1999 3.11 10,240 6.34
1998 3.85 9,265 5.98
1998 3.85 8,311 5.77
95,115 58.92 90,072 58.15 85,884 59.72
Certificate of deposit:
3.00-3.99%
1999 3.79 2,736 1.70
1998 3.83 1,622 1.05
1998 0.0
4.00-4.99%
1999 4.73 23,001 14.25
1998 4.71 11,171 7.21
1998 4.27 2,025 1.41
5.00-5.99%
1999 5.58 31,113 19.27
1998 5.59 41,900 27.05
1998 5.59 44,850 31.12
6.00-6.99%
1999 6.22 7,931 4.91
1998 6.21 8,608 5.56
1998 6.29 9,700 6.73
7.00-7.99%
1999 7.17 1,533 .95
1998 7.17 1,515 .98
1998 7.17 1,475 1.02
Total of certificate
of deposit 66,314 41.08 64,816 41.85 58,050 40.28
TOTAL DEPOSITS $161,429 100.00% $154,888 100.00% $143,934 100.00%
</TABLE>
<PAGE F-30>
Certificates of deposit have scheduled maturities as
follows:
March 31, December 31, June 30,
1999 1998 1998
(Dollars in Thousands)
Unaudited
Within one year $47,255 $46,456 $43,710
One year through two years 15,402 13,218 8,431
Three years 2,207 2,953 4,743
Over three years 1,450 2,189 1,166
$66,314 $64,816 $58,050
Interest expense on deposits is comprised of the
following:
March 31, December 31, June 30,
1999 1998 1998
(Dollars in Thousands)
Unaudited
Savings accounts $ 378 $ 834 $ 1,976
Money market accounts 77 160 316
Certificates of deposit 870 1,768 3,183
$ 1,325 $ 2,762 $ 5,475
The aggregate amount of certificates of deposit
accounts exceeding $100,000 was approximately $7,980,000,
$7,964,000 and $4,440,160 at March 31, 1999 (unaudited),
December 31, 1998 and June 30, 1998, respectively.
8. FEDERAL HOME LOAN BANK STOCK:
The Bank is a member of the Federal Home Loan Bank
System. As a member, the Bank maintains an investment in
the capital stock of the Federal Home Loan Bank of
Pittsburgh in an amount not less than 1% of its outstanding
home loans or 1/20 of its outstanding notes payable, if any,
to the Federal Home Loan Bank of Pittsburgh, whichever is
greater, as calculated December 31 of each year.
9. INCOME TAX MATTERS:
The Bank and it's wholly-owned subsidiary file a
consolidated federal income tax return and separate state
return for the six month period ending December 31, 1998.
Prior to this period the Bank was a Credit Union and exempt
from taxes by statute.
<PAGE F-31>
The provision for income taxes for the three month
period ended March 31, 1999 (unaudited) and six month period
ended December 31, 1998 consisted of the following:
Currently Payable:
(Dollars in Thousands)
March 31, December 31,
1999 1998
Federal $ 60 $170
State 20
Deferred 2 (44)
TOTAL $ 58 $146
The reconciliation between the actual provision for
federal and state income taxes and the amount of income
taxes which would have been provided at statutory rates is
as follows:
March 31, December 31,
1999 1998
(unaudited)
Expected income tax expense at
federal tax rate $ 64 $141
Travel and entertainment 6 3
Exempt interest (16) (14)
State tax 13
Other differences, net 4 3
$ 58 $146
Deferred taxes are included in the accompanying
statement of financial condition as of March 31, 1999
(unaudited) and December 31, 1998 for the estimated future
tax effect of differences between the financial statement
and federal income tax basis of assets and liabilities given
the provisions of currently enacted tax laws.
The net deferred tax asset (liability) consists of the
following components:
March 31, December 31,
1999 1998
Unaudited
Deferred Tax Asset:
(Dollars in Thousands)
Deferred compensation $ 3 $ 2
Allowance for loan loss 43 42
DEFERRED TAX ASSET $46 $44
The realizability of deferred tax assets is dependent
upon a variety of factors, including the generation of
<PAGE F-32> future taxable income, the existence of taxes
paid and recoverable, the reversal of deferred tax
liabilities and tax planning strategies. Based upon these
and other factors, management believes it is more likely
than not that the Bank will realize the benefits of these
deferred tax assets. The tax effect from the unrealized
loss on securities available-for-sale has been offset by a
valuation allowance.
10. DIFFERENCE BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION
CALL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS:
An adjustment has been made to the accounts which is
reflected in the consolidated financial statements but is
not reflected in the Bank's December 1998 Federal Depository
Insurance Corporation Call Report. The adjustment and its
effect on equity are as follows:
Equity per the Bank's December 1998
Federal Depository Insurance Corporation
Call report $15,377,000
Decrease in federal income tax provision
Set up as deferred asset 44,000
Adjustment made to financial statement for
Professional fees relating to offering as of
June 30, 1998 that never materialized,
subsequently recorded by Bank. (145,000)
$ 15,276,000
11. REGULATORY MATTERS:
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, 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 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 established by regulation to
ensure capital adequacy require the Bank to maintain certain
minimum amounts and ratios (set forth in the table below).
Management believes that the Bank meets, as of March 31,
1999, all capital adequacy requirements to which it is
subject. <PAGE F-33>
As of March 2, 1998, the most recent notification from
the OTS categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain
minimum ratios as set forth in the table. There are no
conditions or events since that notification that management
believes have changed the institution's category.
The Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Capital Purposes Account Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999 (Unaudited):
Tangible capital
(to tangible assets) $15,496 8.7% $2,668 1.5% N/A N/A
Core Capital
(to adjusted tangible assets) 15,496 8.7 5,336 3.0 8,893 5.0
Tier I Capital
(to risk-weighted assets) 15,496 15.5 4,006 4.0 6,010 6.0
Risk-based capital
(to risk-weighted assets) 16,612 16.6 8,013 8.0 10,117 10.0
As of December 31, 1998:
Tangible capital
(to tangible assets) 15,365 8.9 2,567 1.5 N/A N/A
Core Capital
(to adjusted tangible assets) 15,365 8.9 5,135 3.0 8,559 5.0
Tier I Capital
(to risk-weighted assets) 15,365 15.7 3,911 4.0 5,867 6.0
Risk-based capital
(to risk-weighted assets) 16,439 16.8 7,822 8.0 9,778 10.0
</TABLE>
12. RETAINED EARNINGS: (June 30, 1998)
Regular Reserve Fund:
As provided under Section 116 of the Federal Credit
Union Act (Act as of June 26, 1934, as amended March 1993)
IGA maintained a regular reserve fund. Transfers to this
fund, in accordance with regulations must be not less than
10% of the current year's gross income (as defined in the
Act) until the reserve, including allowance for possible
loan losses, aggregates 4% of total outstanding loans and
risk assets; thereafter, transfers shall be not less than 5%
of gross income until the reserve, including allowance for
possible loan losses, aggregates 6% of total outstanding
loans and risk assets, at which time transfers may be
<PAGE F-34> discontinued as long as the established minimum
reserve requirements are met.
Reserve transfers are not charged against the annual
earnings of IGA and are not related to amounts of losses
actually anticipated. Amounts transferred to this fund are
not available for the payment of dividends or loans to
customers.
13. LEASE COMMITMENTS:
IGA rents various equipment and office space under
various lease agreements. Lease expense for these leases
for the three months ended March 31, 1999 and 1998
(unaudited), $12,041 and $11,621, respectively, six months
December 31, 1998 and 1997 are $20,916 and $23,135,
respectively and June 30, 1998 and 1997 $63,912 and $65,480,
respectively.
Minimum annual rentals are as follows:
1999 $26,866
2000 27,939
2001 29,056
2002 30,224
2003 23,342
14. RETIREMENT PLANS:
IGA sponsors the following retirement plans:
Pension Plans:
IGA has a profit-sharing plan and a 401(k) plan. Both
plans cover all employees who are 21 years of age and have
completed at least 1,000 hours of service during the plan
year and are employed on the last day of the plan year. IGA
contributes a discretionary amount to the profit-sharing
plan based on year-to-date income at December 31. IGA
matches up to 100% of the first 3% of salary elected to be
deferred by the employees under the 401(k) pension plan.
IGA's contribution to the above plans amounted to
$12,996 and $11,858 for the three months ended March 31,
1999 and 1998, respectively, $29,472 and $52,516 for the six
months ended December 31, 1998 and 1997, respectively,
$91,486 and $79,042 for the years ended June 30, 1998 and
1997, respectively, and is reflected as an operating
expense.
Supplemental Deferred Compensation Plans:
IGA adopted a nonqualified deferred compensation plan
for the benefit of one of its officers. This plan requires
IGA to pay $12,000 into this plan annually beginning in
<PAGE F-35> 1995. The deferred compensation accounts are
shown as both assets and liabilities on IGA's financial
statements. The balance of the deferred compensation
arrangement was $67,239 as of March 31, 1999 (unaudited),
$64,239 as of December 31, 1998 and $58,239 as of June 30,
1998. Deferred compensation was $3,000 for period ended
March 31, 1999 and 1998 (unaudited), $6,000 for December 31,
1998 and $6,000 for December 31, 1997 (unaudited). Total
contribution for the years ended June 30, 1998 and 1997 was
$12,000. The plan is fully funded.
IGA also has a life insurance policy on one of its
officers that provides for annuity payments to the insured
party upon retirement. Upon death of the insured party, IGA
will receive refund of all premiums paid and the insured
party's designated beneficiary will receive the remainder of
the policy's face value. If the policy is canceled, IGA
will receive the policy's cash surrender value only. IGA
shows the cash surrender value of this policy as an asset in
its financial statements.
15. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
IGA grants mortgage and consumer loans primarily to
customers in Southeastern Pennsylvania. Although, IGA has a
diversified loan portfolio, a substantial portion of its
customers' ability to honor their contracts is dependent
upon the local economy. IGA's net investment in loans is
subject to a significant concentration of credit risk given
that the investment is primarily within a specific
geographic area.
As of March 31, 1999 (unaudited), December 31, 1998 and
June 30, 1998, IGA had a net investment of $105,320,000,
$102,900,000 and $98,096,000 requirements in loans
receivable. These loans possess an inherent credit risk
given the uncertainty regarding the borrower's compliance
with the terms of the loan agreement. To reduce credit
risk, the loans are secured by varying forms of collateral,
including first mortgages on real estate, liens on personal
property, share accounts, etc. It is generally IGA policy
to file liens on titled property taken as collateral on
loans. In the event of default, IGA's policy is to
foreclose or repossess collateral on which it has filed
liens.
In the event that any borrower completely failed to
comply with the terms of the loan agreement and the related
collateral proved worthless, IGA would incur a loss equal to
the loan balance.
<PAGE F-36>
16. COMMITMENTS AND CONTINGENCIES:
Loan Commitments and Contingencies:
In the normal course of business, IGA makes various
commitments and incurs certain contingent liabilities which
are not reflected in the accompanying consolidated financial
statements. These commitments and contingent liabilities
include commitments to extend credit and open-end credit
available. At March 31, 1999 (unaudited), December 31, 1998
and June 30, 1998, open-end loan commitments not utilized,
and approved but unfunded loan commitments totaled
approximately $21,436,156, $19,876,892 and $21,431,476,
respectively.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments"
requires the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not
recognized in the statement of financial position.
A financial instrument is defined as cash, evidence of
an ownership interest in an entity, or a contract that both
imposes on one entity a contractual obligation (1) to
deliver cash or another financial instrument to a second
entity or (2) to exchange other financial instruments on
potentially unfavorable terms with the second entity and,
conveys to that second entity a contractual right to receive
(1) cash or another financial instrument from the first
entity or (2) to exchange other financial instruments on
potentially favorable terms with the first entity.
The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced
sale or liquidation. Quoted market prices should be used
when available, if not available management's best estimate
of fair value may be based on quoted market price of
financial instruments with similar characteristics or on
valuation techniques, such as using the present value of
estimated future cash flows using a discount rate
commensurate with the corresponding risk associated with
those cash flows. These techniques are significantly
affected by the assumptions used, including the discount
rate and estimates of future cash flows and future economic
conditions. In that regard, the fair value estimates cannot
be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement
of the instrument. In addition, these estimates are only
indicative of individual financial instruments' values and
should not be considered an indication of the fair value of
IGA as a whole. Statement No. 107 excludes certain
<PAGE F-37> financial instruments and all nonfinancial
instruments from its disclosure requirements.
The following table represents the carrying value and
fair market value of financial instruments as of March 31,
1999 (unaudited):
Carrying Fair
Amount Value
(Dollars in Thousands)
Assets:
Cash and cash equivalents $ 18,114 $ 18,114
Investments securities available-for-
sale 28,240 28,240
Mortgage-backed securities available-
for-sale 15,529 15,529
Mortgage-backed securities held-to-
maturity 5,594 5,521
Loans receivable - net 105,320 105,320
FHLB Stock 834 834
Liabilities:
NOW, Savings and Money Market accounts 95,113 95,113
Certificate of deposits 66,316 66,316
The following table represents the carrying value and
fair market value of financial instruments as of
December 31, 1998:
Carrying Fair
Amount Value
(Dollars in Thousands)
Assets:
Cash and cash equivalents $ 18,351 $ 18,351
Investments securities available-
for-sale 28,726 28,726
Mortgage-backed securities available-
for-sale 10,176 10,176
Investment securities held-to-maturity
Mortgage-backed securities held-to-
maturity 6,635 6,541
Loans receivable - net 102,900 102,900
FHLB stock 834 834
Liabilities:
NOW, Savings and Money Market accounts 90,072 90,072
Certificate of deposits 64,816 64,816
The following table represents the carrying value and
fair market value of financial instruments as of June 30,
1998:
Carrying Fair
Amount Value
(Dollars in Thousands)
<PAGE F-38>
Assets:
Cash and cash equivalents $ 13,741 $ 13,741
Investments securities available-
for-sale 19,340 19,340
Mortgage-backed securities available-
for-sale 14,267 14,267
Investment securities held-to-maturity 499 498
Mortgage-backed securities held-to-
maturity 9,071 8,950
Loans receivable net 98,096 98,096
Share Insurance Fund 1,320 1,320
Liabilities:
NOW, Savings and Money Market accounts 85,884 85,884
Certificate of deposits 58,050 58,050
The following methods and assumptions, where practical
to implement as noted, were used by IGA in estimating its
fair value for those assets.
Cash and Cash Equivalents:
The carrying amounts reported in the statement of
financial condition for cash and cash equivalents
approximate the fair value for those assets.
Investment Securities:
The fair value for investments are based on quoted
market prices.
Mortgage-backed Securities:
The fair value of mortgage-backed securities issued by
quasi-governmental agencies is based on quoted market
prices.
Loans Receivable:
The fair value of real estate, consumer and commercial
loans approximates the carrying amount. The carrying amount
is adjusted for the estimated future possible loan losses
through a valuation allowance. IGA has not determined the
fair values of its loans due to it not being practical to
make such estimates based on varying interest rates and
maturities involved and the excessive cost that would be
incurred. IGA's real estate loan portfolio was $42,871,013
at March 31, 1999 (unaudited), $41,522,000 at December 31,
1998 and $36,055,000 at June 30, 1998, respectively with
rates ranging from 5.50% to 10.50% and maturities through 30
years. IGA's consumer loan portfolio was $62,813,041 at
March 31, 1999 (unaudited), $62,074,001 at December 31, 1998
and $62,735,006 at June 30, 1998, respectively, with rates
<PAGE F-39> ranging from 4.00% to 13.90% with maturities
through 10 years. IGA's commercial loan portfolio was
$760,370, $400,000, and $237,000 at March 31, 1999,
December 31, 1998 and June 30, 1998, respectively with rate
of 7.0% to 13.5% and maturities through one year to 10 years
and monthly repayment terms.
Deposits:
The fair value of deposits with no stated maturity,
such as NOW accounts, savings accounts and money market
accounts, is equal to the amount payable on demand as of
March 31, 1999, December 31, 1998 and June 30, 1998. Time
deposits were $66,314,000 at March 31, 1999, and $64,816,000
at December 31, 1998 and $58,050,000 at June 30, 1998 with
rates ranging from 3.00% to 8.00%.
18. SUBSEQUENT EVENT:
On May 26, 1999, IGA Federal Savings adopted a Plan of
Conversion pursuant to which the Bank will convert from a
federal mutual savings bank to a federal stock savings bank.
Under the Plan, the Bank will issue all of its capital stock
to a newly-formed Pennsylvania corporation called JADE
FINANCIAL CORP. JADE FINANCIAL CORP. will purchase the
stock of the Bank with a portion of the proceeds it receives
from an offering of its common stock to the Bank's members,
an employee stock ownership plan formed for the benefit of
bank employees, and the public. Consummation of the Plan of
Conversion is subject to the approval of the Office of
Thrift Supervision and a majority of all votes eligible to
be cast by members of the Bank at a special meeting of
members.
<PAGE F-40>
[Back Cover of Prospectus]
No 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 JADE FINANCIAL CORP., IGA Federal
Savings, or Charles Webb & Company. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the securities offered hereby to any person in any
jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any
sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of JADE
FINANCIAL CORP. or IGA Federal Savings since any of the dates as
of which information is furnished herein or since the date
hereof.
__________________
TABLE OF CONTENTS
Page
Prospectus Summary.........................................
Selected Consolidated Financial Information................
Risk Factors...............................................
IGA Federal Savings........................................
JADE FINANCIAL CORP........................................
Use of Proceeds............................................
Dividends..................................................
Market for the common stock................................
Pro Forma Data.............................................
Comparison of Valuation and Pro Forma Information With
No Stock Contribution....................................
Pro Forma Regulatory Capital Analysis......................
Capitalization.............................................
The Conversion.............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................
Business of JADE
FINANCIAL...........................................
Business of IGA............................................
Management ................................................
How We are Regulated.......................................
Taxation...................................................
Restrictions on Acquisitions of JADE FINANCIAL and
IGA...............
Description of Capital Stock of JADE
FINANCIAL.......................
Transfer Agent and Registrar...............................
Experts....................................................
Legal and Tax Opinions.....................................
Additional Information.....................................
Index to Consolidated Financial Statements................. F-1
Until __________________, 1999 (25 days after the date of
this prospectus, all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
UP TO
1,981,549 SHARES
(Anticipated Maximum)
JADE FINANCIAL CORP.
(Proposed Holding Company for
IGA Federal Savings)
Common Stock
____________
PROSPECTUS
____________
CHARLES WEBB & COMPANY,
A Division of Keefe, Bruyette & Woods, Inc.
__________________, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expense of Issuance and Distribution.
The Company anticipates the following expenses:
SEC registration fee.......................... $ 5,509
OTS filing fees............................... $ 8,500
Printing, postage, and mailing*............... $ 75,000
Legal fees and expenses*...................... $180,000
Accounting fees and expenses*................. $ 75,000
Appraisal fees and expenses................... $ 35,000
Blue sky filing fees and expenses (including
counsel fees)*.............................. $ 5,000
Transfer and conversion agent fees and
expenses*................................... $ 10,000
Miscellaneous*................................ $ 21,491(1)
Total.................................... $415,500
___________________
*Estimated
(1) In addition to the foregoing expenses, Charles Webb &
Company, a Division of Keefe, Bruyette & Woods, Inc. will
receive fees based on the number of shares of common stock
sold in the conversion, plus expenses. Based upon the
assumptions and the information set forth under "Pro Forma
Data" and "The Conversion -- Marketing Arrangements" in the
prospectus, it is estimated that such fees will amount to
approximately $137,746, $165,760, $193,774 and $225,990 in
the event that 1,232,500 shares, 1,450,000 shares, 1,667,500
shares and 1,917,625 shares of common stock are sold in the
conversion, respectively.
Item 14. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees, and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to taken any action unless
(1) the director has breached or failed to perform the duties of
his/her office; and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
<PAGE II-1>
The bylaws of JADE FINANCIAL provide for (1) indemnification
of directors, officers, employees, and agents of JADE FINANCIAL
and its subsidiaries; and (2) the elimination of a director's
liability for monetary damages, each to the fullest extent
permitted by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions as such by an insurance policy
obtained by JADE FINANCIAL.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits: See Exhibit Index filed as part of this
Registration Statement.
(b) Financial Statement Schedules: All schedules have been
omitted as not applicable or not required under the rules of
Regulation S-X.
Item 17. Undertakings.
(a) Rule 415 Offering: 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; (ii) to
reflect in the prospectus any fact 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; and (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 of 1933, 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 deemed to 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.
(b) Request for acceleration of effective date: Insofar as
indemnification for liabilities arising under the Securities Act
<PAGE II-2> of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the bylaws of
the registrant, 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
1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such 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 question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE II-3>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Feasterville, Commonwealth of
Pennsylvania, on May 26, 1999.
JADE FINANCIAL CORP.
By /s/ John J. O'Connell
John J. O'Connell
Chairman and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints John J.
O'Connell, Mario L. Incollingo, Jr., Dorothy M. Bourlier, or
Jeffrey P. Waldron, Esquire, and each of them, his true and
lawful attorney-in-fact, as agent with full power of substitution
and resubstitution for him and in his name, place and stead, in
any and all capacity, to sign any or all amendments to this
Registration statement and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting to such attorney-in-
fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all intents and purposes as
they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute
or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Capacity Date
/s/ John J. O'Connell Director and Chairman May 26, 1999
John J. O'Connell of the Board Chief
Executive Officer
(Principal Executive
Officer)
/s/ Mario L. Incollingo, Director, President May 26, 1999
Jr. and Chief Operating
Mario L. Incollingo, Jr. Officer
/s/ Edward D. McBride Director May 26, 1999
Edward D. McBride <PAGE II-4>
/s/ Francis J. Moran Director May 26, 1999
Francis J. Moran
Director May 26, 1999
Dennis P. Wesley
/s/ Dorothy M. Bourlier Senior Vice President May 26, 1999
Dorothy M. Bourlier and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
<PAGE II-5>
EXHIBIT INDEX
Number Title
1.1 Form of Agency Agreement with Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc.
2.1 Plan of Conversion
3.1 Articles of Incorporation of JADE FINANCIAL CORP.
3.2 Bylaws of JADE FINANCIAL CORP.
4.1 Form of certificate evidencing shares of JADE FINANCIAL
CORP.*
5.1 Opinion of Stevens & Lee Re: Legality
8.1 Opinion of Stevens & Lee Re: Federal Tax Matters
8.2 Opinion of Stevens & Lee Re: Charitable Foundation
8.3 Opinion of Stevens & Lee Re: Pennsylvania Tax Matters*
8.4 Letter of RP Financial, L.C. Re: Subscription Rights
10.1 JADE FINANCIAL CORP. - Management Recognition Plan**
10.2 JADE FINANCIAL CORP. - Stock Compensation Plan**
10.3 JADE FINANCIAL CORP. - Employee Stock Ownership Plan**
23.1 Consent of Stockton Bates & Company, P.C.
23.2 Consent of Stevens & Lee (contained in Exhibit 5.1)
23.3 Consent of Stevens & Lee (contained in Exhibit 8.1)
23.4 Consent of Stevens & Lee (contained in Exhibit 8.2)
23.5 Consent of Stevens & Lee (contained in Exhibit 8.3)*
23.6 Consent of RP Financial, L.C.
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
99.1 Appraisal of IGA Federal Savings by RP Financial, L.C.
(P)
<PAGE II-6>
99.2 Subscription Order Form and Instructions
99.3 Form of Proxy and Proxy Statement of IGA Federal
Savings
- ---------------
* To be filed by amendment.
** Compensatory Plan.
(P) To be filed in paper format pursuant to continuing hardship
exemption. <PAGE II-7>
Exhibit 1.1
JADE FINANCIAL CORP.
[__________] Shares
COMMON SHARES
($.01 par value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
[_________], 1999
Charles Webb & Company, a Division of
Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Jade Financial Corp., a Pennsylvania corporation (the "Company"),
and IGA Federal Savings, Feasterville, Pennsylvania, a federally
chartered mutual savings bank (the "Bank") (references to the
"Bank" include the Bank in the mutual or stock form, as indicated
by the context), with its deposit accounts insured by the Savings
Association Insurance Fund ("SAIF") administered by the Federal
Deposit Insurance Corporation ("FDIC"), hereby confirm their
agreement with Charles Webb & Company, a Division of Keefe,
Bruyette & Woods, Inc. ("Webb", "KBW" or "the Agent"), as
follows:
Section 1. The Offering. The Bank, in accordance with its
plan of conversion adopted by its Board of Directors (the
"Plan"), intends to convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank, and
will issue all of its issued and outstanding capital stock to the
Company. In addition, the Company in accordance with the Plan
expects to contribute cash and shares of its common stock in an
amount equal to 8% of the shares of common stock sold in the
Offering (as hereinafter defined) to the IGA Charitable
Foundation (the "Foundation"), such shares are hereinafter
referred to as the "Foundation Shares." Pursuant to the Plan,
the Company will also offer and sell up to 2,149,062 of its
common shares, $.01 par value per share (the "Shares" or "Common
Shares"), in a subscription offering (the "Subscription
Offering") to (1) depositors of the Bank as of March 31, 1998
("Eligible Account Holders"), (2) the IGA Employee Stock
<PAGE 1> Ownership Plan (the "ESOP"), (3) depositors of the Bank
as of June 30, 1999 ("Supplemental Eligible Account Holders")
and (4) the Bank's Other Members on [_________], 1999. Subject
to the prior subscription rights of the above-listed parties, the
Company is offering for sale in a community offering (the
"Community Offering" and when referred to together with the
Subscription Offering, the "Subscription and Community Offering")
conducted concurrently with, at any time during, or as soon as
practicable after the Subscription Offering, the Shares not
subscribed for or ordered in the Subscription Offering to members
of the general public to whom a copy of the Prospectus (as
hereinafter defined) is delivered with a preference given to
natural persons residing in counties in Pennsylvania in which the
Bank has a branch office. It is anticipated that shares not
subscribed for in the Subscription and Community Offering will be
offered to members of the general public on a best efforts basis
through a selected dealers agreement (the "Syndicated Community
Offering") or through a public offering (the "Public Offering")
(the Subscription Offering, Community Offering, Syndicated
Community Offering and Public Offering are collectively referred
to as the "Offering"). It is acknowledged that the purchase of
Shares in the Offering is subject to the maximum and minimum
purchase limitations as described in the Plan and that the
Company and the Bank may reject, in whole or in part, any orders
received in the Community Offering or Syndicated Community
Offering. Collectively, these transactions are referred to
herein as the "Conversion."
In connection with the Conversion and pursuant to the terms
of the Plan as described in the Prospectus (as defined herein),
the Company has established the Foundation. Immediately
following the consummation of the Conversion, subject to the
approval of the establishment of the Foundation by the depositors
of the Bank and compliance with certain conditions as may be
imposed by regulatory authorities, the Company will contribute
cash and newly issued shares of Common Shares in an amount equal
to 8% of the Shares sold in the Offering. If the maximum amount
of Shares are offered, the Company will issue an additional
[________] shares of Common Shares to the Foundation and make a
cash contribution of $[_______].
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on
Form SB-2 (File No. 333-[_______]) (the "Registration Statement")
containing a prospectus relating to the Offering for the
registration of the Shares and the Foundation Shares under the
Securities Act of 1933 (the "1933 Act"), and has filed such
amendments thereof and such amended prospectuses as may have been
required to the date hereof. The term "Registration Statement"
shall include any documents incorporated by reference therein and
all financial schedules and exhibits thereto, as amended,
including post-effective amendments. The prospectus, as amended,
on file with the Commission at the time the Registration
Statement initially became effective is hereinafter called the
"Prospectus," except that if any Prospectus is filed by the
<PAGE 2> Company pursuant to Rule 424(b) or (c) of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") differing from the prospectus on file at the time
the Registration Statement initially becomes effective, the term
"Prospectus" shall refer to the prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said prospectus is
filed with the Commission.
In accordance with Title 12, Part 563b of the Code of
Federal Regulations (the "Conversion Regulations") and the laws
and regulations of the State of Pennsylvania, the Bank has filed
with the Office of Thrift Supervision (the "OTS") an Application
for Conversion (the "Conversion Application"), including the
Prospectus and the Conversion Valuation Appraisal Report prepared
by RP Financial, L.C. (the "Appraisal") and has filed such
amendments thereto as may have been required by the OTS. The
Conversion Application has been approved by the OTS and the
related Prospectus has been authorized for use by the OTS. In
addition, the Company has filed with the OTS its application on
Form H-(e)1 (the "Holding Company Application") to become a
registered savings and loan holding company under the Home
Owners' Loan Act, as amended ("HOLA"); and it has been approved.
Section 2. Retention of Agent; Compensation; Sale and
Delivery of the Shares. Subject to the terms and conditions
herein set forth, the Company and the Bank hereby appoint the
Agent as their exclusive financial advisor and marketing agent
(i) to utilize its best efforts to solicit subscriptions for
Common Shares and to advise and assist the Company and the Bank
with respect to the Company's sale of the Shares in the Offering
and (ii) to participate in the Offering in the areas of market
making, establishing and managing the stock information center
and in syndicate formation (if necessary).
On the basis of the representations, warranties, and
agreements herein contained, but subject to the terms and
conditions herein set forth, the Agent accepts such appointment
and agrees to consult with and advise the Company and the Bank as
to the matters set forth in the letter agreement, dated July 20,
1998, between the Bank and Webb (a copy of which is attached
hereto as Exhibit A). It is acknowledged by the Company and the
Bank that the Agent shall not be required to purchase any Shares
or be obligated to take any action which is inconsistent with all
applicable laws, regulations, decisions or orders.
The obligations of the Agent pursuant to this Agreement
(other than those set forth in Section 2(a) and (d) hereof) shall
terminate upon the completion or termination or abandonment of
the Plan by the Company or upon termination of the Offering, but
in no event later than 45 days after the completion of the
Subscription Offering (the "End Date"). All fees or expenses due
to the Agent but unpaid will be payable to the Agent in next day
funds at the earlier of the Closing Date (as hereinafter defined)
or the End Date. In the event the Offering is extended beyond
<PAGE 3> the End Date, the Company, the Bank and the Agent may
agree to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of
1,381,250 Shares within the period herein provided, this
Agreement shall terminate and the Company shall refund to any
persons who have subscribed for any of the Shares the full amount
which it may have received from them plus accrued interest, as
set forth in the Prospectus; and none of the parties to this
Agreement shall have any obligation to the other parties
hereunder, except as set forth in this Section 2 and in
Sections 6, 8 and 9 hereof.
In the event the Offering is terminated for any reason not
attributable to the action or inaction of the Agent, the Agent
shall be paid the fees due to the date of such termination
pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the consummation of the
Conversion, including, without limitation, the sale of all Shares
required by the Plan to be sold, are satisfied, the Company
agrees to issue, or have issued, the Shares sold in the Offering
and to release for delivery certificates for such Shares on the
Closing Date (as hereinafter defined) against payment to the
Company by any means authorized by the Plan; provided, however,
that no funds shall be released to the Company until the
conditions specified in Section 7 hereof shall have been complied
with to the reasonable satisfaction of the Agent and their
counsel. The release of Shares against payment therefor shall be
made on a date and at a place acceptable to the Company, the Bank
and the Agent. Certificates for shares shall be delivered
directly to the purchasers in accordance with their directions.
The date upon which the Company shall release or deliver the
Shares sold in the Offering, in accordance with the terms herein,
is called the "Closing Date."
The Agent shall receive the following compensation for its
services hereunder:
(a) A management fee of $25,000; payable in four
consecutive monthly installments of $6,250. 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 the Agent,
the Agent shall have earned and be entitled to be paid
fees accruing through the stage at which the
termination occurred, including any accrued legal fees
expended by the Agent.
(b) A Success Fee of 1.40% shall be charged based on the
aggregate Purchase Price of Common Shares 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
<PAGE 4> plans (except IRA's) or similar plan created
by the Bank or the Company for some or all of its
directors or employees. The management fee described
in subparagraph 2(a) shall be applied against the
Success Fee described in this subparagraph 2(b).
(c) If any of the Common Shares remain available after the
Subscription Offering, at the request of the Bank, Webb
will seek to form a syndicate of registered broker-
dealers ("Selected Dealers") to assist in the sale of
such Common Shares 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 Shares among the Selected Dealers in a
fashion which best meets the distribution objectives of
the Bank and the Plan. Webb will be paid a fee not to
exceed 5.5% of the aggregate Purchase Price of the
Shares sold by the Selected Dealers. Webb will pass
onto the Selected Dealers who assist in the Syndicated
Community Offering or the Public 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 affected
with the assistance of Selected Dealers other than Webb
shall be transmitted by Webb to such Selected Dealers.
The decision to utilize Selected Dealers will be made
by the Bank upon consultation with Webb. In any event,
with respect to any purchases of Shares, fees paid
pursuant to this subparagraph 2(c) such fees shall be
in lieu of, and not in addition to, payment pursuant to
subparagraph 2(a) and 2(b).
(d) The Agent will not request reimbursement for any out-
of-pocket expenses relating to travel, lodging,
photocopying and meal expenses. The Bank and Company
shall reimburse the Agent for fees and expenses of
counsel and the legal fees will not exceed $30,000.
The Bank will bear the expenses of the 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; and the fees
set forth under this Section 2; and fees for "Blue sky"
legal work. The Company or the Bank will reimburse
Webb for expenses incurred by Webb on their behalf as
set forth under Section 6 hereof.
Full payment of Agent's actual and accountable expenses,
advisory fees and compensation shall be made in next day funds on
the earlier of the Closing Date or a determination by the Bank to
terminate or abandon the Plan.
<PAGE 5>
Section 3. Prospectus; Offering. The Shares are to be
initially offered in the Offering at $10.00 per share.
Section 4. Representations and Warranties. The Company and
the Bank jointly and severally represent and warrant to and agree
with the Agent as follows:
(a) The Registration Statement which was prepared by
the Company and the Bank and filed with the
Commission was declared effective by the
Commission on [_________], 1999. At the time the
Registration Statement, including the Prospectus
contained therein (including any amendment or
supplement), became effective, the Registration
Statement contained all statements that were
required to be stated therein in accordance with
the 1933 Act and the 1933 Act Regulations,
complied in all material respects with the
requirements of the 1933 Act and the 1933 Act
Regulations and the Registration Statement,
including the Prospectus contained therein
(including any amendment or supplement thereto),
and any information regarding the Company or the
Bank contained in Sales Information (as such term
is defined in Section 8 hereof) authorized by the
Company or the Bank for use in connection with the
Offering, did not contain an untrue statement of a
material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the
circumstances under which they were made, not
misleading, and at the time any Rule 424(b) or (c)
Prospectus was filed with the Commission and at
the Closing Date referred to in Section 2, the
Registration Statement, including the Prospectus
contained therein (including any amendment or
supplement thereto), and any information regarding
the Company or the Bank contained in Sales
Information (as such term is defined in Section 8
hereof) authorized by the Company or the Bank for
use in connection with the Offering will contain
all statements that are required to be stated
therein in accordance with the 1933 Act and the
1933 Act Regulations and will not contain an
untrue statement of a material fact or omit to
state a material fact necessary in order to make
the statements therein, in light of the
circumstances under which they were made, not
misleading; provided, however, that the
representations and warranties in this
Section 4(a) shall not apply to statements or
omissions made in reliance upon and in conformity
with written information furnished to the Company
or the Bank by the Agent or its counsel expressly
regarding the Agent for use in the Prospectus
<PAGE 6> under the caption "The
Conversion-Marketing Arrangements" or statements
in or omissions from any Sales Information or
information filed pursuant to state securities or
blue sky laws or regulations regarding the Agent.
(b) The Conversion Application which was prepared by
the Company and the Bank and filed with the OTS
was approved on [_________], 1999 and the related
Prospectus has been authorized for use by the OTS.
At the time of the approval of the Conversion
Application, including the Prospectus (including
any amendment or supplement thereto), by the OTS
and at all times subsequent thereto until the
Closing Date, the Conversion Application,
including the Prospectus (including any amendment
or supplement thereto), will comply in all
material respects with the Conversion Regulations,
except to the extent waived in writing by the OTS.
The Conversion Application, including the
Prospectus (including any amendment or supplement
thereto), does not include any untrue statement of
a material fact or omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the
circumstances under which they were made, not
misleading; provided, however, that the
representations and warranties in this
Section 4(b) shall not apply to statements or
omissions made in reliance upon and in conformity
with written information furnished to the Company
or the Bank by the Agent or its counsel expressly
regarding the Agent for use in the Prospectus
contained in the Conversion Application under the
caption "The Conversion-Marketing Arrangements" or
statements in or omissions from any sales
information or information filed pursuant to state
securities or blue sky laws or regulations
regarding the Agent. The Holding Company
Application for approval pursuant to the HOLA and
the regulations promulgated thereunder (the
"Control Act Regulations") has been prepared by
the Bank and the Company in material conformity
with the requirements of the Control Act
Regulations and has been filed with and approved
by the OTS. A conformed copy of the Holding
Company Application has been delivered to the
Agent.
(c) The Company has filed with the OTS the Holding
Company Application, and such Application was
deemed complete by the OTS. As of the Closing
Date, approval of the Company's acquisition of the
Bank will have been obtained from the OTS.
<PAGE 7>
(d) No order has been issued by the OTS or the FDIC
(hereinafter any reference to the FDIC shall
include the SAIF) preventing or suspending the use
of the Prospectus, and no action by or before any
such government entity to revoke any approval,
authorization or order of effectiveness related to
the Conversion is, to the best knowledge of the
Company or the Bank, pending or threatened.
(e) At the Closing Date, the Plan will have been
adopted by the Boards of Directors of both the
Company and the Bank and approved by the members
of the Bank, and the offer and sale of the Shares
and the establishment and funding of the
Foundation will have been conducted in all
material respects in accordance with the Plan, the
Conversion Regulations, and all other applicable
laws, regulations, decisions and orders, including
all terms, conditions, requirements and provisions
precedent to the Conversion imposed upon the
Company or the Bank by the OTS, the Commission, or
any other regulatory authority and in the manner
described in the Prospectus. No person has sought
to obtain review of the final action of the OTS in
approving the Plan or in approving the Conversion
or the Holding Company Application pursuant to the
HOLA or any other statute or regulation.
(f) The Bank has been organized and is a validly
existing federally chartered savings bank in
mutual form of organization and upon the
Conversion will become a duly organized and
validly existing federally chartered savings bank
in permanent capital stock form of organization,
in both instances duly authorized to conduct its
business and own its property as described in the
Registration Statement and the Prospectus; the
Bank has obtained all licenses, permits and other
governmental authorizations currently required for
the conduct of its business, except those that
individually or in the aggregate would not
materially adversely affect the financial
condition, earnings, capital, assets, properties
or business of the Company and the Bank, taken as
a whole; all such licenses, permits and
governmental authorizations are in full force and
effect, and the Bank is in compliance with all
material laws, rules, regulations and orders
applicable to the operation of its business; the
Bank is existing under federal law and is duly
qualified as a foreign corporation to transact
business and is in good standing in each
jurisdiction in which its ownership of property or
leasing of property or the conduct of its business
requires such qualification, unless the failure to
<PAGE 8> be so qualified in one or more of such
jurisdictions would not have a material adverse
effect on the condition, financial or otherwise,
or the business, operations or income of the Bank.
The Bank does not own equity securities or any
equity interest in any other business enterprise
except as described in the Prospectus or as would
not be material to the operations of the Bank.
Upon completion of the sale by the Company of the
Shares contemplated by the Prospectus, (i) all of
the authorized and outstanding capital stock of
the Bank will be owned by the Company and (ii) the
Company will have no direct subsidiaries other
than the Bank. The Conversion will have been
effected in all material respects in accordance
with all applicable statutes, regulations,
decisions and orders; and, except with respect to
the filing of certain post-sale, post-Conversion
reports, and documents in compliance with the 1933
Act Regulations, the OTS's resolutions or letters
of approval, all terms, conditions, requirements
and provisions with respect to the Conversion
imposed by the Commission, the OTS and the FDIC,
if any, will have been complied with by the
Company and the Bank in all material respects or
appropriate waivers will have been obtained and
all material notice and waiting periods will have
been satisfied, waived or elapsed.
(g) The Company has been duly incorporated and is
validly existing as a corporation under the laws
of the State of Pennsylvania with corporate power
and authority to own, lease and operate its
properties and to conduct its business as
described in the Registration Statement and the
Prospectus, and at the Closing Date the Company
will be qualified to do business as a foreign
corporation in each jurisdiction in which the
conduct of its business requires such
qualification, except where the failure to so
qualify would not have a material adverse effect
on the condition, financial or otherwise, or the
business, operations or income of the Company.
The Company has obtained all licenses, permits and
other governmental authorizations currently
required for the conduct of its business except
those that individually or in the aggregate would
not materially adversely affect the financial
condition, earnings, capital, assets, properties
or business of the Company and the Bank, taken as
a whole; all such licenses, permits and
governmental authorizations are in full force and
effect, and the Company is in all material
respects complying with all laws, rules, <PAGE 9>
regulations and orders applicable to the operation
of its business.
(h) The Bank is a member of the Federal Home Loan Bank
of Pittsburgh ("FHLB-Pittsburgh"). The deposit
accounts of the Bank are insured by the FDIC up to
the applicable limits, and no proceedings for the
termination or revocation of such insurance are
pending or, to the best knowledge of the Company
or the Bank, threatened. Upon consummation of the
Conversion, the liquidation account for the
benefit of Eligible Account Holders and
Supplemental Eligible Account Holders will be duly
established in accordance with the requirements of
the Conversion Regulations.
(I) The Foundation has been duly authorized,
incorporated and is validly existing as a non
stock corporation in good standing under the laws
of the State of Delaware with corporate power and
authority to own, lease and operate its properties
and to conduct its business as described in the
Prospectus; the Foundation will not be a savings
and loan holding company within the meaning of 12
C.F.R. Section 574.2(q) as a result of the
issuance of shares of Common Shares to it in
accordance with the terms of the Plan and in the
amounts as described in the Prospectus; no
approvals are required to establish the Foundation
and to contribute the Shares thereto as described
in the Prospectus other than those imposed by the
OTS; except as specifically disclosed in the
Prospectus, there are no agreements and/or
understandings, written or oral, between the
Company and/or the Bank and the Foundation with
respect to the control, directly or indirectly,
over the voting and the acquisition or disposition
of the Foundation Shares; at the time of the
Conversion, the Foundation Shares will have been
duly authorized for issuance and, when issued and
contributed by the Company pursuant to the Plan,
will be duly and validly issued and fully paid and
non-assessable; and the issuance of the Foundation
Shares is not subject to preemptive or similar
rights.
(j) The Company and the Bank have good and marketable
title to all real property and good title to all
other assets material to the business of the
Company and the Bank, taken as a whole, and to
those properties and assets described in the
Registration Statement and Prospectus as owned by
them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are
described in the Registration Statement and
<PAGE 10> Prospectus, or are not material to the
business of the Company and the Bank, taken as a
whole; and all of the leases and subleases
material to the business of the Company and the
Bank, taken as a whole, under which the Company or
the Bank hold properties, including those
described in the Registration Statement and
Prospectus, are in full force and effect.
(k) The Company and the Bank have received an opinion
of their special counsel, Stevens & Lee, P.C.,
with respect to the federal and Pennsylvania
income tax consequences of the Conversion, the
deductibility of a contribution of Shares to the
Foundation and the applicability of the self-
dealing rules to such contribution; all material
aspects of the opinion of Stevens & Lee, P.C. are
accurately summarized in the Registration
Statement and will be accurately summarized in the
Prospectus; and further represent and warrant that
the facts upon which such opinion is based are
truthful, accurate and complete.
(l) The Company and the Bank have all such power,
authority, authorizations, approvals and orders as
may be required to enter into this Agreement, to
carry out the provisions and conditions hereof and
to issue the Shares and the Foundation Shares and
sell the Shares to be sold by the Company as
provided herein and as described in the
Prospectus, subject to approval or confirmation by
the OTS of the final appraisal of the Bank. The
consummation of the Conversion, the execution,
delivery and performance of this Agreement and the
consummation of the transactions herein
contemplated have been duly and validly authorized
by all necessary corporate action on the part of
the Company and the Bank and this Agreement has
been validly executed and delivered by the Company
and the Bank and is the valid, legal and binding
agreement of the Company and the Bank enforceable
in accordance with its terms (except as the
enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the
enforcement of creditors' rights generally or the
rights of creditors of savings and loan holding
companies, the accounts of whose subsidiaries are
insured by the FDIC, or by general equity
principles, regardless of whether such
enforceability is considered in a proceeding in
equity or at law, and except to the extent, if
any, that the provisions of Sections 8 and 9
hereof may be unenforceable as against public
policy). <PAGE 11>
(m) Neither the Company nor the Bank are in violation
of any directive received from the OTS, the FDIC,
or any other agency to make any material change in
the method of conducting their businesses so as to
comply in all material respects with all
applicable statutes and regulations (including,
without limitation, regulations, decisions,
directives and orders of the OTS and the FDIC)
and, except as may be set forth in the
Registration Statement and the Prospectus, there
is no suit or proceeding or charge or action
before or by any court, regulatory authority or
governmental agency or body, pending or, to the
knowledge of the Company or the Bank, threatened,
which might materially and adversely affect the
Conversion, the performance of this Agreement or
the consummation of the transactions contemplated
in the Plan and as described in the Registration
Statement and the Prospectus or which might result
in any material adverse change in the condition
(financial or otherwise), earnings, capital or
properties of the Company or the Bank, or which
would materially affect their properties and
assets.
(n) The financial statements, schedules and notes
related thereto which are included in the
Prospectus fairly present the balance sheet,
income statement, statement of changes in equity
capital and statement of cash flows of the Bank at
the respective dates indicated and for the
respective periods covered thereby and comply as
to form in all material respects with the
applicable accounting requirements of Title 12 of
the Code of Federal Regulations and generally
accepted accounting principles (including those
requiring the recording of certain assets at their
current market value). Such financial statements,
schedules and notes related thereto have been
prepared in accordance with generally accepted
accounting principles consistently applied through
the periods involved, present fairly in all
material respects the information required to be
stated therein and are consistent with the most
recent financial statements and other reports
filed by the Bank with the OTS, except that
accounting principles employed in such regulatory
filings conform to the requirements of the OTS and
not necessarily to GAAP. The other financial,
statistical and pro forma information and related
notes included in the Prospectus present fairly
the information shown therein on a basis
consistent with the audited and unaudited
financial statements of the Bank included in the
Prospectus, and as to the pro forma adjustments,
<PAGE 12> the adjustments made therein have been
properly applied on the basis described therein.
(o) Since the respective dates as of which information
is given in the Registration Statement including
the Prospectus: (i) there has not been any
material adverse change, financial or otherwise,
in the condition of the Company or the Bank and
its subsidiaries, considered as one enterprise, or
in the earnings, capital or properties of the
Company or the Bank, whether or not arising in
the ordinary course of business; (ii) there has
not been any material increase in the long-term
debt of the Bank or in the principal amount of the
Bank's assets which are classified by the Bank as
substandard, doubtful or loss or in loans past due
90 days or more or real estate acquired by
foreclosure, by deed-in-lieu of foreclosure or
deemed in-substance foreclosure or any material
decrease in equity capital or total assets of the
Bank, nor has the Company or the Bank issued any
securities (other than in connection with the
incorporation of the Company) or incurred any
liability or obligation for borrowing other than
in the ordinary course of business; (iii) there
have not been any material transactions entered
into by the Company or the Bank; (iv) there has
not been any material adverse change in the
aggregate dollar amount of the Bank's deposits or
its consolidated net worth or spread; (v) there
has been no material adverse change in the
Company's or the Bank's relationship with its
insurance carriers, including, without limitation,
cancellation or other termination of the Company's
or the Bank's fidelity bond or any other type of
insurance coverage; (vi) except as disclosed in
the Prospectus, there has been no material change
in management of the Company or the Bank, neither
of which has any material undisclosed liability of
any kind, contingent or otherwise; (vii) neither
the Company nor the Bank has sustained any
material loss or interference with its respective
business or properties from fire, flood,
windstorm, earthquake, accident or other calamity,
whether or not covered by insurance;
(viii) neither the Company nor the Bank is in
default in the payment of principal or interest on
any outstanding debt obligations; (ix) the
capitalization, liabilities, assets, properties
and business of the Company and the Bank conform
in all material respects to the descriptions
thereof contained in the Prospectus; and
(x) neither the Company nor the Bank has any
material contingent liabilities, except as set
forth in the Prospectus. All documents made
<PAGE 13> available to or delivered or to be made
available to or delivered by the Bank or the
Company or their representatives in connection
with the issuance and sale of the Shares,
including records of account holders, depositors,
borrowers and other members of the Bank, or in
connection with the Agent's exercise of due
diligence, except for those documents which were
prepared by parties other than the Bank, the
Company or their representatives, to the best
knowledge of the Bank and the Company, were on the
dates on which they were delivered, or will be on
the dates on which they are to be delivered, true,
complete and correct in all material respects.
(p) As of the date hereof and as of the Closing Date,
neither the Company nor the Bank is (i) in
violation of its articles of incorporation or code
of regulations or charter or bylaws, respectively
(and the Bank will not be in violation of its
charter or bylaws in capital stock form upon
consummation of the Conversion), or (ii) in
default in the performance or observance of any
material obligation, agreement, covenant, or
condition contained in any material contract,
lease, loan agreement, indenture or other
instrument to which it is a party or by which it
or any of its property may be bound. The
consummation of the transactions herein
contemplated will not: (i) conflict with or
constitute a breach of, or default under, or
result in the creation of any material lien,
charge or encumbrance (with the exception of the
liquidation account established in the Conversion)
upon any of the assets of the Company or the Bank
pursuant to the Articles of Incorporation and
Bylaws of the Company or the Charter and Bylaws of
the Bank (in either mutual or capital stock form)
or any material contract, lease or other
instrument in which the Company or the Bank has a
beneficial interest, or any applicable law, rule,
regulation or order; (ii) violate any
authorization, approval, judgement, decree, order,
statute, rule or regulation applicable to the
Company or the Bank, except for such violations
which would not have a material adverse effect on
the financial condition and results of operations
of the Company and the Bank on a consolidated
basis; or (iii) with the exception of the
liquidation account established in the Conversion,
result in the creation of any material lien,
charge or encumbrance upon any property of the
Company or the Bank.
<PAGE 14>
(q) No default exists, and no event has occurred which
with notice or lapse of time, or both, would
constitute a default on the part of the Company or
the Bank in the due performance and observance of
any term, covenant or condition of any indenture,
mortgage, deed of trust, note, bank loan or credit
agreement or any other instrument or agreement to
which the Company or the Bank is a party or by
which any of them or any of their property is
bound or affected, except such defaults which
would not have a material adverse affect on the
financial condition or results of operations of
the Company and the Bank on a consolidated basis;
such agreements are in full force and effect; and
no other party to any such agreements has
instituted or, to the best knowledge of the
Company and the Bank, threatened any action or
proceeding wherein the Company or the Bank would
or might be alleged to be in default thereunder,
where such action or proceeding, if determined
adversely to the Company or the Bank, would have a
material adverse effect on the Company or the Bank
considered as one enterprise.
(r) Upon consummation of the Conversion and the
contribution of the Foundation Shares, the
authorized, issued and outstanding equity capital
of the Company will be within the range set forth
in the Prospectus under the caption
"Capitalization," and no Shares have been or will
be issued and outstanding prior to the Closing
Date; the Shares will have been duly and validly
authorized for issuance and, when issued and
delivered by the Company pursuant to the Plan
against payment of the consideration calculated as
set forth in the Plan and in the Prospectus, will
be duly and validly issued, fully paid and
non-assessable, except for shares purchased by the
ESOP with funds borrowed from the Company to the
extent payment therefor in cash has not been
received by the Company; except to the extent that
subscription rights and priorities pursuant
thereto exist pursuant to the Plan, no preemptive
rights exist with respect to the Shares; and the
terms and provisions of the Shares will conform in
all material respects to the description thereof
contained in the Registration Statement and the
Prospectus. To the best knowledge of the Company
and the Bank, upon the issuance of the Shares,
good title to the Shares will be transferred from
the Company to the purchasers thereof against
payment therefor, subject to such claims as may be
asserted against the purchasers thereof by
third-party claimants.
<PAGE 15>
(s) No approval of any regulatory or supervisory or
other public authority is required in connection
with the execution and delivery of this Agreement
or the issuance of the Shares, except for the
approval of the Commission and the OTS, and any
necessary qualification, notification,
registration or exemption under the securities or
blue sky laws of the various states in which the
Shares are to be offered, and except as may be
required under the rules and regulations of the
National Association of Securities Dealers, Inc.
("NASD") and/or The Nasdaq Stock Market.
(t) Stockton Bates, LLP, which has certified the
audited financial statements and schedules of the
Bank included in the Prospectus, has advised the
Company and the Bank in writing that they are,
with respect to the Company and the Bank,
independent public accountants within the meaning
of the Code of Professional Ethics of the American
Institute of Certified Public Accountants and
applicable regulations of the OTS.
