As filed with the Securities and Exchange Commission on June 18, 1999
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
EVERTRUST FINANCIAL GROUP, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Washington 6036 [Applied For]
- ------------------------------- ------------------ -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
2707 Colby Avenue, Suite 600
Everett, Washington 98201
(425) 258-3645
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire Beth A. Freedman, Esquire
BREYER & ASSOCIATES PC SILVER, FREEDMAN & TAFF, L.L.P.
Suite 700 East Suite 700 East
1100 New York Avenue, N.W. 1100 New York Avenue, N.W.
Washington, D.C. 20005 Washington, D.C. 20005
---------------------------- -------------------------------
(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
=======================================================================================================
Calculation of Registration Fee
=======================================================================================================
Proposed Maximum Proposed Proposed Maximum
Title of Each Class of Securities Amount Being Offering Aggregate Offering Amount of
Being Registered Registered(1) Price(1) Price(1) Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 8,986,250 $10.00 $89,862,500 $24,982
=======================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. Includes
shares to be issued to The EverTrust Foundation. As described in the
Prospectus, the actual number of shares to be issued and sold are subject
to adjustment based upon the estimated pro forma market value of the
registrant and market and financial conditions.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Cross Reference Sheet showing the location in the Prospectus
of the Items of Form S-1
1. Forepart of the Registration Forepart of the Registration Statement;
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus Cover Page
3. Summary Information, Risk Summary; Risk Factors
Factors and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds How EverTrust Financial Group, Inc. Intends
to Use the Conversion Offering Proceeds;
Capitalization
5. Determination of Offering Market for EverTrust Financial Group,
Price Inc.'s Common Stock
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Mutual Bancshares' Conversion
9. Description of Securities to Description of Capital Stock of EverTrust
be Registered Financial Group, Inc.
10. Interests of Named Experts Legal and Tax Opinions; Experts
and Counsel
11. Information with Respect to
the Registrant
(a) Description of Business Business of Mutual Bancshares
(b) Description of Property Business of the Mutual Bancshares --
Properties
(c) Legal Proceedings Business of the Mutual Bancshares -- Legal
Proceedings
(d) Market Price of and Outside Front Cover Page; Market for
Dividends on the EverTrust Financial Inc.'s Common Stock;
Registrant's Common EverTrust Financial Group, Inc.'s Dividend
Equity and Related Policy
Stockholder Matters
(e) Financial Statements Consolidated Financial Statements;
Pro Forma Data
(f) Selected Financial Data Selected Consolidated Financial Information
(g) Supplementary Financial *
Information
<PAGE>
(h) Management's Discussion Management's Discussion and Analysis
and Analysis of Financial of Financial Condition and Results of
Condition and Results of Operations
Operations
(i) Changes in and *
Disagreements with
Accountants on Accounting
and Financial Disclosure
(j) Directors and Executive Management of EverTrust Financial Group,
Officers Inc.; Management of Everett Mutual Bank
(k) Executive Compensation Management of EverTrust Financial Group,
Inc.; Management of Everett Mutual Bank --
Benefits -- Executive Compensation
(l) Security Ownership of *
Certain Beneficial Owners
and Management
(m) Certain Relationships and Management of Everett Mutual Bank -- Loans
Related Transactions and Other Transactions with Officers and
Directors
12. Disclosure of Commission Part II - Item 17
Position on Indemnification
for Securities Act Liabilities
- ----------
* Item is omitted because answer is negative or item inapplicable.
<PAGE>
PROSPECTUS [LOGO]
EVERTRUST FINANCIAL GROUP, INC.
(FORMERLY KNOWN AS MUTUAL BANCSHARES,
HOLDING COMPANY FOR EVERETT MUTUAL BANK AND COMMERCIAL BANK OF EVERETT)
8,596,250 SHARES OF COMMON STOCK
EverTrust Financial Group, Inc., formerly known as Mutual Bancshares, a mutual
holding company that was created in connection with Everett Mutual Bank's
reorganization from a mutual savings bank to the mutual holding company form of
organization in 1993, is now undertaking a mutual to stock conversion into a
stock holding company and issuing shares of its common stock, no par value per
share, in connection with the conversion. EverTrust Financial Group, Inc. has
never issued or been authorized to issue any capital stock. EverTrust Financial
Group, Inc. is offering its common stock to the public as part of Mutual
Bancshares' and Everett Mutual Bank's conversion. The conversion must be
approved by a majority of the votes eligible to be cast by the members of
Everett Mutual Bank.
----------
OFFERING SUMMARY
Price Per Share: $10.00
Proposed Nasdaq National Market trading symbol: EVRT
<TABLE>
<CAPTION>
Maximum Maximum
Without Further Subject to Further
Minimum Midpoint Regulatory Approval Regulatory Approval
------- -------- ------------------- -------------------
<S> <C> <C> <C> <C>
Number of shares: 5,525,000 6,500,000 7,475,000 8,596,250
Gross offering proceeds: $55,250,000 $65,000,000 $74,750,000 $85,962,500
Estimated underwriting
commissions, other offering
expenses and contribution to
The EverTrust Foundation: $2,605,000 $2,800,000 $2,800,000 $2,800,000
Estimated net proceeds: $52,645,000 $62,200,000 $71,950,000 $83,162,500
Estimated net proceeds per share: $9.53 $9.57 $9.63 $9.67
</TABLE>
For a discussion of certain risks that you should consider, see "Risk Factors"
beginning on page 1.
With the approval of the Washington Department of Financial Institutions,
Division of Banks, and the non- objection of the Federal Deposit Insurance
Corporation, EverTrust Financial Group, Inc. may increase the maximum number of
shares of common stock by up to 15% to 8,596,250 shares.
EverTrust Financial Group, Inc. intends to list the common stock on the
Nasdaq National Market System. Charles Webb & Company, a Division of Keefe,
Bruyette & Woods, Inc., will use its best efforts to assist EverTrust Financial
Group, Inc. in selling at least the minimum number of shares but does not
guarantee that this number will be sold. Charles Webb is not obligated to
purchase any shares of common stock in the offering. Keefe, Bruyette & Woods,
Inc. intends to make a market in the common stock.
----------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Washington Department of
Financial Institutions, the Federal Deposit Insurance Corporation, nor any state
securities regulator has approved or disapproved these securities or determined
if this prospectus is accurate or complete. Any representation to the contrary
is a criminal offense.
----------
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact the stock information center toll free at (888)_____ - ______ or
(425) _____-________.
CHARLES WEBB & COMPANY a Division
of Keefe, Bruyette & Woods, Inc.
The date of this prospectus is ___________, 1999
<PAGE>
WHO IS ELIGIBLE TO PURCHASE STOCK?
o First Priority: Persons with $50 or more on deposit at Everett
Mutual Bank as of December 31, 1997.
o Second Priority: The EverTrust Financial Group, Inc. employee
stock ownership plan.
o Third Priority: Persons with $50 or more on deposit at Everett
Mutual Bank as of June 30, 1999.
o Fourth Priority: Everett Mutual Bank's depositors and borrowers
as of _________ __, 1999.
o Fifth Priority: Persons with $50 or more on deposit at Commercial
Bank of Everett as of December 31, 1997.
o Sixth Priority: All other people.
For additional information regarding eligibility, see "Mutual Bancshares'
Conversion -- The Subscription, Direct Community and Syndicated Community
Offerings."
The subscription offering will end at 12:00 Noon, Pacific Time, on
______________, 1999. If the conversion is not completed by _________, 1999, and
the Washington Department of Financial Institutions, Division of Banks and the
Federal Deposit Insurance Corporation gives Mutual Bancshares more time to
complete the conversion, EverTrust Financial Group, Inc. will give all
subscribers the opportunity to increase, decrease or cancel their orders. All
extensions may not go beyond __________, 2001. EverTrust Financial Group, Inc.
will hold all funds received from subscribers in an interest-bearing savings
account at Everett Mutual Bank until the conversion is completed or terminated.
EverTrust Financial Group, Inc. will return all funds promptly with interest if
the conversion is terminated.
Reference to Mutual Bancshares in this prospectus refers to the holding company
on a historical basis. Reference to EverTrust Financial Group, Inc. in this
prospectus refers to the holding company in the future, following the
conversion.
<PAGE>
[MAP TO BE FILED BY AMENDMENT]
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are frequently asked questions. You should read this
entire prospectus, including "Risk Factors" beginning on page 1, and "Mutual
Bancshares' Conversion" beginning on page 105, for more information.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering for sale up to 7,475,000 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 5,525,000
shares. If the appraised market value of the common stock changes due
to market or financial conditions, then, without notice to you, we may
be required to sell up to 8,596,250 shares.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER TO
PURCHASE THE STOCK?
A. There are many important factors for you to consider before making an
investment decision. Therefore, you should read this entire prospectus
before making your investment decision.
Q. WILL CASH DIVIDENDS BE PAID ON THE STOCK?
A. We do not intend to initially pay cash dividends on our common stock.
No determination has been made with respect to a dividend policy.
Q. WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A. We anticipate having our stock quoted on the Nasdaq National Market
System under the symbol "EVRT." There can be no assurance that someone
will want to buy your shares or that you will be able to sell them for
more money than you originally paid. You should consider the
possibility that you may be unable to easily sell our stock. There may
also be a wide spread between the bid and asked price for our stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY
GOVERNMENT AGENCY?
A. No. Unlike insured deposit accounts at Everett Mutual Bank or
Commercial Bank of Everett, our stock will not be insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly signed order form with the required payment
on or before 12:00 Noon, Pacific Time, on ________, 1999.
Q. CAN THE OFFERING BE EXTENDED?
A. If we do not receive sufficient orders, we can extend the offering
beyond _______, 1999. We must complete any offering to general members
of the public within 45 days after the close of the subscription
offering, unless we receive regulatory approval to further extend the
offering. No single extension can exceed 90 days, and the extensions
may not go beyond _______, 2001.
<PAGE>
Q. HOW DO I PURCHASE THE STOCK?
A. First, you should read this entire prospectus carefully. Then, complete
and return the enclosed stock order and certification form, together
with your payment. Subscription orders may be delivered in person to
our office during regular banking hours, or by mail in the enclosed
envelope marked STOCK ORDER RETURN. Subscription orders received after
the subscription offering expiration date may be held for participation
in any community offering. If the stock offering is not completed by
________, 1999 and is not extended, then all funds will be returned
promptly with interest, and all withdrawal authorizations will be
canceled.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After we receive your order form and payment, you may not cancel or
modify your order. However, if we extend the offering beyond
__________, 1999, you will be able to change or cancel your order. If
you cancel your order, you will receive a prompt refund plus interest.
Q. HOW CAN I PAY FOR THE STOCK?
A. You have three options: (1) pay cash if it is delivered to us in
person; (2) send us a check or money order; or (3) authorize a
withdrawal from your deposit account at Everett Mutual Bank or
Commercial Bank of Everett (without any penalty for early withdrawal).
Please do not send cash in the mail.
Q. WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
A. Subscriptions payments will be placed in an interest-bearing escrow
account at Everett Mutual Bank, and will earn interest at our savings
account rate. Depositors who elect to pay by withdrawal will continue
to receive interest on their accounts until the funds are withdrawn.
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL RETIREMENT
ACCOUNT OR IRA AT EVERETT MUTUAL BANK OR COMMERCIAL BANK OF EVERETT?
A. You cannot purchase stock with your existing IRA at Everett Mutual Bank
or Commercial Bank of Everett. You may, however, establish a
self-directed IRA with an outside trustee to subscribe for stock using
your IRA funds. Please call our Stock Information Center toll free at
(888)___-_____ to get more information. Please understand that the
transfer of IRA funds takes time, so please make arrangements as soon
as possible.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL ALL
ORDERS?
A. If there is an oversubscription, then you may not receive any or all of
the shares you want to purchase.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A. For answers to other questions we encourage you to read this
prospectus. Questions may also be directed to our Stock Information
Center toll free at (888)___-____ Monday through Friday, between the
hours of ____ a.m. and ____ p.m. To ensure that each person receives a
prospectus at least 48 hours prior to the expiration date of ________,
1999 in accordance with federal law, no prospectus will be mailed any
later than five days prior to ________, 1999 or hand delivered any
later than two days prior to ________, 1999.
<PAGE>
CORPORATE STRUCTURE
The following table sets forth the organization of Mutual Bancshares
before and after the conversion.
<TABLE>
<CAPTION>
Shareholders
After -------------------------------
Mutual Bancshares ---------- EverTrust Financial Group, Inc.
(Holding Company) Conversion (Holding Company)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Everett Mutual Bank Commercial Bank of Everett I-Pro, Inc. Mutual Bancshares
(Real estate & consumer lending, (Business banking (Check processing & Capital, Inc.
retail banking services) services) statement rendering) (Venture capital company)
- ---------------------------------
Sound Financial
Inc.
(Annuity &
mutual fund sales)
</TABLE>
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus carefully,
including the consolidated financial statements and notes to the consolidated
financial statements found at the back of this prospectus, before you decide to
invest. For assistance, please contact the stock information center toll free at
(888) ____-_______.
The Companies
Ever Trust Financial Group, In 1993 Everett Mutual Bank formed Mutual
Inc, 2707 Colby Avenue, Bancshares to be its holding company and to
Suite 600 own all of the stock of Everett Mutual Bank.
Everett, Washington, 98201 Mutual Bancshares is a bank holding company
(425) 258-3645 that is regulated by the Federal Reserve
Board. In connection with its conversion to
stock, Mutual Bancshares changed its name to
EverTrust Financial Group, Inc. For purposes of
presentation in this prospectus, references to
Mutual Bancshares are to the entity in its mutual
form of ownership. References to EverTrust
Financial Group, Inc. are to the entity, which is
offering the common stock for sale, and which will
be the resulting stock company in the mutual to
stock conversion of Mutual Bancshares.
Mutual Bancshares owns four subsidiaries - Everett
Mutual Bank, a Washington state chartered savings
bank; Commercial Bank of Everett, a Washington
state chartered commercial bank; I-Pro, Inc., a
Washington corporation, which is an item
processing company; and Mutual Bancshares Capital
Inc., a Washington corporation, which is a venture
capital firm. After the conversion, EverTrust
Financial Group, Inc. intends to acquire or
organize other operating subsidiaries, although it
currently has no specific plans or agreements to
do so. At March 31, 1999, Mutual Bancshares had
total consolidated assets of $452.1 million,
deposits of $375.9 million and retained earnings
of $52.1 million.
Everett Mutual Bank Everett Mutual Bank's business strategy is to
2707 Colby Avenue, continue operating as a community-oriented bank
Suite 600 dedicated to financing residential properties and
Everett, Washington providing quality customer service. Everett
98201 Mutual, Bank operates out of 11 full service
(425) 258-3645 offices located throughout Snohomish County,
Washington. Everett Mutual Bank considers the
communities in Snohomish County, Washington as
its primary market area for making loans and
attracting deposits. Everett Mutual Bank also
makes loans in King and Pierce Counties and to a
much lesser extent, other counties in Western
Washington.
(i)
<PAGE>
Everett Mutual Bank's principal business is
attracting deposits from the general public and
using those funds to originate residential
mortgage loans as well as multi-family, commercial
real estate and construction loans. As of the year
ended March 31, 1999, Everett Mutual Bank had
$426.5 million in assets and $41.5 million in
equity. For the year ended March 31, 1999, Everett
Mutual Bank had net income of $4.5 million.
For a discussion of Everett Mutual Bank's business
strategy and recent results of operations, see
"Management's Discussion and Analysis of Financial
Condition and Results of Operations." For a
discussion of Everett Mutual Bank's business
activities, see "Business of Mutual Bancshares."
Commercial Bank of Everett Commercial Bank of Everett was formed in 1996 in
2707 Colby Avenue, order to offer business loans and deposit services
Suite 715 to individuals and local businesses through its
Everett, Washington, 98201 office located in Everett, Washington. As of the
(425) 258-0388 year ended March 31, 1999, Commercial Bank of
Everett had $19.8 million in assets and $2.8
million in equity. For the year ended March 31,
1999, Commercial Bank of Everett had a loss of
$204,000.
I-Pro, Inc. I-Pro, Inc., is an item processing company
6838 South 220th Street designed to provide backroom banking services for
Kent, Washington 98032 Everett Mutual Bank and Commercial Bank of
(253) 872-7976 Everett, as well as other financial institutions
and nonbanking businesses in the future. As of the
year ended March 31, 1999, I-Pro, Inc. had
$628,000 in assets and $47,000 in equity. For the
year ended March 31, 1999, I-Pro, Inc. had a loss
of $340,000.
Mutual Bancshares Mutual Bancshares Capital, Inc. is a start-up
Capital, Inc. venture capital company which will provide equity
22020 17th Avenue to regionally-based high- technology and medical,
S.E., Suite 200 instrumentation companies at the beginning or
Bothell, Washington early stages of development through a series of
98021 limited partnerships. As of the year ended
(425) 424-0058 March 31, 1999, Mutual Bancshares Capital, Inc.
had $3.2 million in assets and $3.2 million in
equity. For the year ended March 31, 1999, Mutual
Bancshares Capital, Inc. had a loss of $64,000.
(ii)
<PAGE>
The Conversion
What is the Conversion The conversion is a change in the legal form of
(page 105) organization. As a mutual holding company, Mutual
Bancshares currently has no stockholders. Instead,
Mutual Bancshares operates as the bank holding
company of Everett Mutual Bank and Commercial Bank
of Everett for the mutual benefit of its
depositors and borrowers. In connection with the
conversion, Mutual Bancshares changed its name to
EverTrust Financial Group, Inc. and will become a
stock holding company and will be owned and
controlled by public shareholders. Voting rights
in EverTrust Financial Group, Inc. will belong to
its stockholders.
Mutual Bancshares is conducting the conversion
under the terms of the plan of conversion. The
Washington Department of Financial Institutions,
Division of Banks has approved the conversion and
the Federal Deposit Insurance Corporation has
provided its non-objection, with the condition
that Mutual Bancshares' members approve the
conversion. Mutual Bancshares has called a special
meeting of its members for _________, 1999 to vote
on the conversion.
Mutual Bancshares' By converting to the stock form of organization,
Reasons for EverTrust Financial Group, Inc. will be structured
Conversion (page 105) in the form used by commercial banks and their
holding companies, most business entities and a
large number of savings institutions. The
conversion will be important to EverTrust
Financial Group, Inc.'s future growth and
performance by:
o providing EverTrust Financial Group,
Inc. flexibility to continue to
diversify its operations,
o providing a larger capital base which
will permit Everett Mutual Bank and
Commercial Bank of Everett to increase
the number and amount of loans they can
make to the people and businesses in its
market area,
o providing Everett Mutual Bank and
Commercial Bank of Everett the ability
to expand their financial services
through the addition of new branch
offices,
o enhancing their ability to attract and
retain qualified management through
stock-based compensation plans,
o providing Everett Mutual Bank's and
Commercial Bank of Everett's customers
and communities the ability to own stock
in their local, community-oriented
financial institution, and
(iii)
<PAGE>
o enhancing their ability to expand its
financial services, especially
non-banking services, for all of its
customers.
Presently, EverTrust Financial Group, Inc. does
not have any specific plans or arrangements for
diversification or expansion.
Benefits of the EverTrust Financial Group, Inc. intends to adopt
Conversion to Management the following benefit plans and executive officer
of EverTrust Financial employment agreements:
Group, Inc. and its
Subsidiaries (pages 84-91)
o Employee Stock Ownership Plan. This plan
intends to purchase 2% of the shares
issued in the conversion, including
shares issued to The EverTrust
Foundation. This would range from
117,130 shares, assuming 5,856,500
shares are issued in the conversion, to
157,300 shares, assuming 7,865,000
shares are issued in the conversion.
EverTrust Financial Group, Inc. will
allocate these shares to employees over
a period of years in proportion to their
compensation.
o Stock Option Plan. Under this plan,
EverTrust Financial Group, Inc. may
award stock options to key employees and
directors. The number of options
available under this plan will be equal
to 10% of the number of shares sold in
the conversion, including shares issued
to The EverTrust Foundation. This would
range from 585,650 shares, assuming
5,856,500 shares are issued in the
conversion, to 786,500 shares, assuming
7,865,000 shares are issued in the
conversion. This plan will require
shareholder approval.
o Management Recognition and Development
Plan. Under this plan, EverTrust
Financial Group, Inc. may award shares
of restricted stock to key employees and
directors at no cost to the recipient.
The number of shares available under
this plan will equal 4% of the number of
shares sold in the conversion, including
shares issued to The EverTrust
Foundation. This would range from
234,260 shares, assuming 5,856,500
shares are issued in the conversion, to
314,600 shares, assuming 7,865,000
shares are issued in the conversion.
This plan will require shareholder
approval.
(iv)
<PAGE>
o Employment Agreements with Michael B.
Hansen, President and Chief Executive
Officer of Everett Mutual Bank and
EverTrust Financial Group, Inc; Michael
R. Deller, Executive Vice President of
Everett Mutual Bank; Jeffrey R.
Mitchell, Senior Vice President and
Chief Financial Officer of Everett
Mutual Bank and EverTrust Financial
Group, Inc.; Lorelei Christenson, Senior
Vice President, Chief Information
Officer and Corporate Secretary of
Everett Mutual Bank and EverTrust
Financial Group, Inc.; and Terry L.
Cullom, Vice President and Credit
Administrator of Everett Mutual Bank.
The employment agreements will provide
for severance benefits if the executive
officer is terminated following a change
in control of EverTrust Financial Group,
Inc. or Everett Mutual Bank. Assuming
that a change in control had occurred at
March 31, 1999, Messrs. Hansen, Deller
and Mitchell, Ms. Christenson and Mr.
Cullom would each be entitled to a lump
sum cash payment of approximately
$486,265, $144,592, $220,949, $199,410
and $207,446, respectively.
o Employee Severance Compensation Plan.
This plan will provide severance
benefits to eligible employees if there
is a change in control of EverTrust
Financial Group, Inc. or Everett Mutual
Bank. In the event the provisions of the
severance plan are triggered, the total
amount of payments due would be
approximately $793,577.
The following table summarizes the total number
and dollar value of the shares of common stock,
assuming 6,500,000 shares are sold in the
conversion and 390,000 shares are issued to The
EverTrust Foundation, which the employee stock
ownership plan would acquire and the total value
of all shares available for award under the stock
option plan and the management recognition and
development plan. The table assumes the value of
the shares is $10.00 per share. The table does not
include a value for the options because their
value would be equal to the fair market value of
the common stock on the day that the options are
granted. As a result, financial gains can be
realized on an option only if the market price of
common stock increases.
(v)
<PAGE>
<TABLE>
<CAPTION>
Percentage
Number Estimated of Shares
of Value of Issued in the
Shares Shares Conversion
------ ------ ----------
<S> <C> <C> <C>
Employee stock
ownership plan................ 137,800 $1,378,000 2.0%
Management recognition
and development plan
awards........................ 275,600 2,756,000 4.0
Stock options.................. 689,000 -- 10.0
--------- ---------- -------
Total.......................... 1,102,400 $4,134,000 16.0%
========= ========== =======
</TABLE>
For a discussion of certain risks associated with
these plans and agreements, see "Risk Factors --
Implementation of Benefit Plans Will Increase
Future Compensation Expense and May Lower
EverTrust Financial Group, Inc.'s Net Income" and
"-- Employment Agreements and Severance Plan Could
Make Takeover Attempts More Difficult to Achieve."
The Offering
Subscription Offering Mutual Bancshares has granted subscription rights
(page 109) in the following order of priority to:
1. Persons with $50 or more on deposit at
Everett Mutual Bank as of December 31,
1997.
2. The EverTrust Financial Group, Inc.
employee stock ownership plan.
3. Persons with $50 or more on deposit at
Everett Mutual Bank as of June 30, 1999.
4. Everett Mutual Bank's depositors and
borrowers as of _________ __, 1999.
5. Persons with $50 or more on deposit at
Commercial Bank of Everett as of
December 31, 1997.
To ensure that EverTrust Financial Group, Inc.
properly identifies your subscription rights, you
must list all of your deposit accounts and loans
as of the eligibility dates on the stock order
form. If you fail to do so, your subscription may
be reduced or rejected.
The subscription offering will end at 12:00 Noon,
Pacific Time, on ________, 1999. If the offering
is oversubscribed, EverTrust Financial Group, Inc.
will allocate shares in order of the priorities
described above under a formula contained in the
plan of conversion.
(vi)
<PAGE>
Subscription Rights Are Not Subscription rights are not transferable, and
Transferable (page 110) persons with subscription rights may not subscribe
for shares for the benefit of any other person. If
you violate this prohibition, you may lose your
right to purchase shares and may face criminal
prosecution and other sanctions.
Community Offering EverTrust Financial Group, Inc. may offer shares
(page 110) not sold in the subscription offering to the
general public in a community offering. If shares
are available, EverTrust Financial Group, Inc.
expects to offer them to the general public
immediately after the end of the subscription
offering, but may begin a community offering at
any time during the subscription offering.
EverTrust Financial Group, Inc. may reject orders
received in the community offering either in whole
or in part. If your order is rejected in part, you
cannot cancel the remainder of your order.
Purchase Price of the The independent appraisal by RP Financial, LC.,
Common Stock dated as June 11, 1999, established the offering
(page 114) range of $55,250,000 to $74,750,000 with a
midpoint of $65,000,000, which is the estimated
market value of shares to be sold in the offering.
This appraisal was based on Mutual Bancshares' and
its subsidiaries' financial condition and
operations and the effect of the additional
capital raised in the offering. The purchase price
is $10.00 per share which was determined by the
Boards of Directors of Mutual Bancshares and
Everett Mutual Bank in consultation with Charles
Webb. You will not pay a commission to buy any
shares in the conversion.
After completion of the conversion and the
offering, each share of EverTrust Financial Group,
Inc. common stock will have a book value of
$15.42, at the maximum of the offering range. This
means the price paid for each share sold in this
offering will be 64.85% of the book value. In
addition, the price to earnings ratio at the
maximum of the offering range will be 26.32. These
ratios are important factors used by RP Financial
in determining the appraised value of Mutual
Bancshares and its subsidiaries.
Number of Shares to be EverTrust Financial Group, Inc. will sell between
Issued in the 5,525,000 and 7,475,000 shares of its common stock
Conversion (page 114) in this offering. With regulatory approval,
EverTrust Financial Group, Inc. may increase the
number of shares to 8,596,250 without giving you
further notice.
(vii)
<PAGE>
The amount of common stock that EverTrust
Financial Group, Inc. will offer in the conversion
is based on an independent appraisal of the
estimated market value of EverTrust Financial
Group, Inc. as if the conversion had occurred as
of the date of the appraisal.
RP Financial, L.C., the independent appraiser, has
estimated that, in its opinion, as of June 11,
1999, the estimated market value ranged between
$55,250,000 and $74,750,000, with a midpoint of
$65,000,000. The appraisal was based in part on
Mutual Bancshares' financial condition and
operations and the effect on Mutual Bancshares of
the additional capital raised by the sale of
common stock in this offering. The independent
appraisal will be updated before the conversion is
completed.
Limitations on the The minimum purchase is 25 shares.
Purchase of
Common Stock in the
Conversion (page 116)
The maximum purchase in the subscription offering
by any person or group of persons through a single
deposit account is $250,000 of common stock, which
equals 25,000 shares. The maximum purchase by any
person in the community offering is $250,000 of
common stock, which equals 25,000 shares.
The maximum purchase in the subscription offering
and community offering combined by any person,
related persons or persons acting together is
$500,000 of common stock, which equals 50,000
shares.
How to Purchase Common If you want to subscribe for shares, you must
Stock (page 113) complete an original stock order form and send it
together with full payment to Everett Mutual Bank
in the postage-paid envelope provided. You must
sign the certification that is part of the stock
order form. Everett Mutual Bank must receive your
stock order form before the end of the
subscription offering.
You may pay for shares in any of the following
ways:
o In Cash if delivered in person.
o By Check or Money Order made payable to
EverTrust Financial Group, Inc.
(viii)
<PAGE>
o By Withdrawal from an account at Everett
Mutual Bank or Commercial Bank of
Everett. To use funds in an IRA at
Everett Mutual Bank or Commercial Bank
of Everett you must transfer your
account to an unaffiliated institution
or broker. Please contact the stock
information center at least one week
before the end of the subscription
offering for assistance.
Everett Mutual Bank will pay interest on your
subscription funds at the rate it pays on savings
accounts from the date it receives your funds
until the conversion is completed or terminated.
All funds authorized for withdrawal from deposit
accounts with Everett Mutual Bank will earn
interest at the applicable account rate until the
conversion is completed. There will be no early
withdrawal penalty for subscriptions paid for by
withdrawal from certificates of deposit.
After Everett Mutual Bank receives your order, you
cannot cancel or change it without Everett Mutual
Bank's consent. If EverTrust Financial Group, Inc.
sells fewer than 5,525,000 shares or more than
8,596,250 shares, all subscribers will be notified
and given the opportunity to change or cancel
their orders.
EverTrust Financial Group, EverTrust Financial Group, Inc. will invest 50% of
Inc.'s and Everett Mutual the net conversion proceeds in Everett Mutual
Bank's Use of Proceeds Bank. In addition, EverTrust Financial Group, Inc.
From the Sale of Common will use these funds as follows:
Stock in the Conversion
(page 9)
o funding loans consistent with prior
lending practices;
o for general corporate purposes, which
may include, for example, buying back
shares of its common stock;
o to loan an amount equal to 2% of the
gross proceeds of the offering to the
employee stock ownership plan to fund
its purchase of common stock; and
o to expand operations through acquiring
or establishing additional non-banking
entities, although it has no specific
plans, arrangements, agreements or
understandings, written or oral,
regarding these activities.
Pending such use, the net proceeds will be
invested in investment securities with short and
intermediate terms or in a deposit account at
Everett Mutual Bank.
(ix)
<PAGE>
Everett Mutual Bank will use the net proceeds
received from the offering to invest in short term
and intermediate term U.S. Government and agency
obligations.
Purchases of Common Stock by Mutual Bancshares" directors and executive
Mutual Bancshares' and its officers intend to subscribe for 183,000 shares
Subsidiaries' Officer regardless of the number of shares issued in the
and Directors (page 22) conversion. This number equals 2.32% of the
7,865,000 shares that would be issued at the
maximum of the offering range, including shares
issued to The EverTrust Foundation. If fewer
shares are issued in the conversion, then officers
and directors may own a greater percentage of
EverTrust Financial Group, Inc. Directors and
executive officers will pay the same $10.00 per
share price as everyone else who purchases shares
in the conversion.
Plans to List the Common EverTrust Financial Group, Inc. intends to list
Stock On Nasdaq National the common stock on the Nasdaq National Market
Market System (page 11) System. Keefe Bruyette & Woods, Inc. intends to be
a market maker in the common stock. After shares
of the common stock begin trading, you may contact
a stock broker to buy or sell shares.
EverTrust Financial Dividends, if any, will be affected by a number of
Group, Inc. Does factors, market conditions, as well as
Not Currently Plan to profitability, financial condition, including the
Pay Dividends prevailing economic, interest rate and stock
(page 11) expected growth, compliance with capital
requirements, dividend payout ratio and peer group
analyses. The establishment, timing and amount of
any dividend payments will be determined by the
Board of Directors of EverTrust Financial Group,
Inc., based on the factors noted above. No
determination has been made with respect to a
dividend policy.
Plans to Contribute a Mutual Bancshares currently maintains a charitable
Maximum of 390,000 shares foundation, the Everett Mutual Foundation. During
of EverTrust Financial the year ended March 31, 1999, Mutual Bancshares
Group, Inc. Common Stock contributed $3.4 million to the Everett Mutual
and a maximum of $1.3 Foundation.
million in cash to The
EverTrust Foundation
(page 100)
In connection with the conversion, EverTrust
Financial Group, Inc. intends to establish an
additional charitable foundation, EverTrust
Foundation, as part of the conversion in order to
further Mutual Bancshares' commitment to the local
community. EverTrust Financial Group, Inc. will
fund the foundation with cash and stock equal to
8% of the shares issued in the offering at the
minimum of the estimated valuation range with a
maximum contribution equal to 8% of the shares
issued in the offering at the midpoint of the
estimated valuation range. A maximum of 390,000
shares or 75% of the contribution will be made to
the foundation in stock and $1.3 million or 25% of
the total contribution to the foundation will be
made in cash. If the foundation is established,
then EverTrust Financial Group, Inc. will sell
fewer shares of common stock than if the
conversion were completed without the foundation.
(x)
<PAGE>
RISK FACTORS
Before investing in EverTrust Financial Group, Inc.'s common stock
please carefully consider the matters discussed below. EverTrust Financial
Group, Inc.'s common stock is not a savings account or deposit and is not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
Everett Mutual Bank's and Commercial Bank of Everett's Non-Residential Lending
Increases Lending Risk Because of the Higher Risk that the Loans Will Not Be
Repaid
Multi-family and Commercial Real Estate and Construction Lending.
Multi-family and commercial real estate and construction lending involve larger
loan amounts and more risk than residential lending and are subject to a greater
extent to adverse conditions in the economy. Everett Mutual Bank operates as a
community bank, and has implemented a lending strategy that has involved a shift
from a primary focus on residential lending to the increased origination of
multi-family and commercial real estate and construction lending. After the
conversion, Everett Mutual Bank intends to continue its efforts to increase its
volume of multi-family and commercial real estate and construction lending.
There can be no assurances that Everett Mutual Bank will meet its objective in
increasing the volume of its multi-family and commercial real estate and
construction loan portfolios. Factors that may affect the ability of Everett
Mutual Bank to increase its originations of such loans include the demand for
such loans, interest rates and the state of the local and national economy. See
"Business of Mutual Bancshares -- Lending Activities -- Multi-Family Lending,"
"-- Commercial Real Estate Lending" and "-- Construction Lending."
Multi-family and commercial real estate lending affords Everett Mutual
Bank an opportunity to receive interest at rates higher than those generally
available from one- to- four family residential lending. However, loans secured
by such properties involve a greater degree of risk than one- to- four family
residential mortgage loans because they usually have larger principal balances;
have unpredictable cash flows; are more difficult to evaluate and monitor, which
makes impaired loans difficult to identify early on, and are concentrated in a
single geographical area. Additionally, a single loss on a multi-family or
commercial real estate loan generally is considered a large loss because of the
amount of the loan and has a greater impact on the financial institution.
Because payments on loans secured by multi-family and commercial properties
often depend upon the successful operation and management of the properties,
repayment of such loans may be affected by adverse conditions in the real estate
market or the economy. Everett Mutual Bank seeks to minimize these risks by
limiting the maximum loan-to-value ratio to 75% and strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan.
Business Lending. Business loans involve larger loan amounts and are
subject to a greater extent to adverse conditions in the economy. Commercial
Bank of Everett operates as a community bank, and has implemented a lending
strategy that has involved the increased origination of business loans. As a
commercial bank, Commercial Bank of Everett primarily originates business loans
to its customers. These types of loans are riskier than traditional real estate
secured loans because the repayment of the loan depends upon the success of the
business, the operations of which may be subject to adverse conditions in the
economy. Commercial Bank of Everett attempts to minimize this risk through its
underwriting guidelines, which generally require that the loan be supported by
adequate cash flow of the borrower, profitability of the business, collateral
and personal guarantees of the individuals in the business. For a discussion of
Commercial Bank of Everett's commercial business lending, see "Business of
Commercial Bank of Everett -- Business Lending."
Implementation of Benefit Plans Will Increase Future Compensation Expense and
May Lower EverTrust Financial Group, Inc.'s Net Income
EverTrust Financial Group, Inc. will recognize additional material
employee compensation and benefit expenses that stem from the shares purchased
or granted to employees and executives under new benefit plans.
1
<PAGE>
EverTrust Financial Group, Inc. cannot predict the actual amount of these new
expenses because applicable accounting practices require that they be based on
the fair market value of the shares of common stock at specific points in the
future. EverTrust Financial Group, Inc. would recognize expenses for its
employee stock ownership plan when shares are committed to be released to
participants' accounts and would recognize expenses for the management
recognition and development plan over the vesting period of awards made to
recipients. These expenses have been reflected in the pro forma financial
information under "Pro Forma Data" assuming the $10.00 per share purchase price
as fair market value. Actual expenses, however, may be higher or lower. Recently
proposed accounting rules would also require EverTrust Financial Group, Inc. to
recognize compensation expense for stock options awarded to non-employee
directors. For further discussion of these plans, see "Management of Everett
Mutual Bank -- Benefits."
Issuance of Shares for Benefit Programs May Lower Your Ownership Interest
If the shares for the management recognition and development plan are
issued from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the shares for the stock option plan
are issued from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 9.09%. EverTrust Financial Group, Inc. intends to
issue shares to its officers and directors through these new stock based benefit
programs, if stockholders approve these plans. See "Pro Forma Data."
Loss of Key Personnel May Hurt Mutual Bancshares' and its Subsidiaries'
Operations
The loss of Michael B. Hansen, Everett Mutual Bank's Chief Executive
Officer and President, Michael R. Deller, Everett Mutual Bank's Executive Vice
President, Jeffrey R. Mitchell, Everett Mutual Bank's Senior Vice President,
Chief Financial Officer and Treasurer, Loreli Christenson, Everett Mutual Bank's
Senior Vice President, Chief Information Officer and Corporate Secretary, and
Terry L. Cullom, Everett Mutual Bank's Vice President-Credit Administrator,
could have a material adverse impact on the operations of Everett Mutual Bank.
These executive officers have been instrumental in managing the business affairs
of Everett Mutual Bank for up to 20 years. The loss of any of these individuals
could have a material adverse impact on the operations of Everett Mutual Bank.
Accordingly, should Everett Mutual Bank lose the services of Messrs. Hansen,
Deller, Mitchell, Ms. Christenson, or Mr. Cullom, the Board of Directors would
have to search outside of Everett Mutual Bank for qualified, permanent
replacements. This search may be prolonged and Everett Mutual Bank cannot assure
you that it will be able to locate and hire qualified replacements. Neither
Everett Mutual Bank nor EverTrust Financial Group, Inc. has any plans to obtain
a "key man" life insurance policy for any individual. For a discussion of
Everett Mutual Bank's management, see "Management of Everett Mutual Bank."
Possible Voting Control by Management and Employees May Make Takeover Attempts
More Difficult to Achieve
The shares of common stock that Everett Mutual Bank's directors and
executive officers intend to purchase in the conversion, when combined with the
shares that may be awarded or sold to participants under the EverTrust Financial
Group, Inc. employee stock ownership plan and EverTrust Financial Group, Inc.'s
stock-based benefit plans, could ultimately result in management and employees
controlling a significant percentage of EverTrust Financial Group, Inc.'s common
stock. If these individuals were to act together, they could have significant
influence over the outcome of any stockholder vote. This voting power may
discourage takeover attempts that you would like to see happen and reduce the
likelihood that you will receive a takeover premium. In addition, the total
voting power of management and employees could reach 8.76% of EverTrust
Financial Group, Inc.'s outstanding stock, if 7,475,000 shares are sold at the
maximum of the range. That level would enable management and employees as a
group to defeat any stockholder matter that requires an 80% vote. For
information about management's intended stock purchases and the number of shares
that may be awarded under new benefit plans, see "Shares to be Purchased by
Management With Subscription Rights," "Management of Everett Mutual Bank --
Executive Compensation" and "Restrictions on Acquisition of EverTrust Financial
Group, Inc."
2
<PAGE>
Provisions in EverTrust Financial Group, Inc.'s Articles of Incorporation and
Statutory Provisions that Could Discourage Takeover Attempts by Other Parties
Provisions in EverTrust Financial Group, Inc.'s Articles of
Incorporation and Bylaws, the corporation law of the State of Washington, and
federal regulations may make it difficult and expensive to pursue a takeover
attempt that management opposes. These provisions may discourage or prevent
takeover attempts that you would like to see happen and reduce the likelihood
that you will receive a takeover premium. These provisions will also make the
removal of the current board of directors or management of EverTrust Financial
Group, Inc., or the appointment of new directors, more difficult. For further
information about these provisions, see "Restrictions on Acquisition of
EverTrust Financial Group, Inc."
Employment Agreements and Severance Plan Could Make Takeover Attempts More
Difficult to Achieve
The employment agreements for Michael B. Hansen, Michael R. Deller,
Jeffrey R. Mitchell, Lorelei Christenson, and Terry L. Cullom, and the severance
plan may have the effect of increasing the costs of acquiring EverTrust
Financial Group, Inc., thereby discouraging future attempts to take over
EverTrust Financial Group, Inc. or Everett Mutual Bank. The employment
agreements of executive officers of EverTrust Financial Group, Inc. and Everett
Mutual Bank provide for cash severance payments and/or the continuation of
health, life and disability benefits if the officer is terminated following a
change in control of EverTrust Financial Group, Inc. or Everett Mutual Bank. If
a change in control had occurred at March 31, 1999, the aggregate value of the
severance benefits available to the executive under the agreements would have
been approximately $486,265, $144,592, $220,949, $199,410 and $207,446,
respectively. In addition, if a change in control had occurred at March 31, 1999
and all eligible employees had been terminated, the aggregate payment due under
the severance plan would have been approximately $793,577. For information about
the proposed employment agreements and severance plan, see "Management of
Everett Mutual Bank -- Executive Compensation."
Absence of Prior Market for the Common Stock
EverTrust Financial Group, Inc. has never issued capital stock and,
consequently, there is no existing market for the common stock. Although
EverTrust Financial Group, Inc. has received conditional approval to list the
common stock on the National Market System of the Nasdaq Stock Market under the
symbol "EVRT," there can be no assurance that an active and liquid trading
market for the common stock will develop, or once developed, will continue.
Furthermore, there can be no assurance that purchasers will be able to sell
their shares at or above the purchase price. See "Market for EverTrust Financial
Group, Inc.'s Common Stock."
Your Subscription Funds Could be Held for an Extended Time Period If Completion
of the Conversion Is Delayed
Your subscription funds could be held for an extended time period if
the conversion is not completed by __________, 1999 and the Washington
Department of Financial Institutions and the Federal Deposit Insurance
Corporation gives Everett Mutual Bank more time to complete this conversion. If
this occurs, EverTrust Financial Group, Inc. will contact everyone who
subscribed for shares to see if they still want to purchase stock. This is
commonly referred to as a "resolicitation offering." A material change in the
independent appraisal of Mutual Bancshares and its subsidiaries would be the
most likely, but not necessarily the only, reason for a delay in completing the
conversion. Federal regulations and Washington Department of Financial
Institutions regulations permit the Federal Deposit Insurance Corporation and
the Washington Department of Financial Institutions to grant one or more time
extensions, none of which may exceed 90 days. Extensions may not go beyond
__________, 2001. In the resolicitation offering, EverTrust Financial Group,
Inc. would mail a supplement to this prospectus to you if you subscribed for
stock to let you confirm, modify or cancel your subscription. If you fail to
respond to the resolicitation offering, it would be as if you had canceled your
order and all subscription funds, together with accrued interest, would be
returned to you. If you authorized payment by withdrawal of funds on
3
<PAGE>
deposit at Everett Mutual Bank or Commercial Bank of Everett, that authorization
would terminate. If you affirmatively confirm your subscription order during the
resolicitation offering, EverTrust Financial Group, Inc. and Everett Mutual Bank
would continue to hold your subscription funds until the end of the
resolicitation offering. Your resolicitation order would be irrevocable without
the consent of EverTrust Financial Group, Inc.
and Everett Mutual Bank until the conversion is completed or terminated.
Rising Interest Rates Could Hurt Everett Mutual Bank's Profits
If interest rates rise, Everett Mutual Bank anticipates that its net
interest income would decline as interest paid on deposits would increase more
quickly than the interest earned on loans and investment securities. In
addition, rising interest rates may adversely affect Everett Mutual Bank's
earnings because rising rates may cause a decrease in customer demand for loans
and a reduction in value of Everett Mutual Bank's securities available for sale.
For further discussion of how changes in interest rates could impact Everett
Mutual Bank, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Asset and Liability Management and Market Risk."
Return on Equity Will Be Below Average After Conversion Because of High Capital
Levels and Operating Losses of Subsidiaries
As a result of the additional capital that will be raised in this
offering, EverTrust Financial Group, Inc. expects that its return on average
equity will decrease. In addition, compensation expense will increase as a
result of the new benefit plans. Over time, EverTrust Financial Group, Inc.
intends to use the net proceeds from this offering to increase earnings per
share and book value per share, without assuming undue risk, with the goal of
achieving a return on equity competitive with other publicly traded financial
institutions. This goal could take a number of years to achieve, and EverTrust
Financial Group, Inc. cannot assure you that this goal can be attained. In
addition, as a result of their recent start-up, Commercial Bank of Everett,
I-Pro, Inc. and Mutual Bancshares Capital, Inc. are not currently profitable.
Consequently, you should not expect a competitive return on equity in the near
future. See "Pro Forma Data" for an illustration of the financial effects of
this stock offering.
Layoff Announcement by the Boeing Company May Affect Mutual Bancshares
The Boeing Company is the largest employer in the Puget Sound Area and
in Snohomish County. The Boeing Company is known for wide fluctuations in its
number of employees. During the past two years, the Boeing Company has been
increasing its number of employees, adding nearly 30,000 jobs, to meet
production demands for its commercial aircraft. However, more recently the
Boeing Company announced that a significant number of commercial aircraft orders
had either been canceled or delayed due to the economic problems in Asia. In an
effort to maintain earnings, the Boeing Company is reducing its workforce in the
Puget Sound region by over 40,000 employees. This reduction represents
approximately 35% of the Boeing Company's employment in the region and
approximately 1.5% of the total state non-agricultural employment. As a result,
customer demand for loans as well as customer ability to make timely loan
payments could be reduced.
Possible Year 2000 Computer Program Problems May Disrupt Mutual Bancshares' and
Its Subsidiaries' Business Operations
If Mutual Bancshares' and its subsidiaries' computer systems and the
computer systems operated by their respective third party vendors do not
properly work on January 1, 2000, then a disruption in business operations could
be experienced. As a result of this disruption, Mutual Bancshares' and its
subsidiaries' financial condition and results of operations could be weakened.
For further discussion of Mutual Bancshares' and its subsidiaries' year 2000
compliance program, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Year 2000 Issues."
4
<PAGE>
Plans for Diversification and Expansion of Operations Includes the Acquisition
of Non-Banking Related Entities
Mutual Bancshares' business plan involves the possible expansion of its
operations through the acquisition of non-banking related entities. Any such
acquisition would be subject to the negotiations of acceptable terms, and other
factors outside the control of Mutual Bancshares. It is not known if any
opportunities for this type of diversification will become available to Mutual
Bancshares after the conversion, and if they become available, will be pursued.
Additionally, management of Mutual Bancshares cannot predict how successfully
the operations of any non-banking entity acquired will be integrated with its
operations and those of its subsidiaries.
Competition
Competition in the banking and financial services industry is intense
in Snohomish County, which has one of the largest concentrations of financial
institutions in the Pacific Northwest. Everett Mutual Bank and Commercial Bank
of Everett must compete for customers by offering excellent service and
competitive rates on loans and deposit products. Everett Mutual Bank and
Commercial Bank of Everett compete with other commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms. Some of
these competitors have greater resources than Everett Mutual Bank and Commercial
Bank of Everett and may offer services that Everett Mutual Bank and Commercial
Bank of Everett do not provide. Our profitability depends upon our continued
ability to successfully compete in our market area.
The Establishment of the EverTrust Foundation Will Reduce Earnings
In connection with the conversion, EverTrust Financial Group, Inc.
intends to establish the EverTrust Foundation and to contribute a maximum of
390,000 of its shares issued in the conversion and a maximum of $1.3 million in
cash. This contribution will be a significant expense to EverTrust Financial
Group, Inc. and will decrease operating results for the year ending March 31,
2000. In addition, the contribution to the foundation will reduce your ownership
in EverTrust Financial Group, Inc.
Endangered Chinook Salmon Species May Restrict Construction and Land Development
In May 1999, the chinook salmon was listed as a threatened species
under the Endangered Species Act. As a result, there may be severe restrictions
on construction and other land development on properties in Everett Mutual
Bank's and Commercial Bank of Everett's primary market area. Accordingly, any
endeavor that requires a federal permit in an area listed as a salmon habitat
will require permission from the National Marine Fisheries Service biologists.
This could delay or severely limit the issuance of construction permits, and as
a result, reduce building and new construction lending, which is a major
contributors to Mutual Bancshares' interest income.
Earthquakes
Snohomish, King and Pierce Counties, where substantially all of the
real and personal properties securing Everett Mutual Bank's loans are located,
is an earthquake-prone region. A major earthquake could result in material loss
to Everett Mutual Bank. In addition to possibly sustaining damage to its own
property, a substantial number of Everett Mutual Bank's borrowers do not have
insurance for the collateral property which provides for coverage due to losses
from earthquakes. Further, borrowers may suffer sustained job interruption or
job loss, which may materially impair their ability to meet the terms of their
loan obligations. No assurances can be given that a major earthquake in Everett
Mutual Bank's primary market area will not result in material losses to Everett
Mutual Bank. See "Business of Mutual Bancshares -- Earthquakes."
5
<PAGE>
Venture Fund Investment
Mutual Bancshares Capital, Inc. through its limited partnerships plans
on investing in start-up high-technology and medical instrumentation companies
at the beginning or early stages of their development. These investments may
involve a high level of risk that the limited partnerships may not be adequately
compensated for and may involve a loss of the principal invested. Early stage
and development stage companies often experience unexpected problems in the
areas of product development, manufacturing, marketing, financing and general
management, which cannot be adequately solved. Mutual Bancshares Capital, Inc.
and its limited partnerships try to minimize these risks by carefully evaluating
the company and its proposed activities and conducting thorough due diligence.
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain information concerning the
consolidated financial position of Mutual Bancshares and its subsidiaries at the
dates indicated.
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
FINANCIAL CONDITION DATA:
<S> <C> <C> <C> <C> <C>
Total assets................................ $452,089 $421,305 $399,158 $384,364 $357,403
Investment securities....................... 75,432 59,694 52,809 41,144 41,472
Loans receivable, net....................... 315,327 311,951 293,134 292,233 295,475
Deposit accounts............................ 375,896 350,971 329,770 314,648 297,647
Federal Home Loan Bank advances............. 18,949 15,503 20,057 24,111 18,814
Total equity................................ 52,263 51,096 46,143 42,694 38,794
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Interest income............................. $33,894 $33,462 $31,049 $30,207 $25,877
Interest expense............................ 17,837 17,899 17,010 16,781 13,646
-------- -------- -------- -------- --------
Net interest income......................... 16,057 15,563 14,039 13,426 12,231
Provision for loan losses................... 780 420 420 458 319
---------- ---------- --------- ---------- ---------
Net interest income after provision for loan
losses...................................... 15,277 15,143 13,619 12,968 11,912
Other operating income...................... 1,927 1,792 1,074 1,512 1,021
Other operating expenses.................... 15,532 10,287 9,796 9,026 9,475
-------- -------- -------- -------- --------
Income before income taxes.................. 1,672 6,648 4,897 5,454 3,458
Provision for income taxes.................. 261 2,114 1,387 1,561 864
---------- --------- -------- -------- ---------
Net income.................................. $ 1,411 $ 4,534 $ 3,510 $ 3,893 $ 2,594
======== ======== ======= ======= =======
</TABLE>
7
<PAGE>
At March 31,
---------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
OTHER DATA:
Number of:
Loans outstanding ........... 3,505 3,645 3,762 3,875 3,984
Deposit accounts ............ 30,221 29,846 29,751 29,593 29,411
Full service offices ........ 12 11 11 10 10
<TABLE>
<CAPTION>
At or For
Year Ended March 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
KEY FINANCIAL RATIOS:
Performance Ratios:
<S> <C> <C> <C> <C> <C> <C>
Return on assets(1)........................ 0.33% 1.11% 0.91% 1.06% 0.76%
Return on equity(2)........................ 2.71 9.54 8.07 9.53 6.91
Equity-to-assets ratio(3).................. 12.18 11.66 11.26 11.13 10.96
Interest rate spread (4)................... 3.20 3.27 3.12 3.20 3.20
Net interest margin(5)..................... 3.83 3.89 3.70 3.75 3.67
Average interest-earning assets to average
interest-bearing liabilities........... 114.75 113.85 113.00 111.62 111.36
Other operating expenses as a percent of
average total assets................... 3.64 2.53 2.54 2.46 2.77
Efficiency ratio (6)(7).................... 66.74 58.64 64.07 59.81 70.52
Capital Ratios:
Leverage................................... 11.80 12.20 11.70 11.30 11.00
Tier 1 risk-based.......................... 13.70 14.90 14.90 14.40 13.60
Total risk-based........................... 14.90 16.10 16.20 15.70 14.90
Asset Quality Ratios:
Nonaccrual and 90 days or more past due
loans as a percent of total loans, net 0.12 0.27 0.35 0.43 1.53
Nonperforming assets as a percent of total
assets................................. 0.08 0.20 0.48 0.59 1.85
Allowance for losses as a percent of gross
loans receivable....................... 1.62 1.48 1.45 1.37 1.25
Allowance for loan losses as a percent of
nonperforming loans.................... 1500.53 582.28 440.33 329.59 83.30
Net charge-offs to average outstanding
loans.................................. -- 0.01 0.03 0.01 0.01
</TABLE>
- ---------------
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average equity.