(u) RP Financial, L.C., which has prepared the Bank's
Conversion Valuation Appraisal Report as of
[__________], 1999 (as amended or supplemented, if
so amended or supplemented) (the "Appraisal"), has
advised the Company in writing that it is
independent of the Company and the Bank within the
meaning of the Conversion Regulations.
(v) The Company and the Bank have timely filed all
required federal, state and local tax returns; the
Company and the Bank have paid all taxes that have
become due and payable in respect of such returns,
except where permitted to be extended, have made
adequate reserves for similar future tax
liabilities and no deficiency has been asserted
with respect thereto by any taxing authority.
(w) The Bank is in compliance in all material respects
with the applicable financial record-keeping and
reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended,
and the regulations and rules thereunder.
(x) To the knowledge of the Company and the Bank,
neither the Company, the Bank nor employees of the
Company or the Bank has made any payment of funds
of the Company or the Bank as a loan for the
purchase of the Shares or made any other payment
of funds prohibited by law, and no funds have been
set aside to be used for any payment prohibited by
law.
<PAGE 16>
(y) Prior to the Conversion, neither the Company nor
the Bank has: (i) issued any securities within the
last 18 months (except for notes to evidence bank
loans and reverse repurchase agreements or other
liabilities in the ordinary course of business or
as described in the Prospectus); (ii) had any
material dealings within the 12 months prior to
the date hereof with any member of the NASD, or
any person related to or associated with such
member, other than discussions and meetings
relating to the proposed Offering and routine
purchases and sales of United States government
and agency and other securities in the ordinary
course of business; (iii) entered into a financial
or management consulting agreement except as
contemplated hereunder; and (iv) engaged any
intermediary between the Agent and the Company and
the Bank in connection with the offering of the
Shares, and no person is being compensated in any
manner for such service. Appropriate arrangements
have been made for placing the funds received from
subscriptions for Shares in a special interest-
bearing account with the Bank until all Shares are
sold and paid for, with provision for refund to
the purchasers in the event that the Conversion is
not completed for whatever reason or for delivery
to the Company if all Shares are sold.
(z) The Company and the Bank have not relied upon the
Agent or its legal counsel or other advisors for
any legal, tax or accounting advice in connection
with the Conversion.
(aa) The Company is not required to be registered under
the Investment Company Act of 1940, as amended.
(bb) Any certificates signed by an officer of the
Company or the Bank pursuant to the conditions of
this Agreement and delivered to the Agent or their
counsel that refers to this Agreement shall be
deemed to be a representation and warranty by the
Company or the Bank to the Agent as to the matters
covered thereby with the same effect as if such
representation and warranty were set forth herein.
Section 5. Representations and Warranties.
KBW represents and warrants to the Company and the Bank
that:
(i) it is a corporation and is validly existing
in good standing under the laws of the State of New
York and licensed to conduct business in the State of
Pennsylvania and that Webb is an unincorporated
division thereof with full power and authority to
<PAGE 17> provide the services to be furnished to the
Bank and the Company hereunder.
(ii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all
necessary action on the part of the Agent, and this
Agreement has been duly and validly executed and
delivered by the Agent and is a legal, valid and
binding agreement of the Agent, enforceable in
accordance with its terms.
(iii) Each of the Agent and its employees, agents
and representatives who shall perform any of the
services hereunder shall be duly authorized and
empowered, and shall have all licenses, approvals and
permits necessary to perform such services; and the
Agent is a registered selling agent in each of the
jurisdictions in which the Shares are to be offered by
the Company in reliance upon the Agent as a registered
selling agent as set forth in the blue sky memorandum
prepared with respect to the Offering.
(iv) The execution and delivery of this Agreement
by the Agent, the consummation of the transactions
contemplated hereby and compliance with the terms and
provisions hereof will not conflict with, or result in
a breach of, any of the terms, provisions or conditions
of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a
default) under, the Articles of Incorporation or Bylaws
of the Agent or any agreement, indenture or other
instrument to which the Agent is a party or by which it
or its property is bound.
(v) No approval of any regulatory or supervisory
or other public authority is required in connection
with the Agent's execution and delivery of this
Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or
action before or by any court, regulatory authority or
government agency or body or, to the knowledge of the
Agent, pending or threatened, which might materially
adversely affect the Agent's performance of this
Agreement.
Section 5.1 Covenants of the Company and the Bank. The
Company and the Bank hereby jointly and severally covenant with
KBW as follows:
(a) The Company will not, at any time after the date
the Registration Statement is declared effective,
file any amendment or supplement to the
Registration Statement without providing the Agent
<PAGE 18> and its counsel an opportunity to review
such amendment or supplement or file any amendment
or supplement to which amendment or supplement the
Agent or its counsel shall reasonably object.
(b) The Bank will not, at any time after the
Conversion Application is approved by the OTS,
file any amendment or supplement to such
Conversion Application without providing the Agent
and its counsel an opportunity to review such
amendment or supplement or file any amendment or
supplement to which amendment or supplement the
Agent or its counsel shall reasonably object.
(c) The Company will not, at any time before the
Holding Company Application is approved by the
OTS, file any amendment or supplement to such
Holding Company Application without providing the
Agent and its counsel an opportunity to review the
nonconfidential portions of such amendment or
supplement or file any amendment or supplement to
which amendment or supplement the Agent or its
counsel shall reasonably object.
(d) The Company and the Bank will use their best
efforts to cause any post-effective amendment to
the Registration Statement to be declared
effective by the Commission and any post-effective
amendment to the Conversion Application to be
approved by the OTS and will immediately upon
receipt of any information concerning the events
listed below notify the Agent: (i) when the
Registration Statement, as amended, has become
effective; (ii) when the Conversion Application,
as amended, has been approved by the OTS;
(iii) any comments from the Commission, the OTS,
or any other governmental entity with respect to
the Conversion or the transactions contemplated by
this Agreement; (iv) of the request by the
Commission, the OTS, or any other governmental
entity for any amendment or supplement to the
Registration Statement, the Conversion Application
or for additional information; (v) of the issuance
by the Commission, the OTS, or any other
governmental entity of any order or other action
suspending the Offering or the use of the
Registration Statement or the Prospectus or any
other filing of the Company or the Bank under the
Conversion Regulations, or other applicable law,
or the threat of any such action; (vi) the
issuance by the Commission, the OTS, or any
authority of any stop order suspending the
effectiveness of the Registration Statement or of
the initiation or threat of initiation or threat
of any proceedings for that purpose; or (vii) of
<PAGE 19> the occurrence of any event mentioned in
paragraph (h) below. The Company and the Bank
will make every reasonable effort (i) to prevent
the issuance by the Commission, the OTS, or any
other state authority of any such order and, if
any such order shall at any time be issued,
(ii) to obtain the lifting thereof at the earliest
possible time.
(e) The Company and the Bank will deliver to the Agent
and to its counsel two conformed copies of the
Registration Statement, the Conversion Application
and the Holding Company Application, as originally
filed and of each amendment or supplement thereto,
including all exhibits. Further, the Company and
the Bank will deliver such additional copies of
the foregoing documents to counsel to the Agent as
may be required for any NASD filings.
(f) The Company and the Bank will furnish to the
Agent, from time to time during the period when
the Prospectus (or any later prospectus related to
this offering) is required to be delivered under
the 1933 Act or the Securities Exchange Act of
1934 (the "1934 Act"), such number of copies of
such Prospectus (as amended or supplemented) as
the Agent may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the rules and
regulations promulgated under the 1934 Act (the
"1934 Act Regulations"). The Company authorizes
the Agent to use the Prospectus (as amended or
supplemented, if amended or supplemented) in any
lawful manner contemplated by the Plan in
connection with the sale of the Shares by the
Agent.
(g) The Company and the Bank will comply with any and
all material terms, conditions, requirements and
provisions with respect to the Conversion
including the formation and operation of the
Foundation and the transactions contemplated
thereby imposed by the Commission, the OTS or the
Conversion Regulations, and by the 1933 Act, the
1933 Act Regulations, the 1934 Act and the 1934
Act Regulations to be complied with prior to or
subsequent to the Closing Date and when the
Prospectus is required to be delivered, and during
such time period the Company and the Bank will
comply, at their own expense, with all material
requirements imposed upon them by the Commission,
the OTS or the Conversion Regulations, and by the
1933 Act, the 1933 Act Regulations, the 1934 Act
and the 1934 Act Regulations, including, without
limitation, Rule 10b-5 under the 1934 Act, in each
<PAGE 20> case as from time to time in force, so
far as necessary to permit the continuance of
sales or dealing in the Common Shares during such
period in accordance with the provisions hereof
and the Prospectus.
(h) If, at any time during the period when the
Prospectus relating to the Shares is required to
be delivered, any event relating to or affecting
the Company or the Bank shall occur, as a result
of which it is necessary or appropriate, in the
opinion of counsel for the Company and the Bank or
in the reasonable opinion of the Agent's counsel,
to amend or supplement the Registration Statement
or Prospectus in order to make the Registration
Statement or Prospectus not misleading in light of
the circumstances existing at the time the
Prospectus is delivered to a purchaser, the
Company and the Bank will immediately so inform
the Agent and prepare and file, at their own
expense, with the Commission, and the OTS and
furnish to the Agent a reasonable number of copies
of an amendment or amendments of, or a supplement
or supplements to, the Registration Statement or
Prospectus (in form and substance reasonably
satisfactory to the Agent and its counsel after a
reasonable time for review) which will amend or
supplement the Registration Statement or
Prospectus so that as amended or supplemented it
will not contain an untrue statement of a material
fact or omit to state a material fact necessary in
order to make the statements therein, in light of
the circumstances existing at the time the
Prospectus is delivered to a purchaser, not
misleading. For the purpose of this Agreement,
the Company and the Bank each will timely furnish
to the Agent such information with respect to
itself as the Agent may from time to time
reasonably request.
(i) The Company and the Bank will take all necessary
actions in cooperating with the Agent and furnish
to whomever the Agent may direct such information
as may be required to qualify or register the
Shares for offering and sale by the Company or to
exempt such Shares from registration, or to exempt
the Company as a broker-dealer and its officers,
directors and employees as broker-dealers or
agents under the applicable securities or blue sky
laws of such jurisdictions in which the Shares are
required under the Conversion Regulations to be
sold or as the Agent and the Company and the Bank
may reasonably agree upon; provided, however, that
the Company shall not be obligated to file any
general consent to service of process, to qualify
<PAGE 21> to do business in any jurisdiction in
which it is not so qualified, or to register its
directors or officers as brokers, dealers,
salesmen or agents in any jurisdiction. In each
jurisdiction where any of the Shares shall have
been qualified or registered as above provided,
the Company will make and file such statements and
reports in each fiscal period as are or may be
required by the laws of such jurisdiction.
(j) The liquidation account for the benefit of
Eligible Account Holders and Supplemental Eligible
Account Holders will be duly established and
maintained in accordance with the requirements of
the OTS, and such Eligible Account Holders and
Supplemental Eligible Account Holders who continue
to maintain their savings accounts in the Bank
will have an inchoate interest in their pro rata
portion of the liquidation account, which shall
have a priority superior to that of the holders of
the Common Shares in the event of a complete
liquidation of the Bank.
(k) The Company and the Bank will not sell or issue,
contract to sell or otherwise dispose of, for a
period of 90 days after the Closing Date, without
the Agent's prior written consent, any of their
common shares, other than the Shares and
Foundation Shares or other than in connection with
any plan or arrangement described in the
Prospectus, including existing stock benefit
plans.
(l) The Company shall register its Common Shares under
Section 12(g) of the 1934 Act concurrently with
the Offering and shall request that such
registration be effective prior to or upon
completion of the Conversion. The Company shall
maintain the effectiveness of such registration
for not less than three years or such shorter
period as may be required by the OTS.
(m) During the period during which the Common Shares
are registered under the 1934 Act or for three (3)
years from the date hereof, whichever period is
greater, the Company will furnish to its
shareholders as soon as practicable after the end
of each fiscal year an annual report of the
Company (including a consolidated balance sheet
and statements of consolidated income,
shareholders' equity and cash flows of the Company
and its subsidiaries as at the end of and for such
year, certified by independent public accountants
in accordance with Regulation S-X under the 1933
Act and the 1934 Act). <PAGE 22>
(n) During the period of three years from the date
hereof, the Company will furnish to the Agent: (i)
as soon as practicable after such information is
publicly available, a copy of each report of the
Company furnished to or filed with the Commission
under the 1934 Act or any national securities
exchange or system on which any class of
securities of the Company is listed or quoted
(including, but not limited to, reports on Forms
10-KSB, 10-QSB and 8-K and all proxy statements
and annual reports to stockholders), (ii) a copy
of each other non-confidential report of the
Company mailed to its shareholders or filed with
the Commission, the OTS or any other supervisory
or regulatory authority or any national securities
exchange or system on which any class of
securities of the Company is listed or quoted,
each press release and material news items and
additional documents and information with respect
to the Company or the Bank as the Agent may
reasonably request; and (iii) from time to time,
such other nonconfidential information concerning
the Company or the Bank as the Agent may
reasonably request.
(o) The Company and the Bank will use the net proceeds
from the sale of the Shares in the manner set
forth in the Prospectus under the caption "Use of
Proceeds."
(p) Other than as permitted by the Conversion
Regulations, the HOLA, the 1933 Act, the 1933 Act
Regulations and its rules and regulations and the
laws of any state in which the Shares are
registered or qualified for sale or exempt from
registration, neither the Company nor the Bank
will distribute any prospectus, offering circular
or other offering material in connection with the
offer and sale of the Shares.
(q) The Company will use its best efforts to (i)
encourage and assist a market maker to establish
and maintain a market for the Shares and (ii) list
and maintain quotation of the Shares and the
Foundation Shares on a national or regional
securities exchange or on The Nasdaq Stock Market
effective on or prior to the Closing Date.
(r) The Bank will maintain appropriate arrangements
for depositing all funds received from persons
mailing subscriptions for or orders to purchase
Shares in the Offering on an interest-bearing
basis at the rate described in the Prospectus
until the Closing Date and satisfaction of all
conditions precedent to the release of the Bank's
<PAGE 23> obligation to refund payments received
from persons subscribing for or ordering Shares in
the Offering in accordance with the Plan and as
described in the Prospectus or until refunds of
such funds have been made to the persons entitled
thereto or withdrawal authorizations canceled in
accordance with the Plan and as described in the
Prospectus. The Bank will maintain such records
of all funds received to permit the funds of each
subscriber to be separately insured by the FDIC
(to the maximum extent allowable) and to enable
the Bank to make the appropriate refunds of such
funds in the event that such refunds are required
to be made in accordance with the Plan and as
described in the Prospectus.
(s) The Company will promptly take all necessary
action to register as a savings and loan holding
company under the HOLA.
(t) The Company and the Bank will take such actions
and furnish such information as are reasonably
requested by the Agent in order for the Agent to
ensure compliance with the NASD's "Interpretation
Relating to Free Riding and Withholding."
(u) Neither the Company nor the Bank will amend the
Plan of Conversion without notifying the Agent
prior thereto.
(v) The Company shall assist the Agent, if necessary,
in connection with the allocation of the Shares in
the event of an oversubscription and shall provide
the Agent with any information necessary to assist
the Company in allocating the Shares in such event
and such information shall be accurate and
reliable in all material respects.
(w) Prior to the Closing Date, the Company and the
Bank will inform the Agent of any event or
circumstances of which it is aware as a result of
which the Registration Statement and/or
Prospectus, as then amended or supplemented, would
contain an untrue statement of a material fact or
omit to state a material fact necessary in order
to make the statements therein not misleading.
(x) Subsequent to the date the Registration Statement
is declared effective by the Commission and prior
to the Closing Date, except as otherwise may be
indicated or contemplated therein or set forth in
an amendment or supplement thereto, neither the
Company nor the Bank will have: (i) issued any
securities or incurred any liability or
obligation, direct or contingent, for borrowed
<PAGE 24> money, except borrowings from the same
or similar sources indicated in the Prospectus in
the ordinary course of its business, or (ii)
entered into any transaction which is material in
light of the business and properties of the
Company and the Bank, taken as a whole.
(y) The facts and representations provided to Stevens
& Lee, P.C. by the Bank and the Company and upon
which Stevens & Lee, P.C. will base its opinion
under Section 7(c)(1) are and will be truthful,
accurate and complete.
Section 6. Payment of Expenses. Whether or not the
Conversion is completed or the sale of the Shares by the Company
is consummated, the Company and the Bank jointly and severally
agree to pay or reimburse the Agent for: (a) all filing fees in
connection with all filings related to the Offering with the
NASD; (b) any stock issue or transfer taxes which may be payable
with respect to the sale of the Shares; (c) all reasonable
expenses of the Conversion, including but not limited to the
Company's and the Bank's, and the Agent's attorneys' fees (not to
exceed $30,000) and expenses, blue sky fees, transfer agent,
registrar and other agent charges, fees relating to auditing and
accounting or other advisors and costs of printing all documents
necessary in connection with the Conversion; provided, however,
there will be no out-of-pocket expenses charged by the Agent for
expenses such as travel, photocopying, lodging and meals. In the
event the Company is unable to sell a minimum of 1,381,250 Shares
or the Conversion is terminated or otherwise abandoned, the
Company and the Bank shall promptly reimburse the Agent in
accordance with Section 2(d) hereof.
Section 7. Conditions to the Agent's Obligations. The
obligations of the Agent hereunder, as to the Shares to be
delivered at the Closing Date, are subject, to the extent not
waived in writing by the Agent, to the condition that all
representations and warranties of the Company and the Bank herein
are, at and as of the commencement of the Offering and at and as
of the Closing Date, true and correct in all material respects,
the condition that the Company and the Bank shall have performed
all of their obligations hereunder to be performed on or before
such dates, and to the following further conditions:
(a) At the Closing Date, the Company and the Bank
shall have conducted the Conversion in all
material respects in accordance with the Plan, the
Conversion Regulations, all requirements of
Pennsylvania law, and all other applicable laws,
regulations, decisions and orders, including all
terms, conditions, requirements and provisions
precedent to the Conversion imposed upon them by
the OTS.
<PAGE 25>
(b) The Registration Statement shall have been
declared effective by the Commission and the
Conversion Application approved by the OTS not
later than 5:30 p.m. on the date of this
Agreement, or with the Agent's consent at a later
time and date; and at the Closing Date, no stop
order suspending the effectiveness of the
Registration Statement shall have been issued
under the 1933 Act or proceedings therefore
initiated or threatened by the Commission or any
state authority, and no order or other action
suspending the authorization of the Prospectus or
the consummation of the Conversion shall have been
issued or proceedings therefore initiated or, to
the Company's or the Bank's knowledge, threatened
by the Commission, the OTS, the FDIC, or any
other state authority.
(c) At the Closing Date, the Agent shall have
received:
(1) The favorable opinion, dated as of the
Closing Date and addressed to the Agent and
for its benefit, of Stevens & Lee, P.C.,
special counsel for the Company and the Bank,
in form and substance to the effect that:
(i) The Company has been duly
incorporated and is validly existing as a
corporation under the laws of the
Commonwealth of Pennsylvania.
(ii) The Company has corporate power
and authority to own, lease and operate its
properties and to conduct its business as
described in the Registration Statement and
the Prospectus.
(iii) The Bank is a validly existing
federally chartered savings bank in mutual
form and immediately following the completion
of the Conversion will be a validly existing
federally chartered savings bank in permanent
capital stock form of organization, in both
instances duly authorized to conduct its
business and own its property as described in
the Registration Statement and the
Prospectus. All of the outstanding capital
stock of the Bank upon completion of the
Conversion will be duly authorized and, upon
payment therefor, will be validly issued,
fully paid and non-assessable and will be
owned by the Company, to such counsel's
Actual Knowledge, free and clear of any
<PAGE 26> liens, encumbrances, claims or
other restrictions.
(iv) The Bank is a member of the FHLB-
Pittsburgh. The deposit accounts of the Bank
are insured by the FDIC up to the maximum
amount allowed under law and no proceedings
for the termination or revocation of such
insurance are pending or, to such counsel's
Actual Knowledge, threatened; the description
of the liquidation account as set forth in
the Prospectus under the captions "The
Conversion- Effects of Conversion-Depositors=
Rights if IGA Liquidates," to the extent that
such information constitutes matters of law
and legal conclusions, has been reviewed by
such counsel and is accurately described in
all material respects.
(v) Immediately following the
consummation of the Conversion and the
issuance of the Foundation Shares to the
Foundation, the authorized, issued and
outstanding Common Shares of the Company will
be within the range set forth in the
Prospectus under the caption
"Capitalization," and no Common Shares have
been issued prior to the Closing Date; at the
time of the Conversion, the Shares subscribed
for pursuant to the Offering will have been
duly and validly authorized for issuance, and
when issued and delivered by the Company
pursuant to the Plan against payment of the
consideration calculated as set forth in the
Plan and Prospectus, will be duly and validly
issued and fully paid and non-assessable,
except for shares purchased by the ESOP with
funds borrowed from the Company to the extent
payment therefor in cash has not been
received by the Company; except to the extent
that subscription rights and priorities
pursuant thereto exist pursuant to the Plan,
the issuance of the Shares is not subject to
preemptive rights and the terms and
provisions of the Shares conform in all
material respects to the description thereof
contained in the Prospectus. To such
counsel's Actual Knowledge, upon the issuance
of the Shares, good title to the Shares will
be transferred from the Company to the
purchasers thereof against payment therefor,
subject to such claims as may be asserted
against the purchasers thereof by third-party
claimants.
<PAGE 27>
(vi) The Bank and the Company have full
corporate power and authority to enter into
the Agreement and to consummate the
transactions contemplated hereby including
the establishment of the Foundation and the
contribution thereto of the Foundation Shares
and by the Plan. The execution and delivery
of this Agreement and the consummation of the
transactions contemplated hereby have been
duly and validly authorized by all necessary
action on the part of the Company and the
Bank; and this Agreement is a valid and
binding obligation of the Company and the
Bank, enforceable against the Company and the
Bank in accordance with its terms, except as
the enforceability thereof may be limited by
(i) bankruptcy, insolvency, reorganization,
moratorium, conservatorship, receivership or
other similar laws now or hereafter in effect
relating to or affecting the enforcement of
creditors' rights generally or the rights of
creditors of federally chartered savings
institutions, (ii) general equitable
principles, (iii) laws relating to the safety
and soundness of insured depository
institutions, and (iv) applicable law or
public policy with respect to the
indemnification and/or contribution
provisions contained herein, including
without limitation the provisions of
Sections 23A and 23B of the Federal Reserve
Act and except that no opinion need be
expressed as to the effect or availability of
equitable remedies or injunctive relief
(regardless of whether such enforceability is
considered in a proceeding in equity or at
law).
(vii) The Conversion Application has
been approved by the OTS and the Prospectus
has been authorized for use by the OTS. The
OTS has approved the Holding Company
Application and the purchase by the Company
of all of the issued and outstanding capital
stock of the Bank and no action has been
taken, and to such counsel's Actual
Knowledge, none is pending or threatened, to
revoke any such authorization or approval.
(viii) The Plan and the establishment
and funding of the Foundation has been duly
adopted by the required vote of the directors
of the Company and the Bank, and based upon
the certificate of the inspectors of
election, by the members of the Bank.
<PAGE 28>
(ix) Subject to the satisfaction of the
conditions to the OTS's approval of the
Conversion, no further approval,
registration, authorization, consent or other
order of any federal regulatory agency is
required in connection with the execution and
delivery of this Agreement, the issuance of
the Shares and the consummation of the
Conversion, except as may be required under
the securities or blue sky laws of various
jurisdictions (as to which no opinion need be
rendered) and except as may be required under
the rules and regulations of the NASD and/or
The Nasdaq Stock Market (as to which no
opinion need by rendered).
(x) The Registration Statement is
effective under the 1933 Act and no stop
order suspending the effectiveness has been
issued under the 1933 Act or proceedings
therefor initiated or, to such counsel's
Actual Knowledge, threatened by the
Commission.
(xi) At the time the Conversion
Application, including the Prospectus
contained therein, was approved by the OTS,
the Conversion Application, including the
Prospectus contained therein, complied as to
form in all material respects with the
requirements of the Conversion Regulations,
federal and state law and all applicable
rules and regulations promulgated thereunder
(other than the financial statements, the
notes thereto, and other tabular, financial,
statistical and appraisal data included
therein, as to which no opinion need be
rendered).
(xii) At the time that the Registration
Statement became effective, (i) the
Registration Statement (as amended or
supplemented, if so amended or supplemented)
(other than the financial statements, the
notes thereto, and other tabular, financial,
statistical and appraisal data included
therein, as to which no opinion need be
rendered), complied as to form in all
material respects with the requirements of
the 1933 Act and the 1933 Act Regulations,
and (ii) the Prospectus (other than the
financial statements, the notes thereto, and
<PAGE 29> other tabular, financial,
statistical and appraisal data included
therein, as to which no opinion need be
rendered) complied as to form in all material
respects with the requirements of the 1933
Act, the 1933 Act Regulations, the
Conversion Regulations and federal law.
(xiii) The terms and provisions of the
Shares of the Company conform, in all
material respects, to the description thereof
contained in the Registration Statement and
Prospectus, and the form of certificate used
to evidence the Shares is in due and proper
form.
(xiv) To such counsel=s Actual
Knowledge, there are no legal or governmental
proceedings pending or threatened which are
required to be disclosed in the Registration
Statement and Prospectus, other than those
disclosed therein.
(xv) To such counsel's Actual
Knowledge, there are no material contracts,
indentures, mortgages, loan agreements,
notes, leases or other instruments required
to be described or referred to in the
Conversion Application, the Registration
Statement or the Prospectus or required to be
filed as exhibits thereto other than those
described or referred to therein or filed as
exhibits thereto in the Conversion
Application, the Registration Statement or
the Prospectus. The description in the
Conversion Application, the Registration
Statement and the Prospectus of such
documents and exhibits is accurate in all
material respects and fairly presents the
information required to be shown.
(xvi) The Plan complies in all material
respects with all applicable federal and
Pennsylvania laws, rules, regulations,
decisions and orders including, but not
limited to, the Conversion Regulations; to
such counsel's Actual Knowledge, no order has
been issued by the OTS, the Commission, the
FDIC, or any state authority to suspend the
Offering or the use of the Prospectus, and no
action for such purposes has been instituted
or threatened by the OTS, the Commission,
the FDIC, or any other state authority and,
to such counsel's Actual Knowledge, no person
has sought to obtain regulatory or judicial
<PAGE 30> review of the final action of the
OTS approving the Plan, the Conversion
Application (which includes the Plan that
provides for the establishment of the
Foundation), the Holding Company Application
or the Prospectus.
(xvii) To such counsel's Actual
Knowledge, the Company and the Bank have
obtained all material licenses, permits and
other governmental authorizations currently
required for the conduct of their businesses
and all such licenses, permits and other
governmental authorizations are in full force
and effect, and the Company and the Bank are
in all material respects complying therewith.
(xviii) To such counsel's Actual
Knowledge, neither the Company nor the Bank
is in violation of its Articles of
Incorporation and Bylaws or its Charter and
Bylaws, as appropriate or, to such counsel's
Actual Knowledge, in default or violation of
any obligation, agreement, covenant or
condition contained in any contract,
indenture, mortgage, loan agreement, note,
lease or other instrument to which it is a
party or by which it or its property may be
bound, except for such defaults or violations
which would not have a material adverse
impact on the financial condition or results
of operations of the Company and the Bank on
a consolidated basis; to such counsel's
Actual Knowledge, the execution and delivery
of this Agreement, the incurrence of the
obligations herein set forth and the
consummation of the transactions contemplated
herein will not conflict with or constitute a
breach of, or default under, or result in the
creation or imposition of any lien, charge or
encumbrance upon any property or assets of
the Company or the Bank pursuant to any
material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to
which the Company or the Bank is a party or
by which any of them may be bound, or to
which any of the property or assets of the
Company or the Bank are subject (other than
the establishment of the liquidation
account); and such action will not result in
any violation of the provisions of the
Articles of Incorporation or Bylaws of the
Company or the Charter or the Bylaws of the
Bank or, to such counsel's Actual Knowledge,
result in any violation of any applicable
<PAGE 31> federal or state law, act,
regulation (except that no opinion with
respect to the securities and blue sky laws
of various jurisdictions or the rules or
regulations of the NASD and/or The Nasdaq
Stock Market need be rendered) or order or
court order, writ, injunction or decree.
(xix) The Foundation has been duly
incorporated and is validly existing as a
non-stock corporation in good standing under
the laws of the State of Delaware with
corporate power and authority to own, lease
and operate its properties and to conduct its
business as described in the Prospectus; the
Foundation is not a savings and loan holding
company within the meaning of 12 C.F.R.
Section 574.2(q) as a result of the issuance
of Common Shares to it in accordance with the
terms of the Plan and in the amounts as
described in the Prospectus; no approvals are
required to establish the Foundation and to
contribute the Common Shares thereto as
described in the Prospectus other than those
set forth in any written notice or order of
approval or non-objection of the Conversion,
the Conversion Application or the Holding
Company Application, copies of which were
provided to the Agent prior to the Closing
Time.
(xx) The Company's Articles of
Incorporation and Bylaws comply in all
material respects with the laws of the
Commonwealth of Pennsylvania. The Bank's
Charter and Bylaws comply in all material
respects with federal law.
(xxi) To such counsel's Actual
Knowledge, neither the Company nor the Bank
is in violation of any directive from the OTS
or the FDIC to make any material change in
the method of conducting its respective
business.
(xxii) The information in the
Prospectus under the captions "How We Are
Regulated," "The Conversion," "Restrictions
on Acquisitions of Jade and IGA" and
"Description of Capital Stock of Jade," to
the extent that such information constitutes
matters of law, summaries of legal matters,
documents or proceedings, or legal
conclusions, has been reviewed by such
counsel and is correct in all material
<PAGE 32> respects. The description of the
Conversion process in the Prospectus under
the caption "The Conversion" to the extent
that such information constitutes matters of
law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been
reviewed by such counsel and fairly describes
such process in all material respects. The
descriptions in the Prospectus of statutes or
regulations are accurate summaries and fairly
present the information required to be shown.
The information under the caption "The
Conversion-Effects of the Conversion--Tax
Effects of the Conversion and Jade's Stock
Offering" has been reviewed by such counsel
and fairly describes the opinions rendered by
them to the Company and the Bank with respect
to such matters.
In addition, such counsel shall state
that during the preparation of the Conversion
Application, the Registration Statement and
the Prospectus, they participated in
conferences with certain officers of, the
independent public and internal accountants
for, and other representatives of, the
Company and the Bank, at which conferences
the contents of the Conversion Application,
the Registration Statement and the Prospectus
and related matters were discussed and, while
such counsel have not confirmed the accuracy
or completeness of or otherwise verified the
information contained in the Conversion
Application, the Registration Statement or
the Prospectus and do not assume any
responsibility for such information, based
upon such conferences and a review of
documents deemed relevant for the purpose of
rendering their opinion (relying as to
materiality as to factual matters on
certificates of officers and other factual
representations by the Company and the Bank),
nothing has come to their attention that
would lead them to believe that the
Conversion Application, the Registration
Statement, the Prospectus, or any amendment
or supplement thereto (other than the
financial statements, the notes thereto, and
other tabular, financial, statistical and
appraisal data included therein as to which
no view need be rendered) contained an untrue
statement of a material fact or omitted to
state a material fact required to be stated
therein or necessary to make the statements
<PAGE 33> therein, in light of the
circumstances under which they were made, not
misleading.
In giving such opinion, such counsel may
rely as to all matters of fact on
certificates of officers or directors of the
Company and the Bank and certificates of
public officials. Such counsel's opinion
shall be limited to matters governed by
federal laws and by the laws of the
Commonwealth of Pennsylvania. The term
"Actual Knowledge" as used herein shall have
the meaning set forth in the Legal Opinion
Accord of the American Bar Association
Section of Business Law. For purposes of
such opinion, no proceedings shall be deemed
to be pending, no order or stop order shall
be deemed to be issued, and no action shall
be deemed to be instituted unless, in each
case, a director or executive officer of the
Company or the Bank shall have received a
copy of such proceedings, order, stop order
or action. In addition, such opinion may be
limited to present statutes, regulations and
judicial interpretations and to facts as they
presently exist; in rendering such opinion,
such counsel need assume no obligation to
revise or supplement it should the present
laws be changed by legislative or regulatory
action, judicial decision or otherwise; and
such counsel need express no view, opinion or
belief with respect to whether any proposed
or pending legislation, if enacted, or any
proposed or pending regulations or policy
statements issued by any regulatory agency,
whether or not promulgated pursuant to any
such legislation, would affect the validity
of the Conversion or any aspect thereof.
Such counsel may assume that any agreement is
the valid and binding obligation of any
parties to such agreement other than the
Company or the Bank.
(d) At the Closing Date, the Agent shall receive a
certificate of the Chief Executive Officer and the
Principal Accounting Officer of the Company and
the Bank in form and substance reasonably
satisfactory to the Agent's Counsel, dated as of
such Closing Date, to the effect that: (i) they
have carefully examined the Prospectus and, in
their opinion, at the time the Prospectus became
authorized for final use, the Prospectus did not
contain any untrue statement of a material fact or
omit to state a material fact necessary in order
<PAGE 34> to make the statements therein, in light
of the circumstances under which they were made,
not misleading; (ii) since the date the Prospectus
became authorized for final use, no event has
occurred which should have been set forth in an
amendment or supplement to the Prospectus which
has not been so set forth, including specifically,
but without limitation, any material adverse
change in the condition, financial or otherwise,
or in the earnings, capital, properties or
business of the Company or the Bank and the
conditions set forth in this Section 7 have been
satisfied; (iii) since the respective dates as of
which information is given in the Registration
Statement and the Prospectus, there has been no
material adverse change in the condition,
financial or otherwise, or in the earnings,
capital or properties of the Company or the Bank
independently, or of the Company and the Bank
considered as one enterprise, whether or not
arising in the ordinary course of business; (iv)
the representations and warranties in Section 4
are true and correct with the same force and
effect as though expressly made at and as of the
Closing Date; (v) the Company and the Bank have
complied in all material respects with all
agreements and satisfied all conditions on their
part to be performed or satisfied at or prior to
the Closing Date and will comply in all material
respects with all obligations to be satisfied by
them after the Conversion; (vi) no stop order
suspending the effectiveness of the Registration
Statement has been initiated or, to the best
knowledge of the Company or the Bank, threatened
by the Commission or any state authority; (vii) no
order suspending the Offering, the Conversion, the
acquisition of all of the shares of the Bank by
the Company or the effectiveness of the Prospectus
has been issued and no proceedings for that
purpose are pending or, to the best knowledge of
the Company or the Bank, threatened by the OTS,
the Commission, the FDIC, or any state authority;
and (viii) to the best knowledge of the Company or
the Bank, no person has sought to obtain review of
the final action of the OTS approving the Plan.
(e) Prior to and at the Closing Date: (i) in the
reasonable opinion of the Agent, there shall have
been no material adverse change in the condition,
financial or otherwise, or in the earnings or
business of the Company or the Bank independently,
or of the Company and the Bank considered as one
enterprise, from that as of the latest dates as of
which such condition is set forth in the
Prospectus, other than transactions referred to or
<PAGE 35> contemplated therein; (ii) the Company
or the Bank shall not have received from the OTS
or the FDIC any direction (oral or written) to
make any material change in the method of
conducting their business with which it has not
complied (which direction, if any, shall have been
disclosed to the Agent) or which materially and
adversely would affect the business, operations or
financial condition or income of the Company and
the Bank taken as a whole; (iii) neither the
Company nor the Bank shall have been in default
(nor shall an event have occurred which, with
notice or lapse of time or both, would constitute
a default) under any provision of any agreement or
instrument relating to any outstanding
indebtedness; (iv) no action, suit or proceeding,
at law or in equity or before or by any federal or
state commission, board or other administrative
agency, shall be pending or, to the knowledge of
the Company or the Bank, threatened against the
Company or the Bank or affecting any of their
properties wherein an unfavorable decision, ruling
or finding would materially and adversely affect
the business, operations, financial condition or
income of the Company or the Bank taken as a
whole; and (v) the Shares shall have been
qualified or registered for offering and sale or
exempted therefrom under the securities or blue
sky laws of the jurisdictions as the Agent shall
have reasonably requested and as agreed to by the
Company and the Bank.
(f) Concurrently with the execution of this Agreement,
the Agent shall receive a letter from Stockton
Bates, LLP dated as of the date of the Prospectus
and addressed to the Agent: (i) confirming that
Stockton Bates, LLP is a firm of independent
public accountants within the meaning of Rule 101
of the Code of Professional Ethics of the American
Institute of Certified Public Accountants and
applicable regulations of the OTS and stating in
effect that in its opinion the financial
statements, schedules and related notes of the
Bank as of December 31, 1998 and for each of the
six month periods ended December 31, 1998 and 1997
and as of June 30, 1998, and for each of the three
years in the period ended June 30, 1998, included
in the Prospectus and covered by their opinion
included therein, comply as to form in all
material respects with the applicable accounting
requirements and related published rules and
regulations of the OTS and the 1933 Act; (ii)
stating in effect that, on the basis of certain
agreed upon procedures (but not an audit in
accordance with generally accepted auditing
<PAGE 36> standards) consisting of a reading of
the latest available unaudited interim financial
statements of the Bank prepared by the Bank, a
reading of the minutes of the meetings of the
Board of Directors and members of the Bank and
consultations with officers of the Bank
responsible for financial and accounting matters,
nothing came to their attention which caused them
to believe that: (A) the unaudited financial
statements included in the Prospectus are not in
conformity with the 1933 Act, applicable
accounting requirements of the OTS and generally
accepted accounting principles applied on a basis
substantially consistent with that of the audited
financial statements included in the Prospectus;
or (B) during the period from the date of the
latest unaudited financial statements included in
the Prospectus to a specified date not more than
three business days prior to the date of the
Prospectus, except as has been described in the
Prospectus, there was any increase in borrowings,
other than normal deposit fluctuations, by the
Bank; or (C) there was any decrease in the net
assets of the Bank at the date of such letter as
compared with amounts shown in the latest
unaudited balance sheets included in the
Prospectus; and (iii) stating that, in addition to
the audit referred to in their opinion included in
the Prospectus and the performance of the
procedures referred to in clause (ii) of this
subsection (g), they have compared with the
general accounting records of the Bank, which are
subject to the internal controls of the Bank, the
accounting system and other data prepared by the
Bank, directly from such accounting records, to
the extent specified in such letter, such amounts
and/or percentages set forth in the Prospectus as
the Agent may reasonably request; and they have
reported on the results of such comparisons.
(g) At the Closing Date, the Agent shall receive a
letter dated the Closing Date, addressed to the
Agent, confirming the statements made by Stockton
Bates, LLP in the letter delivered by it pursuant
to subsection (g) of this Section 7, the
"specified date" referred to in clause (ii) of
subsection (g) to be a date specified in the
letter required by this subsection (h) which for
purposes of such letter shall not be more than
three business days prior to the Closing Date.
(h) At the Closing Date, the Agent shall receive a
letter from RP Financial, L.C., dated the Closing
Date thereof and addressed to counsel for the
Agent (i) confirming that said firm is independent
<PAGE 37> of the Company and the Bank and is
experienced and expert in the area of corporate
appraisals within the meaning of Title 12 of the
Code of Federal Regulations,
Section 563b.7(f)(1)(i), (ii) stating in effect
that the Appraisal prepared by such firm complies
in all material respects with the applicable
requirements of Title 12 of the Code of Federal
Regulations, and (iii) further stating that its
opinion of the aggregate pro forma market value of
the Company and the Bank expressed in its
Appraisal dated as of [__________], 1999, as most
recently updated, remains in effect.
(i) The Company and the Bank shall not have sustained
since the date of the latest financial statements
included in the Prospectus any material loss or
interference with its business from fire,
explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or
court or governmental action, order or decree,
otherwise than as set forth or contemplated in the
Registration Statement and Prospectus and since
the respective dates as of which information is
given in the Registration Statement and
Prospectus, there shall not have been any change
in the long-term debt of the Company or the Bank
other than debt incurred in relation to the
purchase of Shares by the Bank's eligible plans,
or any change, or any development involving a
prospective change, in or affecting the general
affairs, management, financial position,
shareholders' equity or results of operations of
the Company or the Bank, otherwise than as set
forth or contemplated in the Registration
Statement and Prospectus, the effect of which, in
any such case described above, is in Webb's
reasonable judgment sufficiently material and
adverse as to make it impracticable or inadvisable
to proceed with the Subscription Offering or the
delivery of the Shares on the terms and in the
manner contemplated in the Prospectus.
(j) At or prior to the Closing Date, the Agent shall
receive: (i) a copy of the letters from the OTS
approving the Conversion Application and
authorizing the use of the Prospectus; (ii) a copy
of the order from the Commission declaring the
Registration Statement effective; (iii) a
certificate from the OTS evidencing the good
standing of the Bank; (iv) a certificate of good
standing from the Commonwealth of Pennsylvania
evidencing the good standing of the Company; (v) a
certificate from the FDIC evidencing the Bank's
insurance of accounts; (vi) a certificate from the
<PAGE 38> FHLB-Pittsburgh evidencing the Bank's
membership thereof; (vii) a copy of the letter
from the OTS approving the Company's Holding
Company Application; and (viii) a certified copy
of the Bank's Charter and Bylaws.
(k) Subsequent to the date hereof, there shall not
have occurred any of the following: (i) a
suspension or limitation in trading in securities
generally on the New York Stock Exchange or in the
over-the-counter market, or quotations halted
generally on The Nasdaq Stock Market, or minimum
or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been
required by either of such exchanges or the NASD
or by order of the Commission or any other
governmental authority; (ii) a general moratorium
on the operations of commercial banks, or federal
savings and loan associations or a general
moratorium on the withdrawal of deposits from
commercial banks or federal savings and loan
associations declared by federal or state
authorities; (iii) the engagement by the United
States in hostilities which have resulted in the
declaration, on or after the date hereof, of a
national emergency or war; or (iv) a material
decline in the price of equity or debt securities
if the effect of such a declaration or decline, in
the Agent's reasonable judgement, makes it
impracticable or inadvisable to proceed with the
Offering or the delivery of the Shares on the
terms and in the manner contemplated in the
Registration Statement and the Prospectus.
(l) At or prior to the Closing Date, counsel to the
Agent shall have been furnished with such
documents and opinions as they may reasonably
require for the purpose of enabling them to pass
upon the sale of the Shares as herein contemplated
and related proceedings or in order to evidence
the occurrence or completeness of any of the
representations or warranties, or the fulfillment
of any of the conditions, herein contained; and
all proceedings taken by the Company or the Bank
in connection with the Conversion and the sale of
the Shares as herein contemplated shall be
satisfactory in form and substance to Webb and its
counsel.
<PAGE 39>
Section 8. Indemnification.
(a) The Company and the Bank jointly and severally
agree to indemnify and hold harmless the Agent,
its respective officers and directors, employees
and agents, and each person, if any, who controls
the Agent within the meaning of Section 15 of the
1933 Act or Section 20(a) of the 1934 Act, against
any and all loss, liability, claim, damage or
expense whatsoever (including, but not limited to,
settlement expenses and the establishment of the
Foundation and the contribution of the Foundation
Shares thereto by the Company), joint or several,
that the Agent or any of them may suffer or to
which the Agent and any such persons may become
subject under all applicable federal or state laws
or otherwise, and to promptly reimburse the Agent
and any such persons upon written demand for any
expense (including reasonable fees and
disbursements of counsel) incurred by the Agent or
any of them in connection with investigating,
preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities
or actions: (i) arise out of or are based upon any
untrue statement or alleged untrue statement of a
material fact contained in the Registration
Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any
amendment or supplement thereto), the Conversion
Application (or any amendment or supplement
thereto), the Holding Company Application or any
instrument or document executed by the Company or
the Bank or based upon written information
supplied by the Company or the Bank filed in any
state or jurisdiction to register or qualify any
or all of the Shares or to claim an exemption
therefrom or provided to any state or jurisdiction
to exempt the Company as a broker-dealer or its
officers, directors and employees as
broker-dealers or agent, under the securities laws
thereof (collectively, the "Blue Sky
Application"), or any document, advertisement,
oral statement or communication ("Sales
Information") prepared, made or executed by or on
behalf of the Company or the Bank with their
consent or based upon written or oral information
furnished by or on behalf of the Company or the
Bank, whether or not filed in any jurisdiction, in
order to qualify or register the Shares or to
claim an exemption therefrom under the securities
laws thereof; (ii) arise out of or are based upon
the omission or alleged omission to state in any
of the foregoing documents or information a
material fact required to be stated therein or
<PAGE 40> necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading; or (iii) arise
from any theory of liability whatsoever relating
to or arising from or based upon the Registration
Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any
amendment or supplement thereto), the Conversion
Application (or any amendment or supplement
thereto), any Blue Sky Application or Sales
Information or other documentation distributed in
connection with the Conversion; provided, however,
that no indemnification is required under this
paragraph (a) to the extent such losses, claims,
damages, liabilities or actions arise out of or
are based upon any untrue material statement or
alleged untrue material statement in, or material
omission or alleged material omission from, the
Registration Statement (or any amendment or
supplement thereto), preliminary or final
Prospectus (or any amendment or supplement
thereto), the Conversion Application, any Blue Sky
Application or Sales Information made in reliance
upon and in conformity with information furnished
in writing to the Company or the Bank by the Agent
or its counsel regarding the Agent, provided, that
it is agreed and understood that the only
information furnished in writing to the Company or
the Bank by the Agent regarding the Agent is set
forth in the Prospectus under the caption "The
Conversion-Marketing Arrangements"; and, provided
further, that such indemnification shall be to the
extent not prohibited by the Commission, the OTS,
the FDIC and the Board of Governors of the Federal
Reserve.
(b) The Agent agrees to indemnify and hold harmless
the Company and the Bank, their directors and
officers and each person, if any, who controls the
Company or the Bank within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the
1934 Act against any and all loss, liability,
claim, damage or expense whatsoever (including but
not limited to settlement expenses), joint or
several, which they, or any of them, may suffer or
to which they, or any of them may become subject
under all applicable federal and state laws or
otherwise, and to promptly reimburse the Company,
the Bank, and any such persons upon written demand
for any expenses (including reasonable fees and
disbursements of counsel) incurred by them, or any
of them, in connection with investigating,
preparing or defending any actions, proceedings or
claims (whether commenced or threatened) to the
extent such losses, claims, damages, liabilities
<PAGE 41> or actions: (i) arise out of or are
based upon any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement (or any amendment or
supplement thereto), the Conversion Application
(or any amendment or supplement thereto), the
preliminary or final Prospectus (or any amendment
or supplement thereto), any Blue Sky Application
or Sales Information, (ii) are based upon the
omission or alleged omission to state in any of
the foregoing documents a material fact required
to be stated therein or necessary to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading, or (iii) arise from any theory of
liability whatsoever relating to or arising from
or based upon the Registration Statement (or any
amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any
amendment or supplement thereto), or any Blue Sky
Application or Sales Information or other
documentation distributed in connection with the
Conversion; provided, however, that the Agent's
obligations under this Section 8(b) shall exist
only if and only to the extent that such untrue
statement or alleged untrue statement was made in,
or such material fact or alleged material fact was
omitted from, the Registration Statement (or any
amendment or supplement thereto), the preliminary
or final Prospectus (or any amendment or
supplement thereto), the Conversion Application
(or any amendment or supplement thereto), any Blue
Sky Application or Sales Information in reliance
upon and in conformity with information furnished
in writing to the Company or the Bank by the Agent
or its counsel regarding the Agent, provided, that
it is agreed and understood that the only
information furnished in writing to the Company or
the Bank by the Agent regarding the Agent is set
forth in the Prospectus under the caption "The
Conversion Marketing Arrangements."
(c) Each indemnified party shall give prompt written
notice to each indemnifying party of any action,
proceeding, claim (whether commenced or
threatened), or suit instituted against it in
respect of which indemnity may be sought
hereunder, but failure to so notify an
indemnifying party shall not relieve it from any
liability which it may have on account of this
Section 8 or otherwise. An indemnifying party may
participate at its own expense in the defense of
such action. In addition, if it so elects within
a reasonable time after receipt of such notice, an
<PAGE 42> indemnifying party, jointly with any
other indemnifying parties receiving such notice,
may assume defense of such action with counsel
chosen by it and approved by the indemnified
parties that are defendants in such action, unless
such indemnified parties reasonably object to such
assumption on the ground that there may be legal
defenses available to them that are different from
or in addition to those available to such
indemnifying party. If an indemnifying party
assumes the defense of such action, the
indemnifying parties shall not be liable for any
fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with
such action, proceeding or claim, other than
reasonable costs of investigation. In no event
shall the indemnifying parties be liable for the
fees and expenses of more than one separate firm
of attorneys (and any special counsel that said
firm may retain) for each indemnified party in
connection with any one action, proceeding or
claim or separate but similar or related actions,
proceedings or claims in the same jurisdiction
arising out of the same general allegations or
circumstances.
(d) The agreements contained in this Section 8 and in
Section 9 hereof and the representations and
warranties of the Company and the Bank set forth
in this Agreement shall remain operative and in
full force and effect regardless of: (i) any
investigation made by or on behalf of the Agent or
its officers, directors or controlling persons,
agent or employees or by or on behalf of the
Company or the Bank or any officers, directors or
controlling persons, agent or employees of the
Company or the Bank; (ii) delivery of and payment
hereunder for the Shares; or (iii) any termination
of this Agreement.
Section 9. Contribution. In order to provide for just and
equitable contribution in circumstances in which the
indemnification provided for in Section 8 is due in accordance
with its terms but is for any reason held by a court to be
unavailable from the Company, the Bank or the Agent, the Company,
the Bank and the Agent shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding, but
after deducting any contribution received by the Company, the
Bank or the Agent from persons other than the other parties
thereto, who may also be liable for contribution) in such
proportion so that the Agent is responsible for that portion
represented by the percentage that the fees paid to the Agent
pursuant to Section 2 of this Agreement (not including expenses)
<PAGE 43> bears to the gross proceeds received by the Company
from the sale of the Shares in the Offering, and the Company and
the Bank shall be responsible for the balance. If, however, the
allocation provided above is not permitted by applicable law,
then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the
Company and the Bank on the one hand and the Agent on the other
in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions,
proceedings or claims in respect thereto), but also the relative
benefits received by the Company and the Bank on the one hand and
the Agent on the other from the Offering (before deducting
expenses). The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the
Company and/or the Bank on the one hand or the Agent on the other
and the parties' relative intent, good faith, knowledge, access
to information and opportunity to correct or prevent such
statement or omission. The Company, the Bank and the Agent agree
that it would not be just and equitable if contribution pursuant
to this Section 9 were determined by pro-rata allocation or by
any other method of allocation which does not take into account
the equitable considerations referred to above in this Section 9.
The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions,
proceedings or claims in respect thereof) referred to above in
this Section 9 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action,
proceeding or claim. It is expressly agreed that the Agent shall
not be liable for any loss, liability, claim, damage or expense
or be required to contribute any amount pursuant to Section 8(b)
or this Section 9 which in the aggregate exceeds the amount paid
(excluding reimbursable expenses) to the Agent under this
Agreement. It is understood that the above stated limitation on
the Agent's liability is essential to the Agent and that the
Agent would not have entered into this Agreement if such
limitation had not been agreed to by the parties to this
Agreement. No person found guilty of any fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who
was not found guilty of such fraudulent misrepresentation. The
obligations of the Company, the Bank and the Agent under this
Section 9 and under Section 8 shall be in addition to any
liability which the Company, the Bank and the Agent may otherwise
have. For purposes of this Section 9, each of the Agent's, the
Company's or the Bank's officers and directors and each person,
if any, who controls the Agent or the Company or the Bank within
the meaning of the 1933 Act and the 1934 Act shall have the same
rights to contribution as the Agent, the Company or the Bank.
Any party entitled to contribution, promptly after receipt of
notice of commencement of any action, suit, claim or proceeding
against such party in respect of which a claim for contribution
<PAGE 44> may be made against another party under this Section 9,
will notify such party from whom contribution may be sought, but
the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it
may have hereunder or otherwise than under this Section 9.
Section 10. Survival of Agreements, Representations and
Indemnities. The respective indemnities of the Company, the Bank
and the Agent and the representations and warranties and other
statements of the Company, the Bank and the Agent set forth in or
made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of the Agent,
the Company, the Bank or any controlling person referred to in
Section 8 hereof, and shall survive the issuance of the Shares,
and any successor or assign of the Agent, the Company, the Bank,
and any such controlling person shall be entitled to the benefit
of the respective agreements, indemnities, warranties and
representations.
Section 11. Termination. The Agent may terminate this
Agreement by giving the notice indicated below in this Section 11
at any time after this Agreement becomes effective as follows:
(a) In the event the Company fails to sell the
required minimum number of the Shares by [________
__, ____], and in accordance with the provisions
of the Plan or as required by the Conversion
Regulations, and applicable law, this Agreement
shall terminate upon refund by the Company to each
person who has subscribed for or ordered any of
the Shares the full amount which it may have
received from such person, together with interest
as provided in the Prospectus, and no party to
this Agreement shall have any obligation to the
other hereunder, except as set forth in
Sections 2(a), 6, 8 and 9 hereof.
(b) If any of the conditions specified in Section 7
shall not have been fulfilled when and as required
by this Agreement, unless waived in writing, or by
the Closing Date, this Agreement and all of the
Agent's obligations hereunder may be canceled by
the Agent by notifying the Company and the Bank of
such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and any such
cancellation shall be without liability of any
party to any other party except as otherwise
provided in Sections 2(a), 6, 8 and 9 hereof.
(c) If the Agent elects to terminate this Agreement as
provided in this Section, the Company and the Bank
shall be notified promptly by telephone or
telegram, confirmed by letter.
<PAGE 45>
The Company and the Bank may terminate this Agreement in the
event the Agent is in material breach of the representations and
warranties or covenants contained in Section 5 and such breach
has not been cured after the Company and the Bank have provided
the Agent with notice of such breach.
This Agreement may also be terminated by mutual written
consent of the parties hereto.
Section 12. Notices. All communications hereunder, except
as herein otherwise specifically provided, shall be mailed in
writing and if sent to the Agent shall be mailed, delivered or
telegraphed and confirmed to Charles Webb & Company, 211
Bradenton Drive, Dublin, Ohio 43017-5034, Attention: Patricia A.
McJoynt (with a copy to Silver, Freedman & Taff, L.L.P.,
Attention: Martin L. Meyrowitz, P.C. and, if sent to the Company
and the Bank, shall be mailed, delivered or telegraphed and
confirmed to the Company and the Bank at 213 West Street Road,
Feasterville, Pennsylvania 19053, Attention: Mario L. Incollingo,
Jr., President and Chief Executive Officer (with a copy to
Stevens & Lee, P.C., Attention: Jeffrey P. Waldron, Esq.).
Section 13. Parties. The Company and the Bank shall be
entitled to act and rely on any request, notice, consent, waiver
or agreement purportedly given on behalf of the Agent when the
same shall have been given by the undersigned. The Agent shall
be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of the Company or
the Bank, when the same shall have been given by the undersigned
or any other officer of the Company or the Bank. This Agreement
shall inure solely to the benefit of, and shall be binding upon,
the Agent, the Company, the Bank, and their respective successors
and assigns, and no other person shall have or be construed to
have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein
contained. It is understood and agreed that this Agreement is
the exclusive agreement among the parties hereto, and supersedes
any prior agreement among the parties and may not be varied
except in writing signed by all the parties.
Section 14. Closing. The closing for the sale of the
Shares shall take place on the Closing Date at such location as
mutually agreed upon by the Agent and the Company and the Bank.
At the closing, the Company and the Bank shall deliver to the
Agent in next day funds the commissions, fees and expenses due
and owing to the Agent as set forth in Sections 2 and 6 hereof
and the opinions and certificates required hereby and other
documents deemed reasonably necessary by the Agent shall be
executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus.
Section 15. Partial Invalidity. In the event that any
term, provision or covenant herein or the application thereof to
any circumstance or situation shall be invalid or unenforceable,
in whole or in part, the remainder hereof and the application of
<PAGE 46> said term, provision or covenant to any other
circumstances or situation shall not be affected thereby, and
each term, provision or covenant herein shall be valid and
enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be
construed in accordance with the laws of the Commonwealth of
Pennsylvania.
Section 17. Counterparts. This Agreement may be executed
in separate counterparts, each of which so executed and delivered
shall be an original, but all of which together shall constitute
but one and the same instrument.
If the foregoing correctly sets forth the arrangement among
the Company, the Bank and the Agent, please indicate acceptance
thereof in the space provided below for that purpose, whereupon
this letter and the Agent's acceptance shall constitute a binding
agreement.
Section 18. Entire Agreement. This Agreement, including
schedules and exhibits hereto, which are integral parts hereof
and incorporated as though set forth in full, constitutes the
entire agreement between the parties pertaining to the subject
matter hereof superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letters of intent
and understandings, and cannot be modified, changed, waived or
terminated except by a writing which expressly states that it is
an amendment, modification or waiver, refers to this Agreement
and is signed by the party to be charged. No course of conduct
or dealing shall be construed to modify, amend or otherwise
affect any of the provisions hereof.
Very truly yours,
JADE FINANCIAL CORP. IGA FEDERAL SAVINGS
By Its Authorized By Its Authorized
Representative: Representative:
___________________________ _____________________________
Mario L. Incollingo, Jr. Mario L. Incollingo, Jr.
President and Chief Executive President and Chief Executive
Officer Officer
<PAGE 47>
Accepted as of the date first above written
Charles Webb & Company, A Division of
Keefe, Bruyette & Woods, Inc.
By Its Authorized
Representative:
Patricia A. McJoynt
Executive Vice President
<PAGE 48>
EXHIBIT A
Letter Agreement
<PAGE 49>
Exhibit 2.1
PLAN OF CONVERSION
OF
IGA FEDERAL SAVINGS
<PAGE 1>
<PAGE>
TABLE OF CONTENTS
Section
Number Page
1. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . 4
2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 4
3. GENERAL PROCEDURE FOR CONVERSION. . . . . . . . . . . . . 9
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS . . . . . 11
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK
BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . 12
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS. . . . . . . . . . . 14
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING,
PUBLIC OFFER AND OTHER OFFERINGS. . . . . . . . . . . . . 14
10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF
CONVERSION STOCK. . . . . . . . . . . . . . . . . . . . . 17
11. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS . . . . . . . . . . . 19
12. PAYMENT FOR CONVERSION STOCK. . . . . . . . . . . . . . . 21
13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES . . . . . . . . . . . . . . . . . . . . . . . . 22
14. VOTING RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . 23
15. LIQUIDATION ACCOUNT . . . . . . . . . . . . . . . . . . . 23
16. TRANSFER OF DEPOSIT ACCOUNTS. . . . . . . . . . . . . . . 24
17. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION,
MARKET MAKING AND STOCK EXCHANGE LISTING. . . . . . . . . 25
18. DIRECTORS AND OFFICERS OF THE BANK. . . . . . . . . . . . 25
19. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND
OFFICERS FOLLOWING CONVERSION . . . . . . . . . . . . . . 25
<PAGE 2>
20. RESTRICTIONS ON TRANSFER OF STOCK . . . . . . . . . . . . 25
21. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 26
22. ADOPTION OF FEDERAL STOCK CHARTER AND BYLAWS. . . . . . . 27
23. TAX RULINGS OR OPINIONS . . . . . . . . . . . . . . . . . 27
24. STOCK COMPENSATION PLANS. . . . . . . . . . . . . . . . . 27
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK . . . . . . 28
26. PAYMENT OF FEES TO BROKERS. . . . . . . . . . . . . . . . 28
27. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION. . . . 28
28. EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . 29
29. AMENDMENT OR TERMINATION OF THE PLAN. . . . . . . . . . . 29
30. INTERPRETATION OF THE PLAN. . . . . . . . . . . . . . . . 30
<PAGE 3>
PLAN OF CONVERSION
OF
IGA FEDERAL SAVINGS
1. INTRODUCTION.
The Board of Directors of the IGA FEDERAL SAVINGS (the
"Bank") believes that a conversion of the Bank to stock form
pursuant to this Plan of Conversion is in the best interests of
the Bank, as well as in the best interests of the Bank's
depositors, employees, customers and the communities historically
served by the Bank. The Conversion will result in the Bank being
wholly owned by a stock holding company. In addition, the
Conversion will result in the raising of additional capital which
will provide the Bank, through the holding company structure,
greater organizational and operational flexibility, including
greater flexibility for effecting mergers and acquisitions of
financial institutions.
The Conversion is intended to provide a larger capital
base to support the Bank's lending and investment activities,
possible diversification into other related financial services
activities and future growth through possible acquisitions of
other financial institutions. In addition the Conversion is
intended to further enhance the Bank's capabilities to serve the
borrowing and other financial needs of the communities it
currently serves. In furtherance of the Bank's commitment to the
communities which it serves, this Plan provides for the
establishment of a charitable foundation in connection with the
Conversion. The charitable foundation is intended to complement
the Bank's existing community reinvestment activities in a manner
that will allow the Bank's local community to share in the growth
and profitability of the Holding Company and the Bank Consistent
with the Bank's goal the funding of the charitable foundation
will be accomplished by the Bank contributing funds thereto prior
to the Conversion or, immediately following the Conversion, the
Holding Company donating a number of shares of its authorized but
unissued Holding Company Common Stock not to exceed 8% of the
number of shares of Conversion Stock issued in the Conversion or
a combination thereof.
The Plan was adopted by the Board of Directors of the
Bank on May 26, 1999.
2. DEFINITIONS.
As used in this Plan, the terms set forth below have
the following meaning:
2.1 Actual Purchase Price means the price per share at
which the Conversion Stock is ultimately sold by the Holding
Company to participants in the Subscription Offering and Persons
in the Community Offering and/or Syndicated Community Offering in
accordance with the terms hereof. <PAGE 4>
2.2 Affiliate means a Person who, directly or
indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with the Person
specified.
2.3 Application for Conversion shall have the meaning
set forth in Section 3(a) hereof.
2.4 Associate when used to indicate a relationship
with any Person, means (i) a corporation or organization (other
than the Bank, a majority-owned subsidiary of the Bank or the
Holding Company) of which such Person is a director, officer or
partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities, (ii) any trust or
other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a
similar fiduciary capacity, provided, however, that such terms
shall not include any Tax-Qualified Employee Stock Benefit Plan
or Non-Tax-Qualified Employee Stock Benefit Plan of the Holding
Company or the Bank in which such Person has a substantial
beneficial interest or serves as a trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such
Person, or any relative of such spouse of such Person, who has
the same home as such Person or who is a director or officer of
the Bank or the Holding Company or any of the subsidiaries of the
foregoing.
2.5 Bank means IGA Federal Savings, in its mutual or
stock form as the sense of the reference requires.
2.6 Bank Benefit Plans includes, but is not limited
to, Tax-Qualified Employee Stock Benefit Plans and Non-Tax-
Qualified Employee Stock Benefit Plans.
2.7 Code means the Internal Revenue Code of 1986, as
amended.
2.8 Community Offering means the offering for sale by
the Holding Company of any shares of Conversion Stock not
subscribed for in the Subscription Offering to (i) natural
persons residing in counties in Pennsylvania in which the Bank
has a branch office, and (ii) such other Persons within or
without the Commonwealth of Pennsylvania as may be selected by
the Holding Company and the Bank within their sole discretion.
2.9 Control (including the terms "controlling,"
"controlled by," and "under common control with") means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract
or otherwise.
2.10 Conversion means (i) the adoption of a federal
stock charter by the Bank to authorize the issuance of shares of
capital stock and otherwise to conform to the requirements of a
<PAGE 5> stock savings bank organized under the laws of the
United States, (ii) the issuance of Conversion Stock by the
Holding Company as provided herein, (iii) the purchase by the
Holding Company of all of the capital stock of the Bank to be
issued by the Bank in connection with its conversion from mutual
to stock form, and (iv) the establishment of a private charitable
foundation.
2.11 Conversion Stock means the Holding Company Common
Stock to be issued and sold in the Offering pursuant to the Plan
of Conversion, which stock cannot and will not be insured by the
FDIC, and which shall not include shares issued to the charitable
foundation pursuant to Section 28 hereof.
2.12 Deposit Account means withdrawable or
repurchasable shares, investment certificates or deposits or
other savings accounts, including money market deposit accounts
and negotiable order of withdrawal accounts, held by an account
holder of the Bank.
2.13 Director, Officer and Employee means the terms as
applied respectively to any person who is a director, officer or
employee of the Bank or any subsidiary thereof.
2.14 ESOP means a Tax-Qualified Employee Stock Benefit
Plan adopted by the Company and the Bank in connection with the
Conversion, the purpose of which shall be to acquire capital
stock of the Company, including Conversion Stock.
2.15 Eligible Account Holder means any Person holding a
Qualifying Deposit on the Eligibility Record Date for purposes of
determining Subscription Rights and establishing subaccount
balances in the liquidation account to be established pursuant to
Section 16 hereof.
2.16 Eligibility Record Date means the date for
determining Qualifying Deposits of Eligible Account Holders and
is the close of business on March 31, 1998.
2.17 Estimated Price Range means the range of the
estimated aggregate pro forma market value of the total number of
shares of Conversion Stock to be issued in the Conversion, as
determined by the Independent Appraiser in accordance with
Section 4 hereof.
2.18 FDIC means the Federal Deposit Insurance
Corporation or any successor thereto.
2.19 Holding Company means the corporation organized at
the direction of the Board of Directors of the Bank to hold all
of the capital stock of the Bank which shall be incorporated
under the laws of the Commonwealth of Pennsylvania.
2.20 Holding Company Common Stock means the common
stock of the Holding Company. <PAGE 6>
2.21 Independent Appraiser means the independent
investment banking or financial consulting firm retained by the
Bank to prepare an appraisal of the estimated pro forma market
value of the Conversion Stock.
2.22 Initial Purchase Price, means the price per share
to be paid initially by Participants for shares of Conversion
Stock subscribed for in the Subscription Offering and by Persons
for shares of Conversion Stock ordered in the Community Offering
and/or Syndicated Community Offering.
2.23 Member means any Person qualifying as a member of
the Bank upon its charter conversion from a federal credit union
to a federal mutual charter in accordance with its mutual charter
and bylaws and the laws of the United States.
2.24 Offerings means the Subscription Offering, the
Community Offering and the Syndicated Community Offering or
Public Offering.
2.25 Officer means the chairman, president, executive
vice president, senior vice president, vice president, secretary,
treasurer or principal financial officer, comptroller or
principal accounting officer and any other person performing
similar functions with respect to any organization whether
incorporated or unincorporated.
2.26 Order Form means the form or forms provided by the
Bank, containing all such terms and provisions as set forth in
Section 12 hereof, to a Participant or other Person by which
Conversion Stock may be ordered in the Subscription Offering, the
Community Offering and/or the Syndicated Community Offering.
2.27 Other Member means a Voting Member who is not an
Eligible Account Holder or Supplemental Eligible Account Holder.
2.28 OTS means the Office of Thrift Supervision or any
successor thereto.
2.29 Participant means any Eligible Account Holder,
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible
Account Holder, Other Member and Director, Officer and Employee.
2.30 Person means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an
unincorporated organization or a government or any political
subdivision thereof.
2.31 Plan and Plan of Conversion mean this Plan of
Conversion as adopted by the Board of Directors of the Bank and
any amendment hereto approved as provided herein.
2.32 Prospectus means the one or more documents to be
used in offering the Conversion Stock in the Subscription
Offering and, to the extent applicable, Community Offering and
<PAGE 7> Syndicated Community Offering and for providing
information to Participants and other Persons in connection with
such offerings.
2.33 Public Offering means an underwritten firm
commitment offering to the public through one or more
underwriters.
2.34 Qualifying Deposit means the aggregate balance of
all Deposit Accounts in the Bank of (i) an Eligible Account
Holder at the close of business on the Eligibility Record Date,
and (ii) a Supplemental Eligible Account Holder at the close of
business on the Supplemental Eligibility Record Date.
2.35 SEC means the Securities and Exchange Commission.
2.36 Special Meeting means the special meeting of
Members of the Bank called for the purpose of submitting this
Plan to the Members for their approval, including adoption of a
federal stock charter and new bylaws to authorize the issuance of
capital stock and otherwise to read in a form consistent with a
federally chartered stock form savings bank, and any adjournments
of such meeting.
2.37 Subscription Offering means the offering of the
Conversion Stock to Participants.
2.38 Subscription Rights means non-transferable rights
to subscribe for Conversion Stock granted to Participants
pursuant to the terms of this Plan.
2.39 Supplemental Eligible Account Holder if
applicable, means any Person, except Directors and Officers of
the Bank and their associates, holding a Qualifying Deposit at
the close of business on the Supplemental Eligibility Record
Date.
2.40 Supplemental Eligibility Record Date if
applicable, means the date for determining Qualifying Deposits of
Supplemental Eligible Account Holders and shall be required if
the Eligibility Record Date is more than 15 months prior to the
date of the latest amendment to the application for Conversion
filed prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the
last day of the calendar quarter preceding OTS approval of the
application for Conversion submitted by the Bank pursuant to this
Plan of Conversion.
2.41 Syndicated Community Offering means 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 Community Offering.
2.42 Tax-Qualified Employee Stock Benefit Plan means
any defined benefit plan or defined contribution plan, including
<PAGE 8> the ESOP established by the Company and the Bank in
connection with the Conversion, a stock bonus plan, profit-
sharing plan or other plan, which is established for the benefit
of the employees of the Holding Company and the Bank and which,
with its related trust, meets the requirements to be "qualified"
under Section 401 of the Code as from time to time in effect. A
"Non-Tax-Qualified Employee Stock Benefit Plan" is any defined
benefit plan or defined contribution stock benefit plan which is
not so qualified.
2.43 Voting Member means a Person who at the close of
business on the Voting Record Date is entitled to vote as a
member of the Bank in accordance with its federal mutual charter
and bylaws.
2.44 Voting Record Date means the date for determining
the eligibility of Members to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR CONVERSION.
(a) An Application for Conversion, including the
Plan will be submitted, together with all requisite material to
the OTS for approval. The Bank also will cause notice of the
adoption of the Plan by the Board of Directors of the Bank to be
given by publication in a newspaper having general circulation in
each community in which an office of the Bank is located, and
will cause copies of the Plan to be made available at each office
of the Bank for inspection by account holders. The Bank will
post the notice of the filing of its Application for Conversion
in each of its offices and will again cause to be published, in
accordance with the requirements of applicable regulations of the
OTS, a notice of the filing with the OTS of an application to
convert from mutual to stock form.
(b) Promptly following approval of the Bank's
Application for Conversion by the OTS, this Plan will be
submitted to the Members for their consideration and approval at
the Special Meeting. The Bank may, at its option, mail to all
Members as of the Voting Record Date, at their last known address
appearing on the records of the Bank, a proxy statement in either
long or summary form describing the Plan which will be submitted
to a vote of the Members at the Special Meeting. If the Bank
provides a summary form proxy statement, the Bank shall also mail
to all Eligible Account Holders and Supplemental Eligible Account
Holders who are not Members of the Bank as of the Voting Record
Date a letter informing them of their right to receive a
Prospectus and Order Form for the purchase of Conversion Stock.
Under such circumstances, Participants will be given the
opportunity to request a Prospectus and Order Form and other
materials relating to the Conversion by returning a postage
prepaid card which will be distributed with the proxy statement
or letter. If the Plan is approved by the affirmative vote of a
majority of the total number of votes eligible to be cast by
Voting Members at the Special Meeting, the Bank shall take all
other necessary organizational steps pursuant to applicable laws
<PAGE 9> and regulations to amend its charter and bylaws to
authorize the issuance of its capital stock to the Holding
Company at the time the Conversion of the Bank to stock form is
consummated.
(c) As soon as practicable after the adoption of
the Plan by the Board of Directors of the Bank, the Board of
Directors of the Holding Company shall adopt the Plan by at least
a two-thirds vote. The Holding Company shall submit or cause to
be submitted to the OTS such applications as may be required for
approval of the Holding Company's acquisition of the Bank and a
Registration Statement to the SEC to register the sale of
Conversion Stock under the Securities Act of 1933, as amended.
The Holding Company shall also register the sale of Conversion
Stock under any applicable state securities laws, subject to
Section 14 hereof. Upon registration and after the receipt of
all required regulatory approvals, the Conversion Stock shall be
first offered for sale in a Subscription Offering to Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, if applicable, Other
Members and Directors, Officers and Employees. It is anticipated
that any shares of Conversion Stock remaining unsold after the
Subscription Offering will be sold through a Community Offering
and/or a Syndicated Community Offering. The purchase price per
share for the Conversion Stock shall be a uniform price
determined in accordance with Section 4 hereof. The Holding
Company shall purchase all of the capital stock of the Bank with
an amount of the net proceeds received by the Holding Company
from the sale of Conversion Stock as shall be determined by the
Boards of Directors of the Holding Company and the Bank and as
shall be approved by the OTS.
(d) The Holding Company and the Bank may retain
and pay for the services of financial and other advisors and
investment bankers to assist in connection with any or all
aspects of the Conversion, including in connection with the
Subscription Offering, Community Offering and/or any Syndicated
Community Offering and the payment of fees to brokers and
investment bankers for assisting Persons in completing and/or
submitting Order Forms. All fees, expenses, retainers and
similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION
STOCK.
(a) The aggregate price at which all shares of
Conversion Stock shall be sold shall be based on a pro forma
valuation of the aggregate market value of the Conversion Stock
prepared by the Independent Appraiser. The valuation shall be
based on financial information relating to the Holding Company
and the Bank, economic and financial conditions, a comparison of
the Holding Company and the Bank with selected publicly-held
financial institutions and holding companies and with comparable
financial institutions and holding companies and such other
factors as the Independent Appraiser may deem to be important,
<PAGE 10> including, but not limited to, the projected operating
results and financial condition of the Holding Company and the
Bank. The valuation shall be stated in terms of an Estimated
Price Range, the maximum of which shall generally be no more than
15% above the average of the minimum and maximum of such price
range and the minimum of which shall generally be no more than
15% below such average. The valuation shall be updated during
the Conversion as market and financial conditions warrant and as
may be required by the OTS.
(b) Based upon the independent valuation, the
Boards of Directors of the Holding Company and the Bank shall fix
the Initial Purchase Price and the number of shares of Conversion
Stock to be offered in the Subscription Offering, Community
Offering and/or Syndicated Community Offering. The Actual
Purchase Price and the total number of shares of Conversion Stock
to be issued in the Offerings shall be determined by the Boards
of Directors of the Holding Company and the Bank upon conclusion
of such offerings in consultation with the Independent Appraiser
and any financial advisor or investment banker retained by the
Bank in connection with such offerings.
(c) Subject to the approval of the OTS, the
Estimated Price Range may be increased or decreased to reflect
market and economic conditions prior to completion of the
Conversion or to fill the order of the Tax-Qualified Employee
Stock Benefit Plans, and under such circumstances the Holding
Company may increase or decrease the total number of shares of
Conversion Stock to be issued in the Conversion to reflect any
such change. Notwithstanding anything to the contrary contained
in this Plan, no resolicitation of subscribers shall be required
and subscribers shall not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the
Conversion Stock issued in the Conversion are less than the
minimum or more than 15% above the maximum of the Estimated Price
Range set forth in the Prospectus. In the event of an increase
in the total number of shares offered in the Conversion due to an
increase in the Estimated Price Range, the priority of share
allocation shall be as set forth in this Plan.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Each Eligible Account Holder shall receive,
without payment, non-transferable Subscription Rights to purchase
up to the greater of (i) $300,000 of Conversion Stock (or such
maximum purchase limitation as may be established for the
Community Offering and/or Syndicated Community Offering or Public
Offering), (ii) one-tenth of 1% of the total offering of shares
in the Subscription Offering and (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying
the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is
the amount of the Qualifying Deposits of the Eligible Account
Holder and the denominator is the total amount of all Qualifying
Deposits of all Eligible Account Holders. <PAGE 11>
(b) In the event of an oversubscription for
shares of Conversion Stock pursuant to Section 5(a), available
shares shall be allocated among subscribing Eligible Account
Holders so as to permit each such Eligible Account Holder, to the
extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of
shares subscribed for or 100 shares. Any available shares
remaining after each subscribing Eligible Account Holder has been
allocated the lesser of the number of shares subscribed for or
100 shares shall be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unfilled in the
proportion which the Qualifying Deposit of each such subscribing
Eligible Account Holder whose subscription remains unfilled bears
to the total Qualifying Deposits of all such subscribing Eligible
Account Holders whose subscriptions remains unfilled, provided
that no fractional shares shall be issued. Subscription Rights
of Eligible Account Holders shall be subordinated to the priority
rights of the ESOP to purchase shares in excess of the Maximum
Shares, as defined in Section 6 below, Subscription Rights of
Eligible Account Holders who are also Directors or Officers of
the Bank and their Associates shall be subordinated to those of
other Eligible Account Holders to the extent that they are
attributable to increased deposits during the one year period
preceding the Eligibility Record Date.
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT
PLANS.
Tax-Qualified Employee Stock Benefit Plans, including
the ESOP, shall receive, without payment, non-transferable
Subscription Rights to purchase in the aggregate up to 10% of the
Conversion Stock, including shares of Conversion Stock to be
issued in the Conversion as a result of an increase in the
Estimated Price Range after commencement of the Subscription
Offering and prior to completion of the Conversion. The
subscription rights granted to Tax-Qualified Employee Stock
Benefit Plans shall be subject to the availability of shares of
Conversion Stock after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders, provided,
however, that in the event that the total number of shares
offered in the Conversion is increased to an amount greater than
the number of shares representing the maximum of the Estimated
Price Range as set forth in the Prospectus ("Maximum Shares"),
the ESOP shall have a priority right to purchase any such shares
exceeding the Maximum Shares up to an aggregate of 8% of
Conversion Stock. Shares of Conversion Stock purchased by any
individual participant ("Plan Participant") in a Tax-Qualified
Employee Stock Benefit Plan using funds therein pursuant to the
exercise of subscription rights granted to such Participant in
his individual capacity as an Eligible Account Holder and/or
Supplemental Eligible Account Holder and/or purchases by such
Plan Participant in the Community Offering shall not be deemed to
be purchases by a Tax-Qualified Employee Stock Benefit Plan for
purposes of calculating the maximum amount of Conversion Stock
that Tax-Qualified Employee Stock Benefit Plans may purchase
<PAGE 12> pursuant to the first sentence of this Section 6 if the
individual Plan Participant controls or directs the investment
authority with respect to such account or subaccount. Consistent
with applicable laws and regulations and policies and practices
of the OTS, the ESOP may use funds contributed by the Holding
Company or the Bank and/or borrowed from an independent financial
institution to exercise such Subscription Rights, and the Holding
Company and the Bank may make scheduled discretionary
contributions thereto, provided that such contributions do not
cause the Holding Company or the Bank to fail to meet any
applicable capital maintenance requirements.
7. SUBSCRIPTION RIGHTS OF 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 Application for Conversion filed prior to OTS approval,
then, and only in that event each Supplemental Eligible Account
Holder shall receive, without payment, non-transferable
Subscription Rights to purchase up to the greater of (i) $300,000
of Conversion Stock (or such maximum purchase limitation as may
be established for the Community Offering and/or Syndicated
Community Offering or Public Offering), (ii) one-tenth of 1% of
the total offering of shares in the Subscription Offering and
(iii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Qualifying
Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all
Supplemental Eligible Account Holders, subject to the
availability of shares of Common Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible
Account Holders and the Tax-Qualified Employee Stock Benefit
Plans through the exercise of Subscription Rights under
Sections 5 and 6 hereof.
(b) In the event of an oversubscription for
shares of Conversion Stock pursuant to Section 7(a), available
shares shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of
shares sufficient to make his or her total allocation (including
the number of shares, if any, allocated in accordance with
Section 5(a)) equal to the lesser of the number of shares
subscribed for or 100 shares. Any remaining available shares
shall be allocated among subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled in the
proportion that the amount of their respective Qualifying
Deposits bears to the total amount of the Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled, provided that no fractional shares
shall be issued.
<PAGE 13>
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS.
(a) Each Other Member shall receive, without
payment, non-transferable Subscription Rights to purchase up to
the greater of (i) $300,000 of Conversion Stock (or such maximum
purchase limitation as may be established for the Community
Offering and/or Syndicated Community Offering or Public Offering)
and (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering, in each case if and only to the extent
that shares of Conversion Stock are available for purchase after
taking into account the shares of Conversion Stock purchased by
Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans and Supplemental Eligible Account Holders through the
exercise of Subscription Rights under Sections 5, 6 and 7 hereof.
(b) If, pursuant to this Section 8, Other Members
subscribe for a number of shares of Conversion Stock in excess of
the total number of shares of Conversion Stock remaining, shares
shall be allocated so as to permit each such Other Member, to the
extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of
shares subscribed for or 100 shares. Any shares remaining will
be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on an equal number of shares
basis per order until all orders have been filled or the
remaining shares have been allocated, provided no fractional
shares shall be issued.
9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC
OFFER AND OTHER OFFERINGS.
(a) If less than the total number of shares of
the Conversion Stock are sold in the Subscription Offering, it is
anticipated that all remaining shares of Conversion Stock shall,
if practicable, be sold directly by the Holding Company in a
Community Offering and/or a Syndicated Community Offering.
Subject to the requirements set forth herein, Conversion Stock
sold in the Community Offering and/or the Syndicated Community
Offering shall achieve the widest possible distribution of such
stock.
(b) In the event of a Community Offering, all
shares of Conversion Stock which are not subscribed for in the
Subscription Offering shall be offered for sale by means of a
direct community marketing program, which may provide for the use
of brokers, dealers or investment banking firms experienced in
the sale of financial institution securities. Any available
shares in excess of those not subscribed for in the Subscription
Offering will be available for purchase by members of the general
public to whom a Prospectus is delivered by the Holding Company
or on its behalf, with preference given to natural persons
residing in counties in Pennsylvania in which the Bank has a
branch office ("Preferred Subscribers").
<PAGE 14>
(c) A Prospectus and Order Form shall be
furnished to such Persons as the Holding Company and the Bank may
select in connection with the Community Offering and each order
for Conversion Stock in the Community Offering shall be subject
to the absolute right of the Holding Company and the Bank 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 following
completion of the Community Offering. Available shares will be
allocated first to each Preferred Subscriber whose order is
accepted by the Holding Company, in an amount equal to the lesser
of 100 shares or the number of shares subscribed for by each such
Preferred Subscriber, if possible. Thereafter, any shares
remaining will be allocated among the Preferred Subscribers whose
subscriptions remain unsatisfied on an equal number of shares
basis, per order until all orders have been filled or the
remaining shares have been allocated, provided no fractional
shares shall be issued. If there are any shares remaining after
all subscriptions by Preferred Subscribers have been satisfied,
such remaining shares shall be allocated to other members of the
general public who purchase in the Community Offering applying
the same allocation described above for Preferred Subscribers.
(d) The amount of Conversion Stock that any
Person together with any Associate thereof or group of Persons
acting in concert may purchase in the Community Offering shall
not exceed the greater of (i) $300,000 or (ii) one-tenth of 1% of
the total offering of shares in the Subscription Offering,
provided, however, that this mount may be increased to 5% of the
total offering of shares in the Subscription Offering, subject to
any required regulatory approval but without the further approval
of Members; provided further, that orders for Conversion Stock in
the Community Offering shall first be filled to a maximum of 2%
of the total number of shares of Conversion Stock sold in the
Conversion and thereafter any remaining shares shall be allocated
on an equal number of shares basis per order until all orders
have been filled, provided no fractional shares shall be issued.
The Holding Company and the Bank may commence the Community
Offering concurrently with, at any time during, or as soon as
practicable after the end of, the Subscription Offering, and the
Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the
Holding Company and the Bank with any required regulatory
approval.
(e) Subject to such terms, conditions and
procedures as may be determined by the Holding Company and the
Bank, all shares of Conversion Stock not subscribed for in the
Subscription Offering or ordered in the 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 Holding Company and the Bank to accept or
reject any such order in whole or in part either at the time of
receipt of an order or as soon as practicable after completion of
the Syndicated Community Offering. The amount of Conversion
<PAGE 15> Stock that any Person together with any Associate
thereof or group of Persons acting in concert may purchase in the
Syndicated Community Offering shall not exceed $300,000 provided,
however, that this amount may be increased to 5% of the total
offering of shares in the Subscription Offering, subject to any
required regulatory approval but without the further approval of
Members; provided further that orders for Conversion Stock in the
Syndicated Community Offering shall first be filled to a maximum
of 2% of the total number of shares of Conversion Stock sold in
the Conversion and thereafter any remaining shares shall be
allocated on an equal number of shares basis per order until all
orders have been filled, provided no fractional shares shall be
issued. The Holding Company and the Bank 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 Community Offering, and the
Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless
extended by the Holding Company and the Bank with any required
regulatory approval.
(f) The Holding Company and the Bank may sell any
shares of Conversion Stock remaining following the Subscription
Offering, Community Offering and/or the Syndicated Community
Offering in a Public Offering. The provisions of Section 11
hereof shall not be applicable to the sales to underwriters for
purposes of the Public Offering but shall be applicable to sales
by the underwriters to the public. The price to be paid by the
underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated
among such underwriters and the Bank and the Holding Company,
subject to any required regulatory approval or consent.
(g) If for any reason a Syndicated Community
Offering or Public Offering of shares of Conversion Stock not
sold in the Subscription Offering and the 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, Community Offering or Syndicated Community
Offering, the Holding Company and the Bank 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.
10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION
STOCK.
(a) The maximum number of shares of Conversion
Stock which may be purchased in the Conversion by the ESOP shall
not exceed 8% and all Tax-Qualified Employee Stock Benefit Plans
shall not exceed 10% of the total number of shares of Conversion
Stock sold in the Conversion, in each instance, including any
shares which may be issued in the event of an increase in the
maximum of the Estimated Price Range to reflect changes in market
and economic conditions after commencement of the Subscription
Offering and prior to the completion of the Conversion; provided,
<PAGE 16> however, that purchases of Conversion Stock which are
made by Plan Participants pursuant to the exercise of
subscription rights granted to such Plan Participant in his
individual capacity as an Eligible Account Holder or Supplemental
Eligible Account Holder or purchases by a Plan Participant in the
Community Offering using the funds thereof held in Tax-Qualified
Employee Stock Benefit Plans shall not be deemed to be purchases
by a Tax-Qualified Employee Stock Benefit Plan for purposes of
this Section 11(a).
(b) Except in the case of Tax-Qualified Employee
Stock Benefit Plans in the aggregate, as set forth in
Section 11(a) hereof, and certain Eligible Account Holders and
Supplemental Eligible Account Holders, and in addition to the
other restrictions and limitations set forth herein the maximum
amount of Conversion Stock which any Person together with any
Associate or group of Persons acting in concert may, directly or
indirectly, subscribe for or purchase in the Conversion
(including without limitation the Subscription Offering,
Community Offering and/or Syndicated Community Offering) shall
not exceed 2.5% of the Conversion Stock. The purchase limitation
set forth herein shall not apply to the Holding Company Common
Stock contributed to the charitable foundation in accordance with
the provisions of Section 28 hereof nor shall such shares be
deemed Conversion Stock.
(c) The number of shares of Conversion Stock
which Directors and Officers and their Associates may purchase in
the aggregate in the Conversion shall not exceed 32% of the total
number of shares of Conversion Stock offered in the Conversion,
including any shares which may be issued in the event of an
increase in the maximum of the Estimated Price Range to reflect
changes in market and economic conditions after commencement of
the Subscription Offering and prior to completion of the
Conversion.
(d) No Person may purchase fewer than 25 shares
of Conversion Stock in the Conversion, to the extent such shares
are available; provided, however, that if the Actual Purchase
Price is greater than $20.00 per share, such minimum number of
shares shall be adjusted so that the aggregate Actual Purchase
Price for such minimum shares will not exceed $500.00.
(e) For purposes of the foregoing limitations and
the determination of Subscription Rights, (i) Directors and
Officers shall not be deemed to be Associates or a group acting
in concert solely as a result of their capacities as such,
(a) shares purchased by Tax-Qualified Employee Stock Benefit
Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purpose of determining
compliance with the limitations set forth in Section 11(b)
hereof, and (iii) shares purchased by Tax-Qualified Employee
Stock Benefit Plans shall not be attributable to the individual
trustees or beneficiaries of any such plan for purposes of
<PAGE 17> determining compliance with the limitation set forth in
Section 11(c) hereof.
(f) Subject to any required regulatory approval
and the requirements of applicable laws and regulations but
without further approval of the Members of the Bank or
resolicitation of subscribers the Holding Company and the Bank
may increase or decrease any of the individual purchase
limitations set forth herein to a percentage which does not
exceed 5% or fall below .10% of the total offering of shares in
the Subscription Offering and may increase the aggregate purchase
limitation set forth herein to a percentage which does not exceed
5% whether prior to, during or after the Subscription Offering,
Community Offering, Syndicated Community Offering and/or Public
Offering. In the event that an individual purchase limitation is
increased after commencement of the Subscription Offering or any
other offering, the Holding Company and the Bank shall permit any
Person who subscribed for the maximum number of shares of
Conversion Stock to purchase an additional number of shares such
that such Person shall be permitted to subscribe for the then
maximum number of shares permitted to be subscribed for by such
Person, subject to the rights and preferences of any Person who
has priority Subscription Rights. In the event that an
individual purchase limitation is decreased after commencement of
the Subscription Offering or any other offering, the orders of
any Person who subscribed for the maximum number of shares of
Conversion Stock 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.
(g) The Holding Company and the Bank shall have
the right to take all such action as they may, in their sole
discretion, deem necessary, appropriate or advisable in order to
monitor and enforce the terms conditions, limitations and
restrictions contained in this Section 11 and elsewhere in this
Plan and the terms, conditions and representations contained in
the Order Form, including, but not limited to, the absolute right
(subject only to any necessary regulatory approvals or
concurrence) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to
consummate any sale of Conversion Stock which they believe might
violate, or is designed to, or is any part of a plan to, evade or
circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and
binding on all persons and the Holding Company and the Bank and
their respective Boards shall be free from any liability to any
Person on account of any such action
<PAGE 18>
11. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS.
(a) The Subscription Offering may be commenced
concurrently with or at any time after the mailing to Voting
Members of the proxy statement to be used in connection with the
Special Meeting. The Subscription Offering may be closed before
the Special Meeting, provided that the offer and sale of the
Conversion Stock shall be conditioned upon the approval of the
Plan by Voting Members at the Special Meeting.
(b) The exact timing of the commencement of the
Subscription Offering shall be determined by the Holding Company
and the Bank in consultation with the Independent Appraiser and
any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Holding Company and
the Bank may consider a number of factors, including, but not
limited to, their current and projected future earnings, local
and national economic conditions and the prevailing market for
stocks in general and stocks of financial institutions in
particular. The Holding Company and the Bank shall have the
right to withdraw, terminate, suspend, delay, revoke or modify
any such Subscription Offering, at any time and from time to
time, as it in its sole discretion may determine, without
liability to any Person, subject to compliance with applicable
securities laws and any necessary regulatory approval or
concurrence.
(c) The Holding Company and the Bank shall,
promptly after the SEC has declared the Prospectus effective and
all required regulatory approvals have been obtained, distribute
or make available the Prospectus, together with Order Forms for
the purchase of Conversion Stock, to all Participants for the
purpose of enabling them to exercise their respective
Subscription Rights, subject to Section 14 hereof. The Holding
Company and the Bank may elect to mail a Prospectus and Order
Form only to those Participants who request such materials by
returning a postage-paid card to the Holding Company and the Bank
by a date specified in the letter informing them of their
Subscription Rights. Under such circumstances, the Subscription
Offering shall not be closed until the expiration of 30 days
after the mailing by the Holding Company and the Bank of the
postage-paid card to Participants.
(d) A single Order Form for all Deposit Accounts
maintained with the Bank by an Eligible Account Holder and a
Supplemental Eligible Account Holder may be furnished
irrespective of the number of Deposit Accounts maintained with
the Bank on the Eligibility Record Date and Supplemental
Eligibility Record Date, respectively. No person holding a
subscription right may exceed any otherwise applicable purchase
limitation by submitting multiple orders for Conversion Stock.
Multiple orders are subject to adjustment, as appropriate, on a
pro rata basis and deposit balances will be divided equally among
<PAGE 19> such orders in allocating shares in the event of an
oversubscription
(e) The recipient of an Order Form shall have no
less than 20 days and no more than 45 days from the date of
mailing of the Order Form (with the exact termination date to be
set forth on the Order Form) to properly complete and execute the
Order Form and deliver it to the Bank. The Holding Company and
the Bank may extend such period by such amount of time as they
determine is appropriate. Failure of any Participant to deliver
a properly executed Order Form to the Bank, along with payment
(or authorization for payment by withdrawal) for the shares of
Conversion Stock subscribed for, within the time limits
prescribed, shall be deemed a waiver and release by such person
of any rights to subscribe for shares of Conversion Stock. Each
Participant shall be required to confirm to the Holding Company
and the Bank by executing an Order Form that such Person has
fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
(f) The Holding Company and the Bank shall have
the absolute right, in their sole discretion and without
liability to any Participant or other Person, to reject any Order
Form, including, but not limited to, any Order Form (i) that is
improperly completed or executed, (ii) that is not timely
received; (iii) that is submitted by facsimile or is photocopied;
(iv) that is not accompanied by the proper payment (or
authorization of withdrawal for payment) or, in the case of
institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally
binding commitment to pay the full amount of the purchase price
prior to 48 hours before the completion of the Offerings;
(v) submitted by a Person whose representations the Holding
Company and the Bank believe to be false or who they otherwise
believe, either alone, or acting in concert with others is
violating, evading or circumventing, or intends to violate, evade
or circumvent, the terms and conditions of the Plan.
Furthermore, in the event Order Forms (i) are not delivered and
are returned to the Bank by the United States Postal Service or
the Bank is unable to locate the addressee, or (ii) are not
mailed pursuant to a "no mail" order placed in effect by the
account holder, the subscription rights of the person to which
such rights have been granted will lapse as though such person
failed to return the contemplated Order Form within the time
period specified thereon. The Holding Company and the Bank may,
but will not be required to, waive any irregularity on any Order
Form or may require the submission of corrected Order Forms or
the remittance of full payment for shares of Conversion Stock by
such date as they may specify. The interpretation of the Holding
Company and the Bank of the terms and conditions of the Order
Forms shall be final and conclusive.
<PAGE 20>
12. PAYMENT FOR CONVERSION STOCK.
(a) Payment for shares of Conversion Stock
subscribed for by Participants in the Subscription Offering and
payment for shares of Conversion Stock ordered by Persons in the
Community Offering shall be equal to the Initial Purchase Price
per share multiplied by the number of shares which are being
subscribed for or ordered, respectively. Such payment may be
made in cash, if delivered in person, or by check or money order
at the time the Order Form is delivered to the Bank. The Bank,
in its sole and absolute discretion may also elect to receive
payment for shares of Conversion Stock by wire transfer. In
addition, the Holding Company and the Bank may elect to provide
Participants and/or other Persons who have a Deposit Account with
the Bank the opportunity to pay for shares of Conversion Stock by
authorizing the Bank to withdraw from such Deposit Account an
amount equal to the aggregate Initial Purchase Price of such
shares. Payment may also be made by a Participant using funds
held for such Participant's benefit by a Bank Benefit Plan to the
extent that such plan allows participants or any related trust
established for the benefit of such participants to direct that
some or all of their individual accounts or subaccounts be
invested in Conversion Stock. If the Actual Purchase Price is
less than the Initial Purchase Price, the Bank shall refund the
difference Lo all Participants and other Persons, unless the
Holding Company and the Bank choose to provide Participants and
other Persons the opportunity on the Order Form to elect to have
such difference applied to the purchase of additional whole
shares of Conversion Stock. If the Actual Purchase Price is more
than the Initial Purchase Price, the Bank shall reduce the number
of shares of Conversion Stock ordered by Participants and other
Persons and refund any remaining amount which is attributable to
a fractional share entered unless the Bank chooses to provide
Participants and other Persons the opportunity to increase the
Actual Purchase Price submitted to it.
(b) Consistent with applicable laws and
regulations and policies and practices of the OTS, payment for
shares of Conversion Stock subscribed for by the ESOP may be made
with funds contributed by the Holding Company or the Bank and/or
funds obtained pursuant to a loan from an unrelated financial
institution pursuant to a loan commitment which is in force from
the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
(c) If a Participant or other Person authorizes
the Bank to withdraw the amount of the Initial Purchase Price
from his or her Deposit Account, the Bank shall have the right to
make such withdrawal or to freeze funds equal to the aggregate
Initial Purchase Price upon receipt of the Order Form.
Notwithstanding any regulatory provisions regarding penalties for
early withdrawals from certificate accounts, the Bank may allow
payment by means of withdrawal from certificate accounts without
the assessment of such penalties. In the case of an early
withdrawal of only a portion of such account the certificate
<PAGE 21> evidencing such account shall be cancelled if any
applicable minimum balance requirement ceases to be met. In such
case, the remaining balance will earn interest at the regular
passbook rate. However, where any applicable minimum balance is
maintained in such certificate account, the rate of return on the
balance of the certificate account shall remain the same as prior
to such early withdrawal. This waiver of the early withdrawal
penalty applies only to withdrawals made in connection with the
purchase of Conversion Stock and is entirely within the
discretion of the Holding Company and the Bank.
(d) The Bank shall pay interest at not less than
the passbook rate, for all amounts paid in cash, by check or
money order to purchase shares of Conversion Stock in the
Subscription Offering and the Community Offering from the date
payment is received until the date the Conversion is completed or
terminated.
(e) The Bank shall not knowingly loan funds or
otherwise extend credit to any Participant or other Person to
purchase Conversion Stock.
(f) Each share of Conversion Stock shall be non-
assessable upon payment in full of the Actual Purchase Price.
13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES.
The Holding Company and the Bank shall make reasonable
efforts to comply with the securities laws of all jurisdictions
in the United States in which Participants reside. However, no
Participant will be offered or receive any Conversion Stock under
the Plan if such Participant resides in a foreign country or in a
jurisdiction of the United States with respect to which all of
the following apply. (a) there are few Participants otherwise
eligible to subscribe for shares under this Plan who reside in
such jurisdiction; (b) the granting of Subscription Rights or the
offer or sale of shares of Conversion Stock to such Participants
would require the Holding Company or the Bank or their respective
Directors and Officers, under the laws of such jurisdiction, to
register as a broker or dealer, salesman or selling agent or to
register or otherwise qualify the Conversion Stock for sale in
such jurisdiction, or the Holding Company or the Bank would be
required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such
registration or qualification in the judgment of the Holding
Company and the Bank would be impracticable or unduly burdensome
for reasons of cost or otherwise.
14. VOTING RIGHTS OF STOCKHOLDERS.
Following Conversion, voting rights with respect to the
Bank shall be held and exercised exclusively by the Holding
Company as holder of the Bank's voting capital stock and voting
rights with respect to the Holding Company shall be held and
<PAGE 22> exercised exclusively by the holders of the Holding
Company's voting capital stock. No Person shall have any rights
as a stockholder of the Holding Company unless and until the
Conversion Stock has been issued to such Person.
15. LIQUIDATION ACCOUNT.
(a) At the time of Conversion, the Bank shall
establish a liquidation account in an amount equal to the Bank's
net worth as reflected in its latest statement of financial
condition contained in the final prospectus utilized in the
Conversion. The function of the liquidation account will be to
preserve the rights of certain holders of Deposit Accounts in the
Bank who maintain such accounts in the Bank following Conversion
to a priority to distributions in the unlikely event of a
liquidation of the Bank subsequent to Conversion
(b) The liquidation account shall be maintained
for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders, if any, who maintain their Deposit
Accounts in the Bank after Conversion. Each such account holder
will with respect to each Deposit Account held, have a related
inchoate interest in a portion of the liquidation account
balance, which interest will be referred to in this Section 16 as
the "subaccount balance." All Deposit Accounts having the same
social security number will be aggregated for purposes of
determining the initial subaccount balance with respect to such
Deposit Accounts, except as provided in Section 16(d) hereof.
(c) In the event of a complete liquidation of the
Bank subsequent to Conversion (and only in such event), each
Eligible Account Holder and Supplemental Eligible Account Holder,
if any, shall be entitled to receive a liquidation distribution
from the liquidation account in the amount of the then current
subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made
with respect to the capital stock of the Bank. No merger,
consolidation, sale of bulk assets or similar combination
transaction with another FDIC-insured institution in which the
Bank is not the surviving entity shall be considered a complete
liquidation for this purpose. In any such transaction, the
liquidation account shall be assumed by the surviving entity,
(d) The initial subaccount balance for a Deposit
Account held by an Eligible Account Holder and Supplemental
Eligible Account Holder, if any, shall be determined by
multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying
Deposits of such account holder and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders
and, if applicable, Supplemental Eligible Account Holders. For
Deposit Accounts in existence at both the Eligibility Record Date
and the Supplemental Eligibility Record Date, if applicable,
separate initial subaccount balances shall be determined on the
basis of the Qualifying Deposits in such Deposit Accounts on each
<PAGE 23> such record date. Initial subaccount balances shall
not be increased, and shall be subject to downward adjustment as
provided below.
(e) If the aggregate deposit balance in any
Deposit Account(s) of any Eligible Account Holder or Supplemental
Eligible Account Holder at the close of business on any
December 31 annual closing date, commencing December 31, 1998, is
less than the lesser of (a) the deposit balance in such Deposit
Account(s) at the close of business on any other annual closing
date subsequent to such record dates or (b) the deposit balance
in such Deposit Account(s) as of the Eligibility Record Date or
the Supplemental Eligibility Record Date, if any, the subaccount
balance for such Deposit Account(s) shall be adjusted by reducing
such subaccount balance in an amount proportionate to the
reduction in such deposit balance. In the event of such a
downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any increase in the
deposit balance of the related Deposit Account(s). The
subaccount balance of an Eligible Account Holder or Supplemental
Eligible Account Holder, if any, shall be reduced to zero if such
holder ceases to maintain a Deposit Account at the Bank that has
the same social security number as appeared on his or her Deposit
Account(s) at the Eligibility Record Date or, if applicable, the
Supplemental Eligibility Record Date.
(f) Subsequent to Conversion, the Bank may not
pay cash dividends generally on deposit accounts and/or capital
stock of the Bank or repurchase any of the capital stock of the
Bank, if such dividend or repurchase would reduce the Bank's net
worth below the aggregate amount of the then current subaccount
balances for Deposit Accounts then held; otherwise, the existence
of the liquidation account shall not operate to restrict the use
or application of any of the net worth accounts of the Bank.
(g) For purposes of this Section 16, a Deposit
Account includes a predecessor or successor account which is held
only by an account holder with the same social security number.
16. TRANSFER OF DEPOSIT ACCOUNTS.
Each Deposit Account in the Bank at the time of the
consummation of the Conversion shall become, without further
action by the holder, a Deposit Account in the Bank equivalent in
withdrawable amount to the withdrawal value (as adjusted to give
effect to any withdrawal made for the purchase of Conversion
Stock), and subject to the same terms and conditions (except as
to voting and liquidation rights) as such Deposit Account in the
Bank immediately preceding consummation of the Conversion.
Holders of Deposit Accounts in the Bank shall not, as such
holders, have any voting rights.
<PAGE 24>
17. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET
MAKING AND STOCK EXCHANGE LISTING.
In connection with the Conversion, the Holding Company
shall register its common stock pursuant to the Securities
Exchange Act of 1934, as amended, and shall undertake not to
deregister such stock for a period of three years thereafter.
The Holding Company also shall use its best efforts to
(i) encourage and assist a market maker to establish and maintain
a market for its common stock; and (ii) list its common stock on
a national or regional securities exchange or to have quotations
for its common stock disseminated on the Nasdaq Stock Market.
18. DIRECTORS AND OFFICERS OF THE BANK.
Each person serving as a Director or Officer of the
Bank at the time of the Conversion shall continue to serve as a
Director or Officer of the Bank for the balance of the term for
which the person was elected prior to the Conversion, and until a
successor is elected and qualified.
19. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING CONVERSION.
For a period of three years following the Conversion,
the Directors and Officers of the Holding Company and the Bank
and their Associates may not purchase, without the prior written
approval of the OTS, the Holding Company Common Stock except from
a broker or dealer registered with the SEC. This prohibition
shall not apply, however, to (i) a negotiated transaction arrived
at by direct negotiation between buyer and seller and involving
more than 1% of the outstanding common stock of the Holding
Company, (ii) purchases of stock made by and held by any Tax-
Qualified Employee Stock Benefit Plan (and purchases of stock
made by and held by any Non-Tax-Qualified Employee Stock Benefit
Plan following receipt of stockholder approval of such plan) that
may be attributable to individual Officers or Directors and
(iii) the exercise of any options pursuant to any stock benefit
plan of the Holding Company.
The foregoing restriction on purchases of Holding
Company Common Stock shall be in addition to any restrictions
that may be imposed by federal and state securities laws.