(3) Average equity divided by average total assets.
(4) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Total other operating expenses divided by total net interest income (on a
tax-equivalent basis) before provision for loan losses plus total other
operating income.
(7) For the year ended March 31, 1999, other operating expenses included $3.4
million in charitable contributions. With this expense, the efficiency
ratio would have been 85.44%.
8
<PAGE>
HOW EVERTRUST FINANCIAL GROUP, INC.
INTENDS TO USE THE CONVERSION OFFERING PROCEEDS
The net proceeds from the sale of the common stock which are being
offered in the conversion are estimated to range from $55.3 million to $74.8
million, or up to $86.0 million if the estimated valuation range is increased by
15%. See "Pro Forma Data" for the assumptions used to arrive at such amounts.
The following table presents the estimated net proceeds of the
offering, the amounts contributed to EverTrust Financial Group, Inc. and its
subsidiaries, and the amount of EverTrust Financial Group, Inc.'s loan to the
employee stock ownership plan. See "Pro Forma Data" for the assumptions used to
arrive at these amounts. The Washington Department of Financial Institutions,
Division of Banks must approve, and the Federal Deposit Insurance Corporation
must provide its non-objection to, the sale of up to 8,596,250 shares in the
conversion.
<TABLE>
<CAPTION>
8,596,250
5,525,000 6,500,000 7,475,000 Shares Sold at
Shares Sold at Shares Sold at Shares Sold at $10.00 Per Share
$10.00 Per Share $10.00 Per Share $10.00 Per Share (Maximum of
(Minimum of (Midpoint of (Maximum of Offering Range
Offering Range) Offering Range) Offering Range) As Adjusted)
--------------- --------------- --------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Gross proceeds........................... $55,250 $65,000 $74,750 $85,963
Less: estimated underwriting commissions
and other offering expenses.......... 1,500 1,500 1,500 1,500
Less: cash contribution to The EverTrust
Foundation........................... 1,105 1,300 1,300 1,300
------- ------- ------- -------
Net proceeds............................. $52,645 $62,000 $71,950 $83,163
======= ======= ======= =======
Amount to be retained by EverTrust
Financial Group, Inc................. $26,323 $31,000 $35,975 $41,582
Amount to be contributed to Everett
Mutual Bank.......................... 26,322 31,000 35,975 41,581
Amount to be contributed to Commercial
Bank of Everett ................... -- -- -- --
Amount to be contributed to I-Pro........ -- -- -- --
Amount to be contributed to Mutual
Bancshares Capital Inc. ............ -- -- -- --
Amount of loan by EverTrust Financial
Group, Inc. to the employee stock
ownership plan........................ 1,171 1,378 1,573 1,797
</TABLE>
EverTrust Financial Group, Inc. has received conditional approval from
the Washington Division of Banks and the Federal Deposit Insurance Corporation
to invest 50% of the net conversion proceeds in Everett Mutual Bank. In
addition, EverTrust Financial Group, Inc. will use these funds as follows:
o for general corporate purposes, which may include, for example,
paying cash dividends to the stockholders of EverTrust Financial
Group, Inc. and for future repurchases of common stock to the
extent permitted under Washington law and federal regulations.
o for additional equity contributions to existing and/or new
subsidiaries in the form of debt or equity, to support future
diversification or acquisition activities;
o to loan the employee stock ownership plan the amount necessary to
purchase 2% of the shares sold in the conversion. The employee
stock ownership plan purchases would range between 117,130 shares
at the minimum of the offering range and 157,300 shares at the
maximum of the offering range, including shares issued to The
EverTrust Foundation.
9
<PAGE>
At the midpoint of the offering range, and including shares
issued to The EverTrust Foundation, the employee stock ownership
plan would purchase 137,800 shares. If 8,986,250 shares are
issued in the conversion, the employee stock ownership plan would
purchase 179,725 shares. It is anticipated that the employee
stock ownership plan loan will have a five-year term with
interest payable at the prime rate as published in The Wall
Street Journal on the closing date of the conversion. The loan
will be repaid principally from Everett Mutual Bank's
contributions to the employee stock ownership plan and from any
dividends paid on shares of common stock held by the employee
stock ownership plan.
o to expand operations and services through acquiring or
establishing wealth management and wealth transfer services or
acquiring other financial institutions, although it has no
specific plans, arrangements, agreements or understandings,
written or oral, regarding these activities.
Pending such use, the net proceeds will be invested in investment
securities with short intermediate terms or in a deposit account at Everett
Mutual Bank.
Receipt of 50% of the net proceeds of the sale of the common stock will
increase Everett Mutual Bank's capital and will provide it with the ability to
expand its financial services. Everett Mutual Bank will use the net proceeds
received from the offering as follows:
o in the short term, to invest in short and intermediate term U.S.
Government and agency obligations and ultimately in loan
originations.
Except as described above, neither EverTrust Financial Group, Inc. nor
Everett Mutual Bank has specific plans for the investment of the proceeds of
this offering. Although Everett Mutual Bank's capital currently exceeds
regulatory requirements, it is converting to stock form to structure itself in
the form of organization used by commercial banks and most other financial
services companies. For a discussion of management's business reasons for
undertaking the conversion, see "Mutual Bancshares' Conversion -- Reasons for
the Conversion."
Following the conversion, the Board of Directors will have the
authority to adopt plans for repurchases of common stock, subject to statutory
and regulatory requirements. Since EverTrust Financial Group, Inc. has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The Board of Directors will
consider many facts and circumstances in determining whether to repurchase stock
in the future. These factors include:
o the ability to improve EverTrust Financial Group, Inc.'s return
on equity,
o the ability to increase the book value and/or earnings per share
of the remaining outstanding shares,
o market and economic factors such as the price at which the stock
is trading in the market,
o the volume of trading, and
o the attractiveness of other investment alternatives in terms of
the rate of return and risk involved in the investment.
The avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans is another factor that will be considered. The Board of
Directors will also consider any other circumstances in which repurchases would
be in the best interests of EverTrust Financial Group, Inc. and its
stockholders. Before any stock repurchases, the Board of Directors must
determine that EverTrust Financial Group, Inc., Everett Mutual Bank and
Commercial Bank of Everett will be
10
<PAGE>
capitalized in excess of all applicable regulatory requirements after any such
repurchases and that capital will be adequate, taking into account, among other
things, Everett Mutual Bank's and Commercial Bank of Everett's level of
nonperforming and classified assets, EverTrust Financial Group, Inc.'s, Everett
Mutual Bank's and Commercial Bank of Everett's current and projected results of
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "Mutual Bancshares' Conversion --
Restrictions on Repurchase of Stock."
EVERTRUST FINANCIAL GROUP, INC.'S DIVIDEND POLICY
General
EverTrust Financial Group, Inc. does not intend initially to pay a cash
dividend. The Board of Directors may declare and pay periodic special cash
dividends in addition to, or in lieu of, regular cash dividends. Declarations or
payments of dividends, if any, will be affected by a number of factors,
including the prevailing economic, interest rate and stock market conditions, as
well as profitability, financial condition, expected growth, compliance with
capital requirements, dividend payout ratio and peer group analyses. The
establishment, timing and amount of any dividend payments will be determined by
the Board of Directors of EverTrust Financial Group, Inc., based on the factors
noted above. No determination has been made with respect to a dividend policy.
Current Restrictions
Dividends from EverTrust Financial Group, Inc. may depend, in part,
upon receipt of dividends from Everett Mutual Bank because EverTrust Financial
Group, Inc. initially will have no source of income other than dividends from
Everett Mutual Bank and earnings from the investment of the net proceeds from
the offering retained by EverTrust Financial Group, Inc. As a converted
institution, Everett Mutual Bank also will be subject to the regulatory
restriction that it will not be permitted to declare or pay a dividend on or
repurchase any of its capital stock if the effect thereof would be to cause its
regulatory capital to be reduced below the amount required for the liquidation
account established in connection with the conversion. Under Washington law,
EverTrust Financial Group, Inc. is prohibited from paying a dividend if, as a
result of its payment, EverTrust Financial Group, Inc. would be unable to pay
its debts as they become due in the normal course of business, or if EverTrust
Financial Group, Inc.'s total liabilities would exceed its total assets. See
"Regulation -- The Banks -- Limitations on Capital Distributions," "Mutual
Bancshares' Conversion -- Effects of Conversion to Stock Form on Depositors and
Borrowers of Everett Mutual Bank -- Liquidation Account" and Note 12 of the
Notes to Consolidated Financial Statements included in the back of this
prospectus.
MARKET FOR EVERTRUST FINANCIAL GROUP, INC.'S COMMON STOCK
EverTrust Financial Group, Inc. has never issued capital stock and,
consequently, there is no existing market for the common stock. Although
EverTrust Financial Group, Inc. has received conditional approval to list the
common stock on the National Market System of the Nasdaq Stock Market under the
symbol "EVRT," there can be no assurance that EverTrust Financial Group, Inc.
will meet Nasdaq National Market System listing requirements, which include a
minimum market capitalization, at least three market makers and a minimum number
or record holders. Keefe, Bruyette & Woods, Inc. has indicated its intention to
act as a market maker for EverTrust Financial Group, Inc.'s common stock
following consummation of the conversion and will assist EverTrust Financial
Group, Inc. in seeking to encourage at least two additional market makers to
establish and maintain a market in the common stock. Additionally, the
development of a liquid public market depends on the existence of willing buyers
and sellers, the presence of which is not within the control of EverTrust
Financial Group, Inc., Everett Mutual Bank or any market maker. There can be no
assurance that an active and liquid trading market for the common stock will
develop or that, if developed, it will continue. The number of active buyers and
sellers of the common stock at any particular time may be limited. Under such
circumstances, investors in the common stock could have difficulty disposing of
their shares on short notice and should not view the common stock as a
short-term investment. Furthermore, there can be no assurance that purchasers
will be able to sell their shares at or above the purchase price or that
quotations will be available on the National Market System of the Nasdaq Stock
Market as contemplated.
11
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Mutual
Bancshares at March 31, 1999, and the pro forma consolidated capitalization of
EverTrust Financial Group, Inc. after giving effect to the assumptions under
"Pro Forma Data," based on the sale of the number of shares indicated in the
table. The issuance of 8,596,250 shares would require Washington Department of
Financial Institutions and Federal Deposit Insurance Corporation approval of an
updated appraisal confirming that valuation. A change in the number of shares to
be issued in the conversion may materially affect pro forma consolidated
capitalization.
<TABLE>
<CAPTION>
EverTrust Financial Group, Inc.
Pro Forma Consolidated Capitalization
Based Upon the Sale of
-------------------------------------------------------------------------------------
8,596,250
5,525,000 6,500,000 7,475,000 Shares Sold
Shares Sold Shares Sold Shares Sold at $10.00
Capitalization at $10.00 at $10.00 at $10.00 Per Share(2)
as of Per Share(1) Per Share(1) Per Share(1) (Maximum of
March 31, (Minimum of (Midpoint of (Maximum of Offering Range
1999 Offering Range) Offering Range) Offering Range) as Adjusted)
---- --------------- --------------- --------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3).......................... $375,896 $375,896 $375,896 $375,896 $375,896
Federal Home Loan Bank of
Seattle advances................... 18,949 18,949 18,949 18,949 18,949
-------- -------- -------- -------- --------
Total deposits and borrowed
funds.............................. $394,845 $394,845 $394,845 $394,845 $394,845
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, no par
value per share, authorized;
none issued or outstanding..... $ -- $ -- $ -- $ -- $ --
Common stock:
49,000,000 shares, no par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4)................ -- 59 69 79 90
Additional paid-in capital........ -- 52,586 62,131 71,871 83,073
Shares issued to The EverTrust
Foundation...................... -- 3,315 3,900 3,900 3,900
Less: Stock contribution to
The EverTrust Foundation......... -- (3,315) (3,900) (3,900) (3,900)
Retained earnings, substantially
restricted(5)................. 52,147 52,147 52,147 52,147 52,147
Unrealized gain on securities,
net of tax................... 116 116 116 116 116
Plus: tax benefit of contribution to
The EverTrust Foundation...... -- 1,503 1,768 1,768 1,768
Less:
Common Stock to be acquired by
employee stock ownership
plan(6)....................... -- (1,171) (1,378) (1,573) (1,797)
Common Stock to be acquired by
management recognition and
development plan(7)........... -- (2,343) (2,756) (3,146) (3,595)
-------- -------- -------- -------- --------
Total stockholders' equity........... $52,263 $102,897 $112,097 $121,262 $131,802
======= ======== ======== ======== ========
Equity/assets........................ 11.56% 20.47% 21.90% 23.27% 24.79%
</TABLE>
(footnotes on following page)
12
<PAGE>
- ---------------
(1) Does not reflect the possible increase in the estimated valuation range to
reflect material changes in the financial condition or results of
operations of Mutual Bancshares or changes in market conditions or general
financial, economic and regulatory conditions, or the issuance of
additional shares under the stock option plan.
(2) This column represents the pro forma capitalization of EverTrust Financial
Group, Inc. in the event the aggregate number of shares of common stock
issued in the conversion is 15% above the maximum of the estimated
valuation range. See "Pro Forma Data" and footnote 1 to the table under
"Pro Forma Data."
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals will reduce pro forma deposits by the amounts of the
withdrawals.
(4) Everett Mutual Bank's authorized capital consists solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which were
previously issued to Mutual Bancshares, and 9,000 shares of preferred
stock, no par value per share, none of which will be issued in connection
with the conversion.
(5) Total equity is substantially restricted by applicable regulatory capital
requirements. Additionally, Everett Mutual Bank will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the
benefit of Everett Mutual Bank's eligible account holders and supplemental
eligible account holders at the time of the conversion and adjusted
downward thereafter as such account holders reduce their balances or when
they are no longer depositors. See "Mutual Bancshares' Conversion --
Effects of Conversion to Stock Form on Depositors and Borrowers of Everett
Mutual Bank -- Liquidation Account."
(6) Assumes that 2% of the common stock issued in the conversion, including
shares issued to The EverTrust Foundation, will be acquired by the employee
stock ownership plan in the conversion with funds borrowed from EverTrust
Financial Group, Inc. This would range between 117,130 shares, assuming
5,856,500 shares are issued in the conversion, to 179,725 shares, assuming
8,986,250 shares are issued in the conversion. The loan will be repaid
principally from Everett Mutual Bank's contributions to the employee stock
ownership plan and dividends payable on the common stock held by the
employee stock ownership plan over the anticipated five-year term of the
loan. Under generally accepted accounting principles, the amount of common
stock to be purchased by the employee stock ownership plan represents
unearned compensation and is, accordingly, reflected as a reduction of
capital. As shares are released to employee stock ownership plan
participants' accounts, a corresponding reduction in the charge against
capital will occur. Since the funds are borrowed from EverTrust Financial
Group, Inc., the borrowing will be eliminated in consolidation and no
liability or interest expense will be reflected in the consolidated
financial statements of EverTrust Financial Group, Inc. See "Management of
Everett Mutual Bank -- Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share of a number of
shares equal to 4% of the shares of common stock issued in the conversion
at the minimum, midpoint, maximum and 15% above the maximum of the
estimated valuation range, including shares issued to The EverTrust
Foundation. This would range between 234,260 shares, assuming 5,856,500
shares are issued in the conversion, to 359,450 shares, assuming 8,986,250
shares are issued in the conversion. The issuance of an additional 4% of
the shares of common stock for the management development and recognition
plan from authorized but unissued shares would dilute the ownership
interest of stockholders by 3.85%. The shares are reflected as a reduction
of stockholders' equity. See "Risk Factors -- Issuance of Shares for
Benefit Programs May Lower Your Ownership Interest," "Pro Forma Data" and
"Management of Everett Mutual Bank -- Benefits -- Management Recognition
and Development Plan." The management development and recognition plan
requires stockholder approval, which is expected to be sought at a meeting
to be held no earlier than six months following the conversion.
13
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At March 31, 1999, Everett Mutual Bank and Commercial Bank of Everett
had exceeded the minimum regulatory capital requirements. The following table
presents Everett Mutual Bank's and Commercial Bank of Everett's historical and
pro forma capital positions relative to their capital requirements at March 31,
1999. For purposes of the table below, the amount expected to be borrowed by the
employee stock ownership plan and the cost of the shares expected to be acquired
by the management recognition and development plan is deducted from pro forma
regulatory capital. For a discussion of the assumptions underlying the pro forma
capital calculations, see "How EverTrust Financial Group, Inc. Intends to Use
the Conversion Offering Proceeds," "Capitalization" and "Pro Forma Data." For a
discussion of the capital standards applicable to Everett Mutual Bank and
Commercial Bank of Everett, see "Regulation -- The Banks -- Capital
Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1999
-----------------------------------------------------------------------------
15% above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
----------------- ----------------- ----------------- ----------------
5,525,000 Shares 6,500,000 Shares 7,475,000 Shares 8,596,250 Shares
at at at at
March 31, 1999 $10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
------------------- ------------------ ----------------- ------------------ -----------------
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ----------- ------ ----------- ------ ----------- ------ ---------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Everett Mutual Bank:
Generally accepted
accounting principles
capital................ $41,527 9.74% $66,391 14.67% $70,911 15.51% $75,201 16.28% $80,135 17.16%
======= ======= ======= ===== ======= ===== ======= ====== ======= =====
Tier I (leverage)
capital................ $41,404 9.89% $66,268 14.90% $70,788 15.75% $75,078 16.54% $80,012 17.43%
Tier I (leverage)
capital requirement.... 16,748 4.00 17,789 4.00 17,978 4.00 18,158 4.00 18,364 4.00
------- ------- -------- ------- ------- ------- -------- ------- --------- -------
Excess.................. $24,656 5.89% $48,478 10.90% $52,810 11.75% $56,920 12.54% $61,647 13.43%
======= ======= ======= ====== ======= ====== ======= ====== ======= ======
Tier I risk adjusted
capital................ $41,404 11.53% $66,268 18.20% $70,788 19.39% $75,078 20.51% $80,012 21.80%
Tier I risk adjusted
capital requirement.... 14,359 4.00 14,567 4.00 14,605 4.00 14,641 4.00 14,682 4.00
------- ------- -------- ------- ------- ------- -------- ------- --------- -------
Excess.................. $27,045 7.53% $51,701 14.20% $56,183 15.39% $60,437 16.51% $65,329 17.80%
======= ======= ======= ====== ======= ====== ======= ====== ======= ======
Total risk adjusted
assets................. $46,004 12.82% $70,868 19.46% $75,388 20.65% $79,678 21.77% $84,612 23.05%
Total capital
requirement............ 28,718 8.00 29,134 8.00 29,210 8.00 29,282 8.00 29,364 8.00
------- ------- -------- -------- ------- ------- -------- ------- --------- -------
Excess.................. $17,286 4.82% $41,734 11.46% $46,178 12.65% $50,396 13.77% $55,247 15.05%
======= ======= ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
- --------------
(1) Based upon total adjusted assets of $426,538 million at March 31, 1999 and
$452,573 million, $457,300 million, $461,785 million and $466,943 million
at the minimum, midpoint, maximum and maximum, as adjusted, of the
estimated valuation range, respectively, for purposes of leverage capital
requirements.
(table continued on following page)
14
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1999
-----------------------------------------------------------------------------
15% above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
----------------- ----------------- ----------------- ----------------
5,525,000 Shares 6,500,000 Shares 7,475,000 Shares 8,596,250 Shares
at at at at
March 31, 1999 $10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
------------------- ------------------ ----------------- ------------------ -----------------
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ----------- ------ ----------- ------ ----------- ------ ---------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Bank
of Everett:
Generally accepted
accounting
principles capital..... $2,822 14.30% $5,132 23.22% $5,132 23.22% $5,132 23.22% $5,132 23.22%
====== ===== ====== ===== ====== ===== ====== ====== ====== =====
Tier I (leverage)
capital................ $2,832 17.85% $5,132 28.28% $5,132 28.28% $5,132 28.28% $5,132 28.28%
Tier I (leverage)
capital requirement.... 634 4.00 726 4.00 726 4.00 726 4.00 726 4.00
------ ----- ------ ----- -------- ------ --------- ------- -------- -------
Excess.................. $2,198 13.85% $4,406 24.28% $4,406 24.28% $4,406 24.28% $4,406 24.28%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Tier I risk adjusted
capital................ 2,832 18.14% $5,132 31.94% $5,132 31.94% $5,132 31.94% $5,132 31.94%
Tier I risk adjusted
capital requirement.... 624 4.00 643 4.00 643 4.00 643 4.00 643 4.00
------ ----- ------ ----- -------- ------ --------- ------- -------- -------
Excess.................. $2,208 14.14% $4,489 27.94% $4,489 27.94% $4,489 27.94% $4,489 27.94%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total risk adjusted
assets................. $3,022 19.35% $5,322 33.12% $5,322 33.12% $5,322 33.12% $5,322 33.12%
Total capital
requirement............ 1,249 8.00 1,286 8.00 1,286 8.00 1,286 8.00 1,286 8.00
------ ----- ------ ----- ------- ------ -------- ------- -------- -------
Excess.................. $1,773 11.35% $4,036 25.12% $4,036 25.12% $4,036 25.12% $4,036 25.12%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- ------------
(1) Based upon total adjusted assets of $19.8 million at March 31, 1999 and
$22.1 million, $22.1 million, $22.1 million and $22.1 million at the
minimum, midpoint, maximum and maximum, adjusted, of the estimated
valuation range, respectively, for purposes of the leverage capital
requirements.
15
<PAGE>
PRO FORMA DATA
The conversion requires that the common stock must be sold at a price
equal to the estimated market value of Mutual Bancshares, as converted, based
upon an independent valuation. The estimated valuation range as of June 11, 1999
is from a minimum of $55,250,000 to a maximum of $74,750,000 with a midpoint of
$65,000,000. At a price per share of $10.00, this results in a minimum number of
shares of 5,525,000, a maximum number of shares of 7,475,000 and a midpoint
number of shares of 6,500,000.
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds indicated on
the following table are based upon the following assumptions:
1. Charles Webb will receive a fixed management fee and a success
fee of $715,000, as discussed under "Mutual Bancshares'
Conversion -- Plan of Distribution for the Subscription, Direct
Community and Syndicated Community Offerings."
2. All of the common stock will be sold in the subscription and
direct community offerings.
3. Conversion expenses, including the fees paid to Charles Webb, are
fixed at $1.5 million.
Actual expenses may vary from this estimate, and the fees paid will
depend upon the percentages and total number of shares sold in the subscription
offering, direct community offering and syndicated community offering and other
factors.
The pro forma data that follows was prepared by EverTrust Financial
Group, Inc. and Everett Mutual Bank with the assistance of RP Financial. The
following table summarizes the historical net income and retained earnings of
Everett Mutual Bank and the pro forma consolidated net income and stockholders'
equity of EverTrust Financial Group, Inc. at and for the year ended March 31,
1999. Pro forma consolidated net income has been calculated as if the conversion
was completed on April 1, 1998 and the estimated net proceeds had been invested
at 4.70% beginning on that date. That percentage yield represents the one-year
U.S. Treasury Bill yield as of March 31, 1999.
A pro forma after-tax return of 3.10% is used for both EverTrust
Financial Group, Inc. and Everett Mutual Bank, after giving effect to no federal
and state income tax. See "Taxation -- Federal Taxation." Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the number of shares of common stock indicated in the footnotes
to the table. Per share amounts have been computed as if the common stock had
been outstanding at April 1, 1998 or at March 31, 1999, but without any
adjustment of historical or pro forma stockholders' equity per share to reflect
the earnings on the estimated net proceeds.
EverTrust Financial Group, Inc. and Everett Mutual Bank did not figure
into this calculation the following four items:
1. the shares to be reserved for issuance under the's stock option
plan, which is expected to be voted upon by stockholders at a
meeting to be held no earlier than six months following the
conversion;
2. withdrawals from deposit accounts to purchase common stock in the
conversion;
3. the issuance of shares from authorized but unissued shares to the
management development and recognition plan, which is expected to
be voted upon by stockholders at a meeting to be held no earlier
than six months following the conversion; or
16
<PAGE>
4. the liquidation account that Everett Mutual Bank will establish
for the benefit of eligible account holders and supplemental
eligible account holders. See "Mutual Bancshares' Conversion --
Effects of Conversion to Stock Form on Depositors and Borrowers
of Everett Mutual Bank -- Liquidation Account."
The following pro forma data, which is based on Mutual Bancshares'
retained earnings at March 31, 1999 and net income for the year ended March 31,
1999, may not represent the actual financial effects of the conversion or the
operating results of EverTrust Financial Group, Inc. after the conversion. The
pro forma data relies exclusively on the assumptions outlined above. The pro
forma data does not represent the fair market value of EverTrust Financial
Group, Inc.'s common stock, the current fair market value of Mutual Bancshares'
assets or liabilities, or the amount of money that would be available for
distribution to shareholders if EverTrust Financial Group, Inc. is liquidated.
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended March 31, 1999
----------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
---------- ----------- ---------- ---------------
5,525,000 6,500,000 7,475,000 8,596,250(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds.................................. $ 55,250 $ 65,000 $ 74,750 $ 85,963
Plus: Shares issued to The EverTrust
Foundation..................................... 3,315 3,900 3,900 3,900
--------- --------- ---------- ---------
Pro forma market capitalization................. $ 58,565 $ 68,900 $ 78,650 $ 89,863
========= ========= ========== =========
Gross proceeds.................................. $ 55,250 $65,000 $ 74,750 $ 85,963
Less: Estimated underwriting commissions
and other offering expenses.................. 1,500 1,500 1,500 1,500
Less: Cash contribution to The EverTrust
Foundation.................................... 1,105 1,300 1,300 1,300
Management recognition and development
plan purchases after one year............... -- -- -- --
--------- --------- ---------- ---------
Estimated net proceeds.......................... $ 52,645 $ 62,200 $ 71,950 $ 83,163
========= ========= ========== =========
Less: Common stock acquired by employee
stock ownership plan......................... (1,171) (1,378) (1,573) (1,797)
Less: Common stock to be acquired by management
recognition and development plan........... (2,343) (2,756) (3,146) (3,595)
--------- --------- ---------- ----------
Net investable proceeds................. 49,131 58,066 67,231 77,771
Consolidated net income:
Historical.................................. $ 1,411 $ 1,411 $ 1,411 $ 1,411
Pro forma income on net proceeds(2)......... 1,524 1,801 2,086 2,412
Pro forma employee stock ownership plan
adjustments(3)............................. (129) (152) (173) (198)
Pro forma management recognition and
development plan adjustments(4).......... (309) (364) (415) (474)
--------- --------- ---------- ----------
Pro forma net income...................... $ 2,497 $ 2,696 $ 2,909 $ 3,151
========= ========= ========== ==========
Consolidated net income per share(5)(6):
Historical.................................. $0.25 $0.21 $0.18 $0.16
Pro forma income on net proceeds............ 0.26 0.27 0.27 0.27
Pro forma employee stock ownership plan
adjustments(3)................................. (0.02) (0.02) (0.02) (0.02)
Pro forma management recognition and
development plan adjustments(4).......... (0.05) (0.05) (0.05) (0.05)
--------- ---------- ---------- ---------
Pro forma net income per share............ $0.44 $0.41 $0.38 $0.36
Purchase price as a multiple of pro forma
net income per share......................... 22.73 24.39 26.32 27.78
========= ========= ========== =========
Shares used in earnings per share
calculations................................... 5,757,050 6,773,000 7,730,450 8,831,518
Consolidated stockholders' equity (book value):
Historical.................................. $ 52,263 $ 52,263 $ 52,263 $ 52,263
Estimated net proceeds...................... 52,645 62,200 71,950 83,163
Plus: Stock issued to The EverTrust
Foundation................................. 3,315 3,900 3,900 3,900
Less: Stock Contribution to The EverTrust
Foundation................................. (3,315) (3,900) (3,900) (3,900)
Plus: Tax benefit of the contribution to
The EverTrust Foundation................. 1,503 1,768 1,768 1,768
Less: Common stock acquired by employee
stock ownership plan...................... (1,171) (1,378) (1,573) (1,797)
Less: Common stock to be acquired by
management recognition and development
plan(4).................................... (2,343) (2,756) (3,146) (3,595)
--------- --------- ---------- ----------
Pro forma stockholders' equity(7)....... $ 102,897 $ 112,097 $ 121,262 $ 131,802
========= ========= ========== ==========
Consolidated stockholders' equity per
share(6)(8):
Historical(6)............................... $8.92 $7.59 $6.65 $5.82
Estimated net proceeds...................... 8.99 9.03 9.15 9.25
Plus: Stock issued to The EverTrust
Foundation................................. 0.57 0.57 0.50 0.43
Less: Stock contribution to The EverTrust
Foundation................................. (0.57) (0.57) (0.50) (0.43)
Plus: Tax benefit of the contribution to
The EverTrust Foundation................ 0.26 0.26 0.22 0.20
Less: Common stock acquired by employee
stock ownership plan................... (0.20) (0.20) (0.20) (0.20)
Less: Common stock to be acquired by
management recognition and development
plan(4).................................... (0.40) (0.40) (0.40) (0.40)
--------- --------- ---------- --------
Pro forma stockholders' equity
per share(9)........................ $17.57 $16.28 $15.42 $14.67
========= ========= ========== =========
Offering price as a percentage of pro forma
stockholders' equity per share................. 56.92% 61.43% 64.85% 68.17%
Shares used in book value per share
calculations................................... 5,525,000 6,500,000 7,475,000 8,596,250
</TABLE>
(footnotes on following page)
18
<PAGE>
- -----------------
(1) Gives effect to the sale of an additional 1,121,250 shares in the
conversion, which may be issued to cover an increase in the pro forma
market value of EverTrust Financial Group, Inc. and Everett Mutual Bank as
converted, without the resolicitation of subscribers or any right of
cancellation. The issuance of such additional shares will be conditioned on
a determination by RP Financial that such issuance is compatible with its
determination of the estimated pro forma market value of EverTrust
Financial Group, Inc. and Everett Mutual Bank as converted. See "Mutual
Bancshares' Conversion -- Stock Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing common stock in the conversion. Since funds on
deposit at Everett Mutual Bank may be withdrawn to purchase shares of
common stock (which will reduce deposits by the amount of such purchases),
the net amount of funds available to Everett Mutual Bank for investment
following receipt of the net proceeds of the conversion will be reduced by
the amount of such withdrawals.
(3) The funds used to acquire such shares will be borrowed by the employee
stock ownership plan at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of the conversion,
which rate is currently 7.75%, from the net proceeds from the conversion
retained by EverTrust Financial Group, Inc. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine
estimated net investable proceeds. Everett Mutual Bank intends to make
contributions to the employee stock ownership plan in amounts at least
equal to the principal and interest requirement of the debt. As the debt is
paid down, stockholders' equity will be increased. EverTrust Financial
Group, Inc.'s payment of the employee stock ownership plan debt is based
upon equal installments of principal over a five-year period, assuming a
federal income tax rate of 34.0%. Interest income earned by Everett Mutual
Bank on the employee stock ownership plan debt offsets the interest it will
pay on the employee stock ownership plan loan. No reinvestment is assumed
on proceeds contributed to fund the employee stock ownership plan.
Applicable accounting practices require that compensation expense for the
employee stock ownership plan be based upon shares committed to be released
and that unallocated shares be excluded from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share purchase price. See "Management of Everett Mutual Bank -- Benefits --
Employee Stock Ownership Plan."
(4) In calculating the pro forma effect of the management recognition and
development plan, it is assumed that the required stockholder approval has
been received, that the shares were acquired at the beginning of the period
presented in open market purchases at the $10.00 per share purchase price,
that 20% of the amount contributed was an amortized expense during the
period, and that the federal income tax rate is 34.0%. The issuance of
authorized but unissued shares of the common stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.85% and pro forma net income per share would be $0.44,
$0.40, $0.38 and $0.35 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range for the year ended March 31, 1999,
respectively, and pro forma stockholders' equity per share would be $17.30,
$16.04, $15.22 and $14.49 at the minimum, midpoint, maximum and 15% above
the maximum of the estimated valuation range at March 31, 1999,
respectively. Shares issued under the management recognition and
development plan vest 20% per year and for purposes of this table
compensation expense is recognized on a straight-line basis over each
vesting period. In the event the fair market value per share is greater
than $10.00 per share on the date shares are awarded, total management
recognition and development plan expense would increase. The total
estimated expense was multiplied by 20% (the total percent of shares for
which expense is recognized in the first year) resulting in pre-tax
management recognition and development plan expense of $468,000, $552,000,
$629,000 and $718,000 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range for the year ended March 31, 1999,
respectively. No effect has been given to the shares reserved for issuance
under the proposed stock option plan.
(5) Per share amounts are based upon shares outstanding of 5,757,600,
6,773,000, 7,730,450 and 8,831,518 at the minimum, midpoint, maximum and
15% above the maximum of the estimated valuation range for
19
<PAGE>
the year ended March 31, 1999, respectively, which includes the shares of
common stock sold in the conversion less the number of shares assumed to be
held by the employee stock ownership plan not committed to be released
within the first year following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional employee stock ownership plan expense or the
proposed management recognition and development plan expense, as described
above.
(7) "Book value" represents the difference between the stated amounts of
Everett Mutual Bank's assets and liabilities. The amounts shown do not
reflect the liquidation account which will be established for the benefit
of eligible account holders and supplemental eligible account holders in
the conversion, or the federal income tax consequences of the restoration
to income of Everett Mutual Bank's special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation. See
"Mutual Bancshares' Conversion -- Effects of Conversion to Stock Form on
Depositors and Borrowers of Everett Mutual Bank" and "Taxation." The
amounts shown for book value do not represent fair market values or amounts
distributable to stockholders in the unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 5,856,500,
6,890,000, 7,865,000 and 8,986,250 at the minimum, midpoint, maximum and
15% above the maximum of the estimated valuation range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the common stock.
20
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT FOUNDATION
If EverTrust Financial Group, Inc. does not establish the charitable
foundation as part of the reorganization, RP Financial has estimated that the
pro forma aggregate market value of EverTrust Financial Group, Inc. would be
approximately $74.0 million at the midpoint of the estimated price range, which
is approximately $9.0 million greater than the pro forma aggregate market
capitalization of EverTrust Financial Group, Inc., including the foundation, and
would result in a 900,000 share increase in the amount of common stock offered
for sale in the conversion. The pro forma book value ratio would be the same,
assuming the mid-point, under both the current appraisal and the estimate of the
value of EverTrust Financial Group, Inc. without the foundation. The pro forma
shareholders' equity per share would also be the same with or without the
foundation. EverTrust Financial Group, Inc. cannot assure that, in the event the
foundation was not formed, the appraisal prepared at that time would have
concluded that the pro forma market value of EverTrust Financial Group, Inc.
would be that same as was estimated. The following information is not based on
Mutual Bancshares' existing foundation, the Everett Mutual Foundation, which was
formed in 1980.
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum At the Midpoint At the Maximum As Adjusted
---------------------- ----------------------- ----------------------- ------------------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount...... 55,250 $ 62,900 $ 65,000 $ 74,000 $ 74,750 $ 85,100 $ 85,963 $ 97,865
Pro forma market
capitalization................ 58,565 62,900 68,900 74,000 78,650 85,100 89,863 97,865
Total assets................... 502,723 509,715 511,923 520,149 521,088 530,583 531,628 542,582
Total liabilities.............. 399,826 399,826 399,826 399,826 399,826 399,826 399,826 399,826
Pro forma shareholders'
equity........................ 102,897 109,889 112,097 120,323 121,262 130,757 131,802 142,756
Pro forma consolidated net
income........................ 2,497 2,729 2,696 2,968 2,909 3,210 3,151 3,486
Pro forma shareholders'
equity per share.............. 17.57% 17.47% 16.28% 16.26% 15.42% 15.36% 14.67% 14.59%
Pro forma consolidated net
income per share.............. 0.44% 0.45% 0.41% 0.41% 0.38% 0.39% 0.36% 0.37%
Pro Forma Pricing Ratios:
Offering price as a percentage
of pro forma shareholders'
equity per share............. 56.92% 57.24% 61.43% 61.50% 64.85% 65.10% 68.17% 68.54%
Offering price to pro forma
net income per share......... 22.73% 22.22% 24.39% 24.39% 26.32% 25.64% 27.78% 27.03%
Pro forma market
capitalization to assets..... 11.65% 12.34% 13.46% 14.23% 15.09% 16.04% 16.90% 18.04%
Pro Forma Financial Ratios:
Return on assets.......... 0.50% 0.54% 0.53% 0.57% 0.26% 0.60% 0.59% 0.64%
Return on shareholders'
equity................... 2.43% 2.48% 2.41% 2.47% 2.40% 2.45% 2.39% 2.44%
Shareholders' equity to
assets................... 20.47% 21.56% 21.90% 23.13% 23.27% 24.64% 24.79% 26.31%
</TABLE>
21
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the
approximate purchases of common stock by each director and executive officer of
Mutual Bancshares, Everett Mutual Bank and related entities, including their
associates, as defined by applicable regulations. No individual has entered into
a binding agreement with respect to these intended purchases, and, therefore,
actual purchases could be more or less than indicated below. Directors and
officers of Everett Mutual Bank and their associates may not purchase in excess
of 27% of the shares sold in the conversion. For purposes of the following
table, it has been assumed that sufficient shares will be available to satisfy
subscriptions in all categories. Directors, officers, their associates and
employees will pay the same price as all other subscribers for the shares for
which they subscribe.
<TABLE>
<CAPTION>
Percent of Percent of
Anticipated Anticipated Shares at the Shares at the
Number of Dollar Minimum of Maximum of
Shares to be Amount to be the Estimated the Estimated
Name and Position Purchased(1) Purchased Valuation Range(2) Valuation Range(2)
- ----------------- ------------ --------- ------------------ ------------------
<S> <C> <C> <C> <C>
Michael B. Hansen 25,000 $250,000* 0.43% 0.32%
President, Chief Executive
Officer and Director
Michael R. Deller 10,000 100,000 0.17 0.13
Executive Vice President
and Director
Jeffrey R. Mitchell 8,500 85,000 0.15 0.11
Senior Vice President,
Chief Financial Officer
and Treasurer
Lorelei Christenson 10,000 100,000 0.17 0.13
Senior Vice President,
Chief Information Officer
and Corporate Secretary
Terry Cullom 5,000 50,000 0.09 0.06
Vice President and
Credit Administrator
Margaret B. Bavasi 12,000 120,000 0.20 0.15
Director
R. Michael Kight 10,000 100,000 0.17 0.13
Director
Robert A. Leach, Jr. 20,000 200,000 0.34 0.25
Director
George S. Newland 10,000 100,000 0.17 0.13
Director
William J. Rucker 20,000 200,000 0.34 0.25
Director
Thomas J. Gaffney 20,000 200,000 0.34 0.25
Director
Thomas R. Collins 20,000 200,000 0.34 0.25
Director
Dale A. Lyski 5,000 50,000 0.09 0.06
President and Chief
Operating Officer of
Commercial Bank of
Everett
John E. Thoresen 7,500 75,000 0.13 0.10
President of Mutual ------ -------- ---- ----
Bancshares Capital
Inc., a subsidiary
of Mutual Bancshares
Total 183,000 $1,830,000 3.13 2.32
======= ========== ==== ====
</TABLE>
- ------------
* Maximum amount available for individual purchase.
(1) Does not include any shares to be awarded pursuant to the employee stock
ownership plan and management recognition and development plan or options
to acquire shares pursuant to the stock option plan.
(2) Includes shares contributed to The EverTrust Foundation.
22
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Mutual Bancshares
and subsidiaries for the fiscal years ended March 31, 1999, 1998 and 1997 have
been derived from the audited consolidated financial statements audited by
Deloitte & Touche LLP, independent auditors. The report of independent auditors
is included herein. These statements should be read in conjunction with the
Consolidated Financial Statements and related Notes included in the back of this
prospectus.
Years Ended March 31,
----------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
INTEREST INCOME:
Loans receivable ...................... $ 28,852 $ 28,625 $ 26,379
Investment securities:
Taxable interest income ............. 4,204 4,151 4,052
Tax-exempt interest income .......... 376 367 344
Dividend income ..................... 462 319 274
-------- -------- --------
5,042 4,837 4,670
-------- -------- --------
33,894 33,462 31,049
INTEREST EXPENSE:
Deposit accounts ...................... 16,816 16,762 15,716
Federal Home Loan Bank advances ....... 1,021 1,137 1,294
-------- -------- --------
17,837 17,899 17,010
-------- -------- --------
Net Interest Income ............ 16,057 15,563 14,039
PROVISION FOR LOAN LOSSES ............... 780 420 420
-------- -------- --------
Net interest income after
provision for loan losses ..... 15,277 15,143 13,619
OTHER INCOME:
Loan service fees ..................... 781 854 798
Gain (loss) on sale of securities...... 315 (1) --
Other, net ............................ 831 939 276
-------- -------- --------
Total other income ............. 1,927 1,792 1,074
OTHER EXPENSES:
Salaries and employee benefits ........ 5,436 4,761 4,134
Occupancy and equipment ............... 3,134 2,388 2,260
Charitable contributions .............. 3,426 106 70
Information processing costs .......... 849 653 582
Other, net ............................ 2,687 2,379 2,750
-------- -------- --------
Total other expenses ........... 15,532 10,287 9,796
-------- -------- --------
BALANCE, earnings before federal
income taxes ........................... 1,672 6,648 4,897
FEDERAL INCOME TAXES:
Current ............................... 1,944 2,551 1,598
Deferred .............................. (1,683) (437) (211)
-------- -------- --------
Total federal income tax ...... 261 2,114 1,387
-------- -------- --------
Net Income .............................. $ 1,411 $ 4,534 $ 3,510
======== ======== ========
See Notes to Consolidated Financial Statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is intended to assist in understanding the
financial condition and results of operations of Mutual Bancshares and its
subsidiaries. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements and the accompanying
Notes in the back of this prospectus, as well as the other sections of this
prospectus.
Mutual Bancshares' results of operations depend primarily on its net
interest income, which is the difference between the income earned on its
interest-earning assets, consisting of loans and investments, and the cost of
its interest-bearing liabilities, consisting of deposits and Federal Home Loan
Bank of Seattle borrowings. Mutual Bancshares' net income is also affected by,
among other things, fee income, provisions for loan losses, operating expenses
and income tax provisions. Mutual Bancshares' results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
policies concerning monetary and fiscal affairs, housing and financial
institutions and the attendant actions of the regulatory authorities.
Forward-Looking Statements
This prospectus contains forward-looking statements which are based on
assumptions and describe future plans, strategies and expectations of Mutual
Bancshares. These forward-looking statements are generally identified by use of
the word "believe," "expect," "intend," anticipate," "estimate," "project," or
similar words. Mutual Bancshares's ability to predict results of the actual
effect of future plans or strategies is uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in our market areas and accounting
principles and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and you should not rely too much on these
statements.
Operating Strategy
Mutual Bancshares is a bank holding company which was formed in 1993 in
connection with the mutual holding company reorganization of Everett Mutual
Bank. At March 31, 1999, Mutual Bancshares owned four subsidiaries - Everett
Mutual Bank, a Washington state chartered savings bank; Commercial Bank of
Everett, a Washington state chartered commercial bank; I-Pro, Inc., a Washington
corporation, which is an item processing company; and Mutual Bancshares Capital
Inc., a Washington corporation, which is a venture capital firm.
Everett Mutual Bank's strategy is to operate as a community based,
retail oriented financial institution offering a wide variety of banking
products, delivered and distinguished by providing a superior level of
customized service to individuals. Everett Mutual Bank attracts retail deposits
and generates real estate secured loans through its 11 banking offices using
targeted marketing, customer cross-selling, referrals and its longstanding
reputation in its market area as a primary means of meeting this strategy.
Everett Mutual Bank strives to serve a niche base of higher balance transaction
account customers by offering tiered, interest-bearing products, versus a mass
market strategy that seeks lower balance/no interest/high fee transaction
accounts. In addition to offering one- to four family real estate loans, Everett
Mutual Bank focuses on construction and land development loans, as well as
multi-family and commercial real estate loans. Since single family lending has
become a commodity product, Everett Mutual Bank has sought to diversify its
lending activities by emphasizing real estate construction, multi-family and
commercial lending. This diversification has allowed for continued customization
of its lending products in a highly competitive environment. To a lesser, but
increasing extent,
24
<PAGE>
Everett Mutual Bank also originates consumer loans and intends to continue to
build the consumer lending segment of its loan portfolio through a broadened
product line with an emphasis on quality service. See "Business of Mutual
Bancshares -- Lending Activities."
Commercial Bank of Everett's strategy is to operate as a
community-based financial institution primarily focused on serving the needs of
business banking customers with a high level of customer service. This strategy
is accomplished by providing banking services directly at the customer's place
of business, including lending and non-cash deposit activities, to the greatest
extent possible. Inasmuch, Commercial Bank of Everett does not directly compete
with Everett Mutual Bank's retail customer focus. Rather, Commercial Bank of
Everett and Everett Mutual Bank serve to complement each other through an
organized referral network that provides both banks with the opportunity for
increased business. Commercial Bank of Everett was formed as a start-up bank
under a separate banking charter in order to foster and preserve a true
commercial banking culture which is very diverse from the historical operating
strategy of Everett Mutual Bank. Commercial Bank of Everett's business consists
primarily of attracting non-cash deposits from business customers and, to a
lesser extent, the general public, and using those funds to originate commercial
loans to a wide variety of small businesses and professional service companies
in the local market. As an accommodation to its business customers and other
contacts made during the normal course of business, Commercial Bank of Everett
originates consumer loans, and acts as a broker to Everett Mutual Bank on one-
to four-family residential loans, multi-family and commercial real estate loans.
See "Business of Commercial Bank of Everett."
The operating strategy of Mutual Bancshares' other minor subsidiaries,
I-Pro, Inc. and Mutual Bancshares Capital, Inc. is to complement and enhance the
efficiencies of Everett Mutual Bank and Commercial Bank of Everett through
cross-marketing and referral opportunities and by producing additional sources
of noninterest income that are not generally subject to the same cyclical
influences of the banking business. I-Pro, Inc.'s operating strategy is to
provide superior quality backroom check processing and electronic imaging
services for banks, with the long-term objective of supplying this technology to
non-financial businesses for similar applications. The company employs state of
the art check and statement imaging technology and customized services to
accomplish this objective. At March 31, 1999, I-Pro, Inc.'s sole clients
included Everett Mutual Bank and Commercial Bank of Everett. The operating
strategy of Mutual Bancshares Capital, Inc. is to provide, through an
organizational structure more fully explained in "Business of Mutual Bancshares
Capital, Inc.," management services and limited partnership venture capital
investments under licensing by the Small Business Administration as a Small
Business Investment Company. These management and investment opportunities are
expected to result in an additional source of non-interest income to the
consolidated operations of Mutual Bancshares and provide for potential
cross-selling opportunities with the other subsidiaries of Mutual Bancshares as
well. See "Business of I- Pro, Inc." and "Business of Mutual Bancshares Capital,
Inc."
Mutual Bancshares does not presently engage in any activities outside
of serving as a shell parent company for its subsidiaries. The operating
strategy of Mutual Bancshares has been to invest dividends received from Everett
Mutual Bank into additional operating subsidiaries, which currently consist of
Commercial Bank of Everett, I-Pro, Inc. and Mutual Bancshares Capital, Inc., in
an effort to expand and diversify the consolidated operations of Mutual
Bancshares across a variety of companies that are engaged in complementary, but
different, businesses and/or operating strategies. As a result of the additional
capital that will be retained by EverTrust Financial Group, Inc. from the
conversion, we anticipate that this diversification strategy will continue and
accelerate, although there are no specific acquisitions or new business
formations planned at this time.
Comparison of Financial Condition of Mutual Bancshares at March 31, 1999 and
March 31, 1998
Total assets increased 7.3% from $421.3 million at March 31, 1998 to
$452.1 million at March 31, 1999, primarily as a result of an increase in loans
receivable, net, which was funded by increased deposits, Federal Home Loan Bank
advances and retained net income.
25
<PAGE>
Cash and cash equivalents decreased 30.9% from $19.1 million at March
31, 1998 to $13.2 million at March 31, 1999, primarily as a result of a decrease
in overnight Fed Funds and Federal Home Loan Bank investments that were
reinvested in securities available for sale in generally the one to three year
maturity range at a higher yield as short-term interest rates fell during the
year. Lower short term interest rates throughout the year precipitated the move
from short-term to intermediate term securities to increase yield and net
interest income.
Securities available for sale increased 58.1% from $38.9 million at
March 31, 1998 to $61.6 million at March 31, 1999 as management employed a
strategy of shifting from shorter term investments to longer term corporate bond
investments in order to increase yield. Approximately $13.4 million of this
increase was funded by the reinvestment of maturing held to maturity securities
and overnight Fed Funds and Federal Home Loan Bank investments. The remaining
$9.3 million of the increase was funded by increased deposits and Federal Home
Loan Bank advances. Management intends to place most new investment purchases in
the available for sale category which allows for active management of the
securities portfolio to meet liquidity and asset/liability management needs. See
"Business of Mutual Bancshares -- Investment Activities."
Loans receivable, net, including loans held-for-sale, increased 5.9%
from $325.7 million at March 31, 1998 to $345.0 million at March 31, 1999,
primarily as a result of increased loans held for sale which increased $15.9
million from March 31, 1998 to March 31, 1999. Total loans, before deducting
undisbursed loan proceeds, deferred loan fees, and reserves for loan losses,
increased 7.2% from $356.4 million at March 31, 1998 to $382.1 million at March
31, 1999. Although increased levels of one- to four family saleable loans were
held as of March 31, 1999, total one- to four family loans increased only $6.3
million or 6.6% as many loans in this category were paid off as a result of
heavy refinancing activity triggered by historically low mortgage interest
rates. Commercial and multi-family construction/permanent loans increased $14.7
million or 125.1% as Everett Mutual more actively marketed this loan product.
See "Business of Mutual Bancshares -- Construction and Land Development
Lending." The combined outstanding balance of permanent commercial and
multifamily loans were unchanged from March 31, 1998 to March 31, 1999, despite
gross loan originations of $32.0 million in these two categories during the
fiscal year as a result of an increase in payoffs and refinancings. The
commercial and multi-family portfolios also experienced strong payoffs from
refinancings triggered by historically low interest rates and increased market
competition. Business loans increased $2.7 million or 43.7% as originations by
the Commercial Bank of Everett increased. Competition for real estate secured
and business loans is considered intense and is indicative of the modest growth
in the loan portfolio from March 31, 1998 to March 31, 1999.
Loans held-for-sale on the secondary market increased from $13.7
million at March 31, 1998 to $29.6 million at March 31, 1999. This 116.3%
increase resulted primarily from holding saleable loans to absorb liquidity and
provide interest income at a higher rate than comparable investment securities.
Many of these loans were originated from refinance activity and have very low
loan to value ratios, making them high quality assets. Management may continue
to hold saleable loans for longer periods as part of Mutual Bancshares'
asset/liability strategy. Changes in interest rates impact the market value of
loans held-for-sale, which are carried on the consolidated financial statements
at the lower of cost or market value on an aggregate basis. Rising interest
rates would result in decreased market value which would be recognized as a
component of net income in the event that the aggregate market value decreased
below the cost of loans held-for-sale.
Premises and equipment, net, decreased 9.2% from $8.8 million at March
31, 1998 to $8.0 million at March 31, 1999, as a result of depreciation expense.
During the year ended March 31, 1999 Mutual Bancshares and its subsidiaries
reevaluated and shortened the estimated life of certain electronic equipment,
consisting principally of personal computers and related software and I-Pro's
item processing hardware and software, and as a result, incurred additional
depreciation expenses of approximately $450,000. For the years ended March 31,
1999 and 1998, depreciation expense was $1.5 million and $1.1 million,
respectively. See "Business of Mutual Bancshares -- Properties."