20. RESTRICTIONS ON TRANSFER OF STOCK.
All shares of the Conversion Stock which are purchased
by Persons other than Directors and Officers shall be
transferable without restriction, except in connection with a
transaction proscribed by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the
Holding Company and the Bank on original issue from the Holding
Company (by subscription or otherwise) shall be subject to the
restriction that such shares shall not be sold or otherwise
disposed of for value for a period of one year following the date
<PAGE 25> of purchase, except for any disposition of such shares
following the death of the original purchaser or pursuant to any
merger or similar transaction approved by the OTS. The shares of
Conversion Stock issued by the Holding Company to Directors and
Officers shall bear the following legend giving appropriate
notice of such one-year restriction:
"The shares of stock 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 during such one-year period
without a legal opinion of counsel for the
Company that said transfer is permissible
under the provisions of applicable law and
regulation. This restrictive legend shall be
deemed null and void after one year from the
date of this Certificate.'
In addition, the Holding Company shall give appropriate
instructions to the transfer agent for the Holding Company Common
Stock with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares issued at a later date
as a stock dividend, stock split or otherwise with respect to any
such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in
addition to any restrictions on transfer that may be imposed by
federal and state securities laws.
21. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY.
Upon consummation of the Conversion, the certificate of
incorporation of the Holding Company shall prohibit any Person
together with Associates or group of Persons acting in concert
from offering to acquire or acquiring, directly or indirectly,
beneficial ownership of more than 10% of any class of equity
securities of the Holding Company, or of securities convertible
into more than 10% of any such class, for such period of time
following completion of the Conversion as may be determined by
the Board of Directors of the Holding Company. The certificate
of incorporation of the Holding Company also shall provide that
all equity securities beneficially owned by any Person in excess
of 10% of any class of equity securities shall be considered
'excess shares,' and that excess shares shall not be counted as
shares entitled to vote and shall not be voted by any Person or
counted as voting shares in connection with any matters submitted
to the stockholders for a vote. The foregoing restrictions shall
not apply to (i) any offer with a view toward public resale made
exclusively to the Holding Company by underwriters or a selling
group acting on its behalf, (ii) the purchase of shares by a Tax-
Qualified Employee Stock Benefit Plan established for the benefit
<PAGE 26> of the employees of the Holding Company and its
subsidiaries which is exempt from approval requirements under 12
C.F.R. Section 574.3(c)(1)(vi) or any successor thereto, and
(iii) any offer or acquisition approved in advance by a specified
affirmative vote of the entire Board of Directors of the Holding
Company. Directors, Officers and Employees of the Holding
Company or the Bank or any subsidiary thereof shall not be deemed
to be Associates or a group acting in concert with respect to
their individual acquisitions of any class of equity securities
of the Holding Company solely as a result of their capacities as
such.
22. ADOPTION OF FEDERAL STOCK CHARTER AND BYLAWS.
As part of the Conversion, the Bank shall take all
appropriate steps to adopt a federal stock charter and bylaws to
authorize the issuance of capital stock and otherwise to read in
a form consistent with a federally chartered stock form savings
association.
23. TAX RULINGS OR OPINIONS.
Consummation of the Conversion is expressly conditioned
upon prior receipt by the Bank of either a ruling or an opinion
of counsel with respect to federal tax laws, and either a ruling
or an opinion of counsel with respect to Pennsylvania tax laws,
to the effect that consummation of the transactions contemplated
hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any
adverse tax consequences to the Holding Company, the Bank and its
account holders receiving Subscription Rights before or after the
Conversion, except in each case to the extent, if any, that
Subscription Rights are deemed to have fair market value on the
date such rights are issued.
24. STOCK COMPENSATION PLANS.
(a) The Holding Company and the Bank are
authorized to adopt Tax-Qualified Employee Stock Benefit Plans in
connection with the Conversion, including, without limitation the
ESOP. Subsequent to the Conversion, the Holding Company and the
Bank are authorized to adopt Non-Tax Qualified Employee Stock
Benefit Plans, including without limitation, stock option plans
and restricted stock plans, provided however that, with respect
to any such plan implemented during the one-year period
subsequent to the date of consummation of the Conversion, any
such plan (i) shall be disclosed in the proxy solicitation
materials for the Special Meeting of Members and in the
Prospectus; (ii) in the case of stock option plans shall have a
total number of shares of Holding Company Common Stock for which
options may be granted of not more than 10% of the amount of
shares of Conversion Stock issued in the Conversion; (iii) in the
case of management or employee recognition or grant plans, shall
have a total number of shares of Holding Company Common Stock of
not more than 4% of the amount of shares of Conversion Stock
<PAGE 27> issued in the Conversion; (iv) in the case of stock
option plans and employee recognition or grant plans, shall be
submitted for approval by the holders of the Holding Company
Common Stock no earlier than six months following consummation of
the Conversion; and (v) shall comply with all other applicable
requirements of the OTS.
(b) Existing as well as any newly created Tax-
Qualified Employee Stock Benefit Plans may purchase shares of
Conversion Stock in the Offering to the extent permitted by the
terms of such benefit plans and this Plan.
(c) The Holding Company and the Bank are
authorized to enter into employment or severance agreements with
their executive officers.
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.
(a) Following consummation of the Conversion, any
repurchases of shares of capital stock by the Holding Company
will be made in accordance with then applicable laws and
regulations.
(b) The Bank may not declare or pay a cash
dividend on, or repurchase any of, its capital stock if the
effect thereof would cause the regulatory capital of the Bank to
be reduced below the amount required for the liquidation account.
Any dividend declared or paid on, or repurchase of, the Bank's
capital stock shall be made, in compliance with Section 563.134
of the Regulations Applicable to All Savings Banks, or any
successor thereto.
26. PAYMENT OF FEES TO BROKERS.
The Bank may elect to offer to pay fees on a per share
basis to securities brokers who assist Persons in determining to
purchase shares in the Offerings.
27. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.
As part of the Conversion, the Holding Company and the
Bank intend to establish a charitable foundation that will
qualify as an exempt organization under Section 501(c)(3) of the
Code (the "Foundation"). To fund the Foundation, the Bank will
contribute funds prior to completion of the Conversion or,
immediately subsequent to the Conversion, the Holding Company
will contribute authorized but unissued shares of Holding Company
Common Stock in an amount not to exceed 8% of the number of
shares of Conversion Stock issued in the Conversion (provided,
however, that such amount may be reduced by the Holding Company
and the Bank), or a combination thereof subject to the receipt of
any required regulatory approval or consent. The Foundation is
being formed in connection with the Conversion in order to
complement the Bank's existing community reinvestment activities
and to share with the Bank's local community a part of the Bank's
<PAGE 28> financial success as a locally headquartered, community
minded financial services institution.
The Foundation will be dedicated to the promotion of
charitable purposes including community development grants, or
donations to support housing assistance and affordable housing
programs, not-for-profit community groups and other similar types
of organizations or civic minded projects. In order to serve the
purposes for which it was formed and maintain its qualification
under Section 501(c)(3) of the Code, the Foundation may sell, on
an annual basis a limited portion of the Holding Company Common
Stock contributed to it by the Holding Company.
The Board of Directors of the Foundation may be
comprised of individuals who are Officers and/or Directors of the
Bank or the Holding Company. The Board of Directors of the
Foundation will be responsible for establishing the policies of
the Foundation with respect to grants or donations, consistent
with the stated purposes of the Foundation
The establishment and funding of the Foundation as part
of the Conversion and Reorganization is subject to the receipt of
any required regulatory approval or consent.
28. EFFECTIVE DATE.
The effective date of the Conversion shall be the date
of the closing of the sale of all shares of Conversion Stock.
The closing of the sale of all shares of Conversion Stock sold in
the Offerings shall occur simultaneously and shall be conditioned
upon the prior receipt of all requisite regulatory and other
approvals.
29. AMENDMENT OR TERMINATION OF THE PLAN.
If deemed necessary or desirable by the Board of
Directors of the Bank this Plan may be substantively amended, as
a result of comments from regulatory authorities or otherwise, at
any time prior to the solicitation of proxies from Members to
vote on the Plan and at any time thereafter with the concurrence
of the OTS. Any amendment to this Plan made after approval by
the Members with the concurrence of the OTS shall not necessitate
further approval by the Members unless otherwise required by the
OTS. This Plan shall terminate if the sale of all shares of
Conversion Stock is not completed within 24 months from the date
of the Special Meeting (subject to extension by the OTS). Prior
to the Special Meeting, this Plan may be terminated by the Board
of Directors of the Bank without approval of the OTS; after the
Special Meeting, the Board of Directors may terminate this Plan
only with the approval of the OTS.
<PAGE 29>
30. INTERPRETATION OF THE PLAN.
All interpretations of this Plan and application of its
provisions to particular circumstances by a majority of the Board
of Directors of the Holding Company and the Bank shall be final,
subject to the authority of the OTS. <PAGE 30>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
JADE FINANCIAL CORP.
FIRST. The name of the Corporation is JADE FINANCIAL CORP.
SECOND. The location and post office address of its
registered office in this Commonwealth is 213 West Street Road,
Feasterville, Bucks County, Pennsylvania 19053
THIRD. The Corporation was incorporated on July 6, 1998
under the provisions of the Pennsylvania Business Corporation Law
of 1988, as amended. The purpose of the Corporation is, and it
shall have unlimited power to engage in and to do, any lawful act
concerning any or all lawful business for which corporations may
be incorporated under Pennsylvania law.
FOURTH. The term of the Corporation's existence is
perpetual.
FIFTH. The aggregate number of shares of capital stock
which the Corporation shall have authority to issue is 15,000,000
shares, divided into two classes consisting of 10,000,000 shares
of common stock, par value $.01 per share ("Common Stock"), and
5,000,000 shares of preferred stock, having such par value as the
Board of Directors shall fix and determine, as provided in
Article SIXTH below ("Preferred Stock").
SIXTH. The Preferred Stock may be issued from time to time
as a class without series, or if so determined by the Board of
Directors of the Corporation, either in whole or in part in one
or more series. There is hereby expressly granted to and vested
in the Board of Directors of the Corporation authority to fix and
determine (except as fixed and determined herein), by resolution,
the par value, voting powers, full or limited, or no voting
powers, and such designations, preferences and relative,
participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any,
including specifically, but not limited to, the dividend rights,
conversion rights, redemption rights and liquidation preferences,
if any, of any wholly unissued series of Preferred Stock (or the
entire class of Preferred Stock if none of such shares have been
issued), the number of shares constituting any such series and
the terms and conditions of the issue thereof. Prior to the
issuance of any shares of Preferred Stock, a statement setting
forth a copy of each such resolution or resolutions and the
number of shares of Preferred Stock of each such class or series
shall be executed and filed in accordance with the Pennsylvania
<PAGE 1> Business Corporation Law. Unless otherwise provided in
any such resolution or resolutions, the number of shares of
capital stock of any such class or series so set forth in such
resolution or resolutions may thereafter be increased or
decreased (but not below the number of shares then outstanding),
by a statement likewise executed and filed setting forth a
statement that a specified increase or decrease therein had been
authorized and directed by a resolution or resolutions likewise
adopted by the Board of Directors of the Corporation. In case
the number of such shares shall be decreased, the number of
shares so specified in the statement shall resume the status they
had prior to the adoption of the first resolution or resolutions.
SEVENTH. Each holder of record of Common Stock shall have
the right to one vote for each share of Common Stock standing in
such holder's name on the books of the Corporation. No
shareholder shall be entitled to cumulate any votes for the
election of directors.
EIGHTH. The management, control and government of the
Corporation shall be vested in a Board of Directors consisting of
not less than one (1) nor more than twenty-five (25) members in
number, as fixed by the Board of Directors of the Corporation
from time to time. The directors of the Corporation shall be
divided into three classes: Class I, Class II and Class III.
Each Class shall be as nearly equal in number as possible. If
the number of Class I, Class II or Class III directors is fixed
for any term of office, it shall not be increased during that
term, except by a majority vote of the Board of Directors.
Except for the initial Board of Directors as provided for in
Article NINTH, the term of office of each Class shall be three
(3) years; provided, however, that the term of office of the
initial Class I director shall expire at the annual election of
directors by the shareholders of the Corporation in 2000; the
term of office of the initial Class II directors shall expire at
the annual election of directors by the shareholders of the
Corporation in 2001; and the term of office of the initial
Class III directors shall expire at the annual election of
directors by the shareholders of the Corporation in 2002, so
that, after the expiration of each such initial term, the terms
of office of one class of directors shall expire each year when
their respective successors have been duly elected by the
shareholders and qualified. At each annual election of directors
by the shareholders of the Corporation, the directors chosen to
succeed those whose terms then expire shall be identified as
being of the same class as the directors they succeed. A
director need not be a shareholder of the Corporation. If, for
any reason, a vacancy occurs on the Board of Directors of the
Corporation, a majority of the remaining directors shall have the
exclusive power to fill the vacancy by electing a director to
hold office for the unexpired term in respect of which the
vacancy occurred. No director of the Corporation shall be
removed from office, as a director, by the vote of shareholders
except for cause, and then, only upon the affirmative vote of at
least a majority of all votes cast thereon. <PAGE 2>
NINTH. The names, addresses and Class designations of the
initial Board of Directors of the Corporation, who shall sit
until the first annual election of directors for the Class in
which such directors sits, are:
CLASS I
Name Address
Edward D. McBride 630 Crestwood Road
Wayne, PA 19087
CLASS II
Name Address
Mario L. Incollingo, Jr. 2626 Skyview Avenue
Langhorne, PA 19053
Francis J. Moran 25 Cambridge Road
Haverford, PA 19041
CLASS III
Name Address
John J. O'Connell 239 Woodlyn Avenue
Glenside, PA 19038
Dennis P. Wesley 105 Parliament Circle
North Wales, PA 19454
TENTH. Holders of the Common Stock shall not have
preemptive rights with respect to any additional shares of
capital stock, or any other securities, of the Corporation that
may be issued. Holders of the Preferred Stock shall not have any
preemptive rights with respect to any additional shares of
capital stock, or any other securities, of the Corporation that
may be issued other than those rights, if any, as the Board of
Directors, in its sole discretion, may determine at such prices
and upon such other terms and conditions as the Board of
Directors, in its sole discretion, may fix.
ELEVENTH. Except as set forth below, the affirmative vote
of shareholders entitled to cast at least 80% of the votes which
all shareholders of the Corporation are entitled to cast, and if
any class of shares is entitled to vote as a separate class, the
affirmative vote of shareholders entitled to cast at least a
majority of the votes entitled to be cast by the outstanding
shares of such class (or such greater amount as required by the
provisions of these Articles of Incorporation establishing such
class) shall be required to approve any of the following:
<PAGE 3>
(a) any merger or consolidation of the Corporation
with or into any other corporation;
(b) any share exchange in which a corporation, person
or entity acquires the issued or outstanding shares of
capital stock of the Corporation pursuant to a vote of
shareholders;
(c) any sale, lease, exchange or other transfer of
all, or substantially all, of the assets of the Corporation
to any other corporation, person or entity; or
(d) any transaction similar to, or having similar
effect as, any of the foregoing transactions,
if, in any such case, as of the record date for the determination
of shareholders entitled to notice thereof and to vote thereon,
such other corporation, person or entity is the beneficial owner,
directly or indirectly, of shares of capital stock of the
Corporation issued, outstanding and entitled to cast five percent
(5%) or more of the votes which all shareholders of the
Corporation are then entitled to cast.
If any of the transactions identified above in this Article
ELEVENTH is with a corporation, person or entity that is not the
beneficial owner, directly or indirectly, of shares of capital
stock of the Corporation issued, outstanding and entitled to cast
five percent (5%) or more of the votes which all shareholders of
the Corporation are then entitled to cast, then the affirmative
vote of shareholders voting thereon shall be required to approve
any such transactions. An affirmative vote as provided in the
foregoing provisions shall be in lieu of the vote of the
shareholders otherwise required by law.
The Board of Directors of the Corporation shall have the
power and duty to determine, for purposes of this Article
ELEVENTH, on the basis of information known to the Board, if and
when such other corporation, person or entity is the beneficial
owner, directly or indirectly, of shares of capital stock of the
Corporation issued, outstanding and entitled to cast five percent
(5%) or more of the votes which all shareholders of the
Corporation are then entitled to cast, and/or if any transaction
is similar to, or has a similar effect as, any of the
transactions identified above in this Article ELEVENTH. Any such
determination shall be conclusive and binding for all purposes of
this Article ELEVENTH. The Corporation may voluntarily
completely liquidate and/or dissolve only if the proposed
liquidation and/or dissolution is approved by the affirmative
vote of shareholders entitled to cast at least 80% of the votes
which all shareholders are entitled to cast. The provisions of
this Article ELEVENTH shall not apply to any transaction which is
<PAGE 4> approved in advance by 66-2/3% of the members of the
Board of Directors of the Corporation, at a meeting duly called
and held.
TWELFTH. No action required to be taken or which may be
taken at any annual or special meeting of shareholders of the
Corporation may be taken without a meeting, and the power of the
shareholders of the Corporation to consent in writing to action
without a meeting is specifically denied. The presence, in
person or by proxy, of shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to
cast, shall constitute a quorum of shareholders at any annual or
special meeting of shareholders of the Corporation.
THIRTEENTH. The authority to make, amend, alter, change or
repeal the Bylaws of the Corporation is hereby expressly and
solely granted to and vested in the Board of Directors of the
Corporation, subject always to the power of the shareholders to
change such action by the affirmative vote of holders of 66-2/3%
of the shares of the Corporation's capital stock issued,
outstanding and entitled to vote thereon, except that Section
2.15 and Article VI of the Bylaws of the Corporation, relating to
limitations on directors' liabilities and indemnification of
directors, officers and others, may not be amended to increase
the exposure to liability for directors or to decrease the
indemnification of directors, officers or others except by the
affirmative vote of 66-2/3% of the entire Board of Directors or
by the affirmative vote of shareholders of the Corporation
entitled to cast at least 80% of the votes which all shareholders
are entitled to cast.
FOURTEENTH. The Board of Directors of the Corporation, when
evaluating any offer of another party to (a) make a tender or
exchange offer for any equity security of the Corporation,
(b) merge or consolidate the Corporation with another
corporation, (c) purchase or otherwise acquire all or
substantially all of the properties and assets of the
Corporation, or (d) engage in any transaction similar to, or
having similar effects as, any of the foregoing transactions,
shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and
its shareholders, give due consideration to all relevant factors,
including without limitation the social and economic effects of
the proposed transaction on the depositors, employees, suppliers,
customers and other constituents of the Corporation and its
subsidiaries and on the communities in which the Corporation and
its subsidiaries operate or are located, the business reputation
of the other party, and the Board of Directors' evaluation of the
then value of the Corporation in a freely negotiated sale and of
the future prospects of the Corporation as an independent entity.
FIFTEENTH. If any corporation, person, entity, or group
becomes the beneficial owner, directly or indirectly, of shares
of capital stock of the Corporation having the right to cast in
the aggregate 25% or more of all votes entitled to be cast by all
<PAGE 5> issued and outstanding shares of capital stock of the
Corporation entitled to vote, such corporation, person, entity or
group shall within 30 days thereafter offer to purchase all
shares of capital stock of the Corporation issued, outstanding
and entitled to vote. Such offer to purchase shall be at a price
per share equal to the highest price paid for shares of the
respective class or series of capital stock of the Corporation
purchased by such corporation, person, entity or group within the
preceding twelve months. If such corporation, person, entity or
group did not purchase any shares of a particular class or series
of capital stock of the Corporation within the preceding twelve
months, such offer to purchase shall be at a price per share
equal to the fair market value of such class or series of capital
stock on the date on which such corporation, person, entity or
group becomes the beneficial owner, directly or indirectly, of
shares of capital stock of the Corporation having the right to
cast in the aggregate 25% or more of all votes entitled to be
cast by all issued and outstanding capital stock of the
Corporation. Such offer shall provide that the purchase price
for such shares shall be payable in cash. The provisions of this
Article FIFTEENTH shall not apply if 80% or more of the members
of the Board of Directors of the Corporation approve in advance
the acquisition of beneficial ownership by such corporation,
person, entity or group of shares of capital stock of the
Corporation having the right to cast in the aggregate 25% or more
of all votes entitled to be cast by all issued and outstanding
shares of capital stock of the Corporation. The provisions of
this Article FIFTEENTH shall be in addition to and not in lieu of
any rights granted under Subchapter E of Chapter 25 of the
Pennsylvania Business Corporation Law and any amendment or
restatement of such section ("Subchapter E"); provided, however,
that if the provisions of this Article FIFTEENTH and Subchapter E
are both applicable in any given instance, the price per share to
be paid for shares of capital stock of the Corporation issued,
outstanding and entitled to vote shall be the higher of the price
per share determined in accordance with this Article FIFTEENTH or
the price per share determined in accordance with the provisions
of Subchapter E.
SIXTEENTH. A special meeting of the shareholders of the
Corporation may be called only pursuant to a resolution of the
Corporation's Board of Directors and for only such business so
directed by the Board of Directors. Shareholders are not
authorized to call any special meeting.
SEVENTEENTH. Subsection 1. No Person or Group Acting in
Concert shall Acquire Voting Control of the Corporation, at any
time, except in accordance with the provisions of Article
ELEVENTH. The terms "Acquire," "Voting Control," "Group Acting
in Concert," and "Person" as used in this Article SEVENTEENTH are
defined in subsection 4 hereof.
Subsection 2. If Voting Control of the Corporation is
acquired, in violation of this Article SEVENTEENTH, all shares
with respect to which any Person or Group Acting in Concert has
<PAGE 6> acquired Voting Control in excess of the number of
shares the beneficial ownership of which is deemed under
subsection 4 hereof to confer Voting Control of the Corporation
(as determined without regard to this Subsection 2) shall be
considered from and after the date of acquisition by such Person
or Group Acting in Concert to be "excess shares" for purposes of
this Article SEVENTEENTH. All shares deemed to be excess shares
shall thereafter no longer be entitled to vote on any matter or
to take other shareholder action. If, after giving effect to the
first two sentences of this Subsection 2, any Person or Group
Acting in Concert still shall be deemed to be in Voting Control
of the Corporation based on the number of votes then entitled to
be cast (rather than the number of issued and outstanding shares
of common stock of the Corporation), then shares held in excess
of the number of shares deemed to confer Voting Control upon such
Person or Group Acting in Concert also shall not be entitled to
vote on any matter or take any other shareholder action, but this
subsequent reduction in voting rights shall be effected only
once. The provisions of this Subsection 2 deeming shares to be
excess shares shall only apply for so long as such shares shall
be beneficially owned by such Person or Group Acting in Concert
who has acquired Voting Control. Notwithstanding the foregoing,
shares held in excess of the number of shares the beneficial
ownership of which would otherwise be deemed under Subsection 4
to confer Voting Control of the Corporation shall not be deemed
to be excess shares if such shares are held by a Tax-Qualified
Employee Stock Benefit Plan.
Subsection 3. The provisions of this Article
SEVENTEENTH shall be of no further force and effect after the
consummation of a transaction in which another Person Acquires
shares of capital stock of the Corporation entitled to cast 80%
or more of the votes which all shareholders are entitled to cast
(as determined without regard to the application of this Article
SEVENTEENTH) and such transaction was approved in advance by the
board of directors of the Corporation.
Subsection 4. For purposes of this Article
SEVENTEENTH:
A. The term "Acquire" includes every type of
acquisition, whether effected by purchase, exchange,
operation of law or otherwise.
B. "Voting Control" means the sole or shared
power to vote or to direct the voting of, or to dispose or
to direct the disposition of, more than ten percent (10%) of
the issued and outstanding common stock of the Corporation;
provided that (i) the solicitation, holding and voting of
proxies obtained by the board of directors of the
Corporation pursuant to a solicitation under Regulation 14A
of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") shall
not constitute Voting Control, (ii) a Tax-Qualified Employee
Stock Benefit Plan which holds more than 10 percent of the
<PAGE 7> voting shares of the Corporation shall not be
deemed to have Voting Control of the Corporation, and
(iii) any trustee, member of any administrative committee or
employee beneficiary of a Tax-Qualified Employee Stock
Benefit Plan shall not be deemed to have Voting Control of
the Corporation either (A) as a result of their control of a
Tax-Qualified Employee Stock Benefit Plan, and/or their
beneficial interest in voting shares held by a Tax-Qualified
Employee Stock Benefit Plan, or (B) as a result of the
aggregation of both their beneficial interest in voting
shares held by a Tax-Qualified Employee Stock Benefit Plan
and voting shares held by such trustee, administrative
committee member or employee beneficiary independent of a
Tax-Qualified Employee Stock Benefit Plan.
C. "Group Acting in Concert" includes Persons
seeking to combine or pool their voting or other interests
in the voting shares for a common purpose, pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise, provided, that a
"Group Acting in Concert" shall not include (i) the members
of the board of directors of the Corporation solely as a
result of their board membership, (ii) the members of the
board of directors of the Corporation as a result of their
solicitation, holding and voting of proxies obtained by them
pursuant to a solicitation subject to rules and regulations
promulgated under the Exchange Act or any successor statute
or (iii) any member or all the members of the board of
directors of the Corporation, and (iv) any Tax-Qualified
Employee Stock Benefit Plan and the trustees, administrative
committee members and employee beneficiaries thereof.
D. The term "Person" includes an individual, a
Group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring,
holding or disposing of the equity securities of the
Corporation.
E. The term "Tax-Qualified Employee Stock
Benefit Plan" means any defined benefit plan or defined
contribution plan of the Corporation or any subsidiary, such
as an employee stock ownership plan, stock bonus plan,
profit sharing plan or other plan, that, with its related
trust, meets the requirements to be "qualified" under
Section 401 of the Internal Revenue Code of 1986, as
amended.
Subsection 5. This Article SEVENTEENTH shall not apply
to the purchase of securities of the Corporation by underwriters
in connection with a public offering of such securities by the
Corporation or by a holder of shares of capital stock of the
Corporation with written consent of the board of directors of the
Corporation; provided, however, that purchasers of securities of
<PAGE 8> the Corporation from any underwriter shall be subject to
the provisions of this Article SEVENTEENTH.
The board of directors of the Corporation shall have the
power and duty to determine, for purposes of this Article
SEVENTEENTH, on the basis of information known to the Board, if
and when such other Person has acquired Voting Control of the
Corporation, and/or if any transaction is similar to, or has a
similar effect as, any of the transactions identified in this
Article SEVENTEENTH. Any such determination shall be conclusive
and binding for all purposes of this Article SEVENTEENTH.
EIGHTEENTH. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Articles
of Incorporation in the manner now or hereafter prescribed by
statute and all rights conferred upon shareholders and directors
herein are hereby granted subject to this reservation; provided,
however, that the provisions set forth in Articles SEVENTH,
EIGHTH, and TENTH through EIGHTEENTH of these Articles of
Incorporation may not be repealed, altered or amended, in any
respect whatsoever, unless such repeal, alteration or amendment
is approved by either (a) the affirmative vote of shareholders of
the Corporation entitled to cast at least 80% of all votes which
shareholders of the Corporation are then entitled to cast, or
(b) the affirmative vote of 80% of the members of the Board of
Directors of the Corporation and the affirmative vote of
shareholders of the Corporation entitled to cast at least a
majority of all votes which shareholders of the Corporation are
then entitled to cast. <PAGE 9>
Exhibit 3.2
BYLAWS
OF
JADE FINANCIAL CORP.
These Bylaws amend and restate, in their entirety, the
Bylaws of JADE FINANCIAL CORP. and all prior Bylaws and all
amendments thereto.
ARTICLE I
SHAREHOLDERS
Section 1.01 - Annual Meeting -
(a) General. The annual meeting of shareholders shall be
held on such day each year as may be fixed from time to
time by the board of directors, or, if no day be so
fixed, on the fourth Tuesday of April of each year;
provided, however, that if such day falls upon a legal
holiday, then on the next business day thereafter. At
each annual meeting of shareholders, directors shall be
elected, reports of the affairs of the corporation
shall be considered, and such other business as may
properly come before the meeting may be transacted.
(b) Conduct of Meetings. At every meeting of the
shareholders, the Chairman of the Board or, in his
absence, the officer designated by the Chairman of the
Board, or, in the absence of such designation, a
chairman (who shall be one of the officers, if any is
present) chosen by a majority of the members of the
board of directors shall act as chairman of the
meeting. The chairman of the meeting shall have any
and all powers and authority necessary in the
chairman's sole discretion to conduct an orderly
meeting and preserve order and to determine any and all
procedural matters, including imposing reasonable
limits on the amount of time at the meeting taken up in
remarks by any one shareholder or group of
shareholders. In addition, until the business to be
completed at a meeting of the shareholders is
completed, the chairman of a meeting of the
shareholders is expressly authorized to temporarily
adjourn and postpone the meeting from time to time.
The Secretary of the corporation or, in the Secretary's
absence, an assistant secretary, shall act as Secretary
of all meetings of the shareholders. In the absence at
such meeting of the Secretary or assistant secretary,
the chairman of the meeting may appoint another person
to act as Secretary of the meeting.
<PAGE 1>
Section 1.02 - Special Meetings - Special meetings of the
shareholders may be called only in accordance with the articles
of incorporation of the corporation. Upon written request to the
Chief Executive Officer or the Secretary, sent by registered mail
or delivered to such officer in person, of any person or persons
entitled to call a special meeting of the shareholders, it shall
be the duty of the Secretary to fix the time of the meeting,
which shall be held not more than sixty (60) days after the
receipt of the request. If the Secretary neglects or refuses to
fix the time of the meeting, the person or persons duly calling
the meeting may do so.
Section 1.03 - Place of Meeting - All meetings of the
shareholders shall be held at such place, within or without the
Commonwealth of Pennsylvania, as may be designated by the board
of directors in the notice of meeting. In the absence of such
designation, shareholders' meetings shall be held at the
registered office of the corporation.
Section 1.04 - Notice of Meetings of Shareholders - Except as
provided otherwise in these bylaws or required by law, written
notice of every meeting of the shareholders shall be given by, or
at the direction of, the Secretary or other authorized person, to
each shareholder of record entitled to vote at the meeting at
least ten (10) days prior to the day named for the meeting.
Section 1.05 - Contents - The notice of the meeting shall specify
the place, day and hour of the meeting and, in the case of a
special meeting, the general nature of the business to be
transacted. If the purpose, or one of the purposes, of the
meeting is to consider the adoption, amendment or repeal of the
bylaws, there shall be included in, enclosed with, or accompanied
by, the notice a copy of the proposed amendment or a summary of
the changes to be made by the amendment.
Section 1.06 - Quorum -
(a) Annual Meetings. An annual meeting of the shareholders
duly called shall not be organized for the transaction
of business unless a quorum is present. The presence
in person or by proxy of shareholders entitled to cast
at least a majority of the votes that all shareholders
are entitled to cast on a particular matter to be acted
upon at the meeting shall constitute a quorum for the
purposes of consideration and action on such matter.
The shareholders present at a duly organized annual
meeting can continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.
(b) Special Meetings. A special meeting of the
shareholders duly called shall not be organized for the
transaction of business unless a quorum is present.
The presence in person or by proxy of shareholders
entitled to cast at least a majority of the votes that
<PAGE 2> all shareholders are entitled to cast on a
particular matter to be acted upon at the meeting shall
constitute a quorum for the purposes of consideration
and action on such matter. The shareholders present at
a duly organized special meeting can continue to do
business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a
quorum.
Section 1.07 - Adjournments - If a meeting of the shareholders
duly called cannot be organized because a quorum has not
attended, the chairman of the meeting or a majority of
shareholders present in person or by proxy and entitled to vote
may adjourn the meeting to such time and place as they may
determine.
At any meeting at which directors are to be elected and which has
previously been adjourned for lack of a quorum, the shareholders
present and entitled to vote, although less than a quorum as
fixed herein, shall nevertheless constitute a quorum for the
purpose of electing directors. In other cases, those
shareholders entitled to vote who attend a meeting of the
shareholders that has been previously adjourned for one or more
periods aggregating at least fifteen (15) days because of an
absence of quorum, although less than a quorum as fixed herein,
shall nonetheless constitute a quorum for the purpose of acting
upon any matter stated in the notice of the meeting, provided the
notice of meeting states that shareholders who attend such
adjourned meeting shall nonetheless constitute a quorum for the
purpose of acting upon the matter.
When a meeting of the shareholders is adjourned, it shall not be
necessary to give any notice of the adjourned meeting or of the
business to be transacted at the adjourned meeting other than by
announcement at the meeting at which the adjournment is taken,
unless the board of directors fixes a new record date for the
adjourned meeting or unless notice of the business to be
transacted was required by the Pennsylvania Business Corporation
Law of 1988, as it may be amended, to be stated in the original
notice of the meeting and such notice had not been previously
provided.
Section 1.08 - Action by Shareholders - Unless otherwise required
by law, the articles of incorporation or these bylaws, whenever
any corporate action is to be taken by vote of the shareholders,
it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote
thereon and, if any shareholders are entitled to vote thereon as
a class, upon receiving the affirmative vote of the majority of
the votes cast by the shareholders entitled to vote as a class on
the matter.
Section 1.09 - Voting Rights of Shareholders - Unless otherwise
provided in the articles of incorporation, every shareholder of
the corporation shall be entitled to one vote for every share
<PAGE 3> outstanding in the name of the shareholder on the books
of the corporation.
Section 1.10 - Voting and Other Action by Proxy -
(a) General. Every shareholder entitled to vote at a
meeting of shareholders or to express consent or
dissent to corporate action in writing without a
meeting may authorize another person or persons to act
for that shareholder by proxy. The presence of, or
vote or other action at a meeting of shareholders, or
the expression of consent or dissent to corporate
action in writing, by a proxy of a shareholder shall
constitute the presence of, or vote or action by, or
written consent or dissent of the shareholder.
Where two or more proxies of a shareholder are present,
the corporation shall, unless otherwise expressly
provided in the proxy, accept as the vote of all shares
represented thereby the vote cast by a majority of them
and, if a majority of the proxies cannot agree whether
the shares represented shall be voted, or upon the
manner of voting the shares, the voting of the shares
shall be divided equally among those persons.
(b) Minimum Requirements. Every proxy shall be executed in
writing by the shareholder or by the duly authorized
attorney-in-fact of the shareholder and filed with the
Secretary of the corporation. A telegram, telex,
cablegram, datagram or similar transmission from a
shareholder or attorney-in-fact, or a photographic,
facsimile or similar reproduction of a writing executed
by a shareholder or attorney-in-fact:
(1) may be treated as properly executed; and
(2) shall be so treated if it sets forth a
confidential and unique identification number or
other mark furnished by the corporation to the
shareholder for the purposes of a particular
meeting or transaction.
(c) Revocation. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other
agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be
effective until written notice thereof has been given
to the Secretary of the corporation. An unrevoked
proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly
provided therein. A proxy shall not be revoked by the
death or incapacity of the maker unless, before the
vote is counted or the authority is exercised, written
notice of the death or incapacity is given to the
Secretary of the corporation. <PAGE 4>
Section 1.11 - Voting by Fiduciaries and Pledgees - Shares of the
corporation standing in the name of a trustee or other fiduciary
and shares held by an assignee for the benefit of creditors or by
a receiver may be voted by the trustee, fiduciary, assignee or
receiver. A shareholder whose shares are pledged shall be
entitled to vote the shares until the shares have been
transferred into the name of the pledgee, or a nominee of the
pledgee, but nothing in this section shall affect the validity of
a proxy given to a pledgee or nominee.
Section 1.12 - Voting of Joint Holders of Shares -
(a) General. Where shares of the corporation are held
jointly or as tenants in common by two or more persons,
as fiduciaries or otherwise:
(1) if only one or more of such persons is present in
person or by proxy, all of the shares standing in
the name of such persons shall be deemed to be
represented for the purpose of determining a
quorum and the corporation shall accept as the
vote of all the shares the vote cast by a joint
owner or a majority of them; and
(2) if the persons are equally divided upon whether
the shares held by them shall be voted or upon the
manner of voting the shares, the voting of the
shares shall be divided equally among the persons
without prejudice to the rights of the joint
owners or the beneficial owners thereof among
themselves.
(b) Exception. If there has been filed with the Secretary
of the corporation a copy, certified by an attorney at
law to be correct, of the relevant portions of the
agreement under which the shares are held or the
instrument by which the trust or estate was created or
the order of court appointing them or of an order of
court directing the voting of the shares, the persons
specified as having such voting power in the document
latest in date of operative effect so filed, and only
those persons, shall be entitled to vote the shares but
only in accordance therewith.
Section 1.13 - Voting by Corporations - Any corporation that is a
shareholder of this corporation may vote by any of its officers
or agents, or by proxy appointed by any officer or agent, unless
some other person, by resolution of the board of directors of the
other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by
one of its officers has been filed with the Secretary of this
corporation, is appointed its general or special proxy in which
case that person shall be entitled to vote the shares.
<PAGE 5>
Section 1.14 - Determination of Record Date - The board of
directors may fix a time prior to the date of any meeting of
shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of
shareholders. Only shareholders of record on the date fixed
shall be so entitled notwithstanding any transfer of shares on
the books of the corporation after any record date fixed as
provided in this section. The board of directors may similarly
fix a record date for the determination of shareholders of record
for any other purpose. When a determination of shareholders of
record has been made as provided in this section for purposes of
a meeting, the determination shall apply to any adjournment
thereof unless the board fixes a new record date for the
adjourned meeting.
Section 1.15 - Voting List - The officer or agent having charge
of the transfer books for shares of the corporation shall make a
complete list of the shareholders entitled to vote at any meeting
of shareholders, arranged in alphabetical order, with the address
of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
Failure to comply with the requirements of this section shall not
affect the validity of any action taken at a meeting prior to a
demand at the meeting by any shareholder entitled to vote thereat
to examine the list. The original share register or transfer
book, or a duplicate thereof kept in Pennsylvania, shall be prima
facie evidence as to who are the shareholders entitled to examine
the list or share register or transfer book or to vote at any
meeting of shareholders.
Section 1.16 - Judges of Election - In advance of any meeting of
shareholders of the corporation, the board of directors may
appoint judges of election, who need not be shareholders, to act
at the meeting or any adjournment thereof. If judges of election
are not so appointed, the presiding officer of the meeting may,
and on the request of any shareholder shall, appoint judges of
election at the meeting. The number of judges shall be one or
three. No person who is a candidate for office to be filled at
the meeting shall act as a judge of election.
In the event any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment
made by the board of directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented
at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear
and determine all challenges and questions in any way arising in
<PAGE 6> connection with the right to vote, count and tabulate
all votes, determine the result and do such acts as may be proper
to conduct the election or vote with fairness to all
shareholders. The judge or judges of election shall perform
their duties impartially, in good faith, to the best of their
ability and as expeditiously as is practical. If there are three
judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act
or certificate of all.
On request of the presiding officer of the meeting, or of any
shareholder, the judge or judges shall make a report in writing
of any challenge or question or matter determined by them, and
execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the
facts stated therein.
Section 1.17 - No Consent of Shareholders in Lieu of Meeting - No
action required to be taken or which may be taken at any annual
or special meeting of shareholders of the corporation may be
taken without a meeting, and the power of the shareholders to
consent in writing to action without a meeting is specifically
denied.
Section 1.18 - Agenda for Annual Meeting - Matters to be placed
on the agenda for consideration at annual meetings of
shareholders may be proposed by the board of directors or by any
shareholder entitled to vote for the election of directors.
Matters proposed for the agenda by shareholders entitled to vote
for the election of directors shall be made by notice in writing,
delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the corporation not less than ninety
(90) days nor more than one hundred and fifty (150) days prior to
any annual meeting of shareholders; provided, however, that if
less than twenty-one (21) 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 seventh day following the day on which notice of
the meeting was mailed to shareholders. Notice of matters which
are proposed by the board of directors shall be given by the
Chairman of the Board or any other appropriate officer. Each
notice given by a shareholder shall set forth a brief description
of the business desired to be brought before the annual meeting.
The Chairman of the meeting of shareholders may determine and
declare to the meeting that a matter proposed for the agenda was
not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the
matter shall be disregarded.
<PAGE 7>
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 - General - Unless otherwise provided by statute,
all powers vested by law in the corporation shall be exercised by
or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, the board of
directors of the corporation.
Section 2.02 - Number, Qualifications, Selection and Term of
Office - The board of directors of the corporation shall consist
of at least one (1) and not more than twenty-five (25) directors,
the exact number to be set from time to time by resolution of the
board of directors. Each director shall be a natural person of
full age. Each director shall hold office until the expiration
of the term for which he or she was selected and until a
successor has been selected and qualified or until his or her
earlier death, resignation or removal. A decrease in the number
of directors shall not have the effect of shortening the term of
any incumbent director.
Section 2.03 - Nominations for Directors - Nominations for the
election of directors may be made by the board of directors or by
any shareholder entitled to vote for the election of directors.
Nominations made by a shareholder entitled to vote for the
election of directors shall be made by notice in writing,
delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the corporation not less than ninety
(90) days prior to any meeting of the shareholders called for the
election of directors; provided, however, that if less than
twenty-one (21) 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 seventh day following the day on which notice of
the meeting was mailed to shareholders. Notice of nominations
which are proposed by the board of directors shall be given by
the Chairman of the Board or any other appropriate officer. Each
notice of nominations made by a shareholder 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 nominee, and
(iii) the number of shares of capital stock of the corporation
which are beneficially owned by each such nominee. Upon
receiving a notice of nomination made by a shareholder, the board
of directors shall be entitled to request any other information
relating to such nominee deemed relevant by the board. The
Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 2.04 - Election - Except as otherwise provided in these
bylaws, directors of the corporation shall be elected by the
<PAGE 8> shareholders. In elections for directors, voting need
not be by ballot unless required by vote of the shareholders
before the voting for election of directors begins. The
candidates receiving the highest number of votes, up to the
number of directors to be elected, shall be elected.
Section 2.05 - Vacancies -
(a) Vacancies. Vacancies in the board of directors shall
exist in the case of the happening of any of the
following events: (i) the death or resignation of any
director; (ii) if at any annual or special meeting the
shareholders at which directors are to be elected, the
shareholders fail to elect the full authorized number
of directors to be voted for at that meeting; (iii) an
increase in the number of directors by resolution of
the board of directors; (iv) the removal of a director
by the affirmative vote of shareholders of the
corporation in accordance with the articles of
incorporation of the corporation; or (v) the removal of
a director by the board of directors or a court of
competent jurisdiction in accordance with these bylaws
or otherwise in accordance with law.
(b) Filling Vacancies. Vacancies in the board of
directors, including vacancies resulting from an
increase in the number of directors, may be filled by a
majority vote of the remaining members of the board
though less than a quorum, or by a sole remaining
director, and each person so selected shall be a
director to serve for the balance of the unexpired term
and until his or her successor has been selected and
qualified or until his or her earlier death,
resignation or removal.
Section 2.06 - Removal and Resignation -
(a) Removal by Shareholders. A director may be removed by
shareholders only in accordance with the articles of
incorporation of the corporation.
(b) Removal by Action of the Directors. The board of
directors may declare vacant the office of a director
if that director: (i) has been judicially declared of
unsound mind; (ii) has been convicted of an offense
punishable by imprisonment for a term of more than one
year; (iii) if within sixty (60) days after notice of
his or her election, the director does not accept such
office either in writing or by attending a meeting of
the board of directors and fulfilling such other
requirements of qualification as these bylaws or the
articles of incorporation may provide; or (iv) is
ineligible for any reason to serve as a director of the
Corporation's principal banking subsidiaries.
<PAGE 9>
(c) Resignation. Any director may resign at any time from
his or her position as a director upon written notice
to the corporation. The resignation shall be effective
upon its receipt by the corporation or at such later
time as may be specified in the notice of resignation.
Section 2.07 - Regular Meetings - The board of directors of the
corporation shall hold an annual meeting for the election of
officers and the consideration of other proper business either as
soon as practical after, and at the same place as, the annual
meeting of shareholders of the corporation, or at such other day,
hour and place as may be fixed by the board. The board of
directors may designate by resolution the day, hour and place,
within or outside the Commonwealth of Pennsylvania, of other
regular meetings.
Section 2.08 - Special Meetings - Special meetings of the board
of directors may be called by the Chairman of the Board, the
Chief Executive Officer, or the President of the corporation or a
majority of the directors then in office. The person or persons
calling the special meeting may fix the day, hour and place,
within or outside the Commonwealth of Pennsylvania, of the
meeting.
Section 2.09 - Notice of Meetings -
(a) General. No notice of any annual or regular meeting of
the board of directors of the corporation need be
given. Written notice of each special meeting of the
board of directors, specifying the place, day and hour
of the meeting, shall be given to each director at
least 24 hours before the time set for the meeting.
Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of
the board need be specified in the notice of the
meeting.
(b) Validation of Meeting Defectively Called or Noticed.
The transactions of any meeting of the board of
directors, however called and noticed or wherever held,
are as valid as though taken at a meeting duly held
after regular call and notice, if a quorum is present
and if, either before or after the meeting, each of the
directors not present signs a waiver of notice. All
such waivers shall be filed with the corporate records
or made a part of the minutes of the meeting.
Attendance of a director at any 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.
Section 2.10 - Quorum and Action by Directors - A majority of the
directors in office shall be necessary to constitute a quorum for
the transaction of business; provided, however, that at least one
<PAGE 10> director who is not an officer or employee of the
corporation or of any entity controlling, controlled by or under
common control with the corporation and who is not a beneficial
owner of a controlling interest in the voting stock of the
corporation or of any such entity must be present in order to
constitute a quorum. The acts of a majority of directors present
and voting at a meeting at which a quorum is present shall be the
acts of the board of directors, except where a different vote is
required by law, the articles of incorporation or these bylaws.
Every director shall be entitled to one vote.
Any action required or permitted to be taken at a meeting of the
board of directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of
the directors in office is filed with the Secretary of the
corporation.
Section 2.11 - Presumption of Assent - A director of the
corporation who is present at a meeting of the board of
directors, or of a committee of the board, at which action on any
corporate matter is taken on which the director is generally
competent to act, shall be presumed to have assented to the
action taken unless his or her dissent is entered in the minutes
of the meeting or unless that director files his or her written
dissent to the action with the Secretary of the meeting before
its adjournment or submits the dissent in writing to the
Secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director
who voted in favor of the action. Nothing in this section shall
bar a director from asserting that the minutes of a meeting
incorrectly omitted that director's dissent if, promptly upon
receipt of a copy of those minutes, the director notified the
Secretary, in writing, of the asserted omission or inaccuracy.
Section 2.12 - Presiding Officer - All meetings of the board of
directors of the corporation shall be called to order and
presided over by the Chairman of the Board of Directors, or in
the Chairman's absence, by the Vice Chairman, or in the Vice
Chairman's absence, by the Chief Executive Officer of the
corporation or, in the absence of the Chairman, the Vice Chairman
and the Chief Executive Officer, by a chairman of the meeting
elected at such meeting by the board of directors. The Secretary
of the corporation shall act as Secretary of the board of
directors unless otherwise specified by the board of directors.
In case the Secretary shall be absent from any meeting, the
chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 2.13 - Committees - The board of directors may, by
resolution adopted by a majority of the directors in office,
establish one or more committees. Each committee is to consist
of at least two (2) directors of the corporation and not less
than two-thirds of the members of each committee shall be persons
who are not officers or employees of the corporation or of any
entity controlling, controlled by or under common control with
<PAGE 11> the corporation and who are not beneficial owners of a
controlling interest in the voting stock of the corporation or of
any such entity. The Chief Executive Officer shall be an
ex-officio member of each committee of the board of directors,
except the Audit Committee. The board may designate one or more
directors as alternate members of any committee who may replace
any absent or disqualified member at any meeting of the committee
or for purposes of any written action of the committee.
A committee, to the extent provided in the resolution of the
board of directors creating it, shall have and may exercise all
of the powers and authority of the board of directors except that
a committee shall not have any power or authority regarding:
(i) the submission to shareholders of any action requiring the
approval of shareholders under the Pennsylvania Business
Corporation Law of 1988, as it may be amended, (ii) the creation
or filling of vacancies in the board of directors, (iii) the
adoption, amendment or repeal of these bylaws, (iv) the
amendment, adoption or repeal of any resolution of the board of
directors that by its terms is amendable or repealable only by
the board of directors, or (v) any action on matters committed by
the bylaws or resolution of the board of directors to another
committee of the board. Each committee of the board shall serve
at the pleasure of the board.
Section 2.14 - Audit Committee - There shall be a standing
committee of the board of directors to be known as the Audit
Committee. The members of the Audit Committee shall consist
exclusively of directors who are not officers or employees of the
corporation or of any entity controlling, controlled by or under
common control with the corporation and who are not beneficial
owners of a controlling interest in the voting stock of the
corporation or of any such entity. The Audit Committee shall:
(i) make recommendations to the board of directors as to the
independent accountants to be appointed by the board, (ii) review
with the independent accountants the scope of their examination,
(iii) receive the reports of the independent accountants and meet
with the representatives of such accountants for the purpose of
reviewing and considering questions relating to their examination
and such reports, (iv) review the internal accounting and
auditing procedures of the corporation, and (v) perform such
other duties as may be assigned to it from time to time by the
board of directors.
Section 2.15 - Personal Liability of Directors - To the fullest
extent permitted by Pennsylvania law, a director of the
corporation shall not be personally liable for monetary damages
for any action taken, or any failure to take any action, unless
the director has breached or failed to perform the duties of his
or her office under Subchapter B of Chapter 17 of the
Pennsylvania Business Corporation Law of 1988, as it may be
amended, and such breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness; provided, however,
that the foregoing provision shall not eliminate or limit (i) the
responsibility or liability of that director under any criminal
<PAGE 12> statute, or (ii) the liability of a director for the
payment of taxes according to local, state or federal law. The
provisions of this Section 2.15 shall be repealed, modified, or
amended only in accordance with the articles of incorporation of
the corporation, and any repeal, modification or adoption of any
provision inconsistent with this section shall be prospective
only. Neither the repeal or modification of this bylaw nor the
adoption of any provision inconsistent with this bylaw shall
adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such repeal
or modification or the adoption of such inconsistent provision.
ARTICLE III
OFFICERS
Section 3.01 - Officers and Qualifications - The corporation
shall have a Chairman of the Board, a Vice Chairman of the Board,
a Chief Executive Officer, a President, a Secretary, and a
Treasurer, each of whom shall be elected or appointed by the
board of directors. The board may also elect one or more vice
presidents, and such other officers and assistant officers as the
board deems necessary or advisable. All officers shall be
natural persons of full age. Any two or more offices may be held
by the same person. It shall not be necessary for officers to be
directors of the corporation. Officers of the corporation shall
have such authority and perform such duties in the management of
the corporation as is provided by or under these bylaws or in the
absence of controlling provisions in these bylaws as is
determined by or under resolutions or orders of the board of
directors.
Section 3.02 - Election- Term and Vacancies - The officers and
assistant officers of the corporation shall be elected by the
board of directors at the annual meeting of the board or from
time to time as the board shall determine, and each officer shall
hold office for one (1) year and until his or her successor has
been duly elected and qualified or until that officer's earlier
death, resignation or removal. A vacancy in any office occurring
in any manner may be filled by the board of directors and, if the
office is one for which these bylaws prescribe a term, shall be
filled for the unexpired portion of the term.
Section 3.03 - Subordinate Officers, Committees and Agents - The
board of directors may from time to time elect such other
officers and appoint such committees, employees or other agents
as the business of the corporation may require, including one or
more assistant secretaries, and one or more assistant treasurers,
each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these
bylaws or as the board of directors may from time to time
determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain
or appoint employees or other agents, or committees thereof and
<PAGE 13> to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
Section 3.04 - Removal; Resignation and Bonding -
(a) Removal. Any officer or agent of the corporation may
be removed by the board of directors with or without
cause, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall
not of itself create contract rights.
(b) Resignation. Any officer may resign at any time upon
written notice to the corporation. The resignation
shall be effective upon its receipt by the corporation
or at such later time as may be specified in the notice
of resignation.
(c) Bonding. The corporation may secure the fidelity of
any or all of its officers by bond or otherwise.
Section 3.05 - Chairman of the Board - The Chairman of the Board
of Directors of the corporation, if one is elected, shall preside
at all meetings of the shareholders and of the directors at which
he or she is present, and shall have such authority and perform
such other duties as the board of directors may from time to time
designate.
Section 3.06 - Vice Chairman of the Board - The Vice Chairman of
the Board of Directors of the corporation shall preside at all
meetings of the shareholders and of the directors at which he or
she is present and the Chairman is absent, and shall have such
authority and perform such other duties as the board of directors
may from time to time designate.