26
<PAGE>
Deposits increased 7.1% from $351.0 million at March 31, 1998 to $375.9
million at March 31, 1999, primarily as a result of interest credited back to
accounts and a general growth in deposits brought about by the opening of the
new Stanwood branch of Everett Mutual Bank.
Federal Home Loan Bank of Seattle advances increased 22.2% from $15.5
million at March 31, 1998 to $18.9 million at March 31, 1999, primarily as a
result of asset/liability objectives to obtain longer-term, fixed rate, funding
at historically low interest rates. In the future, as one of its capital
management strategies to leverage excess capital, EverTrust Financial Group,
Inc. may engage in "wholesale leveraging" by investing Federal Home Loan Bank of
Seattle advances in investment securities of the type in which Mutual Bancshares
currently invests, with the goal of recognizing income on the difference between
the interest rate paid on the advance and the interest rate earned on the
securities, although EverTrust Financial Group, Inc. currently has no specific
plans to do so. To the extent any Federal Home Loan Bank of Seattle advance
would be outstanding before the consummation of the conversion, Mutual
Bancshares may use a portion of the conversion proceeds to repay them.
Total capital increased 2.3% from $51.1 million at March 31, 1998 to
$52.3 million at March 31, 1999, primarily as a result of retained net income
for the year ended March 31, 1999.
Comparison of Operating Results of Mutual Bancshares for the Year Ended March
31, 1998 and 1999
Net Income. Net income decreased 68.9% from $4.5 million for the year
ended March 31, 1998 to $1.4 million for the year ended March 31, 1999 primarily
as a result of $3.4 million, pre-tax, in charitable contributions (primarily to
the Everett Mutual Foundation), higher loan loss provisions and increased
noninterest expenses for salaries and benefits and occupancy that were not fully
offset by higher net interest income and higher noninterest income.
Net Interest Income. Net interest income increased 3.2% from $15.6
million for the year ended March 31, 1998 to $16.1 million for the same period
in 1999 as total interest income increased more than total interest expense.
Total interest income increased 1.5% from $33.5 million for the year
ended March 31, 1998 to $33.9 million for the year ended March 31, 1999
primarily as a result of an increase in the average balance of loans receivable,
net, which more than offset a decline in the average yield. The average balance
of loans receivable, net, increased from $322.8 million for the year ended March
31, 1998 to $334.9 million for the year ended March 31, 1999 as a result of
increased loan demand. The average yield earned on loans declined from 8.87% for
the year ended March 31, 1998 to 8.62% for the year ended March 31, 1999
primarily as a result of loan refinancings and new loan originations at lower
market interest rates. Interest earned on investment and mortgage-backed
securities increased from $4.8 million for the year ended March 31, 1998 to $5.0
million for the year ended March 31, 1999 as average balances increased from
$64.0 million for the year ended March 31, 1998 to $71.6 million for the year
ended March 31, 1999 as a result of investing cash from deposit increases.
Total interest expense remained virtually unchanged from $17.9 million
for the year ended March 31, 1998 to $17.8 million for the year ended March 31,
1999. The average balance of total deposits increased $15.5 million but the
weighted average cost of deposits decreased 20 basis points due to a general
decline in market interest rates. The average balance of certificates of deposit
increased from $177.9 million for the year ended March 31, 1998 to $182.0
million for the year ended March 31, 1999 as a result of interest credited to
accounts and deposit increases at the new Stanwood branch office. Interest
expense on Federal Home Loan Bank advances decreased $100,000 from $1.1 million
at March 31, 1998 to $1.0 million at March 31, 1999 primarily as a result of a
decrease in average balances.
Mutual Bancshares' interest rate spread was 3.27% for the year ended
March 31, 1998 and 3.20% for the same period in 1999. The net interest margin
declined from 3.89% for the year ended March 31, 1998 to 3.83%
27
<PAGE>
for the same period in 1999 as the yield on interest earning assets decreased
more than the cost of interest bearing liabilities. It is anticipated that the
net interest margin may be subject to decline as a result of intense pricing
competition for both loans and deposits in the market area.
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered by
management as adequate to provide for known and inherent risks in the loan
portfolio, including management's continuing analysis of factors underlying the
quality of the loan portfolio. These factors include changes in portfolio size
and composition, actual loan loss experience, current economic conditions,
detailed analysis of individual loans for which full collectibility may not be
assured, and determination of the existence and realizable value of the
collateral and guarantees securing the loans. See "Business of Mutual Bancshares
- -- Lending Activities -- Nonperforming Assets and Delinquencies" and Note 1 of
Notes to Consolidated Financial Statements.
The provision for loan losses was $780,000 for the year ended March 31,
1999 compared to $420,000 for the year ended March 31, 1998. This resulted from
management's ongoing consistent application of its formula analysis methodology
which measures changes in loan portfolio composition by collateral categories,
including loan commitments and classified loans. The formula analysis is
supplemented by management's ongoing assessment of overall credit quality of the
portfolio, including loan delinquencies and peer group analysis, adjusted for
current economic conditions. The allowance for loan losses was $5.7 million, or
1.62% of total loans at March 31, 1999, compared to $4.9 million or 1.48% of
total loans at March 31, 1998. The unallocated portion of the allowance for loan
losses was $377,000 and $329,000 at March 31, 1999 and March 31, 1998,
respectively. The increased allowance level resulted from continued loan
portfolio growth in the higher-risk lending categories of commercial and
multi-family construction/permanent loans, business loans and credit card loans
during the period, which comprised $224.5 million, or 58.8% of the portfolio at
March 31, 1999, versus $206.2 million, or 57.9% of the portfolio at March 31,
1998. The allocated portion of the allowance for loan losses for these loan
types was $3.3 million at March 31, 1999 and $2.9 million at March 31, 1998. In
addition, larger individual loan amounts, such as commercial and multi-family
loans, which have a greater single impact on portfolio quality measures in the
event of delinquency or default. Significant negative changes in the economic
environment and governmental regulations from March 31, 1998. The Boeing Company
has announced company-wide layoffs of 48,000, with 31,000 of the layoffs
expected to occur in the state of Washington. As home to the largest Boeing
assembly plant in the state, Snohomish county is particularly impacted by the
layoffs since twenty percent of the jobs in the County are in the aerospace
industry, including parts manufacturers and other suppliers to Boeing. As a
result of the foregoing, the level of reserves allocated to one- to four-family
loans increased to $784,000 at March 31, 1999 from $320,000 at March 31, 1998.
In addition, the listing of chinook salmon as an endangered species and the
resulting impact that designation has on the ability of Everett Mutual Bank's
commercial construction and spec construction borrowers' abilities to complete
projects, warranted higher reserve levels. See "Risk Factors."
Noninterest Income. Total noninterest income increased 7.5% from $1.8
million for the year ended March 31, 1998 to $1.9 million for the year ended
March 31, 1999. This increase resulted primarily from the gain on sale of equity
securities and, to a lesser extent, increased earnings on automated teller
machine operations as a result of the expanded network of owned machines. The
increases were partially offset by lower earnings on the sale of other real
estate owned and residential mortgage loans.
Noninterest Expense. Total noninterest expense increased 51.0% from
$10.3 million for the year ended March 31, 1998 to $15.5 million for the year
ended March 31, 1999 primarily as a result of $3.4 million of charitable
contributions, primarily to the Everett Mutual Foundation, as compared to a
$106,000 during fiscal 1998. Also contributing to the increase in noninterest
expenses was increases in salaries and employee benefits, occupancy and fixed
assets, and Y2K preparation and testing costs. Salaries and employee benefits
increased from $4.8 million for the year ended March 31, 1998 to $5.4 million
for the year ended March 31, 1999 as a result of increased staffing levels,
general salary increases and related payroll tax cost. Occupancy and equipment
expense increased from $2.4 million for the year ended March 31, 1998 to $3.1
million for the year ended March 31, 1999
28
<PAGE>
primarily as a result of expenses associated with accelerated depreciation on
electronic equipment. Noninterest expense can be expected to increase in
subsequent periods following the consummation of the conversion as a result of
increased costs associated with operating as a public company and increased
compensation expense as a result of the adoption of the employee stock ownership
plan and, if approved by EverTrust Financial Group, Inc.'s stockholders, the
management recognition plan. Mutual Bancshares does not intend to make
significant contributions to the Everett Mutual Foundation in the future. See
"Risk Factors -- Return on Equity Will Be Below Average After Conversion Because
of High Capital Levels and Operating Losses of Subsidiaries" and "--
Implementation of Benefit Plans Will Increase Future Compensation Expense and
May Lower EverTrust Financial Group, Inc.'s Net Income."
Provision for Income Taxes. The provision for income taxes decreased
from $2.1 million for the year ended March 31, 1998 to $261,000 for the year
ended March 31, 1999 as a result of lower income before income taxes. The
effective tax rate was 31.8% for the year ended March 31, 1998 and 15.6% for the
year ended March 31, 1999. The low effective tax rate for the year ended March
31, 1999 is a result of federal low income housing tax credits of $216,000
applied against a decreased amount of net income.
Comparison of Operating Results of Mutual Bancshares for the Years Ended March
31, 1997 and 1998
Net Income. Net income increased 29.2% from $3.5 million in fiscal 1997
to $4.5 million in fiscal 1998 primarily as a result of increased net interest
income and noninterest income.
Net Interest Income. Net interest income increased 10.9% from $14.0
million in fiscal 1997 to $15.6 million in fiscal 1998 as total interest income
increased more than total interest expense.
Total interest income increased 7.8% from $31.0 million in fiscal 1997
to $33.5 million in fiscal 1998 primarily as a result of an increase in the
average balance of loans receivable, net, from $303.0 million in fiscal 1997 to
$322.8 million in fiscal 1998 as a result of increased loan demand. The average
yield earned on loans receivable, net, increased from 8.70% in fiscal 1997 to
8.87% in fiscal 1998 primarily because of the increased balances in higher
yielding loan products such as speculative construction, multi-family and
commercial loans, combined with accelerated amortization of deferred loan fees
as a result of increases in both loan payoffs and sales. Interest earned on
investment and mortgage-backed securities increased from $4.7 million in fiscal
1997 to $4.8 million in fiscal 1998 as average balances increased from $53.4
million in fiscal 1997 to $64.0 million in fiscal 1998 as a result of investing
cash from deposit increases.
Total interest expense increased 5.2% from $17.0 million in fiscal 1997
to $17.9 million in fiscal 1998 primarily as a result of an increase in the
average balance of deposits from $315.3 million in fiscal 1997 to $333.8 million
in fiscal 1998, coupled with a slight increase in the average rate paid from
4.98% in fiscal 1997 to 5.02% in fiscal 1998, as a result of a change in the
deposit mix to higher yielding products.
The interest rate spread increased from 3.12% in fiscal 1997 to 3.27%
in fiscal 1998. The net interest margin increased from 3.70% for the year ended
March 31, 1997 to 3.89% for the same period in 1998. This increase is primarily
attributable to commercial banking activities and increased yields on interest
earning assets above interest bearing liabilities.
Provision for Loan Losses. The provision for loan losses was $420,000
for the year ended March 31, 1998, the same level as the year ended March 31,
1997. This resulted from management's ongoing application of its formula
analysis methodology which measures changes in loan portfolio composition by
collateral categories, including unfunded loan commitments and classified loans,
which, as discussed above, has been consistently applied year to year. The
formula analysis is supplemented by management's ongoing assessment of overall
credit quality of the portfolio, including loan delinquencies and peer group
analysis, adjusted for current economic conditions. The allowance for loan
losses was $4.9 million, or 1.48% of total loans at March 31, 1998, compared
29
<PAGE>
to $4.5 million or 1.45% of total loans at March 31, 1997. The unallocated
portion of the allowance for loan losses was $329,000 and $618,000 at March 31,
1998 and March 31, 1997, respectively. Increases in higher risk lending
categories for the year led to higher allocated reserves for construction, land
development and business loans, which comprised $206.2 million, or 57.9% of the
portfolio at March 31, 1998, versus $185.2 million, or 57.5% of the portfolio at
March 31, 1997. The allocated portion of the allowance for loan losses for these
loan types was $2.9 million at March 31, 1998 and $2.5 million at March 31,
1997. The unallocated portion of the reserve declined due to exceptionally
strong economic conditions in the market area. For further information, see the
discussion on the allowance and related methodology contained in "Business of
Mutual Bancshares -- Allowance for Loan Losses." See "Business of Mutual
Bancshares -- Lending Activities -- Nonperforming Assets and Delinquencies" and
Note 1 of Notes to Consolidated Financial Statements.
Noninterest Income. Total noninterest income increased 66.9% from $1.1
million in fiscal 1997 to $1.8 million in fiscal 1998. The increase resulted
primarily from gains on the sale of two other real estate owned properties
(commercial real estate and land development properties); the sale of
residential mortgage loans; and higher fees earned on checking accounts as a
result of the implementation of a new fee structure. Also, in fiscal 1997
noninterest income included losses on the sale and disposition of fixed assets
of $175,000.
Noninterest Expense. Total noninterest expense increased 5.0% from $9.8
million in fiscal 1997 to $10.3 million in fiscal 1998 primarily as a result of
increases in salaries and employee benefits. This change was the result of
annual salary increases combined with increased staffing levels. Profit sharing
costs also increased in fiscal 1998 because of operating results. Noninterest
expense can be expected to increase in subsequent periods following the
consummation of the conversion as a result of increased costs associated with
operating as a public company and increased compensation expense as a result of
the adoption of the employee stock ownership plan and, if approved by the
Holding Company's stockholders, the management recognition and development plan.
See "Risk Factors -- Return on Equity Will Be Below Average After Conversion
Because of High Capital Levels and Operating Losses of Subsidiaries" and "--
Implementation of Benefit Plans Will Increase Future Compensation Expense and
May Lower EverTrust Financial Group, Inc.'s Net Income."
Provision for Income Taxes. The provision for income taxes increased
from $1.4 million in fiscal 1997 to $2.1 million in fiscal 1998 as a result of
higher income before income taxes. The effective tax rate was 28.3% in fiscal
1997 and 31.8% in fiscal 1998.
Average Balances, Interest and Average Yields/Cost
The earnings of Everett Mutual Bank and Commercial Bank of Everett
depend largely on the spread between the yield on interest-earning assets, which
consist primarily of loans and investments, and the cost of interest-bearing
liabilities, which consist primarily of deposit accounts and borrowings, as well
as the relative size of Everett Mutual Bank's and Commercial Bank of Everett's
interest-earning assets and interest-bearing liabilities.
30
<PAGE>
The following table sets forth, on a consolidated basis for Mutual
Bancshares for the periods indicated, information regarding average balances of
assets and liabilities as well as the total dollar amounts of interest income
from average interest-earning assets and interest expense on average
interest-bearing liabilities, resultant yields, interest rate spread, net
interest margin, and ratio of average interest-earning assets to average
interest-bearing liabilities. Average balances have been calculated using the
average of daily balances during the period.
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ----------------------------- ------------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable, net(1)..... $334,896 $28,852 8.62% $322,811 $28,625 8.87% $303,036 $26,379 8.70%
Investment securities........ 67,771 4,058 5.99 60,493 3,807 6.29 50,118 3,184 6.35
Federal Home Loan Bank stock. 3,787 291 7.68 3,488 273 7.83 3,232 250 7.74
Cash and cash equivalents.... 12,892 693 5.38 13,699 757 5.53 23,281 1,236 5.31
------ -------- ---- -------- -------- ---- -------- ------- ----
Total interest-earning
assets................... 419,346 33,894 8.08 400,491 33,462 8.36 379,667 31,049 8.18
-------- ---- -------- ---- ------- ----
Noninterest-earning assets...... 7,580 6,493 6,598
-------- -------- -------
Total average assets...... $426,926 $406,984 $386,265
======== ======== ========
Interest-bearing liabilities:
Savings accounts............. $ 11,454 $ 316 2.76% $ 10,373 $ 309 2.98% $ 10,842 $ 336 3.10%
NOW accounts................. 32,227 845 2.62 29,992 839 2.80 27,143 753 2.77
Money market deposit
accounts.................... 123,469 5,354 4.34 115,514 5,264 4.56 107,214 4,796 4.47
Certificates of deposit...... 182,016 10,301 5.66 177,877 10,350 5.82 170,097 9,831 5.78
--------- -------- ---- --------- -------- ---- -------- --------- ----
Total deposits............. 349,216 16,816 4.82 333,756 16,762 5.02 315,296 15,716 4.98
Federal Home Loan Bank
advances.................... 16,215 1,021 6.30 18,003 1,137 6.32 20,682 1,294 6.26
---------- --------- ---- ---------- --------- ---- -------- --------- ----
Total interest-bearing
liabilities............ 365,431 17,837 4.88 351,759 17,899 5.09 335,978 17,010 5.06
-------- ---- -------- ---- -------- ----
Noninterest-bearing
liabilities................. 9,449 7,713 6,779
---------- ----------- --------
Total average
liabilities........... 374,880 359,472 342,757
Average equity.................. 52,046 47,512 43,508
---------- ---------- --------
Total liabilities
and equity........... $426,926 $406,984 $386,265
======== ======== ========
Net interest income............. $16,057 $15,563 $14,039
======= ======= =======
Interest rate spread............ 3.20% 3.27% 3.12%
==== ==== ====
Net interest margin............. 3.83% 3.89% 3.70%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities... 114.75% 113.85% 113.00%
====== ====== ======
</TABLE>
- ------------
(1) Average loans includes non-performing loans and loans held for sale.
Interest income does not include interest on loans 90 days or more past
due.
31
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and
volumes on net interest income of Mutual Bancshares. Information is provided
with respect to effects on interest income attributable to changes in volume,
which are changes in volume multiplied by prior rate; effects on interest income
attributable to changes in rate, which are changes in rate multiplied by prior
volume; and changes in rate/volume, which are changes in rate multiplied by
change in volume.
<TABLE>
<CAPTION>
Year Ended March 31, 1999 Year Ended March 31, 1998
Compared to year Ended March 31, 1998 Compared to year Ended March 31, 1997
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------------- ---------------------------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
---- ------ ------ ----- ---- ------ ------ -----
(In thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable, net .................... $ 1,072 $ (814) $ (30) $ 228 $ 1,721 $ 492 $ 32 $ 2,245
Investment securities .................... 458 (185) (22) 251 659 (30) (6) 623
Federal Home Loan Bank
stock ................................ 23 (5) -- 18 20 3 -- 23
Interest-bearing deposits ................ (45) (21) 1 (65) (509) 50 (21) (480)
------- ------- ------- ------- ------- ------- ------- -------
Total net change in income on
interest-earning assets ............... $ 1,508 $(1,025) $ (51) $ 432 $ 1,891 $ 515 $ 5 2,411
======= ======= ======= ------- ======= ======= ======= -------
Interest-bearing liabilities:
Savings accounts ......................... $ 32 $ (23) $ (2) 7 $ (15) $ (13) $ 1 (27)
NOW accounts ............................. 64 (54) (4) 6 79 6 1 86
Money market deposit ..................... 363 (255) (18) 90 371 90 7 468
accounts
Certificates of deposit .................. 241 (283) (7) (49) 450 66 3 519
------- ------- ------- ------- ------- ------- ------- -------
Total average deposits ............... 700 (615) (31) 54 885 149 12 1,046
Federal Home Loan Bank
advances ............................. (113) (3) -- (116) (168) 12 (2) (158)
------- ------- ------- ------- ------- ------- ------- -------
Total net change in expense on
interest-bearing liabilities .......... $ 587 $ (618) $ (31) (62) $ 717 $ 161 $ 10 888
======= ======= ======= ------- ======= ======= ======= -------
Net change in net interest
income ................................ $ 494 $ 1,523
======= =======
</TABLE>
32
<PAGE>
Yields Earned and Rates Paid
The following table sets forth, on a consolidated basis, for the
periods and at the date indicated, the weighted average yields earned on Mutual
Bancshares' assets and the weighted average interest rates paid on Mutual
Bancshares' liabilities, together with the net yield on interest-earning assets.
For the Year
Ended March 31,
At March 31 ----------------------
1999 1999 1998 1997
---- ---- ---- ----
Weighted average yield on:
Loans receivable, net (1) ......... 7.99% 8.62% 8.87% 8.70%
Investment securities ............. 5.98 5.99 6.29 6.35
Federal Home Loan Bank stock ...... 7.75 7.68 7.83 7.74
Cash and cash equivalents ......... 5.00 5.38 5.53 5.31
Total interest-earning assets .. 7.63 8.08 8.36 8.18
Weighted average rate paid on:
Savings accounts .................. 2.77 2.76 2.98 3.10
NOW accounts ...................... 2.61 2.62 2.80 2.77
Money market deposit accounts ..... 4.20 4.34 4.56 4.47
Certificates of deposit ........... 5.50 5.66 5.82 5.78
Total average deposits ......... 4.68 4.82 5.02 4.98
Federal Home Loan Bank advances ... 6.19 6.30 6.32 6.26
Total interest-bearing
liabilities ................... 4.75 4.88 5.09 5.06
Interest rate spread (spread
between weighted average rate
on all interest-earning assets
and all interest-bearing
liabilities) ....................... 2.88 3.20 3.27 3.12
Net interest margin (net
interest income (expense)
as a percentage of average
interest-earning assets) ........... -- 3.83 3.89 3.70
- -------------
(1) Weighted average rate earned on loans does not include earnings from
deferred loan fees at March 31, 1999. Earnings from the amortization of
loan fees was included in the weighted average rate calculations for the
years ended March 31, 1999, 1998 and 1997.
Asset and Liability Management and Market Risk
Mutual Bancshares' Risks When Interest Rates Change. Mutual
Bancshares's profitability depends primarily on its net interest income, which
is the difference between the income it receives on its loan and investment
portfolio and its cost of funds, which consists of interest paid on deposits and
borrowings. Net income is further affected by loans held for sale, which can be
affected by changes in interest rates. Net interest income is also affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities. When interest-earning assets equal or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. Mutual Bancshares' profitability is also affected by the level of
non-interest income and expenses.
33
<PAGE>
Non-interest income includes service charges and fees on accounts and gain on
sale of investments. Non-interest expenses primarily include compensation and
benefits, occupancy and equipment expenses, deposit insurance premiums and data
processing expenses. Mutual Bancshares's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
regulation and monetary and fiscal policies.
The following table sets forth at March 31, 1999, the estimated
percentage change in Everett Mutual Bank's net interest income over a
four-quarter period and market value of portfolio equity based on the indicated
changes in interest rates. Management of Mutual Bancshares believes that
analysis of interest rate sensitivity set forth below for Everett Mutual Bank
would be materially different for Mutual Bancshares on a consolidated basis.
Estimated Change in
Change (In Basis Points ("bp")) Net Interest Income Market Value of
in Interest Rates (1) (next four quarters) Portfolio Equity
------------------------------- -------------------- -----------------
400 bp 1.55% (34.36)%
300 (3.82) (24.80)
200 (8.69) (15.38)
100 (6.88) (7.15)
0 -- --
(100) 5.57 5.17
(200) (0.36) 11.45
(300) (12.14) 15.91
(400) (24.22) 19.61
- --------------
(1) Assumes an instantaneous uniform change in interest rates at all
maturities.
The assumptions used by management to evaluate the vulnerability of
Everett Mutual Bank's operations to changes in interest rates in the preceding
table are described below. Although management believes these assumptions are
reasonable, the interest rate sensitivity of Everett Mutual Bank's assets and
liabilities and the estimated effects of changes in interest rates on Everett
Mutual Bank's (and hence Mutual Bancshares') net interest income and market
value of portfolio equity indicated in the preceding table could vary
substantially if different assumptions were used or actual experience differs
from such assumptions. Although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. 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 of assets and liabilities lag behind changes
in market interest rates. Non-uniform changes and fluctuations in market
interest rates across various maturity horizons will also affect the results
presented. In addition, certain assets, such as adjustable rate mortgage loans,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. In the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate from those assumed
in calculating the table.
The assumptions used by management were based upon proprietary data and
are reflective of historical results or current market conditions. These
assumptions relate to interest rates, prepayments, deposit decay rates, and the
market value of certain assets under the various interest rate scenarios.
Prepayments for mortgage loans were based on management's evaluation of
its current loan portfolio. Prepayments were estimated to double from the base
at the -400bp rate shock and to decrease to 0.1% of the base at the +400bp rate
shock. Everett Mutual Bank's loans are the only assets or liabilities which
management assumed possess optionality for purpose of determining market value
changes.
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Management assumed the non-maturity deposits could be maintained with
rate adjustments not directly proportionate to the change in market interest
rate. These assumptions are based upon management's analysis of its customer
base, competitive factors and historical review of Everett Mutual Bank's deposit
mix.
The net interest income and net market value table presented above is
predicated upon a stable balance sheet with no growth or change in asset or
liability mix. In addition, the net market value is based upon the present value
of discounted cash flows using management's estimates of current replacement
rates to discount the cash flows. The net interest income table is based upon a
cash flow simulation of Everett Mutual Bank's existing assets and liabilities.
It was also assumed that delinquency rates would not change as a result of
changes in interest rates although there can be no assurance that this will be
the case. Even if interest rates change in the designated amounts, there can be
no assurance that Everett Mutual Bank's assets and liabilities would perform as
set forth above. Also, a change in the U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause changes to the net market value and net interest income other than those
indicated above.
The following table sets forth at March 31, 1999 the estimated
percentage change in Commercial Bank of Everett's net interest income over a
four-quarter period and market value of portfolio equity based on the indicated
changes in interest rates.
Estimated Change In
Change (in Basis Points) Net Interest Income Market Value of
in Interest Rates (1) (next four quarters) Portfolio Equity
------------------------ -------------------- ----------------
400 bp 17.91% (8.13)%
300 13.56 (6.18)
200 9.26 (4.14)
100 4.80 (2.01)
0 0.00 0.00
(100) (4.99) 1.45
(200) (10.06) 2.26
(300) (15.42) 3.17
(400) (21.10) 4.20
- -------------
(1) Assumes an instantaneous uniform change in interest rates at all
maturities.
Certain assumptions utilized by management in assessing the interest
rate risk of Commercial Bank of Everett were employed in preparing data included
in the preceding table. These assumptions were based upon proprietary data
selected by management and are reflective of historical results or current
market conditions. These assumptions relate to interest rates, repayment rates,
deposit decay rates, and the market value of certain assets under the various
interest rate scenarios.
Prepayment assumptions for mortgage-backed securities and the loan
portfolio were based upon industry standards for prepayments. Commercial Bank of
Everett's mortgage-backed securities and loan portfolio are the only assets or
liabilities which management assumed possess optionality for purposes of
determining market value changes.