Section 3.07 - Chief Executive Officer - The Chief Executive
Officer shall, in the absence of the Chairman of the Board and
Vice Chairman of the Board, preside at all meetings of the
shareholders and of the board of directors at which he or she is
present. Subject to the control of the board of directors of the
corporation and, within the scope of their authority, any
committees thereof, the Chief Executive Officer shall (a) have
general and active management of all the business, property and
affairs of the corporation, (b) see that all orders and
resolutions of the board of directors and its committees are
carried into effect, (c) appoint and remove subordinate officers
and agents, other than those appointed or elected by the board of
directors, as the business of the corporation may require,
(d) have custody of the corporate seal, or entrust the same to
the Secretary, (e) act as the duly authorized representative of
the board in all matters, except where the board has formally
designated some other person or group to act, (f) sign, execute
and acknowledge, in the name of the corporation, deeds,
mortgages, bonds, contracts or other instruments authorized by
the board of directors, except in cases where signing and
<PAGE 14> execution thereof shall be expressly delegated by the
board of directors, or by these bylaws, to some other officer or
agent of the corporation, and (g) in general perform all the
usual duties incident to the office of Chief Executive Officer
and such other duties as may be assigned to such person by the
board of directors.
Section 3.08 - President - The President shall perform the duties
of Chief Executive Officer either when he has been chosen as
Chief Executive Officer or when the Chief Executive Officer is
absent or unable to perform the duties of his office. The
President shall have such other powers and perform such other
duties as from time to time as may be prescribed by him by the
board of directors or prescribed by the bylaws.
Section 3.09 - Vice Presidents - Each vice president, if any,
shall perform such duties as may be assigned to him or her by the
board of directors or the Chief Executive Officer. One vice
president shall be designated by the board of directors to
perform the duties of the Chief Executive Officer, in the event
of the absence or disability of the Chief Executive Officer.
Section 3.10 - Secretary - The Secretary shall (a) keep or cause
to be kept the minutes of all meetings of the shareholders, the
board of directors, and any committees of the board of directors
in one or more books kept for that purpose, (b) have custody of
the corporate records, stock books and stock ledgers of the
corporation, (c) keep or cause to be kept a register of the
address of each shareholder, which address has been furnished to
the Secretary by the shareholder, (d) see that all notices are
duly given in accordance with law, the articles of incorporation,
and these bylaws, and (e) in general perform all the usual duties
as may be assigned to him or her by the board of directors or the
Chief Executive Officer.
Section 3.11 - Assistant Secretary - The Assistant Secretary, if
any, or Assistant Secretaries if more than one, shall perform the
duties of the Secretary in his or her absence and shall perform
other duties as the board of directors, the Chief Executive
Officer or the Secretary may from time to time designate.
Section 3.12 - Treasurer - The Treasurer shall have general
supervision of the fiscal affairs of the corporation and shall be
the Chief Financial Officer of the corporation. The Treasurer
shall, with the assistance of the Chief Executive Officer and
managerial staff of the corporation: (a) see that a full and
accurate accounting of all financial transactions is made;
(b) invest and reinvest the capital funds of the corporation in
such manner as may be directed by the board of directors, unless
that function shall have been delegated to a nominee or agent;
(c) deposit or cause to be deposited in the name and to the
credit of the corporation, in such depositories as the board of
directors shall designate, all monies and other valuable effects
of the corporation not otherwise employed; (d) prepare any
financial reports that may be requested from time to time by the
<PAGE 15> board of directors; (e) cooperate in the conduct of any
annual audit of the corporation's financial records by certified
public accountants duly appointed by the board of directors; and
(f) in general perform all the usual duties incident to the
office of treasurer and such other duties as may be assigned to
him or her by the board of directors or the Chief Executive
Officer.
Section 3.13 - Officer Salaries - Unless otherwise provided by
the board of directors of the corporation, the salaries of each
of the officers elected by the board of directors shall be fixed
from time to time by the board of directors and the salaries of
all other officers of the corporation shall be fixed from time to
time by the Chief Executive Officer or such other person as may
be designated from time to time by the Chief Executive Officer or
the board of directors.
No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that the officer is also a
director of the corporation.
ARTICLE IV
SHARE CERTIFICATES AND TRANSFERS
Section 4.01 - Share Certificates - Share certificates shall be
in such form as shall be approved by the board of directors and
shall state: (i) that the corporation is incorporated under the
laws of the Commonwealth of Pennsylvania, (ii) the name of the
person to whom issued, and (iii) the number and class of shares
and the designation of the series, if any, that the share
certificate represents.
The share register or transfer books and blank share certificates
shall be kept by the Secretary or by any transfer agent or
registrar designated by the board of directors for that purpose.
Section 4.02 - Issuance - The share certificates of the
corporation shall be numbered and registered in the share
register or transfer books of the corporation as they are issued.
They shall be signed on behalf of the corporation by the
President or a vice president and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer;
but where a certificate is signed by a transfer agent or a
registrar, the signature of any corporate officer upon the
certificate may be a facsimile, engraved or printed. In case any
officer who has signed, or whose facsimile signature has been
placed upon, any share certificate shall have ceased to be such
officer because of death, resignation or otherwise, before the
certificate is issued, it may be issued with the same effect as
if the officer had not ceased to be such at the date of its
issue. The provisions of this section shall be subject to any
inconsistent or contrary agreement at the time between the
corporation and any transfer agent or registrar.
<PAGE 16>
Section 4.03 - Transfer of Shares - Transfer of shares shall be
made on the books of the corporation upon surrender of the
certificates therefor, endorsed by the person named in the
certificate or by his attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 4.04 - Lost, Destroyed, Mutilated or Stolen
Certificates - If the registered owner of a share certificate
claims that the security has been lost, destroyed, mutilated or
wrongfully taken, another may be issued in lieu thereof in a
manner and upon such terms as the board of directors may
authorize and shall be issued in place of the original security,
in accordance with law, if the owner: (a) so requests before the
corporation has notice that the security has been acquired by a
bona fide purchaser; (b) files with the corporation, if requested
by the corporation, a sufficient indemnity bond; and
(c) satisfies any other reasonable requirements imposed by the
corporation.
ARTICLE V
NOTICE, WAIVERS, AND MEETINGS
Section 5.01 - Manner of Giving Notice - Whenever written notice
is required to be given to any person under the provisions of the
Pennsylvania Business Corporation Law of 1988, as it may
hereafter be amended, or by the articles of incorporation or
these bylaws, it may be given to the person either personally or
by sending a copy of it by first class or express mail, postage
prepaid; or by telegram (with messenger service specified), telex
or TWX (with answerback received) or courier service, charges
prepaid; or by facsimile transmission, to the shareholder's
address (or to shareholder's telex, TWX, or facsimile number)
appearing on the books of the corporation; or, in the case of
directors, supplied by the director to the corporation for the
purpose of notice. Notice sent by mail, by telegraph or by
courier service shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or with
a telegraph office or courier service for delivery to that
person, or in the case of telex or TWX, when dispatched or in the
case of fax, when received except that, in the case of directors,
notice sent by regular mail shall be deemed to have been given 48
hours after being deposited in the United States mail or, in the
case of telex, TWX, or facsimile, when dispatched. In the event
that the corporation shall give notice by mail of any regular or
special meeting of the shareholders (or any other notice required
to be given by the Business Corporation Law of 1988, the articles
of incorporation or these bylaws to be given to all shareholders
or to all holders of a class or series of shares) at least 20
days prior to the day named for the meeting or any corporate or
shareholder action specified in the notice, the corporation may
use any class of prepaid mail.
A notice of meeting shall specify the place, day and hour of the
meeting and any other information required by any other provision
<PAGE 17> of the Business Corporation Law of 1988, the articles
of incorporation or these bylaws.
Section 5.02 - Waiver of Notice - Whenever any written notice is
required to be given by statute or the articles of incorporation
or these bylaws, a waiver of the notice in writing, signed by the
person or persons entitled to the notice, whether before or after
the time stated in it, shall be deemed equivalent to the giving
of the notice. Neither the business to be transacted at, nor the
purpose of, a meeting need be specified in the waiver of notice
of such meeting. Attendance of a person, either in person or by
proxy, at any meeting shall constitute a waiver of notice of the
meeting, except where the person attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting was not
lawfully called or convened.
Section 5.03 - Modification of Proposal - Whenever the language
of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the Business
Corporation Law of 1988, as it may be amended, or the articles
of incorporation or these bylaws, the meeting considering the
resolution may without further notice adopt it with such
clarifying or other amendments as do not enlarge its original
purpose.
Section 5.04 - Use of Conference Telephone and Similar
Equipment - One of more persons may participate in a meeting of
the directors, or of any committee of directors, by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other. Such participation shall constitute presence in person at
the meeting.
ARTICLE VI
INDEMNIFICATION AND INSURANCE
Section 6.01 - Indemnification -
(a) Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or
investigative (including, without limitation, actions
by or in the right of the Corporation), by reason of
the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against
expenses (including attorneys' fees), amounts paid in
settlement, judgments, and fines actually and
reasonably incurred by such person in connection with
<PAGE 18> such action, suit, or proceeding; provided,
however, that no indemnification shall be made in any
case where the act or failure to act giving rise to the
claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness.
(b) Indemnification of Others. The corporation may, at its
discretion, indemnify any person who was or is a party
or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or
investigative (including, without limitation, actions
by or in the right of the corporation), by reason of
the fact that such person is or was an employee or
agent of the Corporation who is not entitled to rights
under Section 6.01(a) hereof, or such person is or was
serving at the request of the Corporation as an
employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against
expenses (including attorneys' fees), amounts paid in
settlement, judgments, and fines actually and
reasonably incurred by such person in connection with
such action, suit, or proceeding; provided, however,
that no indemnification shall be made in any case where
the act or failure to act giving rise to the claim for
indemnification is determined by a court to have
constituted willful misconduct or recklessness.
(c) Advancing Expenses. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action,
suit, or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit,
or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to
repay such amount if it shall be ultimately determined
that he is not entitled to be indemnified by the
corporation as authorized in this Article Six.
(d) Rights Not Exclusive. The indemnification and
advancement of expenses provided by this Article Six
shall not be deemed exclusive of any other right to
which persons seeking indemnification and advancement
of expenses may be entitled under any agreement, vote
of shareholders or disinterested directors, or
otherwise, both as to actions in such persons' official
capacity and as to their actions in another capacity
while holding office, and shall continue as to a person
who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
(e) Insurance; Other Security. The corporation may
purchase and maintain insurance on behalf of any
person, may enter into contracts of indemnification
with any person, may create a fund of any nature (which
<PAGE 19> may, but need not be, under the control of a
trustee) for the benefit of any person, and may
otherwise secure in any manner its obligations with
respect to indemnification and advancement of expenses,
whether arising under this Article Six or otherwise, to
or for the benefit of any person, whether or not the
corporation would have the power to indemnify such
person against such liability under the provisions of
this Article Six.
Section 6.02 - Contract Rights; Amendment or Repeal - All rights
under this Article Six shall be deemed a contract between the
corporation and the indemnified representative pursuant to which
the corporation and each indemnified representative intend to be
legally bound. The provisions of this Article Six shall be
repealed, modified or amended only in accordance with the
articles of incorporation of the corporation, and any repeal,
amendment or modification hereof shall be prospective only and
shall not affect any rights or obligations then existing.
Section 6.03 - Reliance on Provisions - Each person who shall act
as an indemnified representative of the corporation shall be
deemed to be doing so in reliance upon the rights provided by
this Article Six.
Section 6.04 - Interpretation - The provisions of this Article
are intended to constitute bylaws authorized by 15 Pa. C.S.
Section 1746.
ARTICLE VII
MISCELLANEOUS
Section 7.01 - Registered Office - The registered office of the
corporation is located at 213 West Street Road, Feasterville,
Bucks County, Pennsylvania 19053. The address of the registered
office may be changed from time to time by the board of directors
of the corporation.
Section 7.02 - Other Offices - The corporation may have
additional offices and business in such other places, within or
without the Commonwealth of Pennsylvania, as the board of
directors of the corporation may designate or as the business of
the corporation may require.
Section 7.03 - Corporate Seal - The corporation may have a
corporate seal, which shall have inscribed on it the name of the
corporation, the year of organization, and the words "Corporate
Seal, Pennsylvania" or such inscription as the board of directors
of the corporation may determine. The seal may be used by
causing it or a facsimile of it to be impressed or affixed, or in
any manner reproduced.
Section 7.04 - Fiscal Year - The fiscal year of the corporation
shall be the calendar year. <PAGE 20>
Section 7.05 - Checks - All checks, notes, bills of exchange or
other orders in writing shall be signed by such person or persons
as the board of directors or, any person authorized by resolution
of the board of directors may from time to time designate.
Section 7.06 - Contracts - Except as otherwise provided in the
Business Corporation Law of 1988, as it may be amended, in the
case of transactions that require action by the shareholders, the
board of directors may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on
behalf of the corporation, and such authority may be general or
confined to specific instances.
Any note, mortgage, evidence of indebtedness, contract or other
document, or any assignment or endorsement thereof, executed or
entered into between the corporation and any other person, when
signed by one or more officers or agents having actual or
apparent authority to sign it, or by the Chief Executive Officer,
the President or a vice president and the Secretary or Assistant
Secretary or Treasurer or Assistant Treasurer of the corporation,
shall be held to have been properly executed for and on behalf of
the corporation, without prejudice to the rights of the
corporation against any person who shall have executed the
instrument in excess of his or her actual authority.
Section 7.07 - Amendment of Bylaws - These bylaws may be amended,
altered, changed or repealed as provided in the articles of
incorporation. Any change in the bylaws shall take effect when
adopted unless otherwise provided in the resolution effecting the
change.
Section 7.08 - Severability - If any provision of these bylaws or
the application thereof to any person or circumstance shall be
invalid or unenforceable to any extent, the remainder of these
bylaws and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be deemed
to be applicable to the greatest extent permitted by law.
<PAGE 21>
EXHIBIT 5.1
June 8, 1999
Board of Directors
JADE Financial Corp.
213 West Street Road
Feasterville, Pennsylvania 19053
Re: Registration Statement on Form S-4
JADE FINANCIAL CORP.
Ladies and Gentlemen:
In connection with the proposed offering of up to 1,981,549
shares of common stock, par value $.01 per share (the "Common
Stock"), by JADE FINANCIAL CORP. (the "Company"), covered by the
Company's Registration Statement on Form SB-2 (the "Registration
Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, with respect to
such Common Stock, we, as special counsel to the Company, have
reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) resolutions adopted by the Board of Directors of the
Company relating to the Registration Statement, certified by the
Secretary of the Company;
(4) a subsistence certificate with respect to the Company
issued by the Pennsylvania Department of State;
(5) the Registration Statement; and
(6) copies of the certificates representing shares of the
Common Stock.
Based upon our review of the foregoing, it is our opinion
that:
(a) the Company has been duly incorporated under the laws
of the Commonwealth of Pennsylvania and is validly existing and
in good standing under the laws of such Commonwealth; and
<PAGE 1>
(b) the Common Stock covered by the Registration Statement
has been duly authorized and, when issued pursuant to the terms
described in the Registration Statement, will be legally issued
by the Company and fully paid and nonassessable.
We 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" in the related Prospectus. In
giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stevens & Lee <PAGE 2>
Exhibit 8.1
June 9, 1999
Board of Directors
IGA Federal Savings
213 West Street Road
Feasterville, Pennsylvania 19053
Board of Directors
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
Re: IGA Federal Savings
Plan of Conversion
Gentlemen:
You have requested our opinion as to certain federal income
tax consequences of the transactions contemplated by the Plan of
Conversion adopted by the Board of Directors of IGA Federal
Savings (the "Bank") on May 26, 1998, as thereafter rescinded,
restated and adopted by the Bank on May 26, 1999 (the "Plan"),
pursuant to which: (i) the Bank caused JADE FINANCIAL CORP.
("JADE") to be incorporated as a Pennsylvania-chartered
corporation, and the Board of Directors of JADE adopted the Plan;
and (ii) upon consummation of the transactions contemplated by
the Plan, (A) the Bank will adopt a new charter in stock form
(the "Conversion"), and thereby convert from a federally-
chartered mutual savings institution to a federally-chartered
stock savings institution (the "Stock Bank"), (B) JADE will offer
and sell shares of its common stock (the "Conversion Stock") to
certain participants in a subscription offering and, possibly, to
members of the public in a community offering or public offering,
and (C) JADE will use the proceeds of the sales of the Conversion
Stock to purchase and acquire all of the capital stock of the
Stock Bank, so that the Stock Bank will become a wholly-owned
subsidiary of JADE.
You have requested our opinion pursuant to Section 23 of the
Plan. Except as otherwise expressly provided herein, when begun
with a capital letter, terms which are used in this opinion or in
Exhibit "A" to this opinion, and which are defined in the Plan,
shall have the meanings given to such terms in the Plan.
<PAGE 1>
In connection with our opinion, we have examined and are
familiar with originals or copies, certified or otherwise
identified to our satisfaction, of the Plan and all exhibits
thereto, the articles of incorporation or charter and bylaws of
the Bank, the Stock Bank and JADE, the Registration Statement on
Form SB-2 filed by JADE with the Securities and Exchange
Commission in connection with the offering of Conversion Stock,
the officer's certificates, dated the date hereof, delivered to
us by the Bank and JADE, and such other documents as we have
deemed necessary or appropriate for the opinions set forth below.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the
authenticity of all such documents. As to any facts material to
the opinions set forth below, we have relied upon the foregoing
documents and instruments, the assumptions set forth in
Exhibit "A" hereto, and upon statements and representations of
officers and other representatives of the Bank and JADE,
including certain written representations of the management of
the Bank and JADE annexed hereto. The opinions set forth below
are conditioned on the initial and continuing accuracy of the
facts, information, assumptions and representations contained in
the aforesaid documents and instruments or otherwise referred to
above.
In preparing our opinion, we have considered applicable
provisions of the Code, the Treasury regulations now in effect or
proposed under the Code, current interpretive rulings and
practice of the Internal Revenue Service, judicial authority and
such other authorities as we have deemed relevant, all of which
are subject to change, which change may be made with retroactive
effect.
Based solely upon the foregoing and upon the assumptions set
forth or referred to herein, and subject to the qualifications
and caveats set forth herein, we are of the opinion that, under
present law, for federal income tax purposes:
1. The Bank's adoption of a charter in stock form, known
as the Conversion, will qualify as a tax-free reorganization
under Section 368(a)(1)(F) of the Code;
2. No gain or loss will be recognized by the Bank solely
as a result of the Conversion;
3. No gain or loss will be recognized by the Bank's
account holders upon the issuance to them of accounts in the
Stock Bank immediately after the Conversion, in the same dollar
<PAGE 2> amounts and on the same terms and conditions as their
accounts in the Bank immediately prior to the Conversion;
4. The initial tax basis of each account holder's interest
in the liquidation account in the Stock Bank will be equal to the
value, if any, of such interest on the date and at the time of
the Conversion;
5. The initial tax basis of the Conversion Stock purchased
in the Offerings will be equal to the amount paid therefor;
increased, in the case of Conversion Stock purchased pursuant to
the exercise of subscription rights, by the fair market value, if
any, of such subscription rights;
6. The holding period of the Conversion Stock purchased
pursuant to the exercise of subscription rights will commence
upon the exercise of such holder's subscription rights and, in
all other cases, the holding period of purchased Conversion Stock
will commence on the date following the date of such purchase;
and
7. Account holders will recognize gain upon the receipt of
(a) an interest in the liquidation account in the Stock Bank, and
(b) subscription rights in the Subscription Offering, to the
extent such holder's interest in the liquidation account to be
established by the Stock Bank and subscription rights are deemed
to have value.
Notwithstanding the opinions set forth hereinabove, we call
to your attention that the federal income tax consequences of the
receipt, exercise and lapse of subscription rights are uncertain,
and that the Internal Revenue Service has issued private letter
rulings in transactions that are similar to the Conversion and
the Offerings, which rulings may not be used or cited as
precedent, in which the Internal Revenue Service has taken
positions concerning the tax effects of the receipt, exercise and
lapse of subscription rights that appear to be inconsistent or in
conflict. Nevertheless, based upon the Code and the Treasury
regulations, in the absence of persuasive or controlling
authority, we believe that: (a) account holders should recognize
gain on the receipt of subscription rights, to the extent such
rights are deemed to have value; (b) such gain, if any, should be
capital gain if or to the extent such rights were a capital asset
in the hands of the account holder; (c) account holders should be
allowed to recognize a loss upon and with respect to the lapse of
unexercised subscription rights; and (d) while the issue is not
free from doubt, such loss should be a capital loss if or to the
extent such rights were a capital asset in the hands of the
account holder. It is also possible that the Internal Revenue
<PAGE 3> Service could assert, and the courts could agree, that
the Bank or the Stock Bank should be (y) treated as distributing
the subscription rights to participants in the Subscription
Offering, and (z) required to recognize gain on the distribution
of such rights to the extent, if any, such rights are deemed to
have value.
We call to your attention the fact that certain portions of
this opinion relating to the federal income tax consequences to
certain participants in the Subscription Offering may not be
applicable to persons who receive subscription rights as
compensation or to foreign persons or persons who, because of
their circumstances or status, are subject to special federal
income tax treatment. Moreover, the opinions expressed herein
are conditioned on our assumption that neither the facts and
assumptions relating to the Plan and the transactions
contemplated by the Plan, nor the applicable federal law, will
change between the date hereof and the consummation of such
transactions.
Except as set forth above, we express no other opinion as to
the tax consequences of the Plan or the transactions thereunder,
or to any person under federal, state, local or foreign laws.
We 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" in the related Prospectus. In
giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
<PAGE 4>
Exhibit "A" to Opinion of Counsel
ASSUMPTIONS
1. Neither the Stock Bank nor JADE has any plan or
intention to redeem or otherwise reacquire the stock to be issued
by either of them in the proposed transactions. Neither the
Conversion Stock nor the stock of the Stock Bank will be callable
or subject to a put option.
2. Immediately following consummation of the proposed
transactions, the Stock Bank will possess the same assets and
liabilities as were hold by the Bank immediately before the
transactions, except for those assets used to pay expenses
incurred in connection with the Conversion plus the capital
contributed by JADE. Assets used to pay expenses of the
Conversion (without reference to the expenses, if any, incurred
with respect to the distribution by JADE of the subscription
rights and the Community Offering) and all distributions (except
for regular, normal interest payments made by the Bank
immediately preceding the Conversion) will, in the aggregate,
constitute less than 1% of the net assets of the Bank, and any
such expenses and distributions paid by the Stock Bank will be
paid from the proceeds of the sale of shares of the Stock Bank to
JADE.
3. The Stock Bank has no plan or intention to sell or
otherwise dispose of any of its assets after the Conversion other
than in the ordinary course of its business. Following the
Conversion, the Stock Bank will continue the primary historic
business conducted by the Bank prior to the Conversion.
4. The Bank is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
5. Conversion Stock purchased pursuant to the Subscription
Offering by Participants who are employees or independent
contractors of the Bank, where the purchase is made in the
Participant's status as an Eligible Account Holder or (if
applicable) Supplemental Eligible Account Holder or Other Member,
will not be issued at a discount from the price paid by any other
Participant or as compensation. Any compensation to be paid to
such employees (including the stock options, stock bonus awards
and payments under employment arrangements) will be for services
actually rendered and will be commensurate with the compensation
that would be paid to third parties bargaining at arm's length
for similar services.
6. The aggregate fair market value of the "Qualifying
Deposits" (as defined in Section 2.34 in the Plan of Conversion)
<PAGE 5> held by Eligible Account Holders and (if applicable)
Supplemental Eligible Account Holders as of the close of business
on the Eligibility Record Date and (if applicable) the
Supplemental Eligibility Record Date will equal or exceed 99% of
the aggregate fair market value of all savings accounts
(including those accounts of less than $50) in the Bank as of the
close of business on such dates.
7. No cash or property will be given to Eligible
Account Holders and (if applicable) Supplemental Eligible Account
Holders or others in lieu of (a) subscription rights or (b) an
interest in the liquidation account established by the Stock
Bank.
8. At the time of the proposed transactions, the fair
market value of the assets of the Bank on a going concern basis
will exceed the sum of the Bank's liabilities plus the amount of
liabilities to which such assets are subject.
9. The liabilities of the Bank assumed by the Stock
Bank plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Bank in the ordinary
course of its business and are associated with the assets
transferred. There is no intercorporate indebtedness existing
between JADE and the Bank which was issued, acquired or will be
settled at a discount.
10. There is no plan or intention for the Stock Bank
to be liquidated or merged with another corporation following the
proposed transaction. JADE has no plan or intention to dispose
of any of the stock of the Stock Bank to be acquired pursuant to
the proposed transactions.
11. The Bank's Eligible Account Holders and (if
applicable) Supplemental Eligible Account Holders will pay the
expenses of the transaction solely attributable to them, if any.
The Bank (or the Stock Bank) and JADE will each pay its own
expenses of the transaction.
12. The Eligible Account Holders' and (if applicable)
the Supplemental Eligible Account Holders' proprietary interest
in the Bank arises solely by virtue of the fact that they are
account holders in the Bank.
13. The fair market value of the Stock Bank's savings
accounts and the interests in the liquidation account of Eligible
Account Holders and (if applicable) Supplemental Eligible Account
Holders after the Conversion will, in each instance, be equal to
the fair market value of the Bank's savings accounts and the
interests in the net worth of the Bank of each such Eligible
Account Holder and (if applicable) each such Supplemental
Eligible Account Holder prior to the Conversion. <PAGE 6>
14. JADE will receive pursuant to the Plan shares of
the Stock Bank and will own 100% of the outstanding stock of the
Stock Bank. The Stock Bank has no plan or intention to issue
additional shares of its stock following the transaction.
15. The Bank currently utilizes the specific charge
off method for bad debts and, following the Conversion, the Stock
Bank will continue to utilize the specific charge off method for
bad debts.
16. Neither JADE nor the Bank is an investment company
as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
17. JADE is not an investment company as described in
Section 1.351-1(c) of the income Tax Regulations of the Code.
18. The transactions contemplated by the Plan do not
involve a receivership, foreclosure or similar proceeding before
a federal or state agency involving a financial institution
referred to in Sections 581 or 591 of the Code, or to which
Sections 585 or 593 of the Code apply.
19. The Bank, the Stock Bank and JADE are corporations
within the meaning of Section 7701(a)(3) of the Code. <PAGE 7>
June 8, 1999
Board of Directors
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
Re: Contribution of JADE FINANCIAL CORP. Stock to the IGA
Charitable Foundation
Gentlemen:
You have requested our opinion as to certain federal income
tax consequences of the proposed charitable contribution by JADE
FINANCIAL CORP. ("JADE") of cash and shares of the common stock
of JADE (the "Stock Gift" and, together with the cash, the "Total
Foundation Gift") to a private foundation to be organized by IGA
Federal Savings ("IGA") and JADE under Pennsylvania law (the
"Foundation"). We understand that JADE is a Pennsylvania
corporation formed for the purpose of becoming a holding company
for IGA in connection with the conversion of IGA from mutual to
stock form.
In providing this opinion, we have reviewed and relied upon:
(a) the facts, representations and assumptions
summarized below; and
(b) the Plan of Conversion of IGA adopted by IGA's
Board of Directors on May 26, 1999 (the "Plan").
Facts
Pursuant to the Plan, JADE will contribute to the
Foundation, as a charitable contribution, cash and shares of the
common stock of JADE having an aggregate value up to, but not in
excess of, 5% of the total value of the shares of the common
stock of JADE sold in the offerings under the Plan (the
"Offerings"). It is our understanding, and we have assumed, that
the percentage of JADE common stock that will be owned by the
Foundation immediately after the stock gift will be less than
3.5% of the voting common stock of JADE that will be issued and
outstanding immediately after the Offerings contemplated in the
Plan, that there will be no other classes of the stock of JADE
then issued or outstanding, and that the Foundation will be
organized and classified as a private foundation under
Section 509 of the Internal Revenue Code of 1986, as amended (the
"Code").
<PAGE 1>
For purposes of characterizing the Total Foundation Gift as
a charitable contribution, and not as a cost of the transactions
contemplated by the Plan, you have represented to us, and we have
assumed, that the Total Foundation Gift will be a voluntary
contribution by JADE that: (a) is not (i) induced or required by
any governmental or regulatory agency or authority that has
jurisdiction over JADE, IGA or the transactions contemplated by
the Plan, or (ii) a cost JADE or IGA will incur to obtain
approval or achieve consummation of the transactions contemplated
by the Plan; but, instead, (b) is motivated, solely and
exclusively, to (iii) complement IGA's existing community
activities, and (iv) provide funding to support the charitable
purposes of JADE and IGA -- including, by way of example,
community development grants, affordable housing activities,
nonprofit community groups and other charitable purposes within
and beyond the communities now served by IGA; and (c) will be
made within 12 months following completion of the conversion and
the Offerings contemplated by the Plan, provided the members of
IGA approve the proposed contribution separately and
independently of their approval of the Plan.
Issues
1. Is the Total Foundation Gift deductible by JADE for
federal income tax purposes and, if so, are there
limits on the amount potentially allowable as a
deduction in any taxable year?
2. If the Stock Gift is deductible by JADE for federal
income tax purposes, will the amount of the Stock Gift
be determined by the fair market value of the stock at
the time of the contribution?
Law and Analysis
A. Allowance of Deduction.
Pursuant to Code Section 170, JADE will be allowed to
deduct, as a charitable contribution, an amount equal to the sum
of the cash and the fair market value of the Stock Gift, which
together comprise the Total Foundation Gift, subject to (a) the
limitations based upon JADE's taxable income, computed as
adjusted and otherwise provided in Section 170(b)(2) of the Code
for the taxable year of the contribution and, to the extent
applicable, each of the five (5) succeeding years, and (b) the
limitations on excess carryovers provided in Section 170(d)(2) of
the Code. If, as expected, JADE is the parent of a consolidated
group and elects to report the income and deductions of the
members of the group on a consolidated federal income tax return,
<PAGE 2> the deduction for the charitable contribution of the
Total Foundation Gift will be determined on a consolidated basis,
pursuant to Treasury regulations Section 1.1502-24.
Code Section 170 provides the general rules for, and the
general limitations on, the deduction of charitable
contributions. Under Code Section 170(a), the fair market value
of property (other than money) contributed to charity is the
starting point from which the deductible amount attributable to
such property is determined after the application of various
limitations. In general, "fair market value" is the price at
which the property would change hands between a willing buyer and
a willing seller, neither being under any compulsion to buy or
sell and both having reasonable knowledge of the relevant facts.
The Treasury regulations provide that if a contribution is made
in property of the type which the taxpayer sells in the course of
its business, the fair market value is the price the taxpayer
would have received had the taxpayer sold the property in the
usual market in which the taxpayer customarily sells at the time
and place of the contribution, and in the case of goods in
quantity, in the quantity contributed. While the Stock Gift may
not be a contribution of property of the type "which the taxpayer
sells in the course of its business," as contemplated by the
Treasury regulations, it is possible that the Internal Revenue
Service will assert, and in the event of litigation that the
courts will agree, that the fair market value of the Stock Gift
should be determined as if the shares were sold as a block.
Under Code Section 170(e)(1), the amount of a charitable
contribution of property (other than money) otherwise deductible
is reduced by (a) the amount of gain which would not have been
long term capital gain if the property contributed had been sold
by the taxpayer at its fair market value determined at the time
of the contribution (the "Section 170(e)(1)(A) Rule"), and
(b) the amount of gain which would have been long term capital
gain if the property contributed had been sold by the taxpayer at
its fair market value determined at the time of the contribution
(the "Section 170(e)(1)(B) Rule"). The Section 170(e)(1)(B) Rule
applies only in the case of a charitable contribution to a
private foundation of the kind or class which includes the
Foundation.
After the taxpayer has determined the amount of its
charitable contribution pursuant to the principles described
above, the taxpayer determines the amount of the charitable
contribution that will be allowable as a deduction for the year
of the contribution and, if applicable, each of the five (5)
succeeding taxable years, by applying the limitations set forth
in Code Section 170(b)(2) and, if the taxpayer is a member of a
<PAGE 3> consolidated group that files consolidated returns for
such taxable years, by applying the limitations set forth in
Treasury regulation Section 1.1502-24.
Under Code Section 170(b)(2), a corporation's total
deductions for charitable contributions for any taxable year
shall not exceed ". . . 10 percent of the taxpayer's taxable
income computed without regard to -- (A) this section [meaning
Code Section 170], (B) part VIII (except Section 248) [meaning
the special deductions for corporations in Sections 241 through
247 and 249], (C) any net operating loss carryback to the taxable
year under Section 172, and (D) any capital loss carryback to the
taxable year under Section 1212(a)(1)" (hereinafter the "10%
Limitation").
If, as expected, JADE is a member of a consolidated group
that files a consolidated return for each taxable year for which
JADE is allowed to claim a charitable deduction with respect to
the Total Foundation Gift, the limitations under Treasury
Regulation Section 1.1502-24 will apply, and the consolidated
charitable contribution deduction for a taxable year will be the
lesser of (a) the aggregate of the allowable charitable
contributions deductions of the members of the group (determined
without regard to the 10% Limitation), plus any consolidated
charitable contribution carryover to such year, and (b) 10% of
the group's adjusted consolidated taxable income for such year,
which, for this purpose, is the group's consolidated taxable
income computed without regard to: (i) the consolidated
charitable contributions deduction; (ii) the consolidated
dividends-received deduction; (iii) the 100% dividends-received
deduction; (iv) the consolidated Code Section 247 deduction
(concerning dividends on preferred stock of public utilities);
and (v) the consolidated net operating loss or net capital loss
carrybacks to such year.
If JADE or the consolidated group of which it is a member is
unable to deduct the amount of the charitable contribution
attributable to the Total Foundation Gift in the year of the
contribution (the "Contribution Year"), JADE or the consolidated
group of which it is a member, as the case may be, will be
allowed to carryover the amount not deductible for the
Contribution Year to each of the five (5) succeeding taxable
years, in order of time, but the amount allowable as a deduction
in each such succeeding year will be subject to the limitations
set forth in Code Section 170(d)(2) and, if JADE is a member of a
consolidated group that files consolidated returns for such
years, the amount allowable as a deduction in each such
succeeding year will be subject to the limitations under Treasury
regulation Section 1.1502-24. <PAGE 4>
If JADE or the consolidated group of which it is a member is
subject to the alternative minimum tax on corporations, JADE or
the group, as the case may be, may be required to make
adjustments to its deduction for charitable contributions in
computing its alternative minimum tax or alternative minimum tax
credits.
B. Amount of the Stock Gift; The Section 170(e) Rules.
(1) The Section 170(e)(1)(A) Rule. Under Code
Section 170(e)(1)(A), the amount of a charitable contribution of
property (other than money) otherwise deductible is reduced by
the amount of gain which would not have been long term capital
gain if the property contributed had been sold by the taxpayer at
its fair market value determined at the time of its contribution.
While the issue is not entirely free from doubt, pursuant to the
reasoning set forth in Revenue Ruling 75-348, we believe that the
amount of the charitable contribution attributable to the Stock
Gift should be the fair market value on the date of the gift of
the stock comprising the gift, determined as described above,
without reduction for any amount under the Section 170(e)(1)(A)
Rule.
In Revenue Ruling 75-348, the Internal Revenue Service
held that a corporation that pledges to sell shares of its common
stock at a specified price to an educational organization is
entitled to a charitable contribution deduction, in the taxable
year the pledge is exercised, for the excess of the fair market
value of the shares over the exercise price. The Internal
Revenue Service concluded that the reduction provisions in Code
Section 170(e) were not applicable to the corporation's
charitable contribution that arose under the pledge agreement in
Revenue Ruling 75-348, because: (a) the reduction rules of Code
Section 170(e) apply if the property contributed would have
produced a "recognized gain" had the property been sold at its
fair market value at the time of the contribution; and (b) Code
Section 1032 provides that no gain or loss shall be recognized to
a corporation on the receipt of money or other property in
exchange for its stock.
While the facts of the transaction addressed by the
Internal Revenue Service in Revenue Ruling 75-348 are
distinguishable from the Stock Gift contemplated by JADE, we
believe that the nonrecognition provisions of Code Section 1032
avoid any reduction in the amount of the Stock Gift under Code
Section 170(e)(1)(A).
(2) The Section 170(e)(1)(B) Rule. Under Code
Section 170(e)(1)(B)(ii), in the case of a charitable <PAGE 5>
contribution to a private foundation, the amount of a charitable
contribution of property (other than money) otherwise deductible
is reduced by the amount of gain which would have been long term
capital gain if the property contributed had been sold by the
taxpayer at its fair market value determined at the time of the
contribution. While the issue is not entirely free from doubt,
pursuant to the reasoning set forth in Revenue Ruling 75-348,
described above, we believe that the amount of the charitable
contribution attributable to the Stock Gift should be the fair
market value on the date of the gift of the stock comprising the
gift, determined as described above, without reduction for any
amount under the Section 170(e)(1)(B) Rule.
_____________________________________
We call to your attention that in 1992, in the case known as
Indopco v. Commissioner, 92-1 USTC Para. 50,113 (S. Ct. 1992),
the United States Supreme Court held that certain costs incurred
to facilitate a capital transaction must be capitalized (the
"Indopco Rule"), and that the scope of the Court's opinion and
the Indopco Rule are neither clear nor well defined under
existing law. Accordingly, it is possible that the Internal
Revenue Service could assert, and in the event of litigation the
courts could agree, that the Total Foundation Gift should be
classified as a cost incurred to facilitate the transactions
contemplated by the Plan that must be capitalized and may not be
deducted under Code Section 170.
Except as set forth above, we express no other opinion as to
the tax consequences of the Total Foundation Gift or the Stock
Gift, or to any entity or person under federal, state, local or
foreign laws. In preparing our opinion, we have considered and
relied solely upon the facts and assumptions summarized above,
our understanding that the transactions contemplated by the Plan
will be consummated in accordance with the Plan, applicable
provisions of the Code, the Treasury regulations now in effect or
proposed under the Code, current interpretive rulings and
practice of the Internal Revenue Service and such other
authorities as we have deemed relevant, all of which are subject
to change, which change may be made with retroactive effect.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
hearing "LEGAL AND TAX OPINIONS" in the related Prospectus. In
giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7
<PAGE 6> of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
STEVENS & LEE
/s/ Stevens & Lee <PAGE 7>
Exhibit 8.4
June 7, 1999
Board of Directors
IGA Federal Savings Bank
213 West Street Road
Feasterville, Pennsylvania 19053
Re: Plan of Conversion: Subscription Rights
IGA 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 IGA Federal Savings Bank
("IGA 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 Jade
Financial Corporation (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) Tax-Qualified Employee Plans;
(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 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
<PAGE 1> 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. <PAGE 2>
Exhibit 10.1
JADE FINANCIAL CORP
Management Recognition
Plan and Trust Agreement
SUMMARY
I. PLAN PURPOSE
The Jade Financial Corp. Management Recognition Plan (the
"Plan") is adopted by Jade Financial Corp. (the "Company"). The
purpose of the Plan is to retain employees of the Company with
experience and ability in key positions by providing them with a
proprietary interest in the Company through grants of shares of
common stock, no par value (the "Common stock"), of the Company.
Awards of Common Stock will be made in recognition of service to
the Company and its subsidiaries and affiliates and as
encouragement to continue such contributions in the future.
II. PLAN SHARE AWARDS
A. Aggregate Number: The total number of Plan Shares that
may be issued pursuant to the Plan will be equal to the number of
shares of Common Stock that are purchased by the Trust, not to
exceed 4% of the shares of Common Stock issued by the Company in
connection with the conversion of a Federal mutual savings bank
(mutual form) to a federal stock savings bank (stock form). The
Trust will acquire Common Stock with funds contributed to it by
the Company.
B. Individual Awards: All directors and executive
officers of the Company and the Insurance Companies are eligible
to receive awards. The Board of Directors of the Company will
determine which eligible persons will be granted Plan Share
Awards and the number of shares covered by each Plan Share Award.
Such determinations will be based upon the position and
responsibilities of the eligible person, the value of their
services, and any other fact the Compensation Committee deems
relevant.
Plan Share Awards will not be made until the Company's
shareholders have approved the Plan.
C. Conditions Upon Earning of Plan Shares Subject to
Awards: Plan Shares covered by Plan Share Awards are earned
(i.e., become vested) at the rate determined by the Compensation
Committee and as provided herein.
Awards are nontransferable and nonassignable. <PAGE MRP-1>
Recipients of Plan Share Awards may direct the voting of all
vested shares of Plan Shares. Recipients of Plan Share Awards
will receive dividends paid on all Plan Shares subject to such
Plan Share Awards from the date such Plan Shares Awards are
granted.
D. Distribution of Earned Plan Shares: Earned Plan Shares
are distributed to recipients as soon as practicable following
the date on which they are earned. The Plan Trustee may withhold
cash distributions as needed for tax purposes and, if necessary,
can require distributees to provide funds required to satisfy tax
obligations as a condition to distributing Plan Shares.
E. Forfeitures: Plan Shares forfeited in accordance with
Sections 7.01(b) or 7.01(c) will be returned to the pool of Plan
Shares with respect to which additional Plan Share Awards may be
granted.
III. Plan Administration
A. Plan Administration: The Plan will be administered by
the Compensation Committee of the Company's Board of Directors
and a Plan Trustee appointed by the Board. The Board may
designate as Plan Trustee one or more persons or an entity,
subject to replacement by the Board at any time. Expenses of
administering the Plan and the Trust will be borne by the
Company. The Company shall indemnify the Plan Trustee and Board
members as to activities with respect to the Plan.
B. ERISA: The Plan is not "qualified" within the meaning
of the Internal Revenue Code, and is not subject to ERISA's
requirements and restrictions.
C. Duration: The Plan will become effective upon
execution and will continue until the earliest of (1) 21 years
from such Effective Date, (2) the time at which the Board
terminates the Plan, or (3) the time at which all of the Trust
assets have been expended. The Board may amend or terminate the
Plan at any time.
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 The Company hereby establishes the Jade Financial
Corp. Management Recognition Plan (the "Plan") and Trust upon the
terms and conditions hereinafter stated in this Agreement.
1.02 ________________________ is hereby appointed as
Trustee of the trust and hereby accepts this Trust and agrees to
hold legal title to the Trust assets existing on the date of this
Agreement and all additions and accretions thereto on the terms
and conditions hereinafter stated.
<PAGE MRP-2>
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain personnel of
experience and ability in key positions by providing such key
employees with a proprietary interest in the Company in
consideration for, and in recognition of, their contributions to
the Company, its subsidiaries and its affiliates and as an
incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement
with an initial capital letter, unless the context clearly
indicates otherwise, shall have the meanings set forth below.
Wherever appropriate, the masculine pronoun shall include the
feminine pronoun and the singular shall include the plural. All
terms used herein and not defined shall have the meanings given
such terms in the Joint Plan of Conversion.
3.01 "Agreement" means this Management Recognition Plan and
Trust Agreement between the Company and the Plan Trustee.
3.02 "Beneficiary" means the person or persons designated
by a Recipient to receive any benefits payable under the Plan in
the event of such Recipient's death. Such person or persons
shall be designated in writing on forms provided for this purpose
by the Board and may be changed from time to time by similar
written notice to the Board. In the absence of a written
designation, the Beneficiary shall be the recipient's surviving
spouse, if any, or if none, his estate.
3.03 "Board" means, for purposes of administering the Plan,
the Board of Directors of the Company.
3.04 "Cause" means:
(i) willful violation of any law, rule or
regulation (other than traffic violations or similar
offenses that would not in the Board's good faith reasonable
determination effect the ability to perform and discharge
one's duties to the Company or a subsidiary);
(ii) breach of fiduciary duty involving personal
profit or an act of personal dishonesty in connection with
the performance of one's duties; or
(iii) willful failure to follow the lawful
instructions of the Board of Directors after receipt of
written notice of such instructions, other than a failure
resulting from the incapacity because of physical or mental
illness. <PAGE MRP-3>
3.05 "Common Stock" means shares of the Company's common
stock, $.01 par value.
3.06 "Company" means Jade Financial Corp.
3.07 "Disability" means any physical or mental impairment
which qualifies an employee for disability benefits under the
applicable long-term disability plan maintained by the Company,
or a subsidiary, or, if no such plan applies to the employee,
which would qualify such employee for disability benefits under
the long-term disability plan maintained by the Company, if such
employee were covered by that Plan.
3.08 "Effective Date" means July 1, 2000.
3.09 "Eligible Person" means any director or executive
officer of the Company or any successor thereto.
3.10 "Joint Plan of Conversion" means the Joint Plan of
Conversion adopted on ________________ by the Company and the
Insurance Companies, as amended and restated as of
_________________.
3.11 "Plan Shares" means shares of Common Stock held in the
Trust and issued or issuable to a Recipient pursuant to the Plan.
3.12 "Plan Share Award" means a right granted under this
Agreement to earn Plan Shares.
3.13 "Plan Share Reserve" means the shares of Common Stock
held by the Trustee as determined pursuant to Sections 5.03 and
5.04.
3.14 "Plan Trustee" means _____________________________
and/or any other person(s) or entity nominated and approved by
the Board pursuant to Section 4.01 and 4.02 to hold legal title
to the Plan assets for the purposes set forth herein.
3.15 "Recipient" means an Eligible Person who receives a
Plan Share Award under the Plan.
3.16 "Retirement" means a termination of employment which
constitutes a "retirement" under any applicable qualified pension
benefit plan maintained by the Company or any subsidiary which
employs the Recipient, or, if no such Plan is maintained,
pursuant to the retirement policy of the Company.
3.17 "Trust" means the trust established pursuant to this
Agreement.
<PAGE MRP-4>
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role and Powers of the Board. The Plan shall be
administered and interpreted by the Compensation Committee of the
Board. The interpretation and construction by the Compensation
Committee of any provisions of this Agreement or of any Plan
Share Award granted hereunder shall be final and binding.
Subject to the express provisions and limitations of this
Agreement, the Compensation Committee may adopt such rules,
regulations and procedures as it deems appropriate for the Plan's
affairs. The Board shall appoint one or more persons (excluding
Eligible Persons) or an entity to act as Plan Trustee in
accordance with this Agreement and the terms of Article VIII
hereof. The Board may reverse or override any action taken or
decision made with respect to the Plan, provided, however, except
as provided in Sections 7.01(b) or 7.01(c) hereof, that the Board
may not revoke any Plan Share Award already made.
4.02 Limitation on Liability. Neither any member of the
Board nor any Plan Trustee shall be liable for any determination
made in good faith with respect to the Plan or any Plan Shares or
Plan Share Awards granted under the Plan. If a member of the
Board or any Plan Trustee 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, by reason of anything done or not done by him in
such capacity under or with respect to the Plan, the Company
shall indemnify such member or Plan Trustee against expenses
(including, but not limited to, attorneys' fees and
disbursements), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding if 1) he acted in good faith and in a
manner he reasonably believed to be in the best interests of the
Company (in the case of a member of the Board) or in the best
interests of the beneficiaries of the Trust (in the case of the
Plan Trustee), and 2) with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was
unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board shall
determine the amounts (or the method of computing the amounts) to
be contributed by the Company to the Trust. Such amounts shall
be paid to the Plan Trustee at the time of contribution. No
contributions by Eligible Persons shall be permitted.
5.02 Initial Investment. Any amounts held by the Trust
prior to the purchase of Common Stock shall be invested by the
Plan Trustee in such interest-bearing account or accounts as the
Plan Trustee shall determine to be appropriate. <PAGE MRP-5>
5.03 Investment of Trust Assets; Conversion; Creation of
Plan Share Reserve. Except as otherwise permitted under this
Agreement, the Plan Trustee shall invest all of the Trust's
assets exclusively in Common Stock of the Company. The Common
Stock initially acquired by the Trust, together with any shares
thereafter acquired by the Trust, shall constitute the "Plan
Share Reserve." Any cash earnings received with respect to
Common Stock held in the Trust subject to the Plan Share Awards
shall be distributed to the individual Recipient.
5.04 Effect of Allocations, Returns and Forfeitures Upon
Plan Share Reserves. Upon the allocation of Plan Share Awards
under Section 6.02, the Plan Share Reserve shall be reduced by
the number of Plan Shares subject to the Plan Share Awards so
allocated. Any Plan Shares subject to a Plan Share Award which
may no longer be earned because of a forfeiture by the Recipient
pursuant to Sections 7.01(b) or 7.01(c) shall be added to the
Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Allocations. The Compensation Committee will
determine which Eligible Persons will be granted Plan Share
Awards and the number of Plan Shares covered by each Plan Share
Award, provided, however, that the number of Plan Shares covered
by such Plan Share Awards may not exceed the number of Plan
Shares in the Plan Share Reserve immediately prior to the grant
of such Plan Share Awards, and provided, further, that in no
event shall any Plan Share Award be made which will violate the
Company's Articles of Incorporation or Bylaws or any applicable
law. In the event Plan Shares are forfeited for any reason, the
Compensation Committee may, from time to time, determine which
Eligible Persons will be granted Plan Share Awards from forfeited
Plan Shares.
In selecting those Eligible Persons to whom Plan Share
Awards will be granted and the number of Plan Shares covered by
such Plan Share Awards, the Compensation Committee shall consider
the position and responsibilities of the Eligible Persons, the
value of their services to the Company and any other fact the
Compensation Committee may deem relevant.
6.02 Form of Allocation. Promptly after making a Plan
Share Award, the Compensation Committee shall notify the
Recipient in writing of the grant of the Plan Share Award, the
number of Plan Shares covered by the Plan Share Award, and the
terms upon which the Plan Shares subject to the Plan Share Award
may be earned. The date on which the Compensation Committee so
notifies the Recipient shall be considered the date of grant of
the Plan Share Awards. The Compensation Committee shall maintain
records as to all grants of Plan Share Awards under the Plan.
<PAGE MRP-6>
6.03 Allocations Not Required. Notwithstanding anything to
the contrary in Sections 6.01 and 6.02, no Eligible Person shall
have any right or entitlement to receive a Plan Share Award
hereunder, the grant of Plan Share Awards being at the total
discretion of the Compensation Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Unless the Compensation Committee
shall specifically state otherwise at the time a Plan Share Award
is granted, Plan Shares subject to a Plan Share Award shall be
earned by a Recipient at the rate of twenty percent (20%) of the
aggregate number of Plan Shares covered by the Plan Share Award
at the end of each full twelve month period following the date of
the grant.
(b) Forfeiture Upon Termination of Employment. Except
as set forth in Section 7.01(c) below, the termination of
employment by a Recipient for reasons other than retirement at or
after age 65, in the case of an executive officer of the Company
or 70, in the case of a director of the Company, death, or
disability shall constitute revocation of the Recipient's
unearned Plan Share Award. If the termination of a Recipient's
employment is caused by death, or disability, all unearned Plan
Share Awards shall be deemed fully vested.
(c) Revocation for Misconduct. Notwithstanding
anything hereinafter to the contrary, the Compensation Committee
of the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously
awarded under this Plan, to the extent Plan Shares have not been
delivered thereunder to the Recipient, whether or not yet earned,
in the case of a Recipient who is discharged from the employ of
the Company for Cause, or who is discovered after termination of
employment to have engaged in conduct that would have justified
termination for Cause, and in the case of a member of the Board,
who is removed from the Board for Cause.
7.02 Payment of Dividends. Cash dividends on earned and
unearned Plan Shares shall be allocated and distributed to a
Recipient when declared and paid by the Company with respect to
all shares.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions. Plan Shares shall be
distributed to the Recipient or his Beneficiary, as the case may
be, as soon as practicable after they have been earned. At the
election of the Recipient, but subject to approval of the
Compensation Committee of the Board, unearned Plan Shares subject
to a Plan Share Award that would otherwise be held by the Trust
<PAGE MRP-7> may be distributed to the Recipient in the form of
restricted stock subject to forfeiture. A Recipient who receives
restricted stock may vote such shares, will receive any dividends
paid thereon, and will be able to exchange restricted shares for
unrestricted shares as vesting occurs.
(b) Form of Distribution. All Plan Shares, together
with any shares representing stock dividends, shall be
distributed in the form of Common Stock. One share of Common
Stock shall be given for each Plan Share earned and payable.
(c) Withholding. The Plan Trustee may withhold from
any payment or distribution made under this Plan sufficient
amounts of cash or shares of Common Stock to cover any applicable
withholding and employment taxes, and if the amount of such
payment is insufficient, the Plan Trustee may require the
Recipient or Beneficiary to pay to the Plan Trustee the amount
required to be withheld as a condition of delivering the Plan
Shares. The Plan Trustee shall pay over to the Company of which
employs or employed such Recipient any such amount withheld from
or paid by the Recipient or Beneficiary.
7.04 Voting of Plan Shares. After a Plan Share Award has
been granted, the Recipient shall be entitled to vote the Plan
Shares which are covered by the Plan Share Award and which have
been earned, subject to rules and procedures adopted by the
Compensation Committee of the Board for this purpose. All shares
of Common Stock held by the Trust as to which Recipients are not
entitled to direct, or have not directed, the voting, shall be
voted by the Plan Trustee in the same proportion as the trustee
of the Company's Employee Stock Ownership Plan trust votes the
Common Stock held therein, except as otherwise provided in
Section 7.03(a).