Management assumed that the majority of non-maturity deposits had
estimated lives ranging from 0 to 5 years, while only 6.0% of non-maturity
deposits had estimated lives ranging from 5 to 20 years. These assumptions are
based upon management's analysis of its customer base and competitive factors.
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The net interest income and market value table presented above is
predicated upon a stable balance sheet with no growth or change in asset or
liability mix. In addition, the net market value is based upon the present value
of discounted cash flows using management's estimates of current replacement
rates to discount the cash flows. The net interest income table is based upon a
cash flow simulation of Commercial Bank of Everett's existing assets and
liabilities. It was also assumed that delinquency rates would not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that Commercial Bank of Everett's assets and liabilities
would perform as set forth above. Also, a change in the U.S. Treasury rates in
the designated amounts accompanied by a change in the shape of the Treasury
yield curve would cause changes to the net market value and net interest income
other than those indicated above.
How Mutual Bancshares Manages Its Risk of Interest Rate Changes. Mutual
Bancshares does not maintain a trading account for any class of financial
instrument nor does it purchase high-risk derivative instruments. Everett Mutual
Bank is authorized to engage in limited hedging activities for its saleable loan
pipeline, however, no such hedges were in place at March 31, 1999. Furthermore,
Mutual Bancshares has no commodity price risk, and only a limited amount of
foreign currency exchange rate risk as a result of holding Canadian currency in
the normal course of business. For information regarding the sensitivity to
interest rate risk of Mutual Bancshares's interest-earning assets and
interest-bearing liabilities, see the tables under "Business of Mutual
Bancshares -- Lending Activities -- Loan Maturity and Repricing," "-- Investment
Activities" and "-- Deposit Activities and Other Sources of Funds -- Deposit
Accounts -- Time Deposits by Maturities."
Mutual Bancshares has sought to reduce the exposure of its earnings to
changes in market interest rates by attempting to manage the mismatch between
asset and liability maturities and interest rates. The principal element in
achieving this objective is to increase the interest-rate sensitivity of Mutual
Bancshares's interest-earning assets by originating for its portfolio loans with
interest rates that periodically adjust to market conditions. Mutual Bancshares
relies on retail deposits as its primary source of funds, supplemented by
Federal Home Loan Bank borrowings. Other approved funding sources include
brokered deposits and reverse repurchase agreements, although no such deposits
or reverse repurchase agreements were used as of March 31, 1999. Management
believes that retail deposits, compared to Federal Home Loan Bank borrowings,
brokered deposits and reverse repurchase agreements, reduces the effects of
interest rate fluctuations because they generally represent a more stable source
of funds.
The only hedging activity currently authorized by the Board of Everett
Mutual Bank is related to the hedging of loans originated for resale to the
secondary market. Everett Mutual Bank's hedging policy permits the forward sale
of loans and investments with a high correlation factor to the asset being
hedged. Everett Mutual Bank does not currently have any open hedges as secondary
market loan sale activity has been limited. However, Everett Mutual Bank may use
hedges in the future if loan sale activity accelerates.
Commercial Bank of Everett does not currently nor does it plan to use
instruments with hedging characteristics.
Should Mutual Bancshares deem it necessary to engage in additional
hedging activities, management would authorize the development of necessary
in-house expertise and/or engage qualified outside consultants to implement
appropriate Board-approved policies and procedures, which would comply with all
relevant regulations.
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Liquidity and Capital Resources
Mutual Bancshares' primary sources of funds are deposits and proceeds
from principal and interest payments on loans and securities, and Federal Home
Loan Bank of Seattle advances. While maturities and scheduled amortization of
loans and securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The primary investing activity of Mutual Bancshares is the origination
of one- to four-family, commercial and multi-family mortgage loans. During the
years ended March 31, 1999 and 1998, Mutual Bancshares originated $124.4 million
and $103.9 million of these loans, respectively.
A secondary, but increasing activity of Mutual Bancshares is the
origination of business loans. During the years ended March 31, 1999 and 1998,
Mutual Bancshares originated $4.5 million and $5.1 million of these loans,
respectively. Other investing activities during these periods include the
purchase of investment securities to provide liquidity and yield. These
activities were funded primarily by principal repayments on loans and deposits.
Everett Mutual Bank and Commercial Bank of Everett must maintain
adequate levels of liquidity to ensure the availability of sufficient funds to
support loan growth and deposit withdrawals, to satisfy financial commitments
and to take advantage of investment opportunities. The sources of funds include
deposits and principal and interest payments from loans and investments and
Federal Home Loan Bank of Seattle advances. During fiscal years 1999 and 1998,
Everett Mutual Bank and Commercial Bank of Everett used these sources of funds
primarily to fund loan commitments and to pay maturing savings certificates and
deposit withdrawals. At March 31, 1999, Everett Mutual Bank and Commercial Bank
of Everett had combined loan commitments, excluding loans in process, of $12.1
million.
At March 31, 1999, Mutual Bancshares had $176,000 of unrealized gains
on securities classified as available for sale, which amount represented 0.3% of
the amortized cost basis, or $61.4 million, of the related securities. Movements
in market interest rates will affect the unrealized gains and losses in these
securities. However, assuming that the securities are held to their individual
dates of maturity, even in periods of increasing market interest rates, as the
securities approach their dates of maturity, the unrealized gain or loss will
begin to decrease and eventually be eliminated.
At March 31, 1999, certificates of deposit amounted to $188.9 million,
or 50.3%, of Mutual Bancshares' total deposits, including $125.9 million which
were scheduled to mature by March 31, 2000. Historically, Mutual Bancshares has
been able to retain a significant amount of its deposits as they mature.
Management of Mutual Bancshares believes it has adequate resources to fund all
loan commitments by deposits and, if necessary, Federal Home Loan Bank of
Seattle advances and sale of mortgage loans and that it can adjust the offering
rates of savings certificates to retain deposits in changing interest rate
environments.
Year 2000 Readiness Disclosure
Mutual Bancshares and its subsidiaries are users of computers, computer
software and equipment utilizing embedded microprocessors that will be effected
by the year 2000 issue. The year 2000 issue exists because many computer systems
and applications use two-digit date fields to designate a year. As the century
date change occurs, date-sensitive systems may recognize the year 2000 as 1900,
or not at all. This inability to recognize or properly treat the year 2000 may
cause erroneous results, ranging from system malfunctions to incorrect or
incomplete processing.
Mutual Bancshares' Y2K Task Force is chaired by Senior Vice President
Lorelei Christenson, and includes a cross-section of bank managers and the
internal auditor. The Board of Directors is charged with oversight of the Y2K
readiness effort. Mrs. Christenson makes a monthly progress report to the Board
of Directors
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of the subsidiary banks. Management has been active in promoting customer
confidence and public education on Y2K issues.
The Y2K Task Force has developed and is implementing a comprehensive
plan to make all information and non-information technology assets year 2000
compliant. The plan is comprised of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and
concerns. This phase is complete.
2. Assessment - Develop a plan, identify and evaluate all vital
systems of Everett Mutual Bank, Commercial Bank of Everett and
I-Pro, Inc. This phase was completed as of June 30, 1998.
3. Renovation - Upgrade or replace any critical system that is
non-year 2000 compliant. This phase was substantially completed
as of December 31, 1998.
4. Validation - Testing all critical systems and third-party vendors
for year 2000 compliance. The validation phase was substantially
complete as of March 31, 1999 and will be complete by June 30,
1999. Everett Mutual Bank, Commercial Bank of Everett and I-Pro,
Inc. have upgraded or replaced all in-house equipment, such as
teller station equipment, etc., with year 2000 compliant
equipment. A third-party service bureau processes all customer
transactions and has completed upgrades to its systems to be year
2000 compliant. Everett Mutual Bank, Commercial Bank of Everett
and I-Pro, Inc. are relying on the results of proxy testing by
its third-party service bureau for certain date sensitive
testing. The proxy testing, which involved the use of test client
data, tested the results of transactions at various test dates
before and after the year 2000 date change and covered all of the
applications used by Everett Mutual Bank and Commercial Bank of
Everett. This proxy testing will be completed by June 30, 1999.
5. Implementation - Placement of renovated systems on-line. Everett
Mutual Bank, Commercial Bank of Everett and I-Pro, Inc. have
already implemented all necessary remedial actions and have
verified the year 2000 compliance of its computer hardware and
other equipment containing embedded microprocessors. Mutual
Bancshares' plan provides for year 2000 readiness to be completed
by June 30, 1999.
Everett Mutual Bank and Commercial Bank of Everett estimate their total
cost to identify, fix and replace computer equipment, software programs or other
equipment containing embedded microprocessors that were not year 2000 compliant,
exclusive of internal labor costs to be $200,000 of which $112,900 has been
incurred as of March 31, 1999. System maintenance or modification costs are
charged to expense as incurred, while the cost of new hardware, software or
other equipment is capitalized and amortized over their estimated useful lives.
Everett Mutual Bank and Commercial Bank of Everett do not separately track the
internal costs and time that their own employees spend on year 2000 issues,
which are principally payroll costs.
Because Everett Mutual Bank and Commercial Bank of Everett depend
substantially on their computer systems and those of third parties, the failure
of these systems to be year 2000 compliant could cause substantial disruption of
Everett Mutual Bank's and Commercial Bank of Everett's business and could have a
material adverse financial impact on each of their operations. Failure to
resolve year 2000 issues presents the following risks to Everett Mutual Bank and
Commercial Bank of Everett: Everett Mutual Bank and Commercial Bank of Everett
could lose customers to other financial institutions, resulting in a loss of
revenue, if Everett Mutual Bank's and Commercial Bank of Everett's third party
service bureau is unable to properly process customer transactions; governmental
agencies, such as the Federal Home Loan Bank of Seattle, and correspondent
institutions could fail to provide funds to Everett Mutual Bank and Commercial
Bank of Everett, which could materially impair Everett
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Mutual Bank's and Commercial Bank of Everett's liquidity and affect their
ability to fund loans and deposit withdrawals; concern on the part of depositors
that year 2000 issues could impair access to their deposit account balances
could result in Everett Mutual Bank and Commercial Bank of Everett experiencing
deposit outflows prior to December 31, 1999; and Everett Mutual Bank and
Commercial Bank of Everett could incur increased personnel costs if additional
staff is required to perform functions that inoperative systems would have
otherwise performed.
TransAlliance, L.P. is a regional third party electronic funds transfer
service company that provides services, including automated teller machine and
point-of-sale services, and transaction switching and routing services to banks
and bank holding companies. During the second calendar quarter of 1999,
TransAlliance, L.P.'s systems were determined to not be Year 2000 compliant
based on the results of the most recent review by the federal banking agencies
and the State of Washington, Department of Financial Institutions. These
agencies have entered into an agreement with TransAlliance, L.P. to protect the
interests of its financial institution customers, including Everett Mutual Bank
and Commercial Bank of Everett, and set milestone dates and other provisions to
ensure the adequate review, renovation, testing, remediation, management and
contingency planning of mission- critical systems. Everett Mutual Bank and
Commercial Bank of Everett intend to fully inform their customer base should it
appear that a disruption may occur over the year change date. Alternative
funding methods, such as check cashing at the branches or asking merchants to
run their debit card as a credit card when making a point-of-sale purchase, will
be presented to customers through a direct mailing sent during the fourth
quarter of 1999.
If deficiencies discovered during the review are not adequately
addressed, the ability of Everett Mutual Bank and Commercial Bank of Everett
customers to access their funds from automated teller machines, other than those
owned and operated by Everett Mutual Bank, and make purchases through
point-of-sale services using the debit card option could be disrupted.
Mutual Bancshares has developed a Y2K Contingency Master Plan to
minimize disruption of service and risk of loss from safety and soundness,
profitability and customer confidence concerns for all subsidiaries. The
Contingency Master Plan is further defined in two specific types of contingency
plans: the Business Resumption Plan and the Remediation Contingency Plan.
The Business Resumption Contingency Plan addresses the actions Everett
Mutual Bank and Commercial Bank of Everett would take if core business
processes, such as paying and receiving, cannot be carried out in the normal
manner through the century date change due to system or vendor failure. Everett
Mutual Bank's and Commercial Bank of Everett's Business Resumption Contingency
Plan follows an industry-recognized four phase approach:
o Organization Planning
o Business Impact Analysis
o Contingency Planning
o Validation
Based on its current assessments, and remediation plans, which are
based in part on certain representations of third-party service providers,
Mutual Bancshares does not expect that it will experience a significant
disruption of its operations as a result of the change to the new millennium.
Although the Mutual Bancshares has no reason to conclude that a failure will
occur, the most reasonably likely worst-case Year 2000 scenario would entail a
disruption or failure of its power supply or voice and data transmission
suppliers, a third-party service provider, or a facility. If such a failure were
to occur, Mutual Bancshares would implement its contingency plans, which are
expected to be substantially completed and validated by August 31, 1999,
including back-up solutions for mission-critical operations and business
continuation plans for significant vendors and other business partners. For
example, Mutual Bancshares has reserve power supplies at three of its branch
sites, and will have back-up account data and alternative manual processes for
certain business line functions. Mutual Bancshares also has developed a
liquidity management plan to address potential increased funding needs that may
arise as the millennium approaches. While Mutual Bancshares has contingency
plans to address a temporary
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disruption in services, there can be no assurance that any disruption or failure
will be only temporary, that the contingency plans will function as anticipated,
or that Mutual Bancshares results of operations will not be adversely affected
in the event of a prolonged disruption or failure.
The first three phases are complete and the validation phases will be
complete by September 30, 1999. The Continuity Planning Workgroup, which is
comprised of members of the Y2K Task Force and the existing Disaster Recovery
Team, has identified the interdependency between all critical systems and core
business processes, and has completed a risk assessment of possible failure
scenarios. An individual business resumption plan has been drafted for each core
business process under every failure scenario rated medium or high risk.
A Remediation Contingency Plan is in place and will be implemented in
the event that a critical system will not meet regulatory deadlines for
renovation, validation or implementation. Management is confident that the
Remediation Contingency Plan will not need to be implemented, as all critical
systems have been renovated, validated and implemented within required time
frames.
Mutual Bancshares' Year 2000 project contingency plans are designed to
mitigate the potential effects of system failures in the event of reasonably
likely worst case scenarios. These contingency plans, which are expected to be
substantially completed and validated by August 31, 1999, include back-up
solutions for mission-critical operations and business continuation plans for
significant vendors and other business partners. For example, Mutual Bancshares
has reserve power supplies at three of its branch sites, and will have back-up
account data and alternative manual processes for certain business line
functions. Mutual Bancshares also has developed a liquidity management plan to
address potential increased funding needs that may arise as the millennium
approaches. Notwithstanding Mutual Bancshares' efforts and such contingency
plans, however, given the unprecedented nature of the Year 2000 computer
problem, there can be no assurance that Year 2000 issues will not arise, or that
any such issues will be fully mitigated.
Everett Mutual Bank's loan portfolio consists of loans to individuals
primarily secured by real estate, rather than business loans secured by accounts
receivable, inventory, furniture, fixtures and equipment and other non-real
estate collateral. Management has conducted a Y2K readiness survey of borrowers
and borrowing entities with loans on individual properties with balances of
$500,000 or more secured by multi-family, commercial and land development
projects via a customer questionnaire. If no response was received from the
borrower, Y2K readiness was assessed based on information already on file, if
any. Based on the findings of this limited survey, management has reason to
believe, but cannot be assured, that year 2000 issues will not significantly
impair the ability of Everett Mutual Bank's borrowers to repay their debts.
Commercial Bank of Everett's loan portfolio consists of loans primarily
to commercial business borrowers secured by accounts receivable, inventory,
furniture, fixtures and equipment and other non-real estate collateral.
Management has conducted a Y2K readiness survey of borrowers and borrowing
entities with aggregate loan balances of $100,000 or more via a customer
questionnaire. If no response was received from the borrower, Y2K readiness was
assessed based on information already on file, if any. Based on the findings of
this limited survey, management believes, but cannot be assured, that year 2000
issues will not significantly impair the ability of Commercial Bank of Everett's
borrowers to repay their debt.
There can be no assurances that Mutual Bancshares' year 2000 plan will
effectively address the year 2000 issue, that Mutual Bancshares' estimates of
the timing and costs of completing the plan will ultimately be accurate or that
the impact of any failure of Mutual Bancshares or its third-party vendors and
service providers to be year 2000 compliant will not have a material adverse
effect on Mutual Bancshares' business, financial condition or results of
operations. However, management of Mutual Bancshares is confident of its ability
to complete the transition into the next century with minimal disruption of
normal service levels.
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Impact of Accounting Pronouncements and Regulatory Policies
Accounting For Derivative Instruments And Hedging Activities. Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," issued in June 1998, standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under Statement of Financial Accounting Standards
No. 133, entities are required to carry all derivative instruments in the
statement of financial position at fair value. The accounting for changes in the
fair value (i.e., gains and losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, on the reasons for holding it. If certain conditions are met,
entities may elect to designate a derivative instrument as a hedge of exposures
to changes in fair value, cash flows or foreign currencies. See Notes 1 and 3 of
the Notes to Consolidated Financial Statements included in the back of this
prospectus for further information. Statement of Financial Accounting Standards
No. 133 is effective for financial statements issued for periods beginning after
June 15, 1999, although earlier adoption is permitted. Mutual Bancshares will
adopt this statement effective April 1, 2000. The impact of the adoption of the
provisions of this statement on the results of operations or financial condition
of Mutual Bancshares has not been determined. On May 20, 1999, an exposure draft
was issued, which if finalized would amend Statement of Financial Accounting
Standards No. 133 to extend the implementation by one year.
Accounting for Mortgage-backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," issued in October 1998, amends
Statement of Financial Accounting Standards No. 65, "Accounting for Certain
Mortgage Banking Activities," and Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," for
years beginning after December 15, 1998. Statement of Financial Accounting
Standards No. 134 requires that when a mortgage banking company securitizes
mortgage loans held for sale, that the security be classified as either trading,
available for sale, or held to maturity according to the company's intent,
unless the company has already committed to sell the security before or during
the securitization process. This statement is not expected to have a material
impact on the results of operations or financial condition of Mutual Bancshares.
Effect of Inflation and Changing Prices
The Consolidated Financial Statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which generally require the measurement of financial
position and operating results in terms of historical dollars, without
considering the changes in relative purchasing power of money over time due to
inflation. The primary impact of inflation is reflected in the increased cost of
Mutual Bancshares' operations. Unlike most industrial companies, virtually all
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
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BUSINESS OF MUTUAL BANCSHARES
Mutual Bancshares is a bank holding company which owned four
subsidiaries at March 31, 1999: Everett Mutual Bank, Commercial Bank of Everett,
I-Pro, Inc. and Mutual Bancshares Capital, Inc. The business of Mutual
Bancshares is conducted primarily by Everett Mutual Bank, whose operations are
enhanced by the activities and operations of Mutual Bancshares' other three
subsidiaries. Mutual Bancshares' business activities generally are limited to
passive investment activities and oversight of its investment in Everett Mutual
Bank. Accordingly, the information regarding Mutual Bancshares' business,
including consolidated financial statements and related data, relates primarily
to Everett Mutual Bank.
Reference to Mutual Bancshares in this prospectus refers to the holding
company on a historical basis. Reference to EverTrust Financial Group, Inc. in
this prospectus refers to the holding company in the future, following the
conversion.
General
Mutual Bancshares. Mutual Bancshares is a bank holding company which
was formed in 1993 in connection with the mutual holding company reorganization
of Everett Mutual Bank. Mutual Bancshares owns four subsidiaries - Everett
Mutual Bank, a Washington state chartered savings bank; Commercial Bank of
Everett, a Washington state chartered commercial bank; I-Pro, Inc., a Washington
corporation, which is an item processing company; and Mutual Bancshares Capital,
Inc., a Washington corporation, which is a venture capital firm.
Everett Mutual Bank. Everett Mutual Bank was formed in 1916 and is
regulated by the Washington Division of Banks and the Federal Deposit Insurance
Corporation. The Federal Deposit Insurance Corporation under the Bank Insurance
Fund currently insures Everett Mutual Bank's deposits, which have been federally
insured since 1934.
Commercial Bank of Everett. Commercial Bank of Everett was formed by
Mutual Bancshares in 1996 in order to offer commercial banking services to
small- and medium-sized businesses and professional practices in Snohomish
County. Commercial Bank of Everett operates through a single leased office
facility in Everett. Commercial Bank of Everett is regulated by the Washington
Division of Banks and the Federal Deposit Insurance Corporation. The Federal
Deposit Insurance Corporation under the Bank Insurance Fund currently insures
Commercial Bank of Everett's deposits, which have been federally insured since
1996.
I-Pro, Inc. I-Pro, Inc. was organized in 1997 to provide backroom
banking services for Everett Mutual Bank and Commercial Bank of Everett, as well
as other financial institutions and nonbanking businesses. Currently, Everett
Mutual Bank and Commercial Bank of Everett are I-Pro's only clients. However,
I-Pro intend to expand its third-party relationships with other regional banking
and nonbanking companies during the next year.
Mutual Bancshares Capital, Inc. Mutual Bancshares Capital, Inc. was
formed in late 1998 and through its subsidiary, Bancshares Capital Management,
LLC, is the general partner to Bancshares Capital, L.P., an early stage venture
fund, which provides early stage equity to regionally-based high-technology and
medical instrumentation companies. Mutual Bancshares Capital, Inc. expects to
make initial investments in these companies in late 1999 and is reviewing
business plans and conducting due diligence of potential investment
opportunities. The investment in any single company is expected to be in the
range of $50,000 to $600,000 and Bancshares Capital, L.P. may co-invest with
other entrepreneurs or venture funds.
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Market Area
Mutual Bancshares, through its subsidiaries, conducts the majority of
its lending and deposit operations in Snohomish County, located in Northwest
Washington. Snohomish County is located north of King County (Seattle) and south
of Skagit County along the I-5 corridor. Snohomish County, the state's third
largest county covering 2,098 square miles, has an estimated population of
216,000 for a density of 103 persons per square mile. Everett, the largest city
in Snohomish County, is the county seat and serves as the county's economic and
cultural center. Everett, a port city, is located approximately 30 miles north
of Seattle.
The market environment in Snohomish County has been highly influenced
by prevailing trends in nearby Seattle, and the relatively greater availability
of land at affordable prices, until recently, for residential and commercial
development. These factors led to Snohomish County's status as one of
Washington's fastest growing counties. During the last decade, Snohomish County
population grew by one-third and jobs grew by 60%. Many residents and businesses
have been attracted to Snohomish County by quality of life considerations given
the proximity to the Puget Sound and the Cascade Mountains and more open space
than in the Seattle area. Housing costs are also lower than in the Seattle area,
principally aided by recent permitting problems incurred by the King County
government.
The strong growth of the Puget Sound area, including Snohomish County,
led to recent state legislation (the Growth Management Act) to address many of
the resulting taxation and infrastructure problems. It is uncertain what the
long-term impact from such legislation may have on the impact of future regional
growth.
The favorable economic conditions over the past decade have undergone
considerable change and an economic slowdown is expected. Affordable housing was
an attractive feature of Snohomish County in the past; today, however, rising
real estate values, which were 19% in 1997 and 10% in 1998, have pushed
Snohomish County into the top ten least affordable residential real estate
markets in the nation. Furthermore, in late 1998 and early 1999, major employer
Boeing announced layoffs, many of which will be in the Everett plants, due to
delays in orders particularly from Asia. In addition, salmon habitat
preservation issues have recently become issues in construction and land
development in Snohomish County as seven Washington State salmon species were
recently placed under the Federal Endangered Species Act. These factors may slow
population growth in Snohomish County, curtail new construction and development
and lead to higher unemployment.
Until the mid to late 1960s, the economy of Snohomish County was based
primarily on natural resources, including timber, agriculture and, more
recently, aerospace. While the forest products industry is still important,
diversification into other major industries over the last 20 years or more has
evolved. The forest products industry faces uncertainty in the wake of proposed
Federal timber harvest restrictions to protect threatened animal species. The
aerospace industry is fostered by Boeing's headquarters in Seattle and large
manufacturing plants in Snohomish County. Economic development organizations
used the "Boeing Bust" and the ensuing economic upheaval of the early 1970s as
incentives to expand the industrial mix in their respective regions to mitigate
the impact of future aerospace employment fluctuations. While such initiatives
have been successful, a number of the technology companies are tied to Boeing.
The more important areas of economic growth include biotechnology,
electronics/software industries, led by King County based Microsoft, the Edmonds
and Everett ports and the Everett Carrier Home Port. The Everett Carrier Home
Port is home to a nuclear aircraft carrier and support ships, which are now
based in Everett, however, the Navy is considering the relocation of the carrier
to Bremerton and replacing it with several smaller ships. The Everett Carrier
Home Port was once targeted for base closure, but it has since been removed from
the list.
Everett Mutual Bank has also increased its lending in King and Pierce
Counties. King County, which includes the greater Seattle region, has a
well-diversified economy based on a variety of industries and employment
sectors. This area is a national center for manufacturing, high technology
industries, services and international trade. With more than 1.5 million people,
it ranks as the twelfth most populous county in the United States.
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Pierce County, which includes Tacoma, Washington, is lead by the
electronics, aerospace and shipping/transportation sectors. Additionally, Pierce
County is home to two large military bases, McChord Air Force Base and Fort
Lewis Army Base. These military bases have increased in size contrary to the
general downsizing trend experienced within the U.S. armed forces.
Regional demographic and economic characteristics and trends prevailing
as well as competition in the local market area directly influence the operating
strategies of Mutual Bancshares.
Lending Activities
General. Because Everett Mutual Bank's lending is the most significant
business activity of Mutual Bancshares, this section will focus primarily on the
lending of Everett Mutual Bank. Historically, the principal lending activity has
consisted of the origination of loans secured by first mortgages on
owner-occupied, one- to- four family residences and loans for the construction
of one- to- four family residences. In recent years, Everett Mutual Bank has
increased its origination of loans secured by multi-family properties,
construction and land development loans and commercial real estate loans.
Everett Mutual Bank's total loans were $368.7 million at March 31, 1999,
representing approximately 96.5% of Mutual Bancshares' total loans of $382.1
million.
Everett Mutual Bank's internal loan policy limits the maximum amount of
loans to one borrower to 15% of its capital. At March 31, 1999, the maximum
amount which Everett Mutual Bank could have lent to any one borrower and the
borrower's related entities was approximately $6.2 million under its policy. At
March 31, 1999, Everett Mutual Bank had loans to two builders/developers
(including loans for construction, land development and permanent financing)
with an aggregate committed balance in excess of this amount which were
specifically approved as policy exceptions by the Board of Directors: the first
borrower had $12.3 million committed, of which $10.3 million was outstanding,
representing 29.6% and 24.8% of Everett Mutual Bank's total capital of $41.5
million, respectively; and the other borrower had $6.9 million committed, of
which $5.9 million was outstanding, representing 16.6% and 14.2% of Everett
Mutual Bank's total capital, respectively. All loans to these two borrowers were
performing according to their terms at March 31, 1999. Loans in excess of 25% of
Everett Mutual Bank's capital are participated to Mutual Bancshares on a
last-in, first-out basis. There were no participations with Mutual Bancshares
outstanding as of March 31, 1999.
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Loan Portfolio Analysis. The following table sets forth the composition
of Mutual Bancshares' loan portfolio by type of loan as of the dates indicated.
At March 31, 1999, Everett Mutual Bank's and Commercial Bank of Everett's total
loans receivable were $368.7 million and $13.4 million, respectively.
<TABLE>
<CAPTION>
At March 31,
---------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family
residential(1)................ $101,649 26.61% $ 95,305 26.73% $ 94,612 29.40% $ 93,544 29.79% $ 94,820 29.53%
One- to four-family construction
and land development.......... 34,928 9.14 36,444 10.23 27,226 8.46 39,406 12.54 42,123 13.12
Income property:
Commercial construction....... 12,491 3.27 4,620 1.30 1,624 0.50 1,895 0.60 400 0.12
Commercial real estate........ 72,573 19.00 76,121 21.36 70,042 21.76 62,596 19.93 62,341 19.42
Multi-family construction..... 14,012 3.67 7,153 2.01 2,323 0.72 1,530 0.48 4,009 1.25
Multi-family residential...... 115,972 30.35 111,975 31.42 109,003 33.87 101,831 32.42 104,205 32.45
Consumer:
Residential mortgages............ 4,867 1.27 4,318 1.21 4,299 1.34 4,824 1.54 4,718 1.47
Home equity and second
mortgages..................... 13,734 3.59 11,548 3.24 7,888 2.45 6,047 1.92 5,863 1.83
Credit cards..................... 488 0.13 124 0.03 -- -- -- -- -- --
Automobiles...................... 787 0.21 1,036 0.29 1,190 0.37 1,051 0.33 1,173 0.37
Other installment loans.......... 1,612 0.42 1,524 0.43 1,457 0.45 1,015 0.32 1,040 0.32
Business loans...................... 8,949 2.34 6,226 1.75 2,181 0.68 407 0.13 390 0.12
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans................. 382,062 100.00% 356,394 100.00% 321,845 100.00% 314,146 100.00% 321,082 100.00%
====== ====== ====== ====== ======
Less:
Undisbursed loan proceeds........ (28,183) (22,563) (8,527) (6,784) (17,383)
Deferred loan fees and other..... (3,239) (3,278) (3,243) (3,207) (3,490)
Reserve for loan losses.......... (5,672) (4,897) (4,509) (4,178) (3,757)
-------- -------- -------- -------- --------
344,968 325,656 305,566 299,977 296,452
Loans receivable held for sale...... (29,641) (13,705) (12,432) (7,744) (980)
-------- -------- -------- -------- --------
Loans receivable, net............... $315,327 $311,951 $293,134 $292,233 $295,472
======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) Includes owner/builder construction/permanent loans of $5.5 million $8.4
million, $5.3 million. $5.4 million and $3.7 million at March 31, 1999,
1998, 1997, 1996 and 1995, respectively.
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Residential One- to- Four Family Lending. At March 31, 1999, $101.6
million of Mutual Bancshares' loan portfolio consisted of permanent loans
secured by one- to- four family residences. This amount represents 26.6% of
total loans of Mutual Bancshares.
Everett Mutual Bank originates both fixed-rate loans and
adjustable-rate loans. Generally, 30 year fixed-rate loans are originated to
meet the requirements for sale in the secondary market to Federal National
Mortgage Association, however, from time to time, a portion of these fixed-rate
loans originated by Everett Mutual Bank may be retained in Everett Mutual Bank's
loan portfolio to meet Everett Mutual Bank's asset/liability management
objectives.
At March 31, 1999, $68.2 million, or 68.6%, of Mutual Bancshares' one-
to- four family loan portfolio consisted of fixed rate one- to- four family
mortgage loans, both held for sale and held for investment. Everett Mutual Bank
also offers adjustable rate mortgage loans at rates and terms competitive with
market conditions. All of Everett Mutual Bank's adjustable rate mortgage loans
are retained in its loan portfolio and not with a view toward sale in the
secondary market.
Everett Mutual Bank offers several adjustable rate mortgage products
which adjust annually after an initial period ranging from one to seven years.
Contractual annual adjustments generally range from 2% to unlimited, subject to
a general overall limitation of 6%. These adjustable rate mortgage products have
generally utilized the weekly average yield on one year U.S. Treasury securities
adjusted to a constant maturity of one year plus a margin of 2.5% to 3.5%.
Adjustable rate mortgage loans held in Everett Mutual Bank's portfolio do not
permit negative amortization of principal and carry no prepayment restrictions.
Borrower demand for adjustable rate mortgage loans versus fixed-rate mortgage
loans is a function of the level of interest rates, the expectations of changes
in the level of interest rates and the difference between the initial interest
rates and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and adjustable rate mortgage loans that can be originated at any
time is largely determined by the demand for each in a competitive environment.
At March 31, 1999, $31.3 million, or 31.4%, of Mutual Bancshares' one- to- four
family loan portfolio consisted of adjustable rate mortgage loans.
The retention of adjustable rate mortgage loans in Everett Mutual
Bank's loan portfolio helps reduce Everett Mutual Bank's exposure to changes in
interest rates. There are, however, credit risks resulting from the potential of
increased interest to be paid by the customer due to increases in interest
rates. It is possible that, during periods of rising interest rates, the risk of
default on adjustable rate mortgage loans may increase as a result of repricing
and the increased costs to the borrower. Furthermore, because the adjustable
rate mortgage loans originated by Everett Mutual Bank may provide, as a
marketing incentive, for initial rates of interest below the rates which would
apply were the adjustment index used for pricing initially, these loans are
subject to increased risks of default or delinquency. Everett Mutual Bank
attempts to reduce the potential for delinquencies and defaults on adjustable
rate mortgage loans by qualifying the borrower based on the borrower's ability
to repay the loan assuming that the maximum interest rate that could be charged
at the first adjustment period remains constant during the loan term. Another
consideration is that although adjustable rate mortgage loans allow Everett
Mutual Bank to increase the sensitivity of its asset base due to changes in the
interest rates, the extent of this interest sensitivity is limited by the
periodic and lifetime interest rate adjustment limits. Because of these
considerations, Everett Mutual Bank has no assurance that yields on adjustable
rate mortgage loans will be sufficient to offset increases in Everett Mutual
Bank's cost of funds.
While fixed-rate, single-family residential mortgage loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in Everett
Mutual Bank's loan portfolio contain due-on-sale clauses providing that Everett
Mutual Bank may declare the unpaid amount due and payable upon the sale of the
property securing the loan. Typically, Everett Mutual Bank enforces these
due-on-sale clauses to the extent permitted by
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law and as business judgment dictates. Thus, average loan maturity is a function
of, among other factors, the level of purchase and sale activity in the real
estate market, prevailing interest rates and the interest rates payable on
outstanding loans.
Everett Mutual Bank requires fire and extended coverage casualty
insurance be maintained on all of its real estate secured loans. Everett Mutual
Bank is not able to and generally does not require earthquake insurance because
of competitive market factors.
Everett Mutual Bank's lending policies generally limit the maximum
loan-to-value ratio on mortgage loans secured by owner-occupied properties to
95% of the lesser of the appraised value or the purchase price. However, Everett
Mutual Bank usually obtains private mortgage insurance on the portion of the
principal amount that exceeds 80% of the appraised value of the security
property. The maximum loan-to-value ratio on mortgage loans secured by
non-owner-occupied properties is generally 75%, or 70% for loans originated for
sale in the secondary market to the Federal National Mortgage Association.
Construction and Land Development Lending. Everett Mutual Bank has an
established market niche as an originator of construction and land development
loans. Competition from other financial institutions has increased in recent
periods and Everett Mutual Bank expects that its margins on construction loans
may be reduced in the future.
Everett Mutual Bank currently originates two types of residential
construction loans: speculative construction loans, and owner/builder loans. To
a lesser, but increasing, extent, Everett Mutual Bank also originates
construction loans for the development of multi-family and commercial
properties. Annual originations of construction and land development loans have
been $32.1 million, $42.3 million and $27.5 million for the three years ended
March 31, 1999, 1998 and 1997, respectively. Subject to market conditions,
Everett Mutual Bank intends to continue to emphasize its construction lending
activities. See "Risk Factors -- Everett Mutual Bank's and Commercial Bank of
Everett's Non-Residential Lending Increases Lending Risk Because of the Higher
Risk that the Loans Will Not Be Repaid."
At March 31, 1999, the composition of Mutual Bancshares' construction
and land development loan portfolio was as follows:
Outstanding Percent of
Balance Total
----------- ----------
(In thousands)
Speculative construction............ $ 10,539 15.8%
Owner/builder construction.......... 5,464 8.2
Multi-family........................ 14,012 20.9
Land development.................... 24,389 36.4
Commercial real estate.............. 12,491 18.7
-------- -----
Total............................. $66,895 100.0%
======= =====
Speculative construction loans are made to home builders and are termed
"speculative" because the home builder does not have, at the time of loan
origination, a signed contract with a home buyer who has a commitment for
permanent financing with either Everett Mutual Bank or another lender for the
finished home. The home buyer may be identified either during or after the
construction period, with the risk that the builder will have to debt service
the speculative construction loan and finance real estate taxes and other
carrying costs of the completed home for a significant time after the completion
of construction until the home buyer is identified. Everett Mutual Bank lends to
approximately 30 builders located in Everett Mutual Bank's primary market area,
each of which generally have two to 25 speculative loans, with approximately
five to six loans outstanding at any
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<PAGE>
one time, from Everett Mutual Bank during a 12 month period. Rather than
originating lines of credit to home builders to construct several homes at once,
Everett Mutual Bank generally originates and underwrites a separate loan for
each home. Speculative construction loans are originated for a term of 12
months, with a variable interest rate tied to the Prime rate as published in The
Wall Street Journal, plus a margin ranging from 0% to 2%, and with a
loan-to-value ratio of no more than 80% of the appraised estimated value of the
completed property. During this 12 month period, the borrower is required to
make monthly payments of accrued interest on the outstanding loan balance. At
March 31, 1999 speculative construction loans totaled $10.5 million, or 15.8%,
of the total construction loan portfolio. At March 31, 1999, Everett Mutual Bank
had three borrowers each with aggregate outstanding speculative loan balances of
more than $1 million, all of which were performing according to their respective
terms and the largest of which amounted to $2.2 million.
Owner/builder construction loans are originated to the home owner
rather than the home builder as a single loan that automatically converts to a
permanent loan at the completion of construction. The construction phase of a
owner/builder construction loan generally lasts six to twelve months. The
borrower has three financing options:
o they may opt for a fixed interest rate during the construction
period, with the rate on the permanent loan set at the
completion of construction based on the required net yield for
Federal National Mortgage Association loans, plus a margin;
o the rate on the construction and permanent loans will be set
at the start of construction based on the required net yield
for Federal National Mortgage Association loans, plus a margin
and an additional fixed fee based on the loan amount; or,
o the borrower may choose an adjustable rate mortgage option
during the construction and permanent phases.
Loan-to-value ratios under all three options are up to 80%, or up to 90% with
private mortgage insurance, of the appraised estimated value of the completed
property or cost, whichever is less. During the construction period, the
borrower is required to make monthly payments of accrued interest on the
outstanding loan balance. At March 31, 1999, owner/builder construction loans
totaled $5.5 million, or 8.2%, of the total construction loan portfolio. At
March 31, 1999, the largest outstanding owner/builder construction loan had an
outstanding balance of $950,000 and was performing according to its terms.
For over 15 years, Everett Mutual Bank has originated loans to local
real estate developers for the purpose of developing residential subdivisions,
which includes installing roads, sewers, water and other utilities for plats
generally ranging from 10 to 50 lots. At March 31, 1999, subdivision development
loans totaled $24.4 million, or 36.4% of construction and land development loans
receivable. Land development loans are secured by a lien on the property and
made for a period of one to three years with generally variable interest rates
tied to the Prime rate as published in The Wall Street Journal, plus a margin
ranging from 0% to 3% , and are made with loan-to-value ratios not exceeding
75%. Monthly interest payments are required during the term of the loan. Land
development loans are structured so that Everett Mutual Bank is repaid in full
upon the sale by the borrower of approximately 80% of the subdivision lots.
Substantially all of Everett Mutual Bank's land development loans are secured by
property located in its primary market area. In addition, in the case of a
corporate borrower, Everett Mutual Bank also generally obtains personal
guarantees from corporate principals and reviews of their personal financial
statements. At March 31, 1999, Everett Mutual Bank had no nonaccruing land
development loans.
Land development loans secured by land under development involve
greater risks than one- to- four family residential mortgage loans because such
loans are advanced upon the predicted future value of the developed property. If
the estimate of such future value proves to be inaccurate, in the event of
default and foreclosure Everett Mutual Bank may be confronted with a property
the value of which is insufficient to assure full
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<PAGE>
repayment. Everett Mutual Bank attempts to minimize this risk by limiting the
maximum loan-to-value ratio on land loans to 75% of the estimated developed
value of the secured property.
Everett Mutual Bank also provides construction and construction
permanent financing for multi-family and commercial properties. At March 31,
1999, such construction loans amounted to $26.5 million. These loans are
typically secured by apartment buildings, condominiums, warehouses, mini-storage
facilities, industrial use buildings, office and medical office buildings and
retail shopping centers located in Everett Mutual Bank's market area and
typically range in amount from $500,000 to $3.0 million. At March 31, 1999, the
largest multi-family loan was for $4.3 million secured by a 45 unit apartment
building located in Everett Mutual Bank's market area and was performing
according to its terms. At March 31, 1999, the largest commercial construction
loan was for $3.2 million, secured by a mini-storage facility located in Everett
Mutual Bank's market area and was performing according to its terms.
Periodically, Everett Mutual Bank purchases, without recourse to the seller
other than for fraud, from other lenders participation interests in multi-family
and commercial construction loans secured by properties located in Everett
Mutual Bank's market area. Everett Mutual Bank underwrites such participation
interests according to its own standards. At March 31, 1999, Everett Mutual Bank
had no participation in construction loans with other lenders.
All construction loans must be approved by Everett Mutual Bank's Loan
Committee. See "-- Loan Solicitation and Processing." Prior to preliminary
approval of any construction loan application, Everett Mutual Bank reviews the
existing or proposed improvements, identifies the market for the proposed
project and analyzes the pro forma data and assumptions on the project. In the
case of a speculative or custom construction loan, Everett Mutual Bank reviews
the experience and expertise of the builder and the borrower. After preliminary
approval has been given, the application is processed, which includes obtaining
credit reports, financial statements and tax returns on the borrowers and
guarantors, an independent appraisal of the project, and any other expert
reports necessary to evaluate the proposed project. In the event of cost
overruns, Everett Mutual Bank requires that the borrower increase the funds
available for construction by depositing its own funds into a loans in process
account.
Loan disbursements during the construction period are made to the
builder based on a line item budget, which is assessed by periodic on-site
inspections by qualified Bank employees or an independent inspection service.
Everett Mutual Bank believes that its internal monitoring system helps reduce
many of the risks inherent in its construction lending.
Everett Mutual Bank originates construction loan applications through
walk-in customers, customer referrals, contacts in the business community and
real estate brokers seeking financing for their clients.
Construction lending affords Everett Mutual Bank the opportunity to
achieve higher interest rates and fees with shorter terms to maturity than does
its single-family permanent mortgage lending. Construction lending, however, is
generally considered to involve a higher degree of risk than single-family
permanent mortgage lending because of the inherent difficulty in estimating both
a property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, Everett Mutual Bank may be required to advance funds beyond
the amount originally committed to permit completion of the project. If the
estimate of value upon completion proves to be inaccurate, the Bank may be
confronted with a project whose value is insufficient to assure full repayment.
Projects may also be jeopardized by disagreements between borrowers and builders
and by the failure of builders to pay subcontractors. Loans to builders to
construct homes for which no purchaser has been identified carry more risk
because the payoff for the loan depends on the builder's ability to sell the
property prior to the time that the construction loan is due. Everett Mutual
Bank has sought to address these risks by adhering to strict underwriting
policies, disbursement procedures, and monitoring practices. In addition,
because Everett Mutual Bank's construction lending is primarily secured by
properties in its market area, changes in the local and state economies and real
estate markets could adversely affect Everett Mutual Bank's construction loan
portfolio.
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<PAGE>
Multi-Family Lending. At March 31, 1999, Everett Mutual Bank had $129.6
million, or 38% of Everett Mutual Bank's total loan portfolio, secured by
multi-family dwelling units, which consist of more than four units, located
primarily in Everett Mutual Bank's market area.
Multi-family adjustable rate mortgage loans are originated with
variable rates which generally adjust annually after an initial period ranging
from one to seven years. Contractual annual adjustments generally range from 2%
to unlimited, subject to a overall limitation of 6%. These adjustable rate
mortgage loans have generally utilized the weekly average yield on one year U.S.
Treasury securities adjusted to a constant maturity of one year plus a margin of
2.50% to 3.50%, with principal and interest payments fully amortizing over terms
of up to 30 years. Everett Mutual Bank has also originated fixed rate
multi-family loans due in five and ten years, with amortization terms of up to
30 years. Multi-family loans originated since 1993 generally contain prepayment
penalties during the first three years. Multi-family loans typically range in
principal amount from $500,000 to $3.0 million. At March 31, 1999, the largest
multi-family loan was on a 71 unit apartment building with an outstanding
principal balance of $3.0 million located in Everett Mutual Bank's market area.
At March 31, 1999, this loan was performing according to its terms.
The maximum loan-to-value ratio for multi-family loans is generally
75%. Everett Mutual Bank requires appraisals of all properties securing
multi-family real estate loans. Appraisals are performed by an independent
appraiser designated by Everett Mutual Bank, all of which are reviewed by
Everett Mutual Bank's review appraiser. Everett Mutual Bank requires its
multi-family loan borrowers to submit financial statements and rent rolls on the
subject property annually. Everett Mutual Bank also inspects the subject
property annually if the balance of the loan exceeds $500,000. Everett Mutual
Bank generally imposes a minimum debt coverage ratio of approximately 1.20 times
for loans secured by multi-family properties.
Multi-family mortgage lending affords Everett Mutual Bank an
opportunity to receive interest at rates higher than those generally available
from one- to- four family residential lending. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to- four family
residential mortgage loans. Because payments on loans secured by multi-family
properties are often dependent on the successful operation and management of the
properties, repayment of such loans may be affected by adverse conditions in the
real estate market or the economy. Everett Mutual Bank seeks to minimize these
risks by strictly scrutinizing the financial condition of the borrower, the
quality of the collateral and the management of the property securing the loan.
Everett Mutual Bank generally obtains loan guarantees from financially capable
parties based on a review of personal financial statements, or if the borrower
is a corporation, Everett Mutual Bank also generally obtains personal guarantees
from corporate principals based on a review of personal financial statements.
Commercial Real Estate Lending. Commercial real estate loans totaled
$83.6 million, or 25% of total loans receivable at March 31, 1999, and consisted
of 179 loans. Everett Mutual Bank originates commercial real estate loans
primarily secured by warehouses, mini-storage facilities, industrial use
buildings, office and medical office buildings and retail shopping centers
located in Everett Mutual Bank's market area. Commercial real estate loans
typically range in principal amount from $500,000 to $3.0 million. At March 31,
1999, the largest commercial real estate loan had an outstanding balance of $3.0
million and is secured by an office building located in Everett Mutual Bank's
market area. This loan was performing according to its terms at March 31, 1999.
Commercial adjustable rate mortgage loans are originated with variable
rates which generally adjust annually after an initial period ranging from one
to seven years. Contractual annual adjustments generally range from 2% to
unlimited, subject to a overall limitation of 6%. These adjustable rate mortgage
loans have generally utilized the weekly average yield on one year U.S. Treasury
securities adjusted to a constant maturity of one year plus a margin of 2.75% to
3.50%, with principal and interest payments fully amortizing over terms of up to
30 years. Everett Mutual Bank has also originated fixed rate commercial loans
due in five and ten years, with
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amortization terms of up to 30 years. Commercial loans originated since 1993
generally contain prepayment penalties during the first three years.
Everett Mutual Bank requires appraisals of all properties securing
commercial real estate loans. Appraisals are performed by an independent
appraiser designated by Everett Mutual Bank, all of which are reviewed by
Everett Mutual Bank's review appraiser. Everett Mutual Bank requires its
commercial loan borrowers to submit financial statements and rent rolls on the
subject property annually. Everett Mutual Bank also inspects the subject
property annually if the balance of the loan exceeds $500,000. Everett Mutual
Bank considers the quality and location of the real estate, the credit of the
borrower, the cash flow of the project and the quality of management involved
with the property. Everett Mutual Bank generally imposes a minimum debt coverage
ratio of approximately 1.30 times for originated loans secured by income
producing commercial properties. Everett Mutual Bank generally obtains loan
guarantees from financially capable parties based on a review of personal
financial statements, or if the borrower is a corporation, Everett Mutual Bank
also generally obtains personal guarantees from corporate principals based on a
review of personal financial statements.
Commercial real estate lending affords Everett Mutual Bank an
opportunity to receive interest at rates higher than those generally available
from one- to- four family residential lending. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to- four family
residential mortgage loans. Because payments on loans secured by commercial
properties often depend upon the successful operation and management of the
properties, repayment of such loans may be affected by adverse conditions in the
real estate market or the economy. Everett Mutual Bank seeks to minimize these
risks by limiting the maximum loan-to-value ratio to 75% and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan.
Consumer Lending. Consumer lending has traditionally been a secondary,
but recently growing part of Everett Mutual Bank's business. Consumer loans
generally have shorter terms to maturity and higher interest rates than mortgage
loans. Consumer loans include home equity lines of credit, home improvement
loans, second mortgage loans, lot acquisition loans, savings account loans,
automobile loans, boat loans, recreational vehicle loans and personal unsecured
loans. Consumer loans are made with both fixed and variable interest rates and
with varying terms. At March 31, 1999, consumer loans amounted to $18.9 million,
or 6% of the total loan portfolio.
At March 31, 1999, the largest component of the consumer loan portfolio
consisted of real estate secured loans, such as residential first mortgage
loans, second mortgages and home equity lines of credit, which totaled $17.6
million, or 5%, of the total loan portfolio. Home equity lines of credit and
second mortgage loans are made for purposes such as the improvement of
residential properties, debt consolidation and education expenses, among others.
The majority of these loans are made to existing customers and are secured by a
first or second mortgage on residential property. Everett Mutual Bank also
solicits loans from non-customers. The loan-to-value ratio is typically 80% or
less, when taking into account both the first and second mortgage loans. Second
mortgage loans typically carry fixed interest rates with a fixed payment over a
term between five and fifteen years. Home equity lines of credit allow for a ten
year draw period, plus an additional fifteen year repayment period, and the
interest rate is tied to the Prime rate as published in The Wall Street Journal,
plus a margin.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws, including federal and state
bankruptcy and
51
<PAGE>
insolvency laws, may limit the amount that can be recovered on such loans.
Everett Mutual Bank believes that these risks are not as prevalent in the case
of Everett Mutual Bank's consumer loan portfolio because a large percentage of
the portfolio consists of first and second mortgage loans and home equity lines
of credit for existing customers that are underwritten in a manner such that
they result in credit risk that is substantially similar to one- to- four family
residential mortgage loans. Nevertheless, second mortgage loans and home equity
lines of credit have greater credit risk than one- to- four family residential
mortgage loans because they are secured by mortgages subordinated to the
existing first mortgage on the property, which may or may not be held by Everett
Mutual Bank. At March 31, 1999, there were $7,000 of consumer loans delinquent
in excess of 90 days or in nonaccrual status.
Loan Maturity and Repricing
The following table sets forth certain information at March 31, 1999
regarding the dollar amount of loans maturing in Mutual Bancshares' portfolio
based on their contractual terms to maturity, but does not include scheduled
payments or potential prepayments. Demand loans, loans having no stated schedule
of repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Loan balances do not include undisbursed loan proceeds, unearned
discounts, unearned income and allowance for loan losses.
<TABLE>
<CAPTION>
Within After One Year After 3 Years After 5 Years
One Year Through 3 Years Through 5 Years Through 10 Years Beyond 10 Years Total
---------- --------------- --------------- ---------------- --------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family residential.. $ 17,130 $12,605 $ 4,165 $ 7,076 $58,503 $ 99,479
One- to four-family construction
and land development.......... 21,471 560 624 818 16 23,489
Income property:
Commercial construction....... - - 4,112 3,106 155 2,983 10,356
Commercial real estate........ 37,286 18,329 8,862 6,274 1,822 72,573
Multi-family construction..... 2,387 2,307 1,827 983 -- 7,504
Multi-family residential...... 64,862 32,720 11,663 6,062 666 115,973
Consumer:
Residential mortgages............ 510 294 376 1,151 2,536 4,867
Home equity and second
mortgages..................... 2,618 54 716 2,507 4,732 10,627
Credit cards..................... 90 -- -- -- -- 90
Automobiles...................... 35 290 368 91 2 786
Other installment loans.......... 863 214 147 75 60 1,359
Business loans...................... 5,495 249 764 88 180 6,776
-------- ------- ------- ------- ------- --------
Total............................... $152,747 $71,734 $32,618 $25,280 $71,500 $353,879
======== ======= ======= ======= ======= ========
</TABLE>
52
<PAGE>
The following table sets forth the dollar amount of all loans due after
March 31, 1999, which have fixed interest rates and have floating or adjustable
interest rates.