ARTICLE VIII
TRUST
8.01 Trust. The Plan Trustee shall receive, hold,
administer, invest and make distributions and disbursements from
the Trust in accordance with the provisions of this Agreement and
the applicable directions, rules, regulations, procedures and
policies established by the Compensation Committee pursuant to
this Agreement.
8.02 Management of Trust. It is the intent of this
Agreement that, subject to the provisions of this Agreement, the
Plan Trustee shall have complete authority and discretion with
respect to the management, control and investment of the Trust,
and that the Plan Trustee shall invest all assets of the Trust in
Common Stock to the fullest extent practicable, and except to the
extent that the Plan Trustee determines that the holding of
monies in cash or cash equivalents is necessary to meet the
obligations of the Trust. In performing its duties, the Plan
Trustee shall have the power to do all things and execute such
<PAGE MRP-8> instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all
Trust assets in Common Stock without regard to any law now or
hereafter in force limiting investments by trustees or other
fiduciaries. The investment authorized herein constitutes the
only investment of the Trust, and in making such investment, the
Plan Trustee is authorized to purchase Common Stock from the
Company or from any other source, and such Common Stock so
purchased may be outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested
in accordance with (a) above in such deposit accounts,
certificates of deposit, obligations of the United States
government or its agencies or such other investments as shall be
considered the equivalent of cash, or to invest in mutual funds
which invest in such securities.
(c) To sell, exchange or otherwise dispose of any
property at any time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of
words indicating that such security is an asset of the Trust (but
accurate records shall be maintained showing that such security
is an asset of the Trust).
(e) To hold cash without interest in such amounts as
may be in the opinion of the Trustee reasonable for the proper
operation of the Plan and Trust.
(f) To employ brokers, agents, consultants and
accountants.
(g) To hire counsel to render advice with respect to
the Plan Trustee's rights, duties and obligations hereunder, and
such other legal services or representation as the Plan Trustee
may deem desirable.
(h) To hold funds and securities representing the
amounts to be distributed to a Recipient or his Beneficiary as a
consequence of a dispute as to the disposition thereof, whether
in a segregated account or held in common with other assets of
the Trust.
Notwithstanding anything herein contained to the
contrary, the Plan Trustee shall not be required to make any
inventory, appraisal or settlement or report to any court, or to
secure any order of court for the exercise of any power herein
contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain
accurate and detailed records and accounts of all transactions of
the Trust, which shall be available at all reasonable times for
<PAGE MRP-9> inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person
determined by the Board.
8.04 Earnings. All earnings, gains and losses with respect
to Trust assets shall be allocated in accordance with a
reasonable procedure adopted by the Compensation Committee of the
Board.
8.05 Expenses. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the
Trust to the extent not paid by the Company.
8.06 Notice of Insolvency. By its approval and execution
of this Agreement, the Company represents and agrees that the
Compensation Committee of its Board and President and Chief
Executive Officer, as from time to time acting, shall have the
fiduciary duty and responsibility, on behalf of the Company's
creditors, to give the Trustee prompt written notice of the
Company's insolvency or bankruptcy and the Trustee shall be
entitled to rely thereon to the exclusion of all directions or
claims to pay benefits thereafter made.
8.07 Definition of Insolvency. The Company shall be deemed
to be insolvent or bankrupt upon the occurrence of any of the
following:
(i) The Company is unable to pay its debts as
they fall due; or
(ii) The Company shall make an assignment for the
benefit of creditors, file a petition in bankruptcy, petition or
apply to any tribunal for the appointment of a custodian,
receiver, liquidator, sequestrator, or any trustee for it or a
substantial part of its assets, or shall commence any case under
any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, or liquidation law or statute of any
jurisdiction (federal or state), whether now or hereafter in
effect; or if there shall have been filed any such petition or
application, or any such case shall have been commenced against
it, in which an order for relief is entered or which remains
undismissed; or the Company by any act or omission shall indicate
its consent to, approval of or acquiescence in any such petition,
application or case or order for relief or the appointment of a
custodian, receiver or any trustee for it or any substantial part
of any of its property, or shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged.
<PAGE MRP-10>
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number
of Plan Shares available for issuance pursuant to Plan Share
Awards and the number of Plan Shares to which any Plan Share
Award relates shall be proportionately adjusted for any increase
or decrease in the total number of outstanding shares of Common
Stock issued subsequent to the Effective Date resulting from any
split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such Common Stock
effected without receipt or payment of consideration, by the
Company.
9.02 Amendment and Termination of Plan. The Board may, by
resolution, at any time amend or terminate the Agreement. Upon
termination, the Company may direct the Plan Trustee to return to
the Company Common Stock held in the Plan Share Reserve and any
other unallocated assets of the Trust. Termination or amendment
of the Trust shall not affect a Recipient's right to earn Plan
Shares pursuant to previously granted Plan Share Awards or to the
distribution of Common Stock relating thereto, including earnings
thereon. Termination of the Plan shall not become effective as
to previously awarded Plan Share Awards that remain outstanding
on the proposed termination date unless the Board elects to
distribute all unearned Plan Shares subject to such Plan Share
Awards immediately upon such termination.
9.03 Nontransferable. Plan Share Awards and rights to Plan
Shares shall not be transferable by a Recipient or Beneficiary,
and during the lifetime of the Recipient, Plan Shares may only be
earned by and paid to the Recipient who was notified in writing
of the Plan Share Award by the Compensation Committee of the
Board pursuant to Section 6.02.
9.04 Employment Rights. Neither the Plan nor any grant of
a Plan Share Award or Plan Shares hereunder nor any action taken
by the Plan Trustee or the Compensation Committee of the Board in
connection with the Plan shall create any right on the part of
any Eligible Person to continue in the employ of the Company or
to continue to sit on the Board thereof.
9.05 Voting and Dividend Rights. No Recipient shall have
any voting or dividend rights or other rights of a shareholder in
respect of any Plan Shares covered by a Plan Share Award, except
as expressly provided in Sections 7.02 and 7.04 above.
9.06 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the Commonwealth of
Pennsylvania without regard to its conflicts of law rules.
9.07 Effective Date. The date of its execution by the
Company and the Plan Trustee.
<PAGE MRP-11>
9.08 Term of Plan. This Plan shall remain in effect until
the earlier of (1) 21 years from the Effective Date,
(2) termination by the Board, or (3) the distribution of all
assets of the Trust. Termination or amendment of the Plan shall
not affect any Plan Share Awards previously granted, and such
Plan Share Awards shall remain valid and in effect until they
have been earned and paid, or by their terms expire or are
forfeited.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officers and the corporate
seal to be affixed and duly attested, effective as of the ______
day of ____________________.
JADE FINANCIAL CORP.
By:
Name:
Title: President and Chief
Executive Officer
Attest:
Name:
Title: Secretary and
General Counsel
_________________________________
By:
Name:
Title:
Attest:
Name:
Title:
IN WITNESS WHEREOF, the undersigned, ____________________,
______________________, and ____________________, as members of
the Compensation Committee of the Board of Directors of
___________________________, hereby execute this Agreement, as
Plan Trustee undertaking to perform the obligations and duties of
the Plan Trustee hereunder and consenting to the foregoing
Management Recognition Plan and Trust Agreement.
Signed:
<PAGE MRP-12>
Exhibit 10.2
JADE FINANCIAL CORP.
STOCK COMPENSATION PROGRAM
<PAGE>
JADE FINANCIAL CORP.
STOCK COMPENSATION PROGRAM
1. Purpose. The Jade Financial Corp. Stock Compensation
Program ("Program") is intended to secure, for Jade Financial
Corp. (the "Company") and its shareholders, the benefits arising
from ownership of the Company's common stock, $.01 par value per
share ("Common Stock") by those selected employees and directors
of the Company who will be responsible for its future growth.
The Program is designed to help attract and retain superior
personnel for positions of substantial responsibility with the
Company, and to provide employees and directors with an
additional incentive to contribute to the success of the Company.
2. Elements of the Program. In order to maintain
flexibility in the award of stock benefits, the Program is
comprised of four parts. Part I is the Incentive Stock Option
Plan ("Incentive Plan"). Part II is the Compensatory Stock
Option Plan ("Compensatory Plan"). Part III is the Stock
Appreciation Rights Plan ("S.A.R. Plan"). Part IV is the
Restricted Shares Plan ("Restricted Plan"). Copies of the
Incentive Plan, Compensatory Plan, S.A.R. Plan, and Restricted
Plan are attached hereto as Part I, Part II, Part III and
Part IV, respectively, and are collectively referred to herein as
the "Plans." The grant of an option, appreciation right or
performance share under one of the Plans shall not be construed
to prohibit the grant of an option, appreciation right or
restricted share under any of the other Plans.
3. Applicability of General Provisions. Unless any Plan
specifically indicates to the contrary, all Plans shall be
subject to the General Provisions of the Stock Compensation
Program set forth below.
4. Administration of the Plans. The Plans shall be
administered, construed, governed and amended in accordance with
their respective terms.
GENERAL PROVISIONS OF THE STOCK COMPENSATION PROGRAM
Article 1. Administration. The Program shall be
administered by the Compensation Committee of the Board of
Directors of the Company. The committee, when acting to
administer the Program, is referred to as the "Program
Administrators." Any action of the Program Administrators shall
be taken by majority vote or the unanimous written consent of the
Program Administrators. The Board of Directors, with the Program
Administrators not voting, shall administer the Program with
respect to the options granted to the Program Administrators in
accordance with the provisions of Part II. No Program
Administrator or member of the Board of Directors of the Company
or any parent or subsidiary, shall be liable for any action or
determination made in good faith with respect to the Program or
<PAGE 1> to any option, stock appreciation right, or performance
share granted thereunder.
Article 2. Authority of Program Administrators. Subject to
the other provisions of this Program, and with a view to
effecting its purpose, the Program Administrators shall have sole
authority in their absolute discretion: (a) to construe and
interpret the Program; (b) to define the terms used herein;
(c) to prescribe, amend, and rescind rules and regulations
relating to the Program; (d) to determine the employees to whom
options, appreciation rights and restricted shares shall be
granted under the Program; (e) to determine the time or times at
which options, appreciation rights and restricted shares shall be
granted under the Program; (f) to determine the number of shares
subject to any option or stock appreciation right under the
Program and the number of shares to be awarded as restricted
shares under the Program as well as the option price, and the
duration of each option, appreciation right and restricted share,
and any other terms and conditions of options, appreciation
rights and restricted shares; and (g) to make any other
determinations necessary or advisable for the administration of
the Program and to do everything necessary or appropriate to
administer the Program. All decisions, determinations, and
interpretations made by the Program Administrators shall be
binding and conclusive on all participants in the Program and on
their legal representatives, heirs and beneficiaries.
Article 3. Maximum Number of Shares Subject to the Program.
The maximum aggregate number of shares of Common Stock available
pursuant to the Plans, subject to adjustment as provided in
Article 6 hereof, shall be 250,000 shares of the Company's Common
Stock. If any of the options granted under this Program expire
or terminate for any reason before they have been exercised in
full, the unpurchased shares subject to those expired or
terminated options shall again be available for the purposes of
the Program.
Article 4. Eligibility and Participation. Certain
employees of the Company, including officers whether or not
directors of the Company, or of any parent or any subsidiary,
shall be eligible for selection by the Program Administrators to
participate in all parts of the Program. Directors who are not
employees of the Company shall only be eligible to participate in
Part II of the Program.
Article 5. Effective Date and Term of Program. The Program
shall become effective upon its adoption by the Board of
Directors of the Company and subsequent approval of the Program
by unanimous consent of the Company's shareholders or by a
majority of the total votes eligible to be cast at a meeting of
shareholders, which vote shall be taken within 12 months of
adoption of the Program by the Company's Board of Directors;
provided, however, that options, appreciation rights, and
restricted shares may be granted under this Program prior to
obtaining shareholder approval of the Program, but any such
<PAGE 2> options or appreciation rights or restricted shares
shall be contingent upon such shareholder approval being obtained
and may not be exercised prior to such approval. The Program
shall continue in effect for a term of 10 years unless sooner
terminated under Article 7 of the General Provisions.
Article 6. Adjustments. If the shares of Common Stock of
the Company as a whole are increased, decreased, changed into, or
exchanged for a different number or kind of shares or securities
through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and
kind of shares as to which options, appreciation rights and
restricted shares may be granted under this Program. A
corresponding adjustment changing the number or kind of shares
allocated to unexercised options, appreciation rights, restricted
shares, or portions thereof, which shall have been granted prior
to any such change, shall likewise be made. Any such adjustment
in outstanding options and appreciation rights shall be made
without change in the aggregate purchase price applicable to the
unexercised portion of the option or appreciation right, but with
a corresponding adjustment in the price for each share or other
unit of any security covered by the option or appreciation right.
In making any adjustment pursuant to this Article 6, any
fractional shares shall be disregarded.
Article 7. Termination and Amendment of Program. The
Program shall terminate no later than 10 years from the date such
Program is adopted by the Company's Board of Directors, or the
date such Program is approved by the shareholders, whichever is
earlier. No options, appreciation rights, or restricted shares
shall be granted under the Program after that date. The
Company's Board of Directors can terminate the Program at any
time. Subject to the limitation contained in Article 8 of the
General Provisions, the Board of Directors may at any time amend
or revise the terms of the Program, including the form and
substance of the option, appreciation right, and restricted
shares agreements to be used hereunder; provided that no
amendment or revision shall (a) increase the maximum aggregate
number of shares that may be sold, subjected to appreciation, or
distributed pursuant to options, appreciation rights, or
restricted shares granted under this Program, except as permitted
under Article 6 of the General Provisions; (b) change the minimum
purchase price for shares under Section 4 of Parts I and II;
(c) increase the maximum term established under the Plans for any
option, appreciation right, or restricted share; or (d) permit
the granting of an option, appreciation right, or restricted
share to anyone other than as provided in Article 4 of the
General Provisions.
Article 8. Prior Rights and Obligations. No amendment,
suspension, or termination of the Program shall, without the
consent of the employee who has received an option, appreciation
right, or restricted share, alter or impair any of that <PAGE 3>
employee's rights or obligations under any option, appreciation
right or restricted share granted under the Program prior to such
amendment, suspension, or termination.
Article 9. Privileges of Stock Ownership. Except as
provided in Part IV and notwithstanding the exercise of any
options granted pursuant to the terms of this Program, no
employee shall have any of the rights or privileges of a
shareholder of the Company in respect of any shares of stock
issuable upon the exercise of his or her option until
certificates representing the shares have been issued and
delivered. No shares shall be required to be issued and
delivered upon exercise of any option unless and until all of the
requirements of law and of all regulatory agencies having
jurisdiction over the issuance and delivery of the securities
shall have been fully complied with. No adjustment shall be made
for dividends or any other distributions for which the record
date is prior to the date on which such stock certificate is
issued.
Article 10. Reservation of Shares of Common Stock. The
Company, during the term of this Program, will at all times
reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the
Program. In addition, the Company will from time to time, as is
necessary to accomplish the purposes of this Program, seek to
obtain from any regulatory agency having jurisdiction, any
requisite authority in order to issue and sell shares of Common
Stock hereunder. The inability of the Company to obtain from any
regulatory agency having jurisdiction the authority deemed, by
the Company's counsel, to be necessary to the lawful issuance and
sale of any shares of its stock hereunder shall relieve the
Company of any liability in respect of the non-issuance or sale
of the stock as to which the requisite authority shall not have
been obtained.
Article 11. Tax Withholding. The exercise of any option,
appreciation right, or restricted share granted under the Program
is subject to the condition that if at any time the Company shall
determine, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any state
or federal law is necessary or desirable as a condition of, or in
any connection with, such exercise or the delivery or purchase of
shares pursuant thereto, then in such event, the exercise of the
option, appreciation right or restricted share shall not be
effective unless such withholding tax or other withholding
liabilities shall have been satisfied in a manner acceptable to
the Company.
Article 12. Employment. Nothing in the Program or in any
option, stock appreciation right, or restricted share, shall
confer upon any eligible employee any right to continued
employment by the Company, or by any parent or subsidiary
corporation, or limit in any way the right of the Company or any
<PAGE 4> parent or subsidiary corporation at any time to
terminate or alter the terms of that employment.
<PAGE 5>
PART I
JADE FINANCIAL CORP.
INCENTIVE STOCK OPTION PLAN
Section 1. Purpose. The purpose of the Jade Financial
Corp. Incentive Stock Option Plan ("Incentive Plan") is to
promote the growth and general prosperity of the Company by
permitting the Company to grant options to purchase shares of its
Common Stock. The Incentive Plan is designed to help attract and
retain superior personnel for positions of responsibility with
the Company and any parent or subsidiary, and to provide
employees with an additional incentive to contribute the success
of the Company. The Company intends that options granted
pursuant to the provisions of the Incentive Plan will qualify and
will be identified as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("Code"). This Incentive Plan is Part I of the Company's
Stock Compensation Program ("Program"). Unless any provision
herein indicates to the contrary, this Incentive Plan shall be
subject to the General Provisions of the Program.
Section 2. Option Terms and Conditions. The terms and
conditions of options granted under the Incentive Plan may differ
from one another as the Program Administrators shall, in their
discretion, determine, as long as all options granted under the
Incentive Plan satisfy the requirements of the Incentive Plan.
Section 3. Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of the Incentive Plan
shall expire on the date determined by the Program
Administrators, but in no event shall any option granted under
the Incentive Plan expire later than 10 years from the date on
which the option is granted, except that any employee who owns
more than 10% of the combined voting power of all classes of
stock of the Company, or of any parent or subsidiary, must
exercise any options within five years from the date of grant.
In addition, each option shall be subject to early termination as
provided in the Incentive Plan.
Section 4. Purchase Price. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any
option shall be equal to the fair market value of the shares at
the time of the grant of the option; except that for any employee
who owns more than 10% of the combined voting power of all
classes of stock of the Company, or of any parent or subsidiary,
the purchase price shall be equal to 110% of fair market value.
Fair market value shall be determined by the Program
Administrators on the basis of such factors as they deem
appropriate; provided, however, that fair market value shall be
determined without regard to any restriction other than a
restriction which, by its terms, will never lapse; and provided
further, that if at the time the determination of fair market
value is made, those shares are subject to trading on a national
<PAGE 6> securities exchange for which sale prices are regularly
reported, the fair market value of those shares shall be the
closing sales price reported for the Common Stock on that
exchange on the day on which the option is granted, or if no sale
has taken place on such day, the mean of the closing bid prices
quoted by the then primary market makers of the Company's Common
Stock. For purposes of this Section 4, the term "national
securities exchange" shall include the National Association of
Securities Dealers Automated Quotation System and the over-the-
counter market. Notwithstanding the foregoing, if in the
judgment of the Company's Board of Directors, there are unusual
circumstances or occurrences under which the otherwise determined
fair market value of the Common Stock does not represent the
actual fair value thereof or if shares of Common Stock are so
thinly traded so as the fair market value thus determined is not
representative of fair market value, then the fair market value
of such Common Stock shall be determined by the Company's Board
of Directors on the basis of such prices, market quotations, and
other pricing mechanisms that they deem appropriate and fairly
reflective of the then fair market value of such Common Stock or,
at the discretion of the Company's Board of Directors, by an
independent appraiser or appraisers selected by the Board of
Directors in either case giving due consideration to recent
transactions involving shares of Common Stock, if any.
Section 5. Maximum Amount of Options in Any Calendar Year.
The aggregate fair market value (determined as of the time the
option is granted) of the Common Stock with respect to which
incentive stock options are first exercisable by any Optionee
during any calendar year under the terms of this Plan and all
such plans of the Company and any parent or subsidiary
corporation shall not exceed $100,000. Any option in excess of
the foregoing limitations shall be granted pursuant to the
Company's Compensatory Stock Option Plan (Part II), and shall be
clearly and specifically designated as not being an incentive
stock option.
Grants to any employee under the Incentive Plan, when added
to all other grants or awards under the other parts of the
Program, shall not exceed, in the aggregate, 50,000 options
during any period of 12 consecutive months. Such limitation
shall be subject to adjustments in the manner described in
Article 6 of the General Provisions of this Program.
Section 6. Exercise of Options. Each option shall be
exercisable in one or more installments during its term, and the
right to exercise may be cumulative as determined by the Program
Administrators. No option may be exercised for a fraction of a
share of Common Stock. The purchase price of any shares
purchased shall be paid in full, in cash or by certified or
cashier's check payable to the order of the Company or by shares
of Common Stock, if permitted by the Program Administrators, or
by a combination of cash, check, or shares of Common Stock, at
the time of exercise of the option; provided that the form(s) of
payment allowed the employee shall be established when the option
<PAGE 7> is granted. If any portion of the purchase price is
paid in shares of Common Stock, those shares shall be tendered at
their then fair market value as determined by the Program
Administrators in accordance with Section 4 of this Incentive
Plan. Notwithstanding the foregoing, Common Stock acquired
pursuant to the exercise of an incentive stock option may not be
tendered as payment unless the holding period requirements of
Code Section 422(a)(1) have been satisfied, and Common Stock not
acquired pursuant to the exercise of an incentive stock option
may not be tendered as payment unless it has been held,
beneficially and of record, for at least one year.
Section 7. Acceleration of Right of Exercise of
Installments. Notwithstanding the first sentence of Section 6 of
this Incentive Plan, in the event the Company or its shareholders
enter into an agreement to dispose of all or substantially all of
the assets or stock of the Company by means of a sale, merger or
other reorganization, liquidation, or otherwise, any option
granted pursuant to the terms of the Incentive Plan shall become
immediately exercisable with respect to the full number of shares
subject to that option; provided, however, that no option shall
be immediately exercisable under this Section 7 on account of any
agreement to dispose of all or substantially all of the assets or
stock of the Company by means of a sale, merger or other
reorganization, liquidation, or otherwise where the shareholders
of the Company immediately before the consummation of the
transaction will own at least 50% of the total combined voting
power of all classes of stock entitled to vote of the surviving
entity, whether the Company or some other entity, immediately
after the consummation of the transaction. In the event the
transaction contemplated by the agreement referred to in this
Section 7 is not consummated, but rather is terminated, canceled,
or expires, the options granted pursuant to the Incentive Plan,
to the extent not exercised, shall thereafter be treated as if
such agreement had never been entered into.
Notwithstanding the first sentence of Section 6 of this
Incentive Plan, in the event of a change in control of the
Company or threatened change in control of the Company as
determined by a vote of not less than a majority of the Board of
Directors of the Company, all options granted prior to such
change in control or threatened change of control shall become
immediately exercisable. The term "control" for purposes of this
Section shall refer to the acquisition of 10% or more of the
voting securities of the Company by any person or by persons
acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended; provided, however,
that for purposes of the Incentive Plan, no change in control or
threatened change in control shall be deemed to have occurred if
prior to the acquisition of, or offer to acquire, 10% or more of
the voting securities of the Company, the full Board of Directors
of the Company shall have adopted, by not less than two-thirds
vote, a resolution specifically approving such acquisition or
offer. The term "person" for purposes of this Section refers to
an individual or a corporation, partnership, trust, association,
<PAGE 8> joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not
specifically listed herein.
Section 8. Written Notice Required. Any option granted
pursuant to the terms of the Incentive Plan shall be exercised
when written notice of that exercise has been given to the
Company at its principal office by the person entitled to
exercise the option and full payment for the shares with respect
to which the option is exercised has been received by the
Company.
Section 9. Additional Exercise Provisions. An employee
granted and holding more than one option granted pursuant to the
terms of the Incentive Plan at any relevant time may, in
accordance with the provisions of the Incentive Plan, elect to
exercise such options in any order.
In addition, at the request of the employee and to the
extent permitted by applicable law, the Company may, in its sole
discretion, selectively approve arrangements with a brokerage
firm under which such brokerage firm, on behalf of the employee,
shall pay to the Company the exercise price of the options being
exercised, and the Company, pursuant to an irrevocable notice
from the employee, shall promptly deliver the shares being
purchased to such brokerage firm. In the event any such
arrangement is implemented, the employee shall acknowledge, in
writing, his or her understanding that the immediate sale of the
option stock will disqualify the related option as an incentive
stock option.
Section 10. Compliance With Securities Laws. Shares of
Common Stock shall not be issued with respect to any option
granted under the Incentive Plan unless the exercise of that
option and the issuance and delivery of those shares pursuant to
that exercise shall comply with all relevant provisions of state
and federal law including, without limitation, the Securities Act
of 1933, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such
compliance. The Program Administrators may also require an
employee to whom an option has been granted under the Incentive
Plan ("Optionee") to furnish evidence satisfactory to the
Company, including a written and signed representation letter and
consent to be bound by any transfer restriction imposed by law,
legend, condition, or otherwise, that the shares are being
purchased only for investment and without any present intention
to sell or distribute the shares in violation of any state or
federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the shares of Common
Stock subject to his or her option restricting their
transferability as required by law or by this Section 10.
<PAGE 9>
Section 11. Employment of Optionee. Each Optionee, if
requested by the Program Administrators when the option is
granted, must agree in writing as a condition of receiving his or
her option, that he or she will remain in the employ of the
Company, or any parent or subsidiary corporation of the Company
(or a corporation or a parent or subsidiary of such corporation
issuing or assuming a stock option in a transaction to which
section 424(a) of the Code applies), as the case may be,
following the date of the granting of that option for a period
specified by the Program Administrators, which period shall in no
event exceed three years. Nothing in the Plan or in any option
granted hereunder shall confer upon any Optionee any right to
continued employment by the Company, or any parent or subsidiary
corporation, or limit in any way the right of the Company or any
parent or subsidiary corporation at any time to terminate or
alter the terms of that employment.
Section 12. Option Rights Upon Termination of Employment.
If an Optionee ceases to be employed by the Company, or any
parent or subsidiary corporation (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies),
for any reason other than death or disability, his or her option
shall immediately terminate; provided, however, that the Program
Administrators may, at the time an option is granted, in their
discretion, allow such option to be exercised (to the extent
exercisable on the date of termination of employment) within
three months after the date of termination of employment; and
provided further, that after an event described in Section 6, an
Optionee shall be entitled to exercise such option (or an option
into which it is converted) for a period of the lesser of the
remaining term of the option or 18 months following such event,
notwithstanding anything herein or in the option agreement to the
contrary.
Section 13. Option Rights Upon Disability. If an Optionee
becomes permanently and totally disabled within the meaning of
Section 22(e)(3) of the Code while employed by the Company, or
any parent or subsidiary corporation (or a corporation or a
parent or subsidiary of such corporation issuing or assuming a
stock option in a transaction to which section 424(a) of the Code
applies), the option may be exercised, to the extent exercisable
on the date of termination of employment, at any time within one
year after the date of termination of employment due to
disability, unless either the option or the Incentive Plan
otherwise provides for earlier termination.
Section 14. Option Rights Upon Death of Optionee. Except
as otherwise limited by the Program Administrators at the time of
the grant of an option, if an Optionee dies while employed by the
Company, or any parent or subsidiary corporation (or a
corporation or a parent or subsidiary of such corporation issuing
or assuming a stock option in a transaction to which
section 424(a) of the Code applies), or, if the option continues
to be exercisable, within three months after ceasing to be an
<PAGE 10> employee thereof, his or her option shall expire one
year after the date of death unless by its term it expires
sooner. During this one year or shorter period, the option may
be exercised, to the extent that it remains unexercised on the
date of death, by the person or persons to whom the Optionee's
rights under the option shall pass by will or by the laws of
descent and distribution, but only to the extent that the
Optionee is entitled to exercise the option at the date of death.
Section 15. Options Not Transferable. Options granted
pursuant to the terms of the Incentive Plan may not be sold,
pledged, assigned, or transferred in any manner otherwise than by
will or the laws of descent or distribution and may be exercised
during the lifetime of an Optionee only by that Optionee.
Section 16. Adjustments to Number and Purchase Price of
Optioned Shares. All options granted pursuant to the terms of
this Incentive Plan shall be adjusted in the manner prescribed by
Article 6 of the General Provisions of this Program.
<PAGE 11>
PART II
JADE FINANCIAL CORP.
COMPENSATORY STOCK OPTION PLAN
Section 1. Purpose. The purpose of the Jade Financial
Corp. Compensatory Stock Option Plan ("Compensatory Plan") is to
permit the Company to grant options to purchase shares of its
Common Stock to selected employees and directors of the Company.
The Compensatory Plan is designed to help attract and retain
superior personnel for positions of substantial responsibility
with the Company and any parent or subsidiary, and to provide
employees and directors with an additional incentive to
contribute to the success of the Company. Any option granted
pursuant to this Compensatory Plan shall be clearly and
specifically designated as not being an incentive stock option,
as defined in Section 422(b) of the Internal Revenue Code of
1986, as amended ("Code"). This Compensatory Plan is Part II of
the Company's Stock Compensation Program ("Program"). Unless any
provision herein indicates to the contrary, this Compensatory
Plan shall be subject to the General Provisions of the Program.
Section 2. Option Terms and Conditions. The terms and
conditions of options granted under this Compensatory Plan may
differ from one another as the Program Administrators shall, in
their discretion, determine, as long as all options granted under
the Compensatory Plan satisfy the requirements of the
Compensatory Plan.
The maximum number of shares of common stock for which
options may be granted under this Compensatory Plan to all
directors who are not employees of the Company or any parent or
subsidiary shall not exceed 50 percent of the shares of common
stock covered by the Program.
Section 3. Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of this Compensatory
Plan shall expire on the date determined by the Program
Administrators, but in no event shall any option granted under
the Compensatory Plan expire later than 10 years and one month
from the date on which the option is granted. In addition, each
option shall be subject to early termination as provided in the
Compensatory Plan.
Section 4. Purchase Price. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any
option shall be equal to the fair market value of the shares at
the time of the grant of the option. Fair market value shall be
determined by the Program Administrators on the basis of such
factors as they deem appropriate; provided, however, that fair
market value shall be determined without regard to any
restriction other than a restriction which, by its terms, shall
never lapse; and provided further, that if at the time of the
determination, the shares of the Company are admitted to trading
<PAGE 12> on a national securities exchange for which sales
prices are regularly reported, the fair market value of those
shares shall be the closing sales price reported for the Common
Stock on that exchange on the day on which the option is granted,
or if no sale has taken place on such day, the mean of the
closing bid prices quoted by the then primary market makers of
the Company's Common Stock. For purposes of this Section 4, the
term "national securities exchange" shall include the National
Association of Securities Dealers Automated Quotation System and
the over-the-counter market.
Section 5. Maximum Amount of Options in Any Calendar Year.
Grants to any person under the Compensatory Plan, when added to
all other grants or awards under the Program, shall not exceed,
in the aggregate, 50,000 options during any period of 12
consecutive months. Such limitation shall be subject to
adjustments in the manner described in Article 6 of the General
Provisions of this Program.
Section 6. Exercise of Options. Each option shall be
exercisable in one or more installments during its term and the
right to exercise may be cumulative as determined by the Program
Administrators (or the Board of Directors with respect to the
Program Administrators). No options may be exercised for a
fraction of a share of Common Stock. The purchase price of any
shares purchased shall be paid in full in cash or by certified or
cashier's check payable to the order of the Company or by shares
of Common Stock, if permitted by the Program Administrators (or
the Board of Directors with respect to the Program
Administrators), or by a combination of cash, check or shares of
Common Stock, at the time of exercise of the option. If any
portion of the purchase price is paid in shares of Common Stock,
those shares shall be tendered at their then fair market value as
determined by the Program Administrators (or the Board of
Directors with respect to the Program Administrators) in
accordance with Section 4 of this Compensatory Plan.
Notwithstanding the foregoing, Common Stock acquired pursuant to
the exercise of an option may not be tendered as payment unless
it has been held, beneficially and of record, for at least one
year.
Section 7. Acceleration of Right of Exercise of
Installments. Notwithstanding the first sentence of Section 6 of
this Compensatory Plan, if the Company or its shareholders enter
into an agreement to dispose of all or substantially all of the
assets or stock of the Company by means of a sale, merger or
other reorganization, liquidation, or otherwise, any option
granted pursuant to the terms of this Compensatory Plan shall
become immediately exercisable with respect to the full number of
shares subject to that option; provided, however, that no option
shall be immediately exercisable under this Section 7 on account
of any agreement to dispose of all or substantially all of the
assets or stock of the Company by means of a sale, merger or
other reorganization, liquidation, or otherwise where the
shareholders of the Company immediately before the consummation
<PAGE 13> of the transaction will own at least 50% of the total
combined voting power of all classes of stock entitled to vote of
the surviving entity whether the Company or some other entity,
immediately after the consummation of the transaction. In the
event the transaction contemplated by the agreement referred to
in this Section 7 is not consummated, but rather is terminated,
canceled or expires, the options granted pursuant to the
Compensatory Plan, to the extent not exercised, shall thereafter
be treated as if such agreement had never been entered into.
Notwithstanding the first sentence of Section 6 of this
Compensatory Plan, in the event of a change in control of the
Company, or threatened change in control of the Company as
determined by a vote of not less than a majority of the Board of
Directors of the Company, all options granted prior to such
change in control or threatened change in control shall become
immediately exercisable. The term "control" for purposes of this
Section shall refer to the acquisition of 10% or more of the
voting securities of the Company by any person or by persons
acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended; provided, however,
that for purposes of this Compensatory Plan, no change in control
or threatened change in control shall be deemed to have occurred
if prior to the acquisition of, or offer to acquire, 10% or more
of the voting securities of the Company, the full Board of
Directors of the Company shall have adopted, by not less than
two-thirds vote, a resolution specifically approving such
acquisition or offer. The term "person" for purposes of this
Section refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of
entity not specifically listed herein.
Section 8. Written Notice Required. Any option granted
pursuant to the terms of this Compensatory Plan shall be
exercised when written notice of that exercise has been given to
the Company at its principal office by the person entitled to
exercise the option and full payment for the shares with respect
to which the option is exercised has been received by the
Company.
Section 9. Additional Exercise Provisions. An employee or
director granted and holding more than one option granted
pursuant to the terms of the Compensatory Plan at any relevant
time may, in accordance with the provisions of the Compensatory
Plan, elect to exercise such options in any order.
In addition, at the request of the employee or director and
to the extent permitted by applicable law, the Company may, in
its sole discretion, selectively approve arrangements with a
brokerage firm under which such brokerage firm, on behalf of the
individual, shall pay to the Company the exercise price of the
options being exercised, and the Company, pursuant to an
irrevocable notice from such individual, shall promptly deliver
the shares being purchased to such brokerage firm. <PAGE 14>
Section 10. Compliance With Securities Laws. Shares shall
not be issued with respect to any option granted under the
Compensatory Plan unless the exercise of that option and the
issuance and delivery of the shares pursuant thereto shall comply
with all relevant provisions of state and federal law, including,
without limitation, the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder and the requirements
of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program
Administrators may also require an individual to whom an option
has been granted ("Optionee") to furnish evidence satisfactory to
the Company, including a written and signed representation letter
and consent to be bound by any transfer restrictions imposed by
law, legend, condition, or otherwise, that the shares are being
purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any
state or federal law, rule, or regulation. Further, each
Optionee shall consent to the imposition of a legend on the
shares of Common Stock subject to his or her option restricting
their transferability as required by law or by this Section 10.
Section 11. Employment of Optionee. Each
employee-Optionee, if requested by the Program Administrators,
must agree in writing as a condition of the granting of his or
her option, to remain in the employment of the Company or any
parent or subsidiary (or a corporation or a parent or subsidiary
of such corporation issuing or assuming a stock option in a
transaction to which Code Section 424(a) applies), following the
date of the granting of that option for a period specified by the
Program Administrators, which period shall in no event exceed
three years. Nothing in this Compensatory Plan or in any option
granted hereunder shall confer upon any Optionee any right to
continued employment by the Company or any parent or subsidiary,
or limit in any way the right of the Company or any parent or
subsidiary at any time to terminate or alter the terms of that
employment.
Section 12. Option Rights Upon Termination of Employment,
Etc. If any Optionee under this Compensatory Plan ceases to be
employed by, or a director of, the Company or any parent or
subsidiary (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction
to which Code Section 424(a) applies), for any reason other than
disability or death, his or her option shall immediately
terminate; provided, however, that the Program Administrators (or
the Board of Directors with respect to the Program
Administrators) may, at any time in their discretion, allow the
option to be exercised (to the extent exercisable on the date of
termination of employment) within three months after the date of
termination; and provided further, that after an event described
in Section 7, an Optionee shall be entitled to exercise such
option (or an option into which it is converted) for a period of
the lesser of the remaining term of the option or 18 months
<PAGE 15> following such event, notwithstanding anything herein
or in the option agreement to the contrary.
Section 13. Option Rights Upon Disability. If an Optionee
becomes permanently and totally disabled within the meaning of
Code Section 22(e)(3) while employed by, or a director of, the
Company, or any parent or subsidiary corporation (or a
corporation or a parent or subsidiary of such corporation issuing
or assuming a stock option in a transaction to which Code
Section 424(a) applies), the option may be exercised, to the
extent exercisable on the date of termination of employment, at
any time within one year after the date of termination of
employment due to disability, unless either the option or the
Incentive Plan otherwise provides for earlier termination.
Section 14. Option Rights Upon Death of Optionee. Except
as otherwise limited by the Program Administrators (or the Board
of Directors with respect to the Program Administrators) at the
time of the grant of an option, if an Optionee dies while
employed by, or a director of, the Company, or any parent or
subsidiary corporation (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option
in a transaction to which Code Section 424(a) applies), or, if
the option continues to be exercisable, within three months after
ceasing to be an employee or director, his or her option shall
expire one year after the date of death unless by its terms it
expires sooner. During this one year or shorter period, the
option may be exercised, to the extent that it remains
unexercised on the date of death, by the person or persons to
whom the Optionee's rights under the option shall pass by will or
by the laws of descent and distribution, but only to the extent
that the Optionee is entitled to exercise the option at the date
of death.
Section 15. Transferability. Except as provided below,
options granted pursuant to the terms of this Compensatory Plan
may not be sold, pledged, assigned, or transferred in any manner
otherwise than by will or the laws of descent or distribution and
may be exercised during the lifetime of an Optionee only by that
Optionee. However, if the Program Administrators so determine at
the time the option is granted, the option may be transferable to
members of the Optionee's "immediate family" (as hereinafter
defined), to a partnership whose members are only the Optionee
and/or members of the Optionee's immediate family, or to a trust
for the benefit of only the Optionee and/or members of the
Optionee's immediate family. For purposes of this Section 15, an
Optionee's "immediate family" includes only his or her spouse,
parents or other ancestors, and children and other direct
descendants of the Optionee or of his or her spouse (including
such ancestors and descendants by adoption).
Section 16. Adjustments to Number and Purchase Price of
Optioned Shares. All options granted pursuant to the terms of
<PAGE 16> this Compensatory Plan shall be adjusted in a manner
prescribed by Article 6 of the General Provisions of the Program.
<PAGE 17>
PART III
JADE FINANCIAL CORP.
STOCK APPRECIATION RIGHTS PLAN
Section 1. Purpose. The purpose of the Jade Financial
Corp. Stock Appreciation Rights Plan ("S.A.R. Plan") is to permit
the Company to grant stock appreciation rights for its Common
Stock to its employees. The S.A.R. Plan is designed to help
attract and retain superior personnel for positions of
substantial responsibility with the Company and any parent or
subsidiary and to provide employees with an additional incentive
to contribute to the success of the Company. This S.A.R. Plan is
Part III of the Company's Stock Compensation Program ("Program").
Section 2. Terms and Conditions. The Program
Administrators may, but shall not be obligated to, authorize, on
such terms and conditions as they deem appropriate in each case,
the granting of a stock appreciation right, which is the right to
receive an amount equal to the appreciation, if any, in the fair
market value of a share of the Company's Common Stock from the
date of grant of the stock appreciation right to the date of its
payment. In addition, the Program Administrators may, but shall
not be obligated to, authorize, on such terms and conditions as
they deem appropriate in each case, the Company to accept the
surrender by the recipient of a stock option granted under Part I
or Part II of the right to exercise that option, or portion
thereof, in consideration for the payment by the Company of an
amount equal to the excess of the fair market value of the shares
of Common Stock subject to such option, or portion thereof
surrendered, over the option price of such shares. Such payment,
at the discretion of the Program Administrators, may be made in
shares of Common Stock valued at the then fair market value
thereof, determined as provided in Section 4 of Part I or
Part II, as the case may be, or in cash, or partly in cash and
partly in shares of Common Stock; provided that with respect to
rights granted in tandem with incentive stock options, the
Program Administrators shall establish the form(s) of payment
allowed the Optionee at the date of grant. The Program
Administrators shall not be authorized to make payment to any
Optionee in shares of the Company's Common Stock unless Code
Section 83 would apply to the Common Stock transferred to the
Optionee. Notwithstanding the foregoing, the Company may not
permit the exercise or cancellation of a stock appreciation right
issued pursuant to this S.A.R. Plan until the Company has been
subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934, as amended ("Exchange Act") for
a period of at least one year prior to the exercise and
cancellation of any such stock appreciation right.
Section 3. Time Limitations. Any election by an Optionee
to exercise the stock appreciation rights provided in this S.A.R.
Plan shall be made during the period beginning on the third
<PAGE 18> business day following the release for publication of
quarterly or annual financial information required to be prepared
and disseminated by the Company pursuant to the requirements of
the Exchange Act and ending on the twelfth business day following
such date. The required release of information shall be deemed
to have been satisfied when the specified financial data appears
on or in a wire service, financial news service or newspaper of
general circulation or is otherwise first made publicly
available.
Section 4. Exercise of Stock Appreciation Rights; Effect on
Stock Options and Vice Versa. To the extent relevant, upon the
exercise of a stock appreciation right, the number of shares
available under the stock option to which it relates shall
decrease by a number equal to the number of shares for which the
right was exercised. Upon the exercise of a stock option, any
related stock appreciation right shall terminate to the extent of
the number of shares acquired by reason of such exercise.
Section 5. Time of Grant. With respect to options granted
under Part I, stock appreciation rights must be granted
concurrently with the stock options to which they relate; with
respect to options granted under Part II, stock appreciation
rights may be granted concurrently or at any time thereafter
prior to the exercise or expiration of such options.
Section 6. Non-Transferable. Unless permitted by law and
the Board of Directors or Plan Administrators, the holder of a
stock appreciation right may not transfer or assign the right
otherwise than by will or in accordance with the laws of descent
and distribution. Furthermore, in the event of the termination
of his or her service with the Company as a director, officer
and/or employee, the right may be exercised only within the
period, if any, which the option to which it relates may be
exercised.
Section 7. Tandem Incentive Stock Option - Stock
Appreciation Right. Whenever an incentive stock option, granted
pursuant to Part I, and a stock appreciation right authorized
hereunder are granted together and the exercise of one affects
the right to exercise the other, the following requirements shall
apply:
1) the stock appreciation right will expire no later than
the expiration of the underlying incentive stock option;
2) the stock appreciation right may be for no more than
the difference between the exercise price of the underlying
option and the market price of the stock subject to the
underlying option at the time the stock appreciation right is
exercised;
3) the stock appreciation right is transferable only when
the underlying incentive stock option is transferable, and under
the same conditions; <PAGE 19>
4) the stock appreciation right may be exercised only when
the underlying incentive stock option is eligible to be
exercised; and
5) the stock appreciation right may be exercised only when
the market price of the stock subject to the option exceeds the
exercise price of the stock subject to the option.
Section 8. Tandem Stock Option - Limited Stock Appreciation
Right. The Program Administrators may provide that any tandem
stock appreciation right granted pursuant hereto be a limited
stock appreciation right, in which event:
1) the limited stock appreciation right shall be
exercisable during the period beginning on the first day
following the expiration of an Offer (as defined below) and
ending on the thirtieth day following such date (but in no event
less than six months after the date of grant of the right);
2) neither the option tandem to the limited stock
appreciation right nor any other stock appreciation right tandem
to such option may be exercised at any time that the limited
stock appreciation right may be exercised, provided that this
requirement shall not apply in the case of an incentive stock
option tandem to a limited stock appreciation right if and to the
extent that the Program Administrators determine that such
requirement is not consistent with applicable statutory
provisions regarding incentive stock options and the regulations
issued thereunder; and
3) upon exercise of the limited stock appreciation right,
the fair market value of the shares to which the right relates
shall be determined as the highest price per share paid in any
Offer that is in effect at any time during the period beginning
on the sixtieth day prior to the date on which the limited stock
appreciation right is exercised and ending on such exercise date;
provided, however, with respect to a limited stock appreciation
right tandem to an incentive stock option, the Program
Administrators shall determine fair market value of such shares
in a different manner if and to the extent that the Program
Administrators deem necessary or desirable to conform with
applicable statutory provisions regarding incentive stock options
and the regulations issued thereunder.
The term "Offer" shall mean any tender offer or exchange
offer for shares of the Company, provided that the person making
the offer acquires shares of the Company's capital stock pursuant
to such offer.
Section 9. Limitation on Grants of Stock Appreciation
Rights. The maximum number of stock appreciation rights that may
be granted to any individual during any 12 consecutive month
period shall be limited as provided in Section 5 of Part II of
the Program.
<PAGE 20>
PART IV
JADE FINANCIAL CORP.
RESTRICTED SHARE PLAN
Section 1. Purpose. The purpose of the Jade Financial
Corp. Restricted Share Plan ("Restricted Plan") is to promote the
growth and general prosperity of the Company by permitting the
Company to grant restricted shares to help attract and retain
superior personnel for positions of substantial responsibility
with the Company and any parent or subsidiary, and to provide
employees with an additional incentive to contribute to the
success of the Company. This Restricted Plan is Part IV of the
Company's Stock Compensation Program ("Program").
Section 2. Terms and Conditions. The Program
Administrators may grant restricted shares to an employee on such
terms and conditions as may be determined. A certificate or
certificates representing the number of restricted shares granted
shall be registered in the name of the grantee. Until the
expiration of the restriction period or the lapse of restrictions
in the manner provided below, the certificate or certificates
shall be held by the Company for the account of the grantee, and
the grantee shall have beneficial ownership of the restricted
shares, including the right to receive dividends on, and the
right to vote, the restricted shares.
Section 3. Restriction Period. For purposes of the
Restricted Plan, the Restriction Period shall be a period of time
not less than twenty-four (24) nor more than sixty (60) months,
to be determined within those limits by the Program
Administrators in their sole discretion, commencing on the date
as of which restricted shares are granted, during which the
restrictions imposed by Section 4 of the Restricted Plan shall
apply. The Program Administrator shall determine the length of
the Restriction Period at the time that the restricted shares are
granted.
Section 4. Restrictions. Until the expiration of the
Restriction Period or the lapse of restrictions in the manner
provided below, restricted shares shall be subject to the
following restrictions and any additional restrictions that the
Program Administrators, in their sole discretion, may from time
to time deem desirable in furtherance of the objectives of the
Restricted Plan:
(a) the grantee shall not be entitled to received the
certificate or certificates representing the restricted shares;
(b) the restricted shares may not be sold,
transferred, assigned, pledged, conveyed, hypothecated, or
otherwise disposed of; and
<PAGE 21>
(c) the restricted shares may be forfeited immediately
as provided in Section 6 of the Restricted Plan.
Section 5. Distribution of Restricted Shares. If an
individual to whom restricted shares have been granted remains in
the continuous employment of the Company during the entire
Restriction Period, upon the expiration of the Restriction Period
all restrictions applicable to the restricted shares shall lapse,
and the certificate or certificates representing the shares of
Common Stock that were granted to the grantee in the form of
restricted shares shall be delivered to the grantee.
Section 6. Termination of Employment. If the employment of
a grantee is terminated for any reason other than disability or
the death of the grantee while in the service of the Company
before the expiration of the Restriction Period, the restricted
shares shall be forfeited immediately and all rights of the
grantee to such shares shall terminate immediately without
further obligation on the part of the Company. If the grantee is
terminated by reason of disability or death while in the service
of the Company before the expiration of the Restriction Period,
the number of restricted shares held by the Company for the
grantee's benefit shall be reduced by the proportion of the
Restriction Period remaining after the individual's termination;
the restrictions on the balance of such restricted shares shall
lapse on the date the grantee's service is terminated; and a
certificate or certificates representing the shares of Common
Stock upon which the restrictions have lapsed shall be delivered
to the grantee (or in the event of the grantee's death, to his or
her beneficiary).
Section 7. Waiver of Restrictions. The Program
Administrators may, in their sole discretion, waive any and all
restrictions with respect to restricted shares. Upon a change in
control or other corporate transaction described in Section 6 of
the Incentive Plan, all restrictions with respect to restricted
shares shall lapse.
Section 8. Limitation on Awards of Restricted Shares. The
maximum number of restricted shares that may be awarded during
any 12 consecutive month period shall be limited as provided in
Section 5 of Part II of the Program. <PAGE 22>
Exhibit 10.3
JADE FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective _______________)
ARTICLE 1
INTRODUCTION
The Jade Financial Corp. Employee Stock Ownership Plan (the
"Plan") was established by Jade Financial Corp. (the "Company") in
order for its employees to participate in the ownership of the
Company. The Plan, effective as of _______________, is intended to
be an employee stock ownership plan within the meaning of Section
4975(e)(7) of the Internal Revenue Code of 1986, as amended, and is
designed to invest primarily in Common Stock of the Company which
meets the requirements for qualifying employer securities under
Code Section 409(l). The purchase of Company Stock for the Plan
may be made with the proceeds of exempt loans meeting the
requirements of Section 54.4975-7(b) of the Treasury Regulations
(including any amendments thereto) and Section 2550.408(b)-3 of the
Department of Labor Regulations (including any amendments thereto),
employer contributions, dividends on qualified employer securities
or a combination thereof.
<PAGE 1>
ARTICLE 2
DEFINITIONS
The following initially capitalized words and phrases
when used herein shall have the meanings set forth below, unless
the context clearly requires otherwise.
2.1. "Account" means the bookkeeping account established
for each Participant which reflects the value of the
Participant's interest in the Plan. This Account shall include a
Company Stock Account, reflecting the number of shares of Company
Stock allocated to the Participant and an Investment Account in
which shall be reflected other investments allocated to the
Participant.
2.2. "Administrative Committee" and "Committee," used
interchangeably, means the named fiduciary of the Plan, which is
appointed by the Board of Directors, as is more fully described
in Article 12.
2.3. "Affiliate" means the Company and any corporation
which is a member of a controlled group of corporations (as
defined in Code Section 414(b)) which includes the Company; any
trade or business (whether or not incorporated) which is under
common control (as defined in Code Section 414(c)) with the
Company; any organization (whether or not incorporated) which is
a member of an affiliated service group (as defined in Code
Section 414(m)) which includes the Company; and any other entity
required to be aggregated with the Company pursuant to
regulations under Code Section 414(o).
2.4. "Beneficiary" means the individual(s) or entities
entitled to receive the Participant's benefits under the Plan in
the event of the Participant's death prior to receiving all
benefits payable under the Plan.
2.5. "Board of Directors" means the Board of Directors of
the Company as constituted from time to time.
2.6. "Break in Service" means a Plan Year during which an
Employee (a) has terminated employment or is no longer employed
with the Company or an Affiliate, and (b) fails to complete more
than five hundred (500) Hours of Service.
2.7. "Code" means the Internal Revenue Code of 1986, as
amended and the regulations promulgated thereunder.
2.8. "Company" means Jade Financial Corp. and any Affiliate
which adopts this Plan with the approval of the Board of
Directors of the Company and any successor to the business of the
Company that agrees to assume the Company's obligations under the
Plan.
2.9. "Company Stock" means shares of common stock issued by
the Company that are qualifying employer securities within the
<PAGE 2> meaning of Code Section 4975(e)(8). For purposes of
Code Section 4975(e)(8), "Affiliate," as defined in Section 2.3
of the Plan, shall be modified in accordance with Code Section
409(l)(4).
2.10. "Compensation" means the actual salary or wages paid
during a Plan Year (including shift differential, draw, overtime
and bonus) to a Participant by the Company for personal services,
and including any salary reduction contributions elected by a
Participant pursuant to any plan maintained by the Company in
accordance with Code Sections 401(k) and 125, but excluding
severance, commissions, the value of any stock options included
in gross income, awards under any nonqualified plans of deferred
compensation and reimbursement for business, travel or
entertainment expenses incurred by the Participant and not
reported to the Internal Revenue Service as wages.
The annual compensation for each Participant taken into
account under the Plan shall not exceed $160,000, as adjusted by
the Secretary or his designate at the same time and in the same
manner as under Code Section 415(d). For purposes of the
determination and allocation of Employer contributions, the term
Compensation shall not include amounts received by an Employee
during a Plan Year before he or she commences or resumes
participation in the Plan.
2.11. "Disability" shall have the meaning set forth in the
Company's long-term disability plan.
2.12. "Effective Date" means _______________ which is the
date on which the provisions of this Plan become effective.
2.13. "Employee" means an individual who is employed as a
common law employee by the Company or an Affiliate on a salaried
or hourly basis and with respect to whom the Company or the
Affiliate is required to withhold taxes from remuneration paid to
him or her by the Company or Affiliate for personal services
rendered to the Company, including any officer or director who
shall so qualify. The term shall not include leased employees
within the meaning of Code Section 414(n). Employees shall not
include any individual whose employment with the Company or an
Affiliate is governed by a collective bargaining agreement
between the Company and employee representatives if evidence
exists that retirement benefits were a subject of good faith
bargaining between the parties, and provided such bargaining
agreement does not provide for participation in this Plan.
2.14. "Employer" means the Company.
2.15. "Entry Date" means January 1, April 1, July 1 and
October 1 of each Plan Year.
2.16. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, including any
regulations promulgated thereunder.
<PAGE 3>
2.17. "Exempt Loan" means an extension of credit to the
Plan which satisfies the requirements of Treasury Regulations
Section 54.4975-7(b) and Department of Labor Regulations Section
2550.408(b)-3, or any future law or regulation that modifies
either or both of these two regulations and affects the exemption
for such loans to an employee stock ownership plan.
2.18. "Fund" means the assets and all income, gains and
losses thereon held by the Trustee under the Trust Agreement for
the exclusive benefit of Participants and Beneficiaries of the
Plan.
2.19. "Highly Compensated Employee"
(a) Highly Compensated Employee means an Employee
who performs service during the determination year and is
described in one or more of the following groups:
(i) An Employee who is a 5% owner, as
defined in Code Section 416(i)(1)(A)(iii), at any time during the
determination year or the look-back year.
(ii) An Employee who receives compensation
in excess of $80,000 (indexed in accordance with Code
Section 415(d)) during the look-back year.
(iii) An Employee who receives compensation
in excess of $80,000 (indexed in accordance with Code
Section 415(d)) during the look-back year and is a member of the
top-paid group for the look-back year.
(b) For purposes of the definition of Highly
Compensated Employee, the following definitions and rules shall
apply:
(i) The determination year is the Plan Year
for which the determination of who is highly compensated is being
made.
(ii) The look-back year is the 12 month
period immediately preceding the determination year, or if the
Employer elects, the calendar year ending with or within the
determination year.
(iii) The top-paid group consists of the top
20% of employees ranked on the basis of compensation received
during the year. For purposes of determining the number of
employees in the top-paid group, employees described in Code
Section 414(q)(8) and Treasury Regulations Section 1.414(q)-1T
Q&A 9(b) are excluded.
(c) Compensation is compensation within the
meaning of Code Section 415(c)(3), plus, for purposes thereof,
elective or salary reduction contributions to a cafeteria plan,
cash or deferred arrangement under Code Section 401(k) or tax-
sheltered annuity. Employers aggregated under Code <PAGE 4>
Sections 414(b), (c), (m), or (o) are treated as a single
employer.
2.20. "Hours of Service" means:
(a) Performance of Duties. The actual hours for
which an Employee is paid or entitled to be paid by the Company
for the performance of duties;
(b) Nonworking Paid Time. Each hour for which an
Employee is paid or entitled to be paid by the Company on account
of a period of time during which no duties are performed
(irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity,
disability (to the extent not already included in Compensation),
layoff, jury duty, military duty or leave of absence; provided,
however, no more than 501 Hours of Service shall be credited to
an Employee on account of any single continuous period during
which he performed no duties; and provided further that no credit
shall be given for payments made or due under a plan maintained
solely for the purpose of complying with applicable worker's or
unemployment compensation or disability insurance laws or for
payments which solely reimburse an Employee for medical or
medically related expenses incurred by the Employee; and
(c) Maternity, Paternity and FMLA Leave. Solely
for purposes of determining whether a one year Break in Service
(as defined in Section 2.6 of the Plan) has occurred for purposes
of determining eligibility to participate and vesting, each hour
for which an Employee is absent from employment by reason of
(i) pregnancy of the Employee, (ii) birth of a child of the
Employee, (iii) placement of a child in connection with the
adoption of the child by an individual, or (iv) caring for the
child during the period immediately following the birth or
placement for adoption. Hours of Service shall also, for these
limited purposes, include each hour for which an Employee who has
worked for the Company or an Affiliate for at least 12 months and
for at least 1,250 Hours of Service during the year preceding the
start of the leave, is absent from employment on an unpaid family
leave for up to 12 weeks, as provided for in the Family and
Medical Leave Act of 1993 (the "FMLA Leave"), by reason of
(A) the birth or adoption of a child, (B) the care of a spouse,
child or parent with a serious health condition, or (C) his own
serious health condition, provided that such an Employee provides
the Company with a 30-day advance notice if the leave is
foreseeable, and/or medical certification satisfactory to support
his request for leave because of a serious health condition. For
purposes of determining whether an Employee's leave qualifies as
a "FMLA Leave" in order to be credited with Hours of Service
under this Plan, the Family and Medical Leave Act of 1993
("FMLA") and the regulations promulgated thereunder shall apply.
During the period of absence, the Employee shall be credited with
the number of hours that would be generally credited but for such
absence or if the general number of work hours is unknown, eight
Hours of Service for each normal workday during the leave
(whether or not approved). These hours shall be credited to the
computation period in which the leave of absence commences if
<PAGE 5> crediting of such hours is required to prevent the
occurrence of a one year Break in Service in such computation
period, and in other cases, in the immediately following
computation period. The computation period shall be the same as
the relevant period for determining eligibility computation
periods and vesting computation periods. Unless otherwise
required under the FMLA and the regulations promulgated
thereunder, no more than 501 Hours of Service shall be credited
under this paragraph for any single continuous period (whether or
not such period occurs in a single computation period).
(d) Back Pay. Each hour for which back pay,
irrespective of mitigation of damages, is either awarded or
agreed to by the Company; provided, however, Hours of Service
credited under paragraphs (a), (b) and (c) above shall not be
recredited by operation of this paragraph.
(e) Equivalencies. The Administrative Committee
shall have the authority to adopt any of the following
equivalency methods for counting Hours of Service that are
permissible under regulations issued by the Department of Labor:
(i) Working Time; (ii) Periods of Employment; (iii) Earnings; or
(iv) Elapsed Time. The adoption of any equivalency method for
counting Hours of Service shall be evidenced by a certified
resolution of the Committee, which shall be attached to and made
part of the Plan. Such resolution shall indicate the date from
which such equivalency shall be effective.
(f) Miscellaneous. Unless the Administrative
Committee directs otherwise, the methods of determining Hours of
Service when payments are made for other than the performance of
duties and of crediting such Hours of Service to Plan Years set
forth in Department of Labor Regulations Sections 2530.200b-2(b)
and (c), shall be used hereunder and are incorporated by
reference into the Plan.
Participants on military leaves of absence who are not
directly or indirectly compensated or entitled to be compensated
by the Company while on such leave shall be credited with Hours
of Service as required by Section 9 of the Military Selective
Service Act.
Notwithstanding any other provision of this Plan to the
contrary, an Employee shall not be credited with Hours of Service
more than once with respect to the same period of time.
2.21. "Investment Manager" means an investment advisor,
bank or insurance company, meeting the requirements of ERISA
Section 3(38), appointed by the Company to manage the Plan's
assets in accordance with the Trust Agreement.
2.22. "Normal Retirement Date" means the first day of the
calendar month coincident with or following the date on which a
Participant attains age 65.
2.23. "Participant" means an Employee participating in the
Plan in accordance with Article 3. <PAGE 6>
2.24. "Plan" means the Jade Financial Corp. Employee Stock
Ownership Plan, as set forth in this document and in the Trust
Agreement pursuant to which the Fund is maintained, in each case
as amended from time to time.
2.25. "Plan Year" means the calendar year.
2.26. "Suspense Account" means the account established and
maintained to hold Company Stock acquired with the proceeds of an
Exempt Loan and held in the Fund, which Company Stock has not
been allocated to the Accounts of Participants with respect to
the year of such acquisition.
2.27. "Trust Agreement" means the agreement of Trust
established by the Company and the Trustee for purposes of
holding title to the assets of the Plan.
2.28. "Trustee" means __________________________________ as
appointed by the Board of Directors of the Company in accordance
with Article 12 to hold legal title to the assets of the Fund and
that expressly agrees to be bound by the terms and conditions of
the Trust Agreement.
2.29. "Valuation Date" shall mean the last business day of
each calendar quarter (March 31, June 30, September 30 and
December 31), and such other more frequent dates as the
Administrative Committee may from time to time establish.
2.30. "Year of Service" means a Plan Year or the
eligibility computation period in which a Participant completes
at least 1,000 Hours of Service.
THE MASCULINE GENDER, WHERE APPEARING IN THE PLAN, SHALL BE
DEEMED TO INCLUDE THE FEMININE GENDER, UNLESS THE CONTEXT CLEARLY
INDICATES TO THE CONTRARY.
<PAGE 7>
ARTICLE 3
ELIGIBILITY
3.1. Eligibility Generally. Each Employee who is employed
by the Company on the Effective Date shall be eligible to become
a Participant in the Plan as of the Effective Date provided he
has attained age 21 and has satisfied the requirements of
Section 3.2 of the Plan relating to the completion of an
eligibility computation period.
3.2. Eligibility Computation Period. An Employee's
eligibility computation period shall be the twelve consecutive
month period during which the Employee is credited with 1,000 or
more Hours of Service beginning with the date the Employee first
performs an Hour of Service. Thereafter, the eligibility
computation period of an Employee shall be the Plan Year,
including the Plan Year that includes the first anniversary of
the date of his first Hour of Service.
3.3. Commencement of Participation. Each Employee who has
satisfied the requirements of Section 3.1 of the Plan shall
commence participation in the Plan on the later of the Effective
Date or the Entry Date concurrent with or next following the date
on which he satisfies such requirements.
3.4. Cessation of Participation. An Employee shall cease
to be a Participant upon the earliest of (a) the date on which he
retires under the Plan, (b) the date on which his employment with
the Company terminates for any reason, including death or
Disability, (c) the date on which his employment with the Company
is governed by a collective bargaining agreement that does not
provide for participation in this Plan; or (d) the date on which
he becomes a "leased employee" as defined in Code Section 414(n).
3.5. Special Rules for Participation and Vesting Purposes.
For purposes of determining an Employee's eligibility to
participate in the Plan pursuant to Section 3.1 of the Plan, and
for purposes of determining his Years of Service and vested
interest pursuant to this Section 3.5 and Section 4.1 of the
Plan, respectively, Hours of Service shall include an Employee's
Hours of Service (a) with an Affiliate after it became an
Affiliate hereunder, (b) while a "leased employee" as defined in
Code Section 414(n) with the Company or an Affiliate after it
became an Affiliate, (c) while an employee covered by the terms
of a collective bargaining agreement that does not provide for
participation in this Plan, or (d) with the Company prior to the
Effective Date provided such Employee was eligible to participate
in this Plan on the Effective Date in accordance with
Section 3.1.
3.6. Years of Service. A participant's vested interest in
his Account shall be based on his Years of Service. Subject to
the reemployment provisions of Section 3.7 of the Plan, a
Participant or Employee shall be credited with a Year of Service
<PAGE 8> for each Plan Year in which he is credited with 1,000 or
more Hours of Service with the Company.
3.7. Participation upon Reemployment. Upon the
reemployment of any person after the Effective Date who had
previously been employed by the Company on or after the Effective
Date, the following rules shall apply in determining his
participation in the Plan and his Years of Service under
Section 3.5 of the Plan:
(a) No Prior Participation. If the reemployed
Employee was not a Participant in the Plan during his prior
period of employment and the reemployed Employee incurred a one-
year Break in Service, he must meet the requirements of
Section 3.1 of the Plan for participation in the Plan as if he
were a new Employee. If the reemployed Employee was not a
Participant in the Plan during his prior period of employment and
the reemployed Employee did not incur a one-year Break in
Service, all Service with the Company before termination of
employment and after re-employment will be aggregated for
purposes of meeting the requirements of Section 3.1 of the Plan
for participation in the Plan. For purposes of this Article 3,
the term one-year Break in Service means a twelve consecutive
month period during which the Employee does not perform at least
500 hours of service.
(b) Prior Participation. If the reemployed
Employee was a Participant in the Plan during his prior period of
employment, he shall be entitled to resume participation in the
Plan on the date of his reemployment.
(c) Years of Service. Upon reemployment
following a Break in Service, any Employee who was entitled to a
nonforfeitable (vested) benefit as of the date of his original
Break in Service will have his Years of Service before and after
the Break in Service aggregated. Any Employee who was not
eligible for a nonforfeitable (vested) benefit under this Plan at
the date of his original Break in Service will have his Years of
Service before the Break in Service aggregated with his Years of
Service after the Break in Service unless the period commencing
with the date of his termination of employment and ending with
the date of his reemployment exceeds the greater of (i) his Years
of Service prior to the Break in Service or (ii) five years.
<PAGE 9>
ARTICLE 4
VESTING
4.1. In General. Each Participant shall have a vested
interest in his Account, if any, in accordance with the following
vesting schedule:
Years of Service
After the Effective Date Vested Percentage
0-3 Years of Service 0%
3 or more Years of Service 100%
For purposes of determining an Employee's vested
interest under this Section 4.1, an Employee's Years of Service
shall be disregarded as permitted by Code Section 411(a)(4)(D).
Notwithstanding any provision of this Plan to the contrary, Years
of Service will be credited to a Participant with respect to
periods of qualified military service as provided in Code
Section 414(u).
4.2. Normal Retirement Date. Notwithstanding the
provisions of Section 4.1 of the Plan, a Participant who
terminates employment on or after his Normal Retirement Date,
shall be 100 percent vested in his Account.
4.3. Death or Disability. Notwithstanding the provisions
of Section 4.1 of the Plan, if a Participant's employment is
terminated on account of death or Disability, he shall be
100 percent vested in his Account.
4.4. Forfeiture of Account. If a Participant terminates
employment prior to the time he is 100 percent vested in his
Account for a reason other than death, Disability, or Normal
Retirement, then the non-vested amount shall be immediately
forfeited and allocated as of the end of the Plan Year in which
the Participant incurs a one-year Break in Service. Forfeitures
shall be allocated to the Accounts of Participants who were
employed by the Company on the last day of the Plan Year with
respect to which forfeitures are allocated in the ratio that the
Compensation of each Participant for such Plan Year bears to the
total Compensation of all such Participants for such Plan Year.
<PAGE 10>
ARTICLE 5
CONTRIBUTIONS AND ALLOCATIONS
5.1. Company Contributions. For each Plan Year, the
Company may contribute cash or shares of Company Stock, or both,
in such amounts as may be determined by the Board of Directors.
In no event, however, shall Company contributions made under this
Section 5.1 exceed fifteen percent (15%) of each Participant's
Compensation, except to the extent Company contributions are used
to pay the interest on an Exempt Loan.
In the event shares of Company Stock are sold to the
Trustee for a Plan Year, the fair market value of such Company
Stock shall be determined in accordance with the provisions of
Article 8. Employer contributions made under this Section 5.1
shall be transferred to the Trustee no later than the due date
(including extensions) for filing the Company's Federal income
tax return.
5.2. Time and Manner of Contributions. All Company
contributions shall be paid directly to the Trustee, and a
contribution for any Plan Year shall be made not later than the
date prescribed by law for filing the Company's Federal income
tax return (including extensions, if any) for the Company's
taxable year that ends within or with that Plan Year.
5.3. Employee Contributions. Participants are neither
permitted nor required to make contributions to the Plan.
5.4. Recovery of Contributions. The Company may recover
contributions to the Plan, only as set forth in this Section 5.4.
(a) Contributions made to the Plan shall be
conditioned upon the initial and continuing qualification of the
Plan. If the Plan is determined to be disqualified,
contributions made in respect of any period subsequent to the
effective date of such disqualification shall be returned to the
Company.
(b) Contributions made to the Plan shall be
conditioned upon their deductibility under the Code. To the
extent that a deduction is disallowed for any contribution, such
amount shall be returned to the Company within one year after the
disallowance of the deduction.
(c) If a contribution, or any part thereof, is
made on account of a mistake of fact, the amount of the
contribution attributable to such mistake shall be returned to
the Company within one year after it is made.
5.5. Allocation of Employer Contributions. Subject to the
limitations set forth in Article 6, Employer contributions made
to the Trust in the form of cash or Company Stock for a Plan Year
shall be allocated to the Accounts of Participants in the ratio
of the Compensation of each Participant for the Plan Year to the
<PAGE 11> total Compensation of all Participants for the Plan
Year, provided that the Participant has completed 1,000 Hours of
Service and is actively employed on the last day of the Plan
Year. Notwithstanding any provision of this Plan to the
contrary, a Participant will have the right to share in
allocations of Employer contributions with respect to periods of
qualified military service as provided in Code Section 414(u).
5.6. Income on Investments. The income, gains, and losses
attributable to investments under the Plan shall be allocated
annually or at such other times as the Administrative Committee
may determine to the Accounts of Participants and Beneficiaries
who have undistributed balances in their Accounts on the
Valuation Date, in proportion to the amounts in the Accounts
immediately after the preceding Valuation Date, but after first
reducing each Account by any distributions, withdrawals or
transfers from the Trust during the interim period and increasing
each Account by any transfers to the Trust and by contributions
made to the Trust during the interim period.
Distributions from the Plan shall include income,
gains, and losses accrued as of the coincident or immediately
preceding Valuation Date, and shall not be adjusted
proportionately to reflect any income, gains, or losses accrued
after that Valuation Date. All valuations shall be based on the
fair market value of the assets in the Trust on the Valuation
Date.
5.7. Certain Stock Transactions. Shares of Company Stock
received by the Trustee as a result of a stock split, dividend,
conversion, or as a result of a reorganization or other
recapitalization of the Company shall be allocated as of the day
on which such shares are received by the Trustee in the same
manner as the shares of Company Stock to which they are
attributable are then allocated.
5.8. Valuation of Trust Fund. As of each Valuation Date,
the Trustee shall determine the fair market value of the Trust,
after deducting withdrawals, distributions, and any expenses of
Plan administration paid out of the Trust, and including any
contributions allocated to Participants' Accounts, for the
valuation period ending on the Valuation Date. In determining
value, the Trustee may use such generally accepted methods as the
Trustee, in its discretion, deems advisable, which, in the case
of Company Stock shall be in accordance with the provisions of
Article 8.
<PAGE 12>
ARTICLE 6
MAXIMUM LIMITATION ON ALLOCATIONS
6.1. Participation Solely in This Plan.
(a) If the Participant does not participate in,
and has never participated in another plan qualified under Code
Section 401(a) that is maintained by the Employer, or a welfare
benefit fund (as defined in Code Section 419(e)) maintained by
the Employer, or an individual medical account (as defined in
Code Section 415(l)(2)) maintained by the Employer, which
provides an Annual Addition, the amount of Annual Additions which
may be credited to the Participant's Account for any Limitation
Year shall not exceed the lesser of the Maximum Permissible
Amount or any other limitation contained in the Plan. If the
Company's contribution that would otherwise be contributed or
allocated to the Participant's Account would cause the Annual
Additions for the Limitation Year to exceed the Maximum
Permissible Amount, the excess amounts in the Participant's
Account must be allocated and reallocated to other Participants.
If the allocation or reallocation of the excess amounts cause the
Maximum Permissible Amount to be exceeded with respect to each
Participant for the Limitation Year, then these amounts must be
held unallocated in a Code Section 415 suspense account. If a
Code Section 415 suspense account is in existence at any time
during a Limitation Year pursuant to this Section 6.1, it will
not participate in the allocation of the Trust's investment gains
and losses. If a suspense account is in existence at any time
during a particular Limitation Year, other than the Limitation
Year described in the preceding sentence, all amounts in the Code
Section 415 suspense account must be allocated and reallocated to
Participants' Accounts (subject to the Maximum Permissible
Amount) before any Employer contributions may be made to the Plan
for that Limitation Year.
(b) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Company may determine
the Maximum Permissible Amount for a Participant on the basis of
a reasonable estimation of the Participant's Compensation for the
Limitation Year, uniformly determined for all Participants
similarly situated.
(c) As soon as is administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount
for the Limitation Year will be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
(d) If, after determining the Participant's
actual Compensation or, if as a result of an allocation of
forfeitures, there is an amount in excess of the Maximum
Permissible Amount allocated to a Participant's Account, the
excess shall be allocated in the same manner as provided for in
Section 6.2(a) of the Plan. <PAGE 13>
6.2. Participation in Another Defined Contribution Plan.
(a) This Section 6.2 applies if a Participant is
also covered under another defined contribution plan or a welfare
benefit fund (as defined in Code Section 419(e)) or an individual
medical account (as defined in Code Section 415(l)(2) maintained
by the Employer which provides an Annual Addition during any
Limitation Year. If the Participant participates in one or more
such plans, all reductions in Annual Additions shall be made
under such plans and not under this Plan. In the event that,
notwithstanding the preceding sentence, the Annual Additions to
be credited under this Plan should exceed the Maximum Permissible
Amount, the Annual Additions which would otherwise be credited to
the Participant's Account under any other such plan shall be
reduced prior to making any reduction hereunder, which reduction
shall be made to the maximum extent possible under this Plan and
shall be reduced in the manner set forth in Section 6.1 of the
Plan.
6.3. Participation in a Defined Benefit Plan.
(a) In the event a Participant participates in a
defined benefit plan or plans maintained by the Employer as well
as this Plan, the sum of the Defined Benefit Plan Fraction and
the Defined Contribution Plan Fraction will not exceed 1.0 for
any Limitation Year. If there is an excess, appropriate
adjustments to the Participant's benefits under defined benefit
plans maintained by the Employer shall be made prior to making
any adjustments to a Participant's Account under this Plan.
(b) For purposes of this Section 6.3, the Defined
Benefit Plan Fraction for any Limitation Year is a fraction:
(i) the numerator of which is the projected
annual benefit of the Participant (as determined under Code
Section 415) under all defined benefit plans of the Employer
(determined as of the close of the year); and
(ii) the denominator of which is the lesser
of --
(A) the product of 1.25 multiplied by
the dollar limitation in effect under Code Section 415(b)(1)(A);
(B) the product of 1.4 multiplied by
the amount which may be taken into account under Code Section
415(b)(1)(B) with respect to such individual under the defined
benefit plan for such year.
(c) For purposes of this Section 6.3, the Defined
Contribution Plan Fraction for any Limitation Year is a fraction
(i) the numerator of which is the sum of the
Annual Additions to the Participant's accounts under all defined
contribution plans of the Employer as of the close of such year;
and
<PAGE 14>
(ii) the denominator of which is the sum of
the lesser of the following amounts determined for such year and
for each prior Year of Service with the Employer:
(A) the product of 1.25 multiplied by
the dollar limitation in effect under Code Section 415(c)(1)(A);
(B) the product of 1.4 multiplied by
the amount which may be taken into account under Code Section
415(c)(1)(B) for the Participant for such year.
6.4. Definitions. The following definitions apply solely
for purposes of this Article 6.
(a) Annual Additions means the sum of the
following amounts credited to a Participant's Account for the
Limitation Year:
(i) employer contributions
(ii) employee contributions
(iii) forfeitures
(iv) amounts allocated to an individual
medical account (as defined in Code Section 415(l)(2)) which is
part of a pension or annuity plan maintained by the Employer
which are treated as Annual Additions to a defined contribution
plan, and
(v) amounts derived from contributions paid
or accrued, which are attributable to post-retirement medical
benefits, allocated to the separate account of a key employee, as
defined in Code Section 419A(d)(3), under a welfare benefit fund
maintained by the Employer which are treated as Annual Additions
to a defined contribution plan.
(vi) Excess amounts applied to reduce
Employer contributions under Sections 6.2 or 6.1 of the Plan in
the Limitation Year will be Annual Additions for such Limitation
Year.
(b) Compensation means wages, salary and other
remuneration for personal services required to be reported
pursuant to Code Sections 6041(d) and 6051(a)(3) (including, for
Limitation Years beginning after December 31, 1997, any elective
deferral (as defined in Code Section 402(g)(3)) and any amount
which is contributed or deferred by the Employer at the election
of the Employee and which is not includible in the gross income
of the Employee by reason of Code Sections 125 and 457) except
that Compensation will be determined without regard to any rules
under Code Section 3401(a) that limit remuneration based upon the
nature or location of the services performed.
(c) Employer means the Company and all members of
a controlled group of corporations (as defined in Code
Section 414(b) and modified by Code Section 415(h)) all commonly
<PAGE 15> controlled trades or businesses (as defined in Code
Section 414(c) as modified by Code Section 415(h)), any
affiliated service group (as defined in Code Section 414(m)) of
which the Company is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Code
Section 414(o).
(d) Limitation Year means the calendar year.
(e) Maximum Permissible Amount means the Maximum
Annual Additions that may be contributed or allocated to a
Participant's Account for any Limitation Year. Such amount shall
not exceed the lesser of:
(i) $30,000, as adjusted under Code
Section 415(d) (or if greater, 1/4 of the dollar limitation in
effect under Code Section 415(b)(1)(A)), or
(ii) 25 percent of the Participant's
Compensation for the Limitation Year.
The Maximum Permissible Amount shall be pro-rated in
the case of any Limitation Year of less than 12 months created by
the changing of the Limitation Year.
If no more than one-third of Company contributions to
the Plan for a Plan Year which are deductible under Code Section
404(a)(9) are allocated to the Accounts of Participants who are
Highly Compensated Employees, there shall be excluded in
determining the Maximum Permissible Amount of each Participant
for such Plan Year (A) the contributions applied to the payment
of interest on an Exempt Loan; and (B) any forfeitures of Company
contributions if the forfeited contributions were Company Stock
acquired with the proceeds of an Exempt Loan.
<PAGE 16>
ARTICLE 7
INVESTMENT OF TRUST ASSETS
7.1. Trust.
(a) All assets of the Plan shall be held in the
Trust. To the extent the Trustee deems practical, the Trustee
shall use all available cash, as directed by the Administrative
Committee, to purchase Company Stock in open market transactions,
from other stockholders or to buy newly issued Company Stock from
the Company. If the purchase is from the Company or a
Disqualified Person, such purchase shall be for adequate
consideration and no commission is to be charged with respect to
the purchase. If no such stock is available for purchase, or if
the Trustee determines that the purchase of such additional stock
is not practical, the Trustee shall invest in other securities or
property, real or personal, consistent with the requirements of
Title I of ERISA. These other securities, property and cash
shall be held by the Trustee in the Investment Fund. The
Investment Fund income shall be allocated as of each Valuation
Date to Participant's Investment Accounts in proportion to the
balance in these accounts at the beginning of the year.
(b) For purposes of this Article 7, Article 9,
Article 10 and Article 17, the term "Disqualified Person" means a
person defined in Code Section 4975(e), including but not limited
to (i) a fiduciary of the Plan; (ii) a person providing services
to the Plan; (iii) an owner of 50% or more of the combined voting
power or value of all classes of stock of the Company entitled to
vote or the total value of shares of all classes of stock of the
Company and certain members of such owner's family; or (iv) an
officer, director, 10% or greater shareholder or highly
compensated employee (who earns 10% or more of the yearly wages)
of the Company.
<PAGE 17>
ARTICLE 8
COMPANY STOCK APPRAISAL
The fair market value of Company Stock shall be
determined, on any relevant day, as follows: (a) if such stock
is then traded in the over-the-counter market, the closing sale
price (as reported in the National Market System by NASDAQ with
respect to such stock) for the most recent date (including such
relevant day) during which a trade in such stock has occurred, or
(b) if such stock is then traded on a national securities
exchange, the closing sale price for the most recent date
(including such relevant date) during which a trade in such stock
has occurred. In accordance with the provisions of Code Section
401(a)(28)(C), if Company stock is not actively traded in the
over-the-counter market, or on a national securities exchange, a
valuation of Company stock required to be made under this Plan
shall be made by an independent appraiser who satisfies
requirements similar to those contained in regulations issued
under Code Section 170(a)(1).
<PAGE 18>
ARTICLE 9
DISTRIBUTIONS
9.1. Termination of Employment. In the event of the
Participant's termination of employment for any reason (including
attaining his Normal Retirement Date, attainment of age 55 and
the completion of Five Years of Service or on account of death or
Disability), a Participant shall be entitled to a distribution of
all amounts determined under Article 4 that are credited to his
Account at the times set forth in this Article 9.
9.2. Death. Upon the death of a Participant, all amounts
credited to his Account shall be distributed to his Beneficiary,
determined in accordance with this Section 9.2.
(a) The Administrative Committee may require such
proof of death and such other evidence of the right of any person
to receive payment of the Account of a deceased Participant as
the Administrative Committee deems necessary. The Administrative
Committee's determination of death and of the right of any person
to receive payment shall be conclusive and binding on all
parties.
(b) The Beneficiary upon the death of a
Participant shall be his spouse; provided, however, that the
Participant may designate, on a form provided by the
Administrative Committee for such purpose, a Beneficiary other
than his spouse, if:
(i) the spouse has waived the right to be
the Participant's Beneficiary in the manner set forth in
subsection (c) of this Section 9.2; or
(ii) the Participant has established to the
satisfaction of the Administrative Committee that he has no
spouse or that his spouse cannot be located.
(c) Any consent by a Participant's spouse to
waive a death benefit must be filed with the Administrative
Committee in writing, in a manner, and on a form provided by the
Committee for such purpose. The spouse's consent must
acknowledge the effect of the consent and must be witnessed by a
notary public. The designation of a Beneficiary other than
spouse made by a married Participant must be consented to by his
spouse and may be revoked by the Participant in writing without
the consent of the spouse. Any new beneficiary designation must
comply with the requirements of this subsection (c). A former
spouse's waiver shall not be binding on a new spouse.
(d) In the event the designated Beneficiary fails
to survive the Participant, or if such designation shall be
ineffective for any reason, the Participant's Account shall be
paid in the following order of priority: first to the
Participant's surviving spouse, if any; second, if there is no
surviving spouse, to the Participant's surviving children, if
<PAGE 19> any, in equal shares; third, if there is neither a
surviving spouse nor surviving children, to the legal
representatives of the estate of the Participant.
9.3. Time of Payment.
(a) The distribution of a Participant's Account
shall begin as soon as administratively feasible, but not later
than 60 days after the end of the Plan Year, in which his date of
termination of employment occurred.
(b) The distribution of the Participant's Account
balance will be in one lump sum.
9.4. Form of Payment. Distributions of a Participant's
Account balance under this Article 9 shall be made in Company
Stock unless the distributee elects cash.
Such distributions shall be the fair market value of each
share multiplied by the number of shares credited to the
Participant's Account, with appropriate adjustments to reflect
intervening stock dividends, stock splits, stock redemptions, or
similar changes to the number of outstanding shares. The fair
market value of a share shall be determined as of the Valuation
Date immediately preceding the date the distribution is made or,
in the case of a transaction between the Plan and a Disqualified
Person, determined as of the date of the transaction.
9.5. Direct Rollover.
(a) Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's election
under this Article 9, a distributee may elect, at the time and in
the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
For purposes of this Section 9.5, the
following definitions apply:
"Eligible rollover distribution". An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: 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, or
any distribution to the extent such distribution is required
under Code Section 401(a)(9); or the portion of any distribution
that is not includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to
employer securities).
<PAGE 20>
"Eligible retirement plan". An eligible retirement
plan is an individual retirement account described in Code
Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a),
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.
"Distributee". A distributee includes an employee or
former employee. In addition, the employee's or former
employee's surviving spouse and the employee's or former
employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in Code
Section 414(p), are distributees with respect to the interest of
the spouse or former spouse.
"Direct rollover". A direct rollover is a payment by
the plan to the eligible retirement plan specified by the
distributee.
9.6. Diversification Election. Notwithstanding any
provision of this Article to the contrary, effective for Plan
Years commencing on or after _______________, a Participant who
has attained age 55 and completed at least ten years of
participation in this Plan may elect in writing, on a form
provided by the Administrative Committee for such purpose, within
ninety days after the close of each Plan Year during the
Qualified Election Period, to direct the investment of a portion
of his interest in the Company Stock Account not in excess of 25
percent of such interest, less amounts subject to all prior
elections under this Section 9.6 as a transfer to the applicable
defined contribution plan which permits Participants to make
investment elections. Upon a Participant's election to diversify
a portion of his interest in the Company Stock Account, Company
Stock in an amount equal to the portion so elected, valued as of
the Valuation Date concurrent with or immediately preceding the
date of such election will be transferred to the defined
contribution plan which permits Participants to make investment
elections. A participant may then make investment elections
among the several funds. Starting from the sixth Plan Year
during the Qualified Election Period of a Participant, 50 percent
shall be substituted for 25 percent in the preceding sentence.
For purposes of this Section 9.6, "Qualified Election
Period" means, with respect to a Participant, the period
beginning with the later of (a) the Plan Year in which the
Participant attains age 55 or (b) the Plan Year in which the
Participant completes at least ten years of participation in the
Plan and ending with the year in which the Participant terminates
his employment for any reason.
9.7. Election to Retain Interests in Plan. No distribution
shall be made to a Participant before his Normal Retirement Date
unless (a) the Participant's prior written consent to the
distribution has been obtained by the Administrative Committee,
<PAGE 21> or (b) the value of the Participant's Account does not
exceed, or at the time of any prior distribution in Plan Years
beginning before August 6, 1987, exceeded $3,500. For Plan Years
beginning after August 5, 1997, the amount of $3,500 is increased
to $5,000 determined as of the date of the event giving rise to
the distribution.
9.8. Mandatory Distributions.
(a) Subject to the provisions of Section 9.3 of
the Plan, unless a Participant otherwise elects in writing,
payment of benefits under this Plan shall commence not later than
sixty days after the close of the Plan Year in which the latest
of the following dates occur:
(i) the date on which the Participant
attains age 65;
(ii) the 10th anniversary of the date on
which the Participant commenced participation in the Plan; or
(iii) the date the Participant terminates
employment with the Company.
(b) (i) Any provision of this Plan to the
contrary notwithstanding, all amounts credited to a Participant's
Account shall commence to be distributed not later than the
April 1 of the calendar year following the calendar year in which
the Participant attains age 70-1/2, or retires (except that benefit
distributions to a 5 percent owner must commence by the April 1
of the calendar year following the calendar year in which the
Participant attains age 70-1/2). Any Participant attaining age
70-1/2 in years after 1995 may elect by April 1 of the calendar
year following the year in which the Participant attained age 70-
1/2 (or by December 31, 1997 in the case of a Participant
attaining 70-1/2 in 1996) to defer distribution until the
calendar year following the calendar year in which the
Participant retires. If no such election is made by the
Participant, the Participant will begin receiving distributions
by the April 1 of the calendar year following the calendar year
in which the Participant attained age 70-1/2 (or by December 31,
1997 in the case of a Participant attaining age 70-1/2 in 1996).
Any subsequent distributions for other distribution calendar
years, including the minimum distribution for the distribution
calendar year in which the Participant's initial minimum
distribution on April 1 occurs, will be made in a lump-sum on or
before December 31 of that distribution calendar year. All such
distributions shall be made in accordance with the rules set
forth in Code Section 401(a)(9), including the minimum
distribution incidental benefit requirements of Treasury
Regulations Section 1.401(a)(9)-2. A Participant is treated as a
5-percent owner for purposes of this Section is such Participant
is a 5-percent owner as defined in Code Section 416 at any time
during the Plan Year ending with or within the calendar year in
which such individual attains age 70-1/2. Once distributions
have begun to a 5-percent owner under this Section, they must
<PAGE 22> continue to be distributed, even if the Participant
ceases to be a 5-percent owner in a subsequent year.
1741 In the event the Participant dies after
distributions have commenced under this Article 9 but before his
entire Account is distributed, the remaining portion of his
Account shall be distributed at least as rapidly as under the
method of distribution being used as of the date of his death.
(iii) In the event the Participant dies
before distributions under this Article 9 have commenced, then,
unless the Beneficiary of the Participant is his spouse or a
designated Beneficiary, the entire balance in the Account of the
Participant shall be distributed on or before the December 31 of
the calendar year in which occurs the fifth anniversary of the
death of such Participant.
The preceding paragraph shall not apply if either
condition of (A) or (B) as set forth below are satisfied:
(A) If the Participant's designated
Beneficiary is the surviving spouse of such Participant or former
Participant, such distribution shall not be required to begin
prior to the date on which the Participant or former Participant
would have attained age 70 1/2, and at such time may be
distributed over the life expectancy of such spouse (if the
surviving spouse dies prior to commencement of distributions to
such spouse, then this subsection (A) shall be applied as if the
surviving spouse were the Participant or former Participant);
(B) If the Participant or former
Participant's distribution, or any portion thereof, is payable to
a designated Beneficiary, such distribution or portion thereof
may be distributed in accordance with regulations over the life
of such designated Beneficiary (or over, a period not extending
beyond the life expectancy of such designated Beneficiary) if
such distribution or portion thereof begins not later than one
year following the Participant or former Participant's death or
such later date as may be prescribed by regulations. For
purposes of subsections (A) and (B), life expectancy shall be
calculated in accordance with the provisions of Code Section 72.
Life expectancy of a surviving spouse may be calculated annually,
however. In the case of any other designated Beneficiary, life
expectancy must be calculated at the time payment first
commences.
Any amount payable to a child pursuant to the death of
a Participant or former Participant shall be treated as if it
were payable to the Participant's or former Participant's
surviving spouse if such amount would become payable to the
surviving spouse upon such child reaching majority (or other
designated event permitted by regulations).
Any distribution required under the incidental death
benefit requirements of Code Section 401(a)(9) shall be treated
as a distribution required under this Section of 9.8. <PAGE 23>
9.9. Dividend Distributions.
(a) Any cash dividends on Company Stock acquired
with the proceeds of an Exempt Loan and held in Suspense Account
shall be applied first to repay the principal and, at the
Committee's discretion, the interest, of the Exempt Loan. In
addition, if any cash dividends on shares of such Company Stock
allocated to Participant's Accounts are used to pay the principal
and/or the interest of the Exempt Loan at the Committee's
discretion, Company Stock with a fair market value not less than
the amount of the dividends so used must be allocated to the
Participants' Accounts to which such cash dividends would have
been allocated.
(b) After the payment of the principal and the
interest of the Exempt Loan, any remaining cash dividends on
Company Stock may be used to purchase Company Stock or allocated
to Accounts of Participants to subsection (c) below.
(c) In the case of any cash dividends on Company
Stock that are allocable to the Accounts of Participants with
respect to vested shares, they may be paid currently (or within
ninety days after the end of the Plan Year in which the dividends
are paid to the Trust) as cash, or the Company may pay such
dividends directly to the Participants' Accounts as the
Administrative Committee may determine.
9.10. Right of First Refusal. In the event a Participant
(or former Participant) or his Beneficiary desires to sell to a
third person Company Stock he received as a distribution from the
Plan, the Participant must first offer the Company, then the
Plan, the right to purchase his Company Stock at a price and on
such terms not less favorable to the Participant than the greater
of (a) the price established by a bona fide offer or (b) the fair
market value of the Company Stock using the value determined as
of the most recent Valuation Date. The right of the Company and
the Plan to purchase such stock shall lapse on the 14th day after
the Participant or former Participant or Beneficiary gives
written notice to the Company or the Plan of the fact that he has
received an offer from a third party to purchase his Company
Stock and of the price and other terms of such offer.
9.11. Prohibited Company Stock Transactions.
(a) No portion of the assets of the Plan
attributable to (or allocable in lieu of) Company Stock acquired
by the Plan in a sale to which Code Section 1042 applies may be
allocated to the Account of (i) any Qualifying Selling
Shareholder during the Nonallocation Period, or (ii) any other
person who owns more than 25 percent of (A) any class of
outstanding stock of the Company or any of its Affiliates, or
(B) the total value of any class of outstanding stock of the
Company or any of its Affiliates. For purposes of this Section,
the definition of "Affiliate" under Section 2.3 of the Plan shall
be modified in accordance with Code Section 409(l)(4).
<PAGE 24>
(b) For purposes of this Section 9.11, the
following initially capitalized words shall carry the following
meanings:
(i) "Qualifying Selling Shareholder" means
any shareholder of Company Stock who makes an election under Code
Section 1042(a) with respect to Company Stock, or any individual
who is related to (within the meaning of Code Section 267(b)) the
shareholder of Company Stock as defined above. The term shall
not include any lineal descendant of such shareholder or if the
aggregate amount allocated to the benefit of all such lineal
descendants during the Nonallocation Period does not exceed more
than 5 percent of Company Stock (or amounts allocated in lieu
thereof) held by the Plan which are attributable to a sale to the
Plan by any person related to such descendants (within the
meaning of Code Section 267(c)(4)) in a transaction to which Code
Section 1042 applied.
(ii) "Nonallocation Period" means the period
beginning on the date of the sale of Company Stock and ending on
the later of the date which is 10 years after the date of the
sale, or the date of the Plan allocation attributable to the
final payment of acquisition indebtedness incurred in connection
with such sale.
<PAGE 25>
ARTICLE 10
RIGHT TO SELL COMPANY STOCK
10.1. Put Requirements.
(a) In the event Company Stock is distributed and
is not publicly traded in the over-the-counter market or on a
national securities exchange at the time of distribution, the
Participant, former Participant, or Beneficiary may have an
option (the "Put") to require the Company to purchase all of the
shares actually distributed to him. The Put may be exercised at
any time during the Option Period (as defined in subsection (f)
below) by giving the Administrative Committee and the Company
written notice of the election to exercise the Put. The Put may
be exercised by a former Participant or a Beneficiary only during
the Option Period with respect to which the former Participant or
Beneficiary receives a distribution of Company Stock.
(b) (i) The price paid for Company Stock sold to
the Plan or the Company pursuant to the Put shall be the fair
market value of each share multiplied by the number of shares to
be sold under the Put, with appropriate adjustments to reflect
intervening stock dividends, stock splits, stock redemptions, or
similar changes to the number of outstanding shares. The fair
market value of a share shall be determined (A) as of the
Valuation Date immediately preceding the date the Put is
exercised, or (B) in the case of a transaction between the Plan
and a Disqualified Person, determined as of the date of the
transaction.
(ii) If the distribution of Company Stock to
a former Participant or Beneficiary constituted a distribution
within one taxable year of the balance of his Account, the
Company reserves the right to establish guidelines to be
exercised in a uniform and nondiscriminatory manner, to make
payment for the shares subject to the Put on an installment basis
in substantially equal annual, quarterly or monthly payments over
a period not to exceed five years, such period beginning no later
than thirty days after exercise of the Put. The Company shall
pay reasonable interest at least annually on the unpaid balance
of the price and shall provide to the former Participant or
Beneficiary adequate security with respect to the unpaid balance.
If the distribution was part of an installment distribution, the
Company shall pay the Participant in cash within thirty days
after exercise of the Put.
(c) The Put shall not be assignable, except that
the Participant's or former Participant's legal representative
(in the event of a Participant's incapacity) or, in the event of
a Participant's or former Participant's death, his Beneficiary
shall be entitled to exercise the Put during the Option Period
for which it is applicable.
(d) The Trustee (on behalf of the Plan) in its
discretion, may assume the Company's obligations under this
<PAGE 26> Section at the time a Participant, former Participant,
or Beneficiary exercises the Put, with the Company's consent. If
the Trustee assumes the Company's obligations, the provisions of
this Section that apply to the Company shall also apply to the
Trustee.
(e) The Administrative Committee shall notify
each Participant, former Participant, and Beneficiary who is
eligible to exercise the Put of the fair market value of each
share of Company Stock as soon as practicable following its
determination. The Administrative Committee shall send all
notices required under this Section to the last known address of
a Participant, former Participant, or Beneficiary, and it shall
be the duty of those persons to inform the Administrative
Committee of any changes in address.
(f) For purposes of this Section, the "Option
Period" is the period of sixty days following the day on which a
Participant, former Participant, or Beneficiary receives a
distribution. If such person does not exercise the Put during
that sixty-day period, the Option Period shall also be the sixty-
day period beginning on the first anniversary of the day on which
he received a distribution. Notwithstanding the preceding
sentences, when Company Stock is acquired with the proceeds of an
Exempt Loan, the "Option Period" shall be the fifteen (15) month
period beginning on the date such Company Stock is distributed to
a Participant (or his Beneficiary). Such 15-month period shall
be extended by a period equal to the number of days, if any,
during which the Company is precluded from honoring the put
option by reason of applicable federal or state law.
<PAGE 27>
ARTICLE 11
VOTING AND TENDER OF COMPANY STOCK
11.1. Voting.
(a) All shares of Company Stock held in the Trust
shall be voted by the Trustee.
(b) Each Participant and Beneficiary shall be
entitled to direct the Trustee as to the manner in which Company
Stock allocated to his Account is to be voted on any and all
matters which may be presented to the shareholders of Company
Stock.
(c) With respect to (i) allocated Company Stock
as to which no direction is received, (ii) unallocated shares of
Company Stock in the Suspense Account and (iii) allocated shares
of Company Stock that are not subject to voting right pass
through requirement under Code Section 409(e), the Trustee shall
vote such shares in proportion to the response received from
Participants and Beneficiaries for allocated shares under (b)
above. In exercising such discretion, the Trustee shall comply
with its fiduciary duties as required by ERISA.
11.
(a) The Trustee shall not sell, alienate,
encumber, pledge, transfer or otherwise dispose of any Company
Stock; except (i) as specifically provided for in the Plan or a
Trust Agreement, or (ii) in the case of a "tender or exchange
offer", as set forth in subsection (b) of this Section 11.2.
For purposes of this Article 11, the term "tender or
exchange offer" shall mean: (A) any offer for, or request for or
invitation for tenders or exchanges of, or offers to purchase or
acquire any shares of Company Stock that is directed generally to
shareholders of the Company, or (B) any transaction involving
Company Stock which may be defined as a "tender offer" under
proposed or final rules or regulations promulgated by the
Securities and Exchange Commission.
(b) (i) In the event of a tender or exchange
offer, each Participant or, if the Participant is not alive, his
Beneficiary, shall have the right to determine confidentially
whether to tender or exchange any whole and fractional shares of
Company Stock allocated to his Account and shall be entitled to
instruct the Trustee as to the tender of such shares. Upon
receipt of such instructions, the Trustee shall act with
respect to such Company Stock as instructed. With respect to
Company Stock as to which no instruction is received and shares
of Company Stock in the Suspense Account, the Trustee shall
tender such shares in proportion to the response received from
Participants and Beneficiaries as to allocated shares of Company
Stock. In exercising such discretion, the Trustee shall comply
with its fiduciary requirements of ERISA. <PAGE 28>
(ii) All shares of Company Stock held in the
Fund and not tendered pursuant to subsection (b)(i) of this
Section 11.2, including allocated shares for which no
instructions are received, shall continue to be held by the
Trustee.
(iii) Any shares of Company Stock not
tendered by a Participant or Beneficiary pursuant to
subsection (b)(i) of this Section 11.2 shall continue to be held
by the Trustee in such Participant's or Beneficiary's Account.
The Account of each Participant or Beneficiary tendering shares
of Company Stock pursuant to subsection (b)(i) of this
Section 11.2 shall be credited with the cash received by the
Trustee in exchange for the shares tendered from such
Participant's or Beneficiary's Account.
11.3. Fiduciary Responsibilities.
Each Participant shall be a "named fiduciary," within
the meaning of ERISA Section 402(a), with respect to the voting
and tender of Company Stock pursuant to Sections 11.1 and 11.2 of
the Plan.
11.4. Procedures for Voting and Tender.
(a) The Administrative Committee shall establish
and maintain procedures by which Participants and Beneficiaries
shall be (i) timely notified of their right to direct the voting
and tender of Company Stock allocated to their Accounts and the
manner in which any such directions are to be conveyed to the
Trustee, and (ii) given information relevant to making such
decisions. No directions shall be honored by the Trustee unless
timely and properly conveyed in accordance with such procedures.
(b) Voting instructions received from
Participants and Beneficiaries shall be held in confidence by the
Trustee or its delegate for this purpose and shall not be
divulged to the Company or to any officer or employee of the
Company or to any other person.
<PAGE 29>
ARTICLE 12
ADMINISTRATION
12.1. Fiduciary Responsibilities. A fiduciary shall have
only those specific powers, duties, responsibilities and
obligations as are specifically given him under the Plan or the
Trust. The Company shall have sole responsibility to make the
contributions provided for under the Plan and, by action of the
Board of Directors, to amend or terminate, in whole or in part,
the Plan or the Trust. The Board of Directors shall have sole
responsibility to appoint and remove members of the
Administrative Committee and the Trustees of the Plan. The
Administrative Committee shall have sole responsibility for the
general administration of this Plan and for the investment
policies of the Plan, for the selection of the Plan's investment
funds pursuant to the Plan, and for the appointment and removal
of any Investment Manager. Subject to the provisions of the Plan
and the Trust Agreement, the Trustee shall have sole
responsibility for the administration of the Trust and the
management of the assets held in the Trust, as set forth in the
Plan and the Trust. It is intended that each fiduciary shall be
responsible for the proper exercise of his own powers, duties,
responsibilities, and obligations and, except as otherwise
provided by law, shall not be responsible for any act or failure
to act by another fiduciary. A fiduciary may serve in more than
one fiduciary capacity with respect to the Plan. A fiduciary of
the Plan who is also an Employee shall not be compensated in his
capacity as fiduciary.
12.2. The Administrative Committee. Any member of the
Administrative Committee may resign with sixty (60) days advance
written notice to the Board of Directors. The Administrative
Committee shall select a Chairman and a Secretary to keep records
or to assist it in the discharge of its responsibilities. The
Administrative Committee shall have such duties and powers as are
necessary to discharge its responsibilities under the Plan,
including, but not limited to, the following:
(a) To require any person to furnish such
information as it requests for the purpose of the proper
administration of the Plan;
(b) To make and enforce such rules and
regulations and prescribe the use of such forms as it deems
necessary for the efficient administration of the Plan;
(c) To construe and interpret the Plan, including
the right to determine eligibility for participation, eligibility
for payment, the amount of benefits payable, the timing of
distributions and all other issues arising under the Plan as well
as the right to remedy possible ambiguities, inconsistencies or
omissions; provided, however, that all such interpretations and
decisions shall be applied in a uniform manner to all similarly
situated Participants and Beneficiaries;
<PAGE 30>
(d) To employ and rely upon such advisors
(including attorneys, independent public accountants, investment
advisors and enrolled actuaries) as it deems appropriate or
helpful in connection with the operation and administration of
the Plan;
(e) To maintain complete records of the
administration of the Plan;
(f) To prepare and file with the appropriate
governmental agencies such reports as required from time to time
with respect to the Plan under ERISA, the Code, or other laws and
regulations governing the administration of the Plan;
(g) To furnish or disclose to Participants,
Employees who may become Participants, and Beneficiaries
information about the Plan and statements of accrued benefits
under the Plan, in accordance with ERISA, the Code, or other laws
and regulations governing the administration of the Plan;
(h) To delegate to one or more members of the
Administrative Committee, or to persons other than Administrative
Committee members, any authority, duty or responsibility
pertaining to the administration or operation of the Plan;
provided, however, that each such delegation shall be made by a
written instrument authorized by the Administrative Committee and
maintained with the records of the Plan. If any person other
than an Employee is so designated, such person must acknowledge
in writing his acceptance of the duties and responsibilities
delegated to him. All such instruments and acknowledgements
shall be considered a part of the Plan;
(i) To determine, pursuant to procedures adopted
by it, whether a state domestic relations order served upon the
Plan is a "qualified domestic relations order" (as defined in
Code Section 414(p)); to place in escrow any benefits payable in
the period during which the Administrative Committee determines
the status of an order; and to take any necessary action to
administer distributions under the terms of a "qualified domestic
relations order";
(j) To discharge any responsibilities which are
allocated to the Administrative Committee elsewhere in this Plan.
All decisions and interpretations of the Administrative
Committee shall be binding and shall be entitled to the maximum
deference permitted under the law.
12.3. Plan Expenses. The Company shall pay all expenses
authorized and incurred by the Administrative Committee, except
to the extent such expenses are paid from assets of the Trust.
12.4. Meetings and Voting. The Administrative Committee
shall act by a majority vote of its respective members at a
meeting or, by written consent of a majority of its members,
without a meeting. The Administrative Committee shall hold
meetings, as deemed necessary by them, although any member may
<PAGE 31> call a special meeting of his committee by giving
reasonable notice to the other members. The Secretary of the
Administrative Committee shall have authority to give certified
notice in writing of any action taken by his committee.
12.5. Compensation. The members of the Administrative
Committee, if Employees, shall serve without compensation.
12.6. Claims Procedures.
(a) Any Participant or Beneficiary ("Claimant")
may file a written claim for a benefit under the Plan with the
Administrative Committee or with a person named by the
Administrative Committee to receive such claims;
(b) In the event of a denial or limitation of any
benefit or payment due or requested by any Claimant, such
Claimant shall be given a written notification containing
specific reasons for the denial or limitation of his benefit.
The written notification shall contain specific reference to the
pertinent Plan provisions on which the denial or limitation is
based. In addition, it shall contain a description of any
additional material or information necessary for the Claimant to
perfect a claim and an explanation of why such material or
information is necessary. Further, the notification shall
provide appropriate information as to the steps to be taken if
the Claimant wishes to submit his claim for review. This written
notification shall be given to a Claimant within ninety days
after receipt of his claim by the Administrative Committee (or
its delegatee to receive such claims), unless special
circumstances require an extension of time for processing the
claim. If such an extension of time is required, written notice
of the extension shall be furnished to the Claimant prior to the
termination of the ninety-day period and such notice shall
indicate the special circumstances which make the postponement
appropriate;
(c) In the event of a denial or limitation of
benefits, the Claimant or his duly authorized representative
shall be permitted to review pertinent documents and to submit
issues and comments in writing to the Administrative Committee.
In addition, the Claimant or his duly authorized representative
may make a written request for a full and fair review of his
claim and its denial by the Administrative Committee; provided,
however, that such written request must be received by the
Administrative Committee (or its delegatee to receive such
requests) within sixty days after receipt by the Claimant of
written notification of the denial or limitation. The sixty-day
requirement may be waived by the Administrative Committee in
appropriate cases; and
(d) (i) A decision shall be rendered by the
Administrative Committee within sixty days after the receipt of
the request for review; provided, however, that where special
circumstances require an extension of time for processing the
decision, it may be postponed, on written notice to the Claimant
(prior to the expiration of the initial sixty-day period) for an
<PAGE 32> additional sixty days, but in no event shall the
decision be rendered more than one hundred and twenty days after
the receipt of such request for review.
(ii) Notwithstanding subsection (d)(i) of
this Section 12.6, if the Administrative Committee holds
regularly scheduled meetings at least quarterly to review such
appeals, a Claimant's request for review shall be acted upon at
the meeting immediately following the receipt of the Claimant's
request unless such request is filed within thirty days preceding
such meeting. In such instance, the decision shall be made no
later than the date of the second meeting following the receipt
of such request by the Administrative Committee (or its delegatee
to receive such requests). If special circumstances require a
further extension of time for processing a request, a decision
shall be rendered not later than the third meeting of the
Administrative Committee following the receipt of such request
for review, and written notice of the extension shall be
furnished to the Claimant prior to the commencement of the
extension.
(iii) Any decision by the Administrative
Committee shall be furnished to the Claimant in writing and in a
manner calculated to be understood by the Claimant and shall set
forth the specific reason(s) for the decision and the specific
Plan provision(s) on which the decision is based.
12.7. Liabilities. The Administrative Committee, each
member or former member of such Committee, and each person to
whom duties and responsibilities have been delegated under the
Plan shall be indemnified and held harmless by the Company, to
the fullest extent permitted by ERISA, other applicable laws, and
the charter and By-laws of the Company.
<PAGE 33>
ARTICLE 13
AMENDMENTS
13.1. Right to Amend. Except as otherwise set forth in this
Article 13 or as may be required by law, the Board of Directors
reserves the right to amend the Plan at any time and in any
manner, without prior notification, consultation, or bargaining
with any Employee or representative of Employees by written
resolution of the Board of Directors adopted at a duly convened
meeting of the Board of Directors in accordance with the By-Laws
of the Company and the laws of the Commonwealth of Pennsylvania.
To the extent required by the Code or ERISA, no amendment to the
Plan shall decrease a Participant's benefit or eliminate an
optional form of distribution. No amendment shall make it
possible for any assets of the Plan to be used for or diverted to
any purposes other than for the exclusive benefit of Participants
and Beneficiaries.
13.2. Amendment by Administrative Committee. The
Administrative Committee may adopt any ministerial and
nonsubstantive amendment it deems necessary or appropriate to
(a) facilitate the administration, management and interpretation
of the Plan, (b) conform the Plan to current practice, or
(c) cause the Plan and its related Trust to qualify under Code
Sections 401(a)(1), 501(a) and 4975(e)(7) or to comply with ERISA
or any other applicable laws; provided that such amendment does
not have any material effect on the estimated cost to the Company
of maintaining the Plan.
13.3. Plan Merger and Asset Transfers. No assets of the
Trust shall be merged or consolidated with, nor shall any assets
or liabilities be transferred to any other plan, unless the
benefits payable to each Participant or Beneficiary, if this Plan
were terminated immediately after such action, would be equal to
or greater than the benefits such individuals would have been
entitled to receive if this Plan had been terminated immediately
before such action.
<PAGE 34>
ARTICLE 14
TERMINATION
14.1. Right to Terminate. While the Company intends the
Plan to be permanent, the Board of Directors reserves the right
to terminate the Plan at any time, without prior notification,
consultation, or bargaining with any Employee or representative
of Employees by written resolution of the Board of Directors
adopted at a duly convened meeting of the Board of Directors in
accordance with the By-laws of the Company and the laws of the
Commonwealth of Pennsylvania.
14.2. Effect of Termination. If the Plan is terminated,
contributions shall cease, and the assets remaining in the Trust,
after payment of any expenses, including expenses of
administration or liquidation, shall be retained in the Trust for
distribution in accordance with the terms of the Plan. Upon
termination (including a partial termination), or upon the
complete discontinuance of contributions by the Company, all
Participants shall be 100 percent vested in their Accounts.
<PAGE 35>
ARTICLE 15
MISCELLANEOUS
15.1. Non-alienation of Benefits. Except to the extent set
forth in a "qualified domestic relations order" (as defined in
Code Section 414(p)), or as otherwise permitted or required by
law, no distribution or payment under this Plan to any
Participant or Beneficiary, or assets held in the Trust or Plan,
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, whether
voluntary or involuntary, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge
shall be void. Nor shall any such distribution or payment be
subject to the debts, contracts, liabilities, engagements or
torts of any person entitled to such distribution or payment.
\RDG\ Appointment of Guardian. Where it is established to
the satisfaction of the Administrative Committee that a guardian
has been duly appointed on behalf of a person entitled to a
distribution under the Plan, the Administrative Committee may
cause payment to be made to the guardian for the benefit of the
entitled person. The Administrative Committee shall have no
responsibility with respect to the application of amounts so
paid.
15.3. Satisfaction of Benefit Claims. The assets of the
Trust shall be the sole source of benefits under this Plan, and
each Participant or any other person who shall claim the right to
any payment or benefit under this Plan shall be entitled to look
only to the Trust for such payment or benefit, and shall not have
any right, claim or demand against the Company or any officer or
director of the Company. Such Participant or person shall not
have a right to or interest in any assets of the Trust, except as
provided from time to time under this Plan.
15.4. Controlling Law. The provisions of the Plan shall be
construed, administered and enforced under the laws of the United
States and the Commonwealth of Pennsylvania.
15.5. Non-guarantee of Employment. Nothing contained in
this Plan shall be construed as a contract of employment between
the Company and any Employee, or as a right of any Employee to be
continued in the employment of the Company or as a limitation of
the right of the Company to discharge any of its Employees, with
or without cause.
15.6. Severability and Construction of the Plan.
(a) If any provision of the Plan or the
application of it to any circumstance(s) or person(s) is invalid,
the remainder of the Plan and the application of such provision
to other circumstances or persons shall not be affected thereby.
(b) Unless the context otherwise indicates, the
masculine wherever used shall include the feminine and neuter;
<PAGE 36> the singular shall include the plural; and words such
as "herein", "hereof," "hereby," "hereunder" and words of similar
import shall refer to the Plan as a whole and not any particular
part of it.
15.7. No Requirement of Profits. Contributions may be made
to the Plan without regard to current or accumulated profits of
the Company.
15.8. All Risk on Participants and Beneficiaries. Each
Participant and Beneficiary shall assume all risk in connection
with any decrease in the value of the assets of the Trust and the
Participants' and Beneficiaries' Accounts.
15.9. Special Rules. The following special rules apply to
the applicable provisions of the Plan.
(a) ________________________. Pursuant to the
provisions of an agreement dated as of _______________ between
______________________________________________________ and
________________________________________________________, became
a corporation controlled by the Company. For purposes of
eligibility to participate in the Plan under Article 3, and
vesting under Article 4, employees of ____________________ shall
be treated as if they were newly hired employees.
<PAGE 37>
ARTICLE 16
TOP-HEAVY PROVISIONS
16.1. Determination of Top-Heavy Status.
(a) Any provision of this Plan to the contrary
notwithstanding, for any Plan Year commencing after December 31,
1983, in which the Plan is a Top-Heavy Plan or a Super Top-Heavy
Plan, the provisions of this Article shall apply. The provisions
of this Article shall have effect only to the extent required
under Code Section 416. This Plan shall be deemed a Top-Heavy
Plan only with respect to any Plan Year in which, as of the
Determination Date, the aggregate of the Accounts of Key
Employees under the Plan exceeds 60 percent of the aggregate of
the Accounts of all Employees under the Plan.
(b) If the Plan is not included in a Required
Aggregation Group with other plans, then it shall be Top-Heavy
only if (i) when considered by itself it is a Top-Heavy Plan and
(ii) it is not included in a Permissive Aggregation Group that is
not a Top-Heavy Group.
(c) If the Plan is included in a Required
Aggregation Group with other plans, it shall be Top-Heavy only if
the Required Aggregation Group, including any permissively
aggregated plans, is Top-Heavy.
16.2. Super Top-Heavy Plan. This Plan shall be a Super Top-
Heavy Plan if it would be a Top-Heavy Plan if 90 percent were
substituted for 60 percent.
16.3. Top-Heavy Definitions. Solely for purposes of this
Article, the following words and phrases shall have the following
meaning;
(a) "Aggregation Group or Top Heavy Group" means
either a Required Aggregation Group or a Permissive Aggregation
Group.
(b) "Determination Date" means, with respect to
any Plan Year, the last day of the preceding Plan Year or in the
case of the first Plan Year of any plan, the last day of such
Plan Year or such other date as permitted under rules issued by
the U.S. Department of the Treasury.
(c) "The Company" means and all members of a
controlled group of corporations (as defined in Code Section
414(b) as modified by Code Section 415(h)), all commonly
controlled trades or businesses (as defined in Code Section
414(c) as modified by Code Section 415(h)), or affiliated service
groups (as defined in Code Section 414(m)) of which the Company
is a part.
(d) "Key Employee" means any employee or former
employee (and the Beneficiaries of such employee) who at any a
<PAGE 38> time during the period of five years ending on the
Determination Date was an officer of the Company if such
individual's annual compensation (as defined in Treasury
Regulations Section 1.415-2(d)) exceeds 50 percent of the dollar
limitation under Code Section 415(b)(1)(A); an employee who is an
owner (or person considered an owner under Code Section 318) of
one of the ten largest interests in the Company if such
individual's compensation exceeds 100 percent of the dollar
limitation under Code Section 415(c)(1)(A); an owner of 5 percent
of the Company; or an owner of 1 percent of the Company who has
annual compensation of more than $160,000. The determination of
who is a Key Employee will be made in accordance with Code
Section 416(i). A Non-Key Employee means any Employee who is not
a Key Employee.
(e) "Permissive Aggregation Group" means a
Required Aggregation Group plus any other plans maintained and
selected by the Company; provided that all such plans when
considered together satisfy the requirements of Code Sections
401(a)(4) and 410.
(f) "Required Aggregation Group" means each
qualified plan of the Company in which at least one Key Employee
participates or which enables any plan in which a Key Employee
participates to meet the requirements of Code Sections 401(a)(4)
or 410.
(g) "Valuation Date" means, for purposes of
determining if the Plan is Top-Heavy, the most recent Valuation
Date in the period of twelve months ending on the Determination
Date.
16.4. Top-Heavy Rules. For any year in which a Plan is
determined to be a Top-Heavy Plan or a Super Top-Heavy Plan the
following rules shall apply:
(a) For each Plan Year in which the Plan is Top-
Heavy or Super Top-Heavy, minimum contributions for a Participant
who is a Non-Key Employee shall be required to be made on behalf
of each Participant who is employed by the Company on the last
day of the Plan Year. The amount of the minimum contribution
shall be the lesser of the following percentage of compensation:
(i) 3 percent, or
(ii) the highest percentage at which
Contributions are made under the Plan for the Plan Year on behalf
of any Key Employee.
(A) For purposes of this paragraph
(ii), all defined contribution plans included in a Required
Aggregation Group shall be treated as one plan.
(B) This paragraph (ii) shall not apply
if the Plan is included in a Required Aggregation Group and the
Plan enables a defined benefit plan included in the Required
<PAGE 39> Aggregation Group to meet the requirements of Code
Sections 401(a)(4) or 410.
(C) If the highest percentage at which
Contributions are made under the Plan for a top-heavy Plan Year
on behalf of Key Employees is less than 3%, the amounts
contributed as a result of a salary reduction agreement must be
included in determining Contributions made on behalf of Key
Employees.
This subsection (a) shall not apply to the extent a
Participant other than a Key Employee is covered by any other
qualified plan(s) of the Company and the Company has provided
that the minimum contribution requirements applicable to this
Plan will be satisfied by the other plan(s).
(b) For any Plan Year in which the Plan is Top -
Heavy or Super Top-Heavy, only the first $160,000 (or such larger
amount as may be prescribed in rules issued by the U.S.
Department of the Treasury) of a Participant's annual
compensation shall be taken into account for purposes of
determining employer contributions under this Plan.
(c) The contributions made to the Plan by the
Company on behalf of a Participant shall be fully vested at all
times.
(d) For any Plan Year in which the Plan is Super
Top-Heavy, or for any Plan Year in which the Plan is Top-Heavy
and the additional minimum contributions or benefits required
under Code Section 416(h) are not provided, the dollar
limitations in the denominator of the Defined Benefit Fraction
and Defined Contribution Fraction (as defined in Article 6 of
this Plan) shall be multiplied by 100 percent rather than
125 percent. If the application of the provisions of this
Section 16.4 would cause any Participant to exceed 1.0 for any
Limitation Year, then the application of this Section shall be
suspended as to such Participant until such time as it no longer
exceeds 1.0. During the period of such suspension, appropriate
adjustments to the Participant's benefits under defined benefit
plans maintained by the Employer shall be made prior to making
any adjustments to a Participant's Account under this Plan.
(e) The vesting schedule when the Plan is Top-
Heavy is as follows:
Years of Service
After the Effective Date Vested Percentage
0-3 Years of Service 0%
3 or more Years of Service 100%
<PAGE 40>
ARTICLE 17
EXEMPT LOANS
17.1. General. The Trustee shall have the authority and
discretion to borrow money from a Disqualified Person, or another
source which is guaranteed by a Disqualified Person for the
purpose of (a) purchasing Company Stock, or (b) repaying a prior
Exempt Loan. Any Exempt Loan shall satisfy all of the
requirements of this Article 17.
17.2. Terms of Exempt Loan Agreements. All Exempt Loans
shall satisfy the following requirements:
(a) The loan shall be primarily for the benefit
of Participants and their Beneficiaries;
(b) The loan shall be for a specified term and
shall bear no more than a reasonable rate of interest.
(c) The collateral pledged by the Trustee shall
consist only of the Company Stock purchased with the borrowed
funds, or Company Stock that was pledged as collateral in
connection with a prior Exempt Loan that was repaid with the
proceeds of the current Exempt Loan.
(d) Under the terms of the agreement, the lender
shall have no recourse against the Trust, or any of its assets,
except with respect to the collateral and contributions (other
than contributions of Company Stock) by the Company that are made
to satisfy its obligations under the loan agreement and earnings
attributable to such collateral and such contributions.
(e) The payments made on the loan during a Plan
Year shall not exceed an amount equal to the sum of such
contributions and the earnings received during or prior to the
year less such payments on the exempt loan in prior years.
(f) In the event of default, the value of the
assets transferred in satisfaction of the loan shall not exceed
the amount of default; moreover, if the lender is a Disqualified
Person, the loan agreement shall provide for a transfer of assets
upon default only upon and to the extent of the failure of the
Plan to meet the payment schedule of the loan.
17.3. Prohibition on Purchase Arrangements. Except as
hereinafter provided in this Article 17, no Company Stock
acquired with the proceeds of an Exempt Loan shall be subject to
a put, call, or other option, or buy-sell or similar arrangement
while held by and when distributed from the Trust, whether or not
at the time of distribution the Plan is an employee stock
ownership plan. These protections and rights which attach to
Company Stock acquired with the proceeds of an Exempt Loan shall
not be terminable. <PAGE 41>
17.4. Suspense Account.
(a) If the Trust has entered into an Exempt Loan,
each Participant Account shall be adjusted for the payment of the
Exempt Loan in the manner set forth in the Trust Agreement.
Company contributions made to the Trust in the form of Company
Stock purchased with the proceeds of an Exempt Loan shall be held
in the Suspense Account as the collateral for that Exempt Loan.
Such stock shall be released from the Suspense Account on a
pro-rata basis according to the amount of the payment on the
Exempt Loan for the Plan Year, determined under one of the
following two alternative formulas in the discretion of the
Administrative Committee:
(i) for each Plan Year during the duration
of the Exempt Loan, the number of shares of Company Stock
released shall equal the number of such shares held in the
Suspense Account immediately before release for the current Plan
Year multiplied by a fraction, the numerator of which is the
amount of principal and interest paid for the year and the
denominator of which is the sum of the numerator plus the
remaining principal and interest to be paid for all future years.
The number of future years under the Exempt Loan must be
definitely ascertainable and must be determined without taking
into account any possible extensions or renewal periods. If the
interest rate under the loan is variable, the interest to be paid
in future years must be computed by using the interest rate
applicable as of the end of the Plan Year. If the collateral
includes more than one class of Company Stock, the number of
shares of each class to be released for a Plan Year must be
determined by applying the same fraction to each class; or
(ii) for each Plan Year during the duration
of the Exempt Loan, the number of shares of Company Stock
released is determined solely with reference to the principal
payment of the Exempt Loan. If Company Stock in the Suspense
Account is released in accordance with this subsection (ii),
(A) the Exempt Loan must provide for annual payments of principal
and interest at a cumulative rate that is not less rapid at any
time than level annual payments of such amounts for 10 years; and
(B) interest included in any payment is disregarded only to the
extent that it would be determined to be interest under standard
loan amortization tables.
This subsection (ii) will not be applicable if 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.
(b) Shares of Company Stock released in
accordance with Section 17.4(a) of the Plan shall then be
allocated to the Accounts of Participants first, in an amount
equal in value to any dividends paid on shares previously
allocated to Participant's Accounts that are used to repay the
Exempt Loan. The remaining shares of such stock shall be
<PAGE 42> allocated to the Accounts of Participants in the same
manner as described in Section 5.5.
17.5. Sale of Financed Shares. In the event the Plan
receives an offer to participate in a corporate transaction
(i.e., a stock sale, asset sale, merger or consolidation) before
all the shares of Company Stock have been released from the
Suspense Account, the Trustee may enter into an agreement for the
sale of all Company Stock which is not allocated to the accounts
of Participants, and use the proceeds thereof to repay an Exempt
Loan. Any proceeds of the sale of unallocated Company Stock
which is not required to repay the Exempt Loan, will be allocated
as earnings to Participant's Accounts.
IN WITNESS WHEREOF, Jade Financial Corp. has caused
this Plan to be duly executed under seal this ____ day of
_______________.
JADE FINANCIAL CORP.
By/s/______________________________
Attest:
/s/__________________________
[SEAL] <PAGE 43>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of
Jade Financial Corp. on Form SB-2 of our report, dated March 18,
1999, (May 26, 1999 with respect to Note 18) on our audits of the
consolidated financial statements of IGA Federal Savings Bank and
Subsidiary as of December 31, 1998 and June 30, 1998 and for the
six months then ended December 31, 1998 and years ended June 30,
1998 and 1997.
We also consent to the reference to our firm under the
caption "Experts".
/s/ Stockton Bates, LLP
Certified Public Accountants
Philadelphia, Pennsylvania
June 4, 1999
Exhibit 23.6
June 7, 1999
Board of Directors
IGA Federal Savings Bank
213 West Street Road
Feasterville, Pennsylvania 19053
Gentlemen:
We hereby consent to the use of our firm's name in the
Application for Conversion of IGA Federal Savings Bank,
Feasterville, Pennsylvania, and any amendments thereto, and in
the Form SB-2 Registration Statement, and any amendments thereto,
for Jade Financial Corporation. 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 Jade Financial Corporation.
Sincerely,
/s/ RP FINANCIAL, LC.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,742
<INT-BEARING-DEPOSITS> 3,205
<FED-FUNDS-SOLD> 5,034
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,607
<INVESTMENTS-CARRYING> 9,570
<INVESTMENTS-MARKET> 9,448
<LOANS> 99,027
<ALLOWANCE> (948)
<TOTAL-ASSETS> 159,852
<DEPOSITS> 143,934
<SHORT-TERM> 0
<LIABILITIES-OTHER> 838
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 15,294
<TOTAL-LIABILITIES-AND-EQUITY> 159,852
<INTEREST-LOAN> 8,734
<INTEREST-INVEST> 2,002
<INTEREST-OTHER> 740
<INTEREST-TOTAL> 11,476
<INTEREST-DEPOSIT> 5,475
<INTEREST-EXPENSE> 5,475
<INTEREST-INCOME-NET> 6,001
<LOAN-LOSSES> 1,038
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<EXPENSE-OTHER> 5,258
<INCOME-PRETAX> 663
<INCOME-PRE-EXTRAORDINARY> 663
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<NET-INCOME> 663
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<LOANS-NON> 226
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> (1,005)
<CHARGE-OFFS> 1,272
<RECOVERIES> 177
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<LOANS> 103,996
<ALLOWANCE> (1,074)
<TOTAL-ASSETS> 171,091
<DEPOSITS> 154,888
<SHORT-TERM> 0
<LIABILITIES-OTHER> 927
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 15,560
<TOTAL-LIABILITIES-AND-EQUITY> 171,091
<INTEREST-LOAN> 4,275
<INTEREST-INVEST> 1,210
<INTEREST-OTHER> 304
<INTEREST-TOTAL> 5,789
<INTEREST-DEPOSIT> 2,762
<INTEREST-EXPENSE> 2,762
<INTEREST-INCOME-NET> 3,027
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 198
<EXPENSE-OTHER> 3,119
<INCOME-PRETAX> 412
<INCOME-PRE-EXTRAORDINARY> 412
<EXTRAORDINARY> 146
<CHANGES> 0
<NET-INCOME> 266
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.90
<LOANS-NON> 170
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 519
<ALLOWANCE-OPEN> (948)
<CHARGE-OFFS> 254
<RECOVERIES> 80
<ALLOWANCE-CLOSE> (1,074)
<ALLOWANCE-DOMESTIC> (1,074)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 748
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,564
<INT-BEARING-DEPOSITS> 1,234
<FED-FUNDS-SOLD> 8,315
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,769
<INVESTMENTS-CARRYING> 5,594
<INVESTMENTS-MARKET> 5,521
<LOANS> 106,444
<ALLOWANCE> (1,116)
<TOTAL-ASSETS> 177,470
<DEPOSITS> 161,429
<SHORT-TERM> 0
<LIABILITIES-OTHER> 945
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 15,690
<TOTAL-LIABILITIES-AND-EQUITY> 177,470
<INTEREST-LOAN> 2,154
<INTEREST-INVEST> 645
<INTEREST-OTHER> 143
<INTEREST-TOTAL> 2,942
<INTEREST-DEPOSIT> 1,325
<INTEREST-EXPENSE> 1,325
<INTEREST-INCOME-NET> 1,617
<LOAN-LOSSES> 135
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,518
<INCOME-PRETAX> 188
<INCOME-PRE-EXTRAORDINARY> 188
<EXTRAORDINARY> 58
<CHANGES> 0
<NET-INCOME> 130
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.97
<LOANS-NON> 203
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 362
<ALLOWANCE-OPEN> (1,074)
<CHARGE-OFFS> 136
<RECOVERIES> 43
<ALLOWANCE-CLOSE> (1,116)
<ALLOWANCE-DOMESTIC> (1,116)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Stock Information Center
IGA Federal Savings
213 West Street Road
Feasterville, Pennsylvania 19053
Stock Order Form
_________________________________________________________________
Deadline the Subscription Offering ends at _________ p.m.,
Eastern Time, on ________, 1999. Your original Stock Order and
Certification Form, properly executed and with the correct
payment, must be received at the address on the top of this form
by this deadline, or it will be considered void.
_________________________________________________________________
(1) Number of Shares Price Per Share (2) Total Amount Due
____________________ X $10.00 = $___________________
The minimum number of shares that may be subscribed for is 25.
The maximum individual subscription, when combined with exchange
shares, is 30,000 shares in the Subscription Offering and Direct
Community Offering.
_________________________________________________________________
Method of Payment
(3) [ ] Enclosed is a check, bank draft or money order payable
to JADE FINANCIAL CORP. for $__________ (or cash if
presented in person).
(4) [ ] I authorize IGA Federal Savings to make withdrawals
from my IGA Federal Savings certificate or savings
account(s) shown below, and understand that the amounts
will not otherwise be available for withdrawal:
Account Number(s) Amount(s)
__________________ __________________
__________________ __________________
__________________ __________________
__________________ __________________
Total Withdrawal __________________
_________________________________________________________________
(5) [ ] Check here if you are a director, officer or employee
of IGA Federal Savings or a member of such person's
immediate family.
_________________________________________________________________
(6) [ ] Associate - Acting in Concert
Check here and complete the reverse side of this form,
if you or any associates (as defined on the reverse
side of this form) or persons acting in concert with
you have submitted other orders for shares in the
Subscription Offering and/or Direct Community Offering.
_________________________________________________________________
(7) Purchaser Information (additional space on back of form)
(a) [ ] Eligible Account Holder - Check here if you were a
depositor with IGA Federal Savings as of March 31,
1998. Enter information below for all deposit accounts
that you had at IGA Federal Savings on March 31, 1998.
(b) [ ] Supplemental Eligible Account Holder - Check here if
you were a depositor with IGA Federal Savings as of
June 30, 1999, but are not an Eligible Account Holder;
Enter information below for all deposit accounts that
you had at IGA Federal Savings on June 30, 1999.
(c) [ ] Other Member - Check here if you were a depositor of
IGA Federal Savings as of ______ ___, 1999 or a
borrower of IGA Federal Savings with loans outstanding
as of __________________ which continue to be
outstanding as of __________________, 1999 but are not
an Eligible Account Holder or a Supplemental Eligible
Account Holder. Enter information below for all
deposit accounts that you had at IGA Federal Savings on
__________________, 1999.
(d) [ ] Local Community - Check here if you are a permanent
resident of Philadelphia, Bucks, Chester or Delaware
Counties, Pennsylvania.
Account Title (Names on Accounts) Account Number
_________________________________ ______________
_________________________________ ______________
_________________________________ ______________
_________________________________________________________________
(8) Stock Registration
[ ] Individual
[ ] Joint Tenants
[ ] Tenants in Common
[ ] Uniform Transfer to Minors
[ ] Uniform Gift to Minors
[ ] Corporation
[ ] Partnership
[ ] Individual Retirement Account
[ ] Fiduciary Trust (Under Agreement Dated __________)
_________________________________________________________________
Name __________________ Social Security or Tax I.D. ___________
Name __________________ Social Security or Tax I.D. ___________
Street Address __________________________________________________
Daytime Telephone __________________
City ____________________ State _________ Zip Code ______________
Evening Telephone __________________
_________________________________________________________________
[ ] NASD Affiliation (This section only applies to those
individuals who meet the delineated criteria)
Check here if you are a member of the National Association
of Securities Dealers, Inc. ("NASD"), a person associated
with an NASD member, a member of the immediate family of any
such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which
an NASD member or person associated with an NASD member had
a beneficial interest. To comply with conditions under
which an exemption from the NASD's interpretation With
Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD affiliation box: (1) not
to sell, transfer or hypothecate the stock for a period of
three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within
one day of the payment therefor.
_________________________________________________________________
Acknowledgment. By signing below, I acknowledge receipt of the
Prospectus dated __________________, 1999 and understand I may
not change or revoke any order once it is received by JADE
FINANCIAL CORP. I also certify that this stock order is for my
account and there is no agreement or understanding regarding any
further sale or transfer of these shares. Federal regulations
prohibit any persons from transferring, or entering into any
agreement directly or indirectly to transfer the legal or
beneficial ownership of conversion subscription rights or the
underlying securities to the account of another person. IGA
Federal Savings will pursue any and all legal and equitable
remedies in the event it becomes aware of the transfer of
subscription rights and will not honor orders known by it to
involve such transfer. Under penalties of perjury, I further
certify that: (1) the social security number or taxpayer
identification number given above is correct; and I am not
subject to backup withholding. You must cross out this item
above, if you have been notified by the Internal Revenue Service
that you are subject to backup withholding because of the under-
reporting of interest or dividends on your tax return. By
signing below, I also acknowledge that I have not waived any
rights under the Securities Act of 1933 and the Securities
Exchange Act of 1934.
Signature. THIS FORM MUST BE SIGNED AND DATED TWICE: Here and
on the Certification Form on the reverse side. THIS ORDER IS NOT
VALID IF THE STOCK ORDER FORM AND CERTIFICATION FORM ARE NOT BOTH
SIGNED. YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE
PROVISIONS OF THE PROSPECTUS. When purchasing as a custodian,
corporate officer, etc., include your full title. An additional
signature is required only if payment is by withdrawal from an
account that requires more than one signature to withdraw funds.
THE SHARES OF COMMON STOCK HEREBY ARE NOT SAVINGS ACCOUNTS AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION. THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
________________________ _____________________ ______________
Signature Title (if applicable) Date
________________________ _____________________ ______________
Signature Title (if applicable) Date
FOR OFFICE Date Rec'd ___/___/___ Order # ____________
USE Check ______________ Category ____________
Batch #_________ Amount $______________ Deposit $____________
_________________________________________________________________
JADE FINANCIAL CORP.
Proposed Holding Company for IGA Federal Savings
_________________________________________________________________
Item (6)
Associates listed Number of
other stock orders shares ordered
___________________________ ______________
___________________________ ______________
___________________________ ______________
Item (7) continued: Purchaser Information
Account Title (Names on Accounts) Account Number
___________________________ ______________
___________________________ ______________
___________________________ ______________
Definition of Associate
The term "associate" of a person is defined to mean (i) any
corporation or other organization (other than JADE FINANCIAL
CORP. ("Holding Company"), IGA Federal Savings, (or a majority
owned subsidiary of IGA Federal Savings) of which such person is
a director, officer or partner or is directly or indirectly the
beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such person
has a substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity, provided,
however, that such term shall not include any tax-qualified
employee stock benefit plan of JADE FINANCIAL CORP. or IGA
Federal Savings in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary
capacity, provided, however, that such term shall not include any
tax-qualified employee stock benefit plan of JADE FINANCIAL CORP.
or IGA Federal Savings in which such person has a substantial
beneficial interest or serves as a trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such
person, or any relative of such person, who either has the same
home as such person or who is a director or officer of JADE
FINANCIAL CORP. or IGA Federal Savings or any of their
subsidiaries.
CERTIFICATION FORM
(This Certification Must Be Signed In Addition
to the Stock Order Form On Reverse Side)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE
PER SHARE, OF JADE FINANCIAL CORP. IS NOT A DEPOSIT OR AN ACCOUNT
AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY IGA
FEDERAL SAVINGS, OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of common stock are federally
insured or guaranteed, or are as safe as an insured deposit, I
should call the Office of Thrift Supervision, Northeast Regional
Director, Michael Simone, at __________________.
I further certify that, before purchasing the shares of common
stock of JADE FINANCIAL CORP., I received a copy of the
Prospectus dated, August ___, 1999 which discloses the nature of
the shares of common stock being offered thereby and describes
the following risks involved in an investment in the common stock
under the heading "Risk Factors" beginning on page 1 of the
Prospectus:
1. IGA is Now a Taxable Institution
2. Our Return on Equity Will Decrease and Our Expenses
Will Increase After Conversion
3. Risk of Making Commercial Real Estate Loans and
Commercial Business Loans
4. Rising Interest Rates May Hurt Our Profits
5. The Creation of the Charitable Foundation Will Reduce
Our Earnings
6. If our Computer Systems Do Not Properly Work on
January 1, 2000, our Business Operations Will be
Disrupted
7. The Amount of Common Stock We Will Control, Our
Articles of Incorporation and Bylaws and State and
Federal Statutory Provisions Could Discourage Hostile
Acquisitions of Control
__________________ _________ __________________ _________
Signature Date Signature Date
JADE FINANCIAL CORP.
Stock Ownership Guide and Stock Order Form Instructions
Stock Order Form Instructions
Item 1 and 2 - Fill in the number of shares that you wish to
purchase and the total payment due. The amount due is determined
by multiplying the number of shares ordered by subscription price
of $10.00 per share. The minimum purchase is 25 shares. The
maximum individual subscription is 30,000 shares in the
Subscription and Direct Community Offerings. JADE FINANCIAL
CORP. reserves the right to reject the subscription of any order
received in the Direct Community Offering, if any, in whole or in
part.
Item 3 - Payment for shares may be made in cash (only if
delivered by you in person), by check, bank draft or money order
payable to JADE FINANCIAL CORP. DO NOT MAIL CASH. Your funds
will earn interest at IGA Federal Saving's current passbook rate
of _________%.
Item 4 - To pay by withdrawal from a savings account or
certificate at IGA Federal Savings, insert the account number(s)
and the amount(s) you wish to withdraw from each account. If
more than one signature is required to withdraw, each must sign
in the signature box on the front of this form. To withdraw from
an account with checking privileges, please write a check. No
early withdrawal penalty will be charged on funds used to
purchase stock. A hold will be placed on the account(s) for the
amount(s) you show. Payments will remain in account(s) until the
stock offering closes. If a certain withdrawal reduces the
balance of a certificate account to less than the applicable
minimum, the remaining balance will thereafter earn interest at
the passbook rate.
Item 5 - Please check this box to indicate whether you are a
director, officer or employee of IGA Federal Savings, or a member
of such person's immediate family.
Item 6 - Please check this box if you or any associate (as
defined on the reverse side of the Stock Order Form) or person
acting in concert with you has submitted another order for shares
and complete the reverse side of the Stock Order Form.
Item 7 - Please check the appropriate box if you were:
(a) A depositor at IGA Federal Savings as of March 31,
1998. Enter information below for all deposit
accounts that you had a IGA Federal Savings on
March 31, 1998.
(b) A depositor at IGA Federal Savings as of June 30,
1999, but are not an Eligible Account Holder.
Enter information below for all deposit accounts
that you had at IGA Federal Savings on June 30,
1999.
(c) A depositor of IGA Federal Savings as of
__________________, 1999 or a borrower of IGA
Federal Savings with loans outstanding as of
___________________________ which continue to be
outstanding as of __________________, 1999, but
are not an Eligible Account Holder or a
Supplemental Eligible Account Holder. Enter
information below for all deposit accounts that
you had at IGA Federal Savings on _______________,
1999.
(d) A permanent resident of Philadelphia, Bucks,
Chester or Delaware Counties, Pennsylvania.
Item 8 - The stock transfer industry has developed a uniform
system of shareholder registrations that we will use in the
issuance of JADE FINANCIAL CORP. common stock. Please complete
this section as fully and accurately as possible, and be certain
to supply your social security or Tax ID number(s) and your
daytime and evening phone numbers. We will need to call you if
we cannot execute your order as given. If you have any questions
regarding the registration of your stock, please consult your
legal advisor. Subscription rights are not transferable. If you
are a qualified member, to protect your priority over other
purchasers as described in the Prospectus, you must take
ownership in at least one of the accountholder's names.
Stock Ownership Guide
Individual - The Stock is to be registered in an
individual's name only. You may not list beneficiaries for this
ownership.
Joint Tenants - Joint tenants with rights of survivorship
identifies two or more owners. When stock is held by joint
tenants with rights of survivorship, ownership automatically
passes to the surviving joint tenant(s) upon the death of any
joint tenant. You may not list beneficiaries for his ownership.
Tenants in Common - Tenants in common may also identify two
or more owners. When stock is to be held by tenants in common,
upon the death of one co-tenant, ownership of the stock will be
held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or
sale of shares held by tenants in common. You may not list
beneficiaries for this ownership.
Uniform Gift to Minors - For residents of many states, stock
may be held in the name of a custodian for the benefit of a minor
under the Uniform Gift to Minors Act. For residents in other
states, stock may be held in a similar type of ownership under
the Uniform Transfer to Minors Act of the individual state. For
either ownership, the minor is the actual owner of the stock with
the adult custodian being responsible for the investment until
the child reaches legal age. Only one custodian and one minor
may be designated.
Restrictions - On the first name line, print the first name,
middle initial and last name of the custodian, with the
abbreviation "CUST" after the name. Print the first name, middle
initial and last name of the minor on the second name line. Use
the minor's social security number.
Corporation/Partnership - Corporation/Partnerships may
purchase stock. Please provide the Corporation/Partnership's
legal name and Tax I.D. To have a depositor rights, the
Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor
rights and purchase limitations.
Individual Retirement Account - Individual Retirement
Account ("IRA") holders may make stock purchases from their
deposits through a prearranged "trustee-to-trustee" transfer.
Stock may only be held in a self-directed IRA. IGA Federal
Savings does not offer a self-directed IRA. Please contact the
Stock Information Center if you have any questions about your IRA
account.
Fiduciary Trust - Generally, fiduciary relationships (such
as Trusts, Estates, Guardianships, etc.) are established under a
form of trust agreement or pursuant to a court order. Without
legal document establishing a fiduciary relationship, your stock
may not be registered in a fiduciary capacity.
Restrictions - On the first name line, print the first name,
middle initial and last name of the fiduciary if the fiduciary is
an individual. If the fiduciary is a corporation, list the
corporate title on the first name line. Following the name,
print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of
the maker, donor or testator or the name of the beneficiary.
Following the name, indicate the type of legal document
establishing the fiduciary relationship (agreement, court order,
etc.). In the blank after "Under Agreement Dated," fill in the
dame of the document governing the relationship. The date of the
document need not be provided for a trust created by a Will.
Exhibit 99.3
IGA FEDERAL SAVINGS REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF IGA FEDERAL SAVINGS FOR USE ONLY AT A SPECIAL MEETING OF
MEMBERS TO BE HELD ON SEPTEMBER __, 1999 AND ANY ADJOURNMENT
THEREOF ("SPECIAL MEETING").
The undersigned being a member of IGA Federal Savings,
hereby authorizes the Board of Directors of IGA Federal Savings
or any successors in their respective positions, as proxy, with
full powers of substitution, to represent the undersigned at the
Special Meeting of Members of IGA Federal Savings to be held at
the executive offices of IGA Federal Savings located at 213 West
Street Road, Feasterville, Pennsylvania, on September __, 1999,
at ____ a.m., Eastern Time, and at any adjournment of said
meeting, to act with respect to all votes that the undersigned
would be entitled to cast if then personally present, as set
forth below.
(1) To vote "FOR" or "AGAINST" a Plan of Conversion
(the "Plan") pursuant to which IGA Federal Savings would be
converted from a federally chartered mutual savings bank to
a federally chartered stock savings bank as a wholly-owned
subsidiary of JADE FINANCIAL CORP., and the transactions
provided or in such Plan.
FOR [ ] AGAINST [ ]
(2) To approve the creation of the IGA Charitable
Foundation (the "Foundation") and JADE FINANCIAL CORP.'s
contribution to the Foundation of cash and shares of JADE
FINANCIAL CORP.'s common stock pursuant to the Plan.
FOR [ ] AGAINST [ ]
(3) To vote, in its discretion, upon such other
business as may properly come before the Special Meeting or
any adjournment thereof. Management is not aware of any
other such business.
This proxy, if executed, will be voted "FOR" adoption of the
Plan and "FOR" the creation of the Foundation and for adjournment
of the Special Meeting if necessary if no choice is made herein.
Please date and sign this proxy on the reverse side and return it
in the enclosed envelope.
Any Member giving a proxy may revoke it at any time before
it is voted by delivering to the Corporate Secretary of IGA
Federal Savings either a written revocation of the proxy, or a
duly executed proxy bearing a later date, or by voting in person
at the Special Meeting. <PAGE 1>
The undersigned hereby acknowledges receipt of a Notice of
Special Meeting of the Members of IGA Federal Savings called for
the ______ day of September, 1999 and a proxy statement for the
Special Meeting prior to the signing of this Proxy.
___________________________________
Signature Date
___________________________________
Signature Date
NOTE: Please sign exactly as your
name appears on this Proxy. Only
one signature is required in the
case of a joint account. When
signing in a representative
capacity, please give title.
<PAGE 2>
IGA FEDERAL SAVINGS
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
NOTICE OF SPECIAL MEETING OF MEMBERS
To be Held on September ___, 1999
Notice is hereby given that a special meeting (the "Special
Meeting") of members of IGA Federal Savings ("IGA") will be held
at the main office of IGA at 213 West Street Road, Feasterville,
Pennsylvania, on September ___, 1999, at _____ p.m., Eastern
Time, to consider and vote upon the following:
(1) To approve a Plan of Conversion (the "Plan") pursuant
to which IGA will convert from a federal mutual savings
bank to federal capital stock savings bank and issue
all of its capital stock to, and become a wholly-owned
subsidiary of, JADE FINANCIAL CORP., and other
transactions provided for in the Plan, including the
adoption of a new Federal Stock Charter and Bylaws for
IGA (the "Conversion");
(2) To approve the creation of the IGA Charitable
Foundation (the "Foundation"), a Pennsylvania non-stock
corporation dedicated to the promotion of charitable
purposes within the market areas IGA serves, and the
contribution of cash and shares of common stock to the
Foundation concurrent with the completion of the
conversion of IGA; and
(3) To consider and vote upon any other matters that may
lawfully come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be
those members of the IGA at the close of business on ________,
1999, and 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 Plan and
the establishment of the Foundation must be approved by the
affirmative vote of at least a majority of the number of votes
entitled to be cast at the Special Meeting. If there are not
sufficient votes for approval of the Plan and the establishment
of the Foundation at the time of the Special Meeting, the Special
Meeting may be postponed or adjourned to permit further
solicitation of proxies. The following proxy statement and the
<PAGE 3> prospectus attached hereto contain a more detailed
description of IGA, the proposed Conversion and the proposed
Foundation.
BY ORDER OF THE BOARD OF DIRECTORS
Mario L. Incollingo, Jr.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Feasterville, Pennsylvania
August __, 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
PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY, IGA
FEDERAL SAVINGS, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT
THE SPECIAL MEETING.
<PAGE 4>
IGA FEDERAL SAVINGS
213 WEST STREET ROAD
FEASTERVILLE, PENNSYLVANIA 19053
(215) 322-9000
PROXY STATEMENT
for the Special Meeting of Members
to be held on September __, 1999
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD
OF DIRECTORS OF IGA FEDERAL SAVINGS FOR USE AT A SPECIAL MEETING
OF MEMBERS TO BE HELD ON SEPTEMBER ___, 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 AND THE
CREATION OF THE IGA CHARITABLE FOUNDATION.
PURPOSE OF THE SPECIAL MEETING AND SUMMARY OF TRANSACTION
A special meeting of members (the "Special Meeting") of IGA
Federal Savings ("IGA") will be held at IGA's main office at 213
West Street Road, Feasterville, Pennsylvania, on September ___,
1999, at ____ p.m., Eastern Time, for the purpose of considering
and voting upon a Plan of Conversion (the "Plan"), which, if
approved by a majority of the total votes of the members eligible
to be cast, will permit (i) IGA to convert from a federal mutual
savings bank to a federal stock savings bank and become a
subsidiary of JADE FINANCIAL CORP. ("JADE FINANCIAL"), a
Pennsylvania corporation formed at the direction of IGA and
(ii) the creation of the IGA Charitable Foundation (the
"Foundation").
Pursuant to federal law, depositors and borrowers of IGA are
members of IGA. Members entitled to vote on the Plan of
Conversion are members of IGA as of _________________, 1999 (the
"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 and the creation of the Foundation require the
approval of not less than a majority of the total votes eligible
to be cast at the Special Meeting.
Pursuant to the Plan, IGA will convert from a federal mutual
to a federal stock savings bank and issue all of its capital
stock to, and become a wholly-owned subsidiary of, the JADE
FINANCIAL. As part of the Plan, nontransferable rights to
subscribe ("Subscription Rights") for up to 1,917,625 shares of
JADE FINANCIAL Common Stock ("Conversion Shares") have been
granted, in order of priority, to (i) depositors at IGA as of
March 31, 1998 (the "Eligible Account Holders"), (ii) the ESOP, a
tax-qualified employee benefit plan, (iii) depositors at IGA as
of June 30, 1999 (the "Supplemental Eligible Account Holders")
<PAGE 5> and (iv) borrower members of IGA as of ______________,
1999, subject to the priorities and purchase limitations set
forth in the Plan (the "Subscription Offering"). Concurrently,
but subject to the prior rights of Subscription Rights holders,
JADE FINANCIAL is offering the Conversion Shares for sale to
members of the general public through a direct community offering
(the "Direct Community Offering") with preference given first to
individuals (who are not Eligible Account Holders or Supplemental
Eligible Account Holders) and then to natural persons and trusts
of natural persons who are permanent residents of Philadelphia,
Bucks, Delaware and Chester Counties, Pennsylvania (the "Local
Community"). It is anticipated that any Conversion Shares not
subscribed for in the Subscription Offering or purchased in the
Direct Community Offering will be offered to eligible members of
the general public on a best efforts basis by a selling group of
broker-dealers managed by Charles Webb and Company in a
syndicated community offering (the "Syndicated Community
Offering"). The Subscription Offering, Direct Community Offering
and the Syndicated Community Offering are referred to
collectively as the "Conversion Offerings." JADE FINANCIAL and
IGA reserve the right, in their absolute discretion, to accept or
reject, in whole or in part, any or all orders in the Direct
Community Offering or the Syndicated Community Offering either at
the time of receipt of an order or as soon as practicable
following the termination of the Conversion Offerings. If an
order is rejected in part, the purchaser does not have the right
to cancel the remainder of the order.
The Plan has been approved by the Office of Thrift
Supervision (the "OTS"), subject to, among other things, approval
of the Plan by IGA's Members at the Special Meeting.
Following receipt of all required regulatory approvals, the
approval of the Members of IGA entitled to vote on the Plan, and
the satisfaction of all other conditions precedent to the Plan,
IGA will consummate the Plan. Following completion of the Plan,
IGA in its stock form will continue to conduct its business and
operations from the same offices with the same personnel as IGA
conducted prior to the Conversion. The Plan will not affect the
balances, interest rates or other terms of IGA's loans or deposit
accounts, and the deposit accounts will continue to be issued by
the Federal Deposit Insurance Corporation ("FDIC") to the same
extent as they were prior to the Conversion.
JADE FINANCIAL expects to receive approval of the OTS to
become a savings and loan holding company and to own all of the
common stock of IGA. JADE FINANCIAL intends to contribute one-
half of the net proceeds of the offering of common stock to IGA.
The Conversion will be effected only upon completion of the sale
of all of the shares of common stock to be issued pursuant to the
Plan.
The Plan also provides for the establishment of the
Foundation in connection with the Conversion. The Foundation,
which will be incorporated under Pennsylvania law as a non-stock
<PAGE 6> corporation will be funded with a contribution by JADE
FINANCIAL of cash and shares of common stock equal to 5.0% of the
value of the shares of common stock sold in the Offerings (1/3 of
the contribution will be made in cash and 2/3 will be made in
common stock). The authority for the affairs of the Foundation
will be vested in the Board of Directors of the Foundation, which
will initially consist of five persons, three of whom are
existing directors of IGA. The contribution of common stock to
the Foundation will be dilutive to the interests of shareholders
of JADE FINANCIAL and will have an adverse impact on the earnings
in the year of the contribution. See "Risk Factors - The
Creation of the Charitable Foundation Will Reduce Our Earnings."
Voting in favor of the establishment of the Foundation will
not in any way affect the votes in favor of or against the Plan.
If members vote for the adoption of the Plan but against the
establishment of the Foundation, IGA intends to consummate the
Conversion without establishing the Foundation.
Voting in favor of the Plan will not obligate any person to
purchase any common stock.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
IGA'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
(the "Voting Record Date"). All holders of savings accounts of
IGA and borrowers are members of IGA. All members of record as
of the close of business on the Voting Record Date who continue
to be members of IGA on the date of the Special Meeting or any
adjournment thereof will be entitled to vote at the Special
Meeting or such adjournment.
At the Special Meeting, each depositor member will be
entitled to cast one vote for every $100, or fraction thereof, of
the total withdrawal value of all of his accounts in IGA as of
the Voting Record Date up to a maximum of 1,000 votes, and each
borrower member will be entitled to cast one vote in the
aggregate for all loans as a borrower in addition to the vote
such member may be entitled to cast as a depositor up to an
aggregate maximum of 1,000 votes. As of the Voting Record Date,
the Bank had approximately ______ deposit holders which are
entitled to cast a total of approximately _________ depositors'
votes, and _____ borrowers' votes, for a total of approximately
_________ votes eligible to be cast at the Special Meeting.
Consummation of the Plan and creation of the IGA Charitable
Foundation is contingent upon the affirmative vote of a majority
of the total outstanding votes of IGA's members eligible to vote
at the Special Meeting (the "Voting Members").
<PAGE 7>
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 and the creation
of the Foundation. All properly executed proxies received by
management will be voted in accordance with the instructions
indicated thereon. If no instructions are given, these proxies
will be voted in favor of the Plan and the creation of the
Foundation. If any other matters are properly presented at the
Special Meeting, 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
IGA, 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 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.
The trustees for individual retirement accounts at IGA, will
vote in favor of the Plan and the creation of the Foundation,
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 and
the creation of the Foundation, proxies may be solicited by
officers, directors or regular employees of IGA, in person, by
telephone or through other forms of communication. Such persons
will be reimbursed by IGA 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. IGA has retained Charles Webb & Company, a division of
Keefe, Bruyette & Woods, Inc., to provide proxy solicitation and
vote tabulation services, to act as inspector of election and to
provide financial and marketing advisory services for the
Conversion Offerings, for an aggregate fee equal to 1.40% of the
dollar value of the common stock sold in the Conversion Offerings
(as such terms are defined in the Plan), subject to certain
limitations and exclusions. See "The Conversion - Marketing
Arrangements" in the prospectus. IGA will bear all costs
associated with proxy solicitation and vote tabulation.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that you vote
"FOR" the Plan and "FOR" the creation of the Foundation. Voting
in favor of the Plan and the creation of the Foundation will not
obligate any voter to purchase any common stock.
<PAGE 8>
REASONS FOR CONVERSION
See "The Conversion - Our Reasons for the Corporate Change"
and "Effects of the Conversion" in the prospectus for a
discussion of the basis upon which the Board of Directors
determined to undertake the proposed Conversion. As more fully
discussed in those sections and in other sections of the
prospectus, the Board of Directors believes that the Plan is in
the best interest of IGA, its members and the communities it
serves.
STOCK-BASED BENEFITS TO MANAGEMENT
See "Summary-Benefits to Management from the Offering," and
"Management-Benefits" in the prospectus for a discussion of the
interests of management in the Conversion and stock benefit
plans.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which
approves, with or without conditions, or disapproves a plan of
conversion 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
OTS 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. Section 563b.6(c), whichever is later. The further
procedure for review is as follows: A copy of the petition is
forthwith transmitted to the OTS by the clerk of the court and
thereupon the OTS files in the court the record in 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 conclusive, to affirm,
modify, terminate, or set aside in whole or in part, the final
action of the OTS. 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 Supreme Court upon certiorari as provided in
Section 1254 of Title 28 of the United States Code.
RISK FACTORS
See "Risk Factors" in the prospectus for a discussion of
certain factors that should be considered by prospective
investors, including, among other factors, "IGA is Now a Taxable
Institution," "Our Return on Equity Will Decrease and Our
Expenses Will Increase After Conversion," "Risk of Making
Commercial Real Estate Loans and Commercial Business Loans,"
"Rising Interest Rates May Hurt Our Profits." "The Creation of
the Charitable Foundation Will Reduce Our Earnings." "If Our
<PAGE 9> Computer Systems Do Not Properly Work on January 1,
2000, Our Business Operations Will Be Disrupted" and "The Amount
of Common Stock We Will Control, Our Articles of Incorporation
and Bylaws and State and Federal Statutory Provisions Could
Discourage Hostile Acquisitions of Control."
ADDITIONAL INFORMATION
Copies of the Plan, the proposed Federal Stock Charter and
Bylaws of IGA or JADE FINANCIAL's Articles of Incorporation and
Bylaws may be obtained without charge by written request to IGA.
Also a copy of the Articles of Incorporation or Bylaws of the
Foundation are available without charge by written request to
IGA.
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 (___) ___-____.
BY ORDER OF THE BOARD OF DIRECTORS
Mario L. Incollingo, Jr.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Feasterville, Pennsylvania
August ___, 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 IGA 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. <PAGE 10>