Floating or
Fixed Rates Adjustable Rates
----------- ----------------
(In thousands)
Real Estate:
One- to four-family residential.. $ 68,202 $ 31,277
One- to four-family construction
and land development.......... 780 22,709
Income property:
Commercial construction....... 6,244 4,112
Commercial real estate........ 12,798 59,775
Multi-family construction..... 2,824 4,680
Multi-family residential...... 11,434 104,539
Consumer:
Residential mortgages............ 4,867 --
Home equity and second
mortgages..................... 8,051 2,576
Credit cards..................... - - 90
Automobiles...................... 786 - -
Other installment loans.......... 538 821
Business loans...................... 1,494 5,282
-------- --------
Total............................... $118,018 $235,861
======== ========
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give Everett Mutual Bank the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
Loan Solicitation and Processing. Loan originations are obtained from a
variety of sources, including walk-in customers, loan brokers for primarily
multi-family and commercial loans, and referrals from builders and realtors.
Upon receipt of a loan application from a prospective borrower, a credit report
and other data are obtained to verify specific information relating to the loan
applicant's employment, income and credit standing. An appraisal of the real
estate offered as collateral generally is undertaken by an appraiser retained by
Everett Mutual Bank and certified by the State of Washington.
Mortgage loan applications are initiated by loan officers and are
required to be approved by Everett Mutual Bank's Management Loan Committee,
which presently consists of the Chief Executive Officer, the Chief Operating
Officer, the Chief Financial Officer and the Credit Administrator. All loans up
to and including $750,000 may be approved by the Management Loan Committee
without Board approval; loans in excess of $750,000 and up to $1,500,000 must be
approved by the Board Loan Committee; and, loans exceeding $1,500,000, as well
as loans of any size granted to a single borrower whose aggregate lending
relationship exceeds 15% of total capital, must be approved by Everett Mutual
Bank's Board of Directors.
Loan Originations, Purchases and Sales. During the year ended March 31,
1999, Mutual Bancshares' total gross loan originations were $140.7 million.
Periodically, Everett Mutual Bank purchases participation interests in
construction and land development loans and multi-family loans, secured by
properties located in Everett Mutual Bank's primary market area, from other
lenders. Such purchases are underwritten to Everett
53
<PAGE>
Mutual Bank's underwriting guidelines and are without recourse to the seller
other than for fraud. See "-- Construction and Land Development Lending" and "--
Multi-Family Lending."
Consistent with its asset/liability management strategy, Everett Mutual
Bank's policy has been to retain in its portfolio all of the adjustable rate
mortgage loans and mid to shorter-term fixed rate loans. Thirty-year fixed rate
loans are originated with a view toward sale in the secondary market to Federal
National Mortgage Association; however, from time to time, a portion of
fixed-rate loans may be retained in Everett Mutual Bank's portfolio to meet its
asset-liability objectives. Loans sold in the secondary market are generally
sold on a servicing retained basis. At March 31, 1999, Everett Mutual Bank's
loan servicing portfolio totaled $72.6 million.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
Year Ended March 31,
----------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Loans originated:
Real estate:
One- to four-family residential.............. $ 39,034 $ 26,267 $ 17,469
One- to four-family construction and loan
development............................... 32,063 42,274 27,532
Income property
Commercial construction................... 9,941 4,620 1,624
Commercial real estate.................... 11,095 13,100 13,663
Multi-family construction................. 11,387 4,354 1,840
Multi-family residential.................. 20,892 13,299 15,627
Consumer:
Residential mortgages....................... 2,657 1,608 1,050
Home equity loans........................... 7,421 6,522 4,990
Credit cards................................ 427 -- --
Automobiles................................. 311 526 854
Other installment loans..................... 949 742 1,312
Business loans................................. 4,517 5,092 2,018
-------- -------- --------
Total loans originated................ 140,694 118,404 87,979
-------- -------- --------
Loans purchased................................. -- -- --
-------- -------- --------
Loans sold:
Total whole loans sold......................... 3,958 7,056 5,055
Participation loans............................ -- -- --
-------- -------- --------
Total loans sold...................... 3,958 7,056 5,055
-------- -------- --------
Principal repayments............................ 113,624 82,264 71,828
Loans securitized............................... -- -- --
Transfer to real estate owned................... 117 102 795
Increase (decrease) in other items, net......... (2,908) (8,504) (4,381)
-------- -------- --------
Net increase (decrease) in loans receivable,
net and loans held for sale................... $ 20,087 $ 20,478 $ 5,920
======== ======== ========
Loan Origination and Other Fees. Mutual Bancshares, in some instances,
receives loan origination fees. Loan fees are a percentage of the principal
amount of the mortgage loan which are charged to the borrower for funding the
loan. The amount of fees charged by Mutual Bancshares' subsidiary financial
institutions range up
54
<PAGE>
to 1.50%. Current accounting standards require fees received, net of certain
loan origination costs, for originating loans to be deferred and amortized into
interest income over the contractual life of the loan. Net deferred fees or
costs associated with loans that are prepaid are recognized as income at the
time of prepayment. Mutual Bancshares had $3.2 million of net deferred mortgage
loan fees at March 31, 1999.
Nonperforming Assets and Delinquencies. Everett Mutual Bank generally
assesses late fees or penalty charges on delinquent loans of 5% of the monthly
loan payment amount. Substantially all fixed-rate and adjustable rate mortgage
loan payments are due on the first day of the month; however, the borrower is
given a 15 day grace period to make the loan payment. When a mortgage loan
borrower fails to make a required payment when due, Everett Mutual Bank
institutes collection procedures. The first notice is mailed to the borrower on
the sixteenth day requesting payment and assessing a late charge. Attempts to
contact the borrower by telephone generally begin upon the thirtieth day of
delinquency. If a satisfactory response is not obtained, continuous follow-up
contacts are attempted until the loan has been brought current. Before the 90th
day of delinquency, attempts to interview the borrower are made to establish the
cause of the delinquency, whether the cause is temporary, the attitude of the
borrower toward the debt, and a mutually satisfactory arrangement for curing the
default.
If the borrower is chronically delinquent and all reasonable means of
obtaining payment on time have been exhausted, foreclosure is initiated
according to the terms of the security instrument and applicable law. Interest
income on loans is reduced by the full amount of accrued and uncollected
interest (i.e. placed on nonaccrual status).
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, Everett Mutual Bank institutes the same
collection procedures as for its mortgage loan borrowers.
Everett Mutual Bank's Board of Directors is informed monthly as to the
status of all mortgage and consumer loans that are delinquent by more than 90
days or on nonaccrual, the status on all loans currently in foreclosure, and the
status of all foreclosed and repossessed property owned by Everett Mutual Bank.
55
<PAGE>
The following table sets forth information with respect to Mutual
Bancshares' non-performing assets and restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15 for the periods indicated.
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a Nonaccrual basis:
Mortgage loans:
One- to four-family residential
income property...................... $ -- $ 517 $ 657 $ 489 $ 975
Commercial real estate................... 364 293 313 352 --
Consumer:
Home equity and second mortgages............ -- 27 47 -- 10
Automobiles................................. 7 4 6 3 10
Other installment loans..................... 7 -- -- 5 20
----- ----- ------ ------ ------
Total................................ 378 841 1,024 849 1,015
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
One- to four-family construction and
land development..................... -- -- -- 419 --
Income property:
Multifamily residential.................. -- -- -- -- 3,495
----- ----- ------ ------ ------
Total................................ -- -- -- 419 3,495
Total of nonaccrual and 90 days
past due loans....................... 378 841 1,024 1,268 4,510
Real estate owned acquired in satisfaction
of debts previously contracted....... -- -- 876 998 2,117
Total nonperforming assets........... 378 841 1,900 2,266 6,627
Restructured loans............................ -- -- -- -- 4,041
Nonaccrual and 90 days or more past due
loans as a percentage of loans
receivable, net...................... 0.12% 0.27% 0.35% 0.43% 1.53%
Nonaccrual and 90 days or more past due
loans as a percentage of total assets 0.08% 0.20% 0.26% 0.33% 1.26%
Nonperforming assets as a percentage of
total assets......................... 0.08% 0.20% 0.48% 0.59% 1.85%
</TABLE>
56
<PAGE>
Additional interest income, which would have been recorded for the year
ended March 31, 1999 had nonaccruing loans been current in accordance with their
original terms, amounted to approximately $10,400. The amount was approximately
$51,000 of interest included in interest income on such loans for the year ended
March 31, 1999.
Real Estate Owned. Real estate acquired by Everett Mutual Bank as a
result of foreclosure or by deed-in- lieu of foreclosure is classified as real
estate owned until it is sold. When property is acquired it is recorded at the
lower of its cost, which is the unpaid principal balance of the related loan
plus foreclosure costs, or fair market value. Subsequent to foreclosure, the
property is carried at the lower of the foreclosed amount or fair value, less
estimated selling costs. At March 31, 1999, Everett Mutual Bank did not have any
real estate owned.
Restructured Loans. Under generally accepted accounting principles,
Everett Mutual Bank is required to account for certain loan modifications or
restructuring as a "troubled debt restructuring." In general, the modification
or restructuring of a debt constitutes a troubled debt restructuring if Everett
Mutual Bank for economic or legal reasons related to the borrower's financial
difficulties grants a concession to the borrowers that Everett Mutual Bank would
not otherwise consider. Debt restructures or loan modifications for a borrower
do not necessarily always constitute troubled debt restructures, however, and
troubled debt restructures do not necessarily result in nonaccrual loans.
Everett Mutual Bank had no restructured loans as of March 31, 1999.
Asset Classification. Applicable regulations require that each insured
institution review and classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, regulatory examiners have
authority to identify problem assets and, if appropriate, require them to be
classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for loan
losses in an amount deemed prudent by management. These allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities and the risks associated with particular
problem assets. When an insured institution classifies problem assets as loss,
it charges off the balances of the asset. Assets which do not currently expose
the insured institution to sufficient risk to warrant classification in one of
the aforementioned categories but possess weaknesses are required to be
designated as special mention. Everett Mutual Bank's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the Federal Deposit Insurance Corporation and the
Washington Division of Banks which can order the establishment of additional
loss allowances.
Allowance for Loan Losses. Everett Mutual Bank has established a
systematic methodology for the determination of provisions for loan losses that
takes into consideration the need for an overall general valuation allowance.
In originating loans, Everett Mutual Bank recognizes that losses will
be experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. Management recognizes that these losses will occur over the life of
the loan and may not necessarily result in current impairment of the loan
balance. Management also believes that certain loans may currently be impaired
that are not yet evident in the loan's performance. The general valuation
allowance for loan losses is maintained to cover these losses inherent in the
loan portfolio but not yet apparent. Management reviews the adequacy of the
allowance at least quarterly, as computed by a consistently applied
formula-based methodology, supplemented by management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan
57
<PAGE>
portfolio. At March 31, 1999, Mutual Bancshares had a general allowance for loan
losses of $5.7 million, representing 1.62% of total loans, compared to $4.9
million, or 1.48% of total loans at March 31, 1998.
Mutual Bancshares recorded a $780,000 provision for loan losses for the
year ended March 31, 1999, compared to $420,000 for the years ended March 31,
1998 and 1997. Provisions for loan losses are charges to earnings to bring the
total allowance for loan losses to a level considered by management as adequate
to provide for known and inherent risks in the loan portfolio, including
management's continuing analysis of factors underlying the quality of the loan
portfolio. These factors include changes in portfolio size and composition,
actual loan loss experience, current economic conditions, detailed analysis of
individual loans from which full collectibility may not be assured, and
determination of the existence and realizable value of the collateral and
guarantees securing the loans.
Mutual Bancshares' net charge-offs as a percentage of average loans
outstanding reflected in the following table has been consistent over the past
several years, largely the result of extremely favorable economic conditions in
the market area. The level of non-performing assets has fluctuated from month to
month, and the reserve level of 1500.5% of total loans at March 31, 1999 is
considered an anomaly not being indicative of potential loss inherent in the
portfolio. During the fiscal year ending March 31, 1999, the loan loss reserve
to non-performing asset ratio fluctuated from a low of 780.4% to a high of
3051.2% as the level of nonperforming assets fluctuated from $170,000 to
$632,000. The extremely low amount of nonperforming loans at March 31, 1999
cannot reasonably be relied upon to reflect the current level of risk inherent
in the loan portfolio, especially given the dollar amount of loans in
higher-risk lending categories, including construction, land development,
multi-family and commercial loans at March 31, 1999.
The following table reflects the allowance allocated to each respective
loan category using a formula-based approach. Reserve percentages are applied
against outstanding loans and certain commitments as follows: single family
loans, 0.80%; two- to four-family loans, 1.00%; permanent multi-family loans,
1.25%; permanent commercial loans, 1.50%; construction and land development
loans, 2.00%; consumer loans, 1.00% to 2.00% based on collateral type; business
loans generally, 1 .00% to 2.00% based on credit grade. These reserve factors
have been developed based on management's understanding of the relative credit
risk which could indicate it is probable that current impairment has occurred in
the portfolio, and to a lesser extent, the factors that peers are applying to
similar loan categories. With the exception of changing the one- to four-family
reserve allocation factor from a 25% risk-weight of principal and a 1.00%
reserve, to a 100% risk-weight of principal and a 0.80% reserve in the fiscal
year ending March 31, 1999 in order to recognize the impact of employment
layoffs in the local market area, these reserve percentages have generally been
unchanged over the past five years. The management loan committee reviews the
reserve factors in conjunction with the quarterly loan loss allowance analysis
and may be adjusted in future periods to reflect changes in delinquency
percentages and loss experience. The unallocated portion of the reserve
represents the amount management deems necessary to account for estimation risk
in the formula method, and to incorporate other critical factors impacting
credit quality, such as loan volumes and concentrations, seasoning of the loan
portfolio, specific industry conditions within portfolio segments, governmental
regulatory actions, recent loss experience in particular segments of the
portfolio and the duration of the current business cycle, and the economic
conditions described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Risk Factors."
Management believes that the amount maintained in the allowances will
be adequate to absorb losses inherent in the portfolio. Although management
believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.
While Mutual Bancshares believes it has established its existing
allowance for loan losses in accordance with generally accepted accounting
principals, there can be no assurance that regulators, in reviewing Mutual
Bancshares' loan portfolio, will not request Mutual Bancshares, or one of its
subsidiaries, to increase significantly
58
<PAGE>
its allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect Mutual Bancshares' financial
condition and results of operations.
The following table sets forth an analysis of Mutual Bancshares'
allowance for loan losses at the dates and for the periods indicated.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period............ $4,897 $4,509 $4,178 $3,757 $3,478
Provision for loan losses................... 780 420 420 458 319
Charge-offs:
Mortgage loans:
One- to four-family residential -- -- 43 -- --
One- to four-family construction and
land development................. -- -- 38 -- 1
Income property:
Commercial real estate................. -- 112 -- 33 --
Consumer:
Home equity and second mortgages......... -- -- 5 -- 22
Automobiles.............................. 2 -- 4 5 --
Other installment loans.................. 3 -- -- 16 17
------ ------ ------ ------ ------
Total charge-offs....................... 5 112 90 54 40
Recoveries:
Income property:
Commercial construction................ -- 79 -- -- --
Consumer:
Automobiles.............................. -- 1 -- 5 --
Other installment loans.................. -- -- 1 12 -
------ ------ ------ ------ ------
Total recoveries........................ -- 80 1 17 --
------ ------ ------ ------ ------
Net charge-offs......................... 5 32 89 37 40
------ ------ ------ ------ ------
Balance at end of period................ $5,672 $4,897 $4,509 $4,178 $3,757
====== ====== ====== ====== ======
Allowance for loan losses as a
percentage of total loans
outstanding at the end of the
period.................................. 1.62% 1.48% 1.45% 1.37% 1.25%
Net charge-offs as a percentage of
average loans outstanding during
the period............................. --% 0.01% 0.03% 0.01% 0.01%
Allowance for loan losses as a
percentage of nonperforming
loans at end of period.................. 1500.53% 582.28% 440.33% 329.59% 83.30%
</TABLE>
59
<PAGE>
The following table sets forth the breakdown of Mutual Bancshares'
allowance for loan losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Loan in Loan in
Amount of Amount Category Amount of Amount Category Amount of Amount Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(Dollars in thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family residential .. $ 784 $101,649 26.61% $ 320 $ 95,305 26.73% $ 334 $ 94,612 29.40%
One- to four-family construction
and land development ........... 838 34,928 9.14 1,008 36,444 10.23 778 27,226 8.46
Income property:
Commercial construction ........ 271 12,491 3.27 71 4,620 1.3 42 1,624 0.5
Commercial real estate ......... 1,073 72,573 19.00 1,142 76,121 21.36 1,051 70,042 21.76
Multifamily construction ....... 267 14,012 3.67 138 7,153 2.01 4 2,323 0.72
Multifamily residential ........ 1,450 115,972 30.35 1,399 111,975 31.42 1,377 109,003 33.87
Consumer:
Residential mortgages ............ 134 4,867 1.27 121 4,318 1.21 102 4,299 1.34
Home equity and second
mortgages ...................... 207 13,734 3.59 186 11,548 3.24 137 7,888 2.45
Credit cards ..................... 16 488 0.13 6 124 0.03 -- -- --
Automobiles ...................... 16 787 0.21 22 1,036 0.29 22 1,190 0.37
Other installment loans .......... 43 1,612 0.42 31 1,524 0.43 33 1,457 0.45
Business loans ..................... 196 8,949 2.34 125 6,226 1.75 11 2,181 0.68
Total allocated .............. 5,295 -- -- 4,568 -- -- 3,891 -- --
Unallocated ........................ 377 -- -- 329 -- -- 618 -- --
------ -------- ------ ------ -------- ------ ------ -------- ------
Total ........................ $5,672 $382,062 100.00% $4,897 $356,394 100.00% $4,509 $321,845 100.00%
====== ======== ====== ====== ======== ====== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
Percent Percent
of Loans of Loans
Loan in Loan in
Amount of Amount Category Amount of Amount Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------
(Dollars in thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family residential .. $ 324 $ 93,544 29.78% $ 312 $ 94,820 29.53%
One- to four-family construction
and land development ........... 838 39,406 12.54 918 42,123 13.12
Income property:
Commercial construction ........ 35 1,895 0.6 8 400 0.12
Commercial real estate ......... 949 62,596 19.93 897 62,341 19.42
Multifamily construction ....... 24 1,530 0.49 81 4,009 1.25
Multifamily residential ........ 1,273 101,831 32.42 1,263 104,205 32.45
Consumer:
Residential mortgages ............ 92 4,824 1.54 86 4,718 1.47
Home equity and second
mortgages ...................... 107 6,047 1.92 117 5,863 1.83
Credit cards ..................... -- -- -- -- -- --
Automobiles ...................... 21 1,051 0.33 23 1,173 0.37
Other installment loans .......... 99 1,015 0.32 44 1,040 0.32
Business loans ..................... 8 407 0.13 8 390 0.12
Total allocated .............. 3,770 -- -- 3,757 -- --
Unallocated ........................ 408 -- -- (--) -- --
------ -------- ------ ------ -------- ------
Total ........................ $4,178 $314,146 100.00% $3,757 $321,082 100.00%
====== ======== ====== ====== ======== ======
</TABLE>
60
<PAGE>
Investment Activities
The investment policies of Mutual Bancshares, Everett Mutual Bank and
Commercial Bank of Everett are substantially the same with the exception of the
dollar limitations of individual investments. Under Washington law, banks are
permitted to invest in various types of marketable securities. Authorized
securities include but are not limited to U.S. Treasury obligations, securities
of various federal agencies, mortgage-backed securities, certain certificates of
deposit of insured banks and savings institutions, banker's acceptances,
repurchase agreements, federal funds, commercial paper, corporate debt and
equity securities and obligations of states and their political sub-divisions.
The investment policies of the Mutual Bancshares are designed to provide and
maintain adequate liquidity and to generate favorable rates of return without
incurring undue interest rate or credit risk. Mutual Bancshares' policies
generally limit investments to U.S. Government and agency securities, municipal
bonds, certificates of deposit, marketable corporate debt obligations and
mortgage-backed securities. Investment in mortgage-backed securities includes
those issued or guaranteed by Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association and Government National Mortgage Association.
At March 31, 1999, Mutual Bancshares' consolidated investment portfolio
totaled $79.3 million and consisted principally of U.S. Government and agency
obligations, municipal bonds, corporate debt obligations, equity securities,
mutual funds, and Federal Home Loan Bank stock. From time to time, investment
levels may be increased or decreased depending upon yields available on
investment alternatives, and management's projections as to the demand for funds
to be used in Mutual Bancshares' loan originations, deposits and other
activities.
Mortgage-Backed Securities. Mutual Bancshares mortgage-backed
securities, which at March 31, 1999, totaled $2.8 million at estimated fair
value, was comprised of Federal National Mortgage Association and Government
National Mortgage Association mortgage backed securities.
State and Municipal Bonds. Mutual Bancshares' tax exempt municipal bond
portfolio, which at March 31, 1999, totaled $12.0 million at estimated fair
value, or $11.9 million at amortized cost, was comprised of general obligation
bonds (i.e., backed by the general credit of the issuer) and revenue bonds
(i.e., backed by revenues from the specific project being financed) issued by
various housing authorities, hospitals, schools, water and sanitation districts
and other authorities located in the State of Washington. At March 31, 1999,
general obligation bonds and revenue bonds had total estimated fair values of
$4.9 million and $7.0 million, respectively. Most of the municipal bonds are not
rated by a nationally recognized credit rating agency such as Moody's or
Standard and Poor's. Non-rated municipal bonds held in portfolio are generally
comprised of housing bonds issued by various local housing authorities in Mutual
Bancshares' market area. At March 31, 1999, Mutual Bancshares' municipal bond
portfolio had a weighted average maturity of approximately 10.8 years and a
weighted average coupon rate of 5.3%. The largest security in the portfolio was
a Snohomish County Housing Authority bond issued by Snohomish County,
Washington, with an amortized cost of $1.2 million and a fair value of $1.2
million.
Corporate Bonds. Mutual Bancshares' corporate bond portfolio, which
totaled $47.9 million at fair value ($47.8 million at amortized cost) at March
31, 1999, was composed of short to intermediate-term fixed-rate securities from
issuers rated Baa by Moody's or BBB by Standard and Poor's, or better. A high
credit rating indicates only that the rating agency believes there is a low risk
of loss or default. However, all of Mutual Bancshares' investment securities,
including those that have high credit ratings, are subject to market risk and
credit risk in so far as a change in market rates of interest or other
conditions may cause a change in an investment's market value. In addition,
credit ratings are also subject to change at the discretion of the rating
agencies, which could also impact the market value of the investment. At March
31, 1999, the portfolio had a weighted average maturity of 1.9 years and a
weighted average coupon rate of 6.5%. The longest term bond, has an amortized
cost of $502,000 and a term to maturity of 4.8 years.
At March 31, 1999, the holdings of the largest single issuer totaled
$3.7 million at amortized cost or 7.7% of the total portfolio. The financial
sector comprised 51% of the total portfolio.
61
<PAGE>
The following tables set forth the maturity and rating of the corporate
bonds held in Mutual Bancshares' investment portfolio at March 31, 1999.
<TABLE>
<CAPTION>
Moody Rating
-----------------------------------------------------------------------------------------------------
Maturity Aaa Aa A Baa Total
- -------- ----------------- ----------------- ----------------- ----------------- -----------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value Cost Value
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year or less... -- -- $ 3,199 $ 3,223 $ 7,654 $ 7,661 $ 1,017 $1,021 $11,870 $11,905
Over 1-3 years... -- -- 8,520 8,583 17,030 17,028 1,262 1,263 26,812 26,874
Over 3-5 years... -- -- 2,064 2,020 7,094 7,090 -- -- 9,158 9,110
Over 5-10 years.. -- -- -- -- -- -- -- -- -- --
------- ----- ------- ------- ------- ------- ------- ------ ------------------
Totals........... -- -- $13,783 $13,826 $31,778 $31,779 $ 2,279 $2,284 $47,840 $47,889
======= ===== ======= ======= ======= ======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Standard and Poors Rating
-----------------------------------------------------------------------------------------------------
Maturity AAA AA A BBB Total
- -------- ----------------- ----------------- ----------------- ----------------- -----------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value Cost Value
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year or less... -- -- $ 2,470 $ 2,483 $ 8,383 $ 8,401 $ 1,017 $1,021 $11,870 $11,905
Over1-3 years.... -- -- 5,561 5,572 16,137 16,174 5,114 5,128 26,812 26,874
Over 3-5 years... -- -- 1,773 1,728 6,384 6,393 1,001 989 9,158 9,110
Over 5-10 years.. -- -- -- -- -- -- -- -- -- --
------ ----- ------- ------- ------- ------- ------- ------ ------- -------
Totals........... -- -- $ 9,804 $ 9,783 $30,904 $30,968 $ 7,132 $7,138 $47,840 $47,889
====== ===== ======= ======= ======= ======= ======= ====== ======= =======
</TABLE>
Equity Securities. Mutual Bancshares' equity investments totaled $6.2
million at fair value, or $6.0 million at cost, at March 31, 1999. The equity
portfolio consists primarily of trust preferred stocks, common stocks of
companies included in the Dow Jones Industrial Average and have typically
included other mid to large cap companies, and mutual funds.
U.S. Government and Agency Obligations. Mutual Bancshares' portfolio of
U.S. Government and agency obligations had a fair value of $6.4 million, or $6.3
million at amortized cost, at March 31, 1999. The longest term bond has an
amortized cost of $1.0 million and a term to maturity of 5.9 years.
Off Balance Sheet Derivatives. Derivatives include "off balance sheet"
financial products whose value is dependent on the value of an underlying
financial asset, such as a stock, bond, foreign currency, or a reference rate or
index. Such derivatives include "forwards," "futures," "options" or "swaps."
Mutual Bancshares generally has not invested in "off balance sheet" derivative
instruments, although investment policies authorize such investments to hedge
the saleable loan pipeline of Everett Mutual Bank. On March 31, 1999, Mutual
Bancshares had no off balance sheet derivatives and no outstanding commitments
to purchase or sell securities.
62
<PAGE>
The following table sets forth the composition of Mutual Bancshares'
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------------
1999 1998 1997
----------------- ------------------- ------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
-------- ------ -------- ----- -------- ------
(Dollars in thousands)
Available for sale:
Investment securities:
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations...... $ -- $ -- $ 2,085 $ 2,093 $ 6,555 $ 6,554
U.S. Government Agency
obligations.................. 3,751 3,749 8,846 8,866 9,100 9,090
Corporate obligations.......... 45,875 45,841 23,650 23,787 12,721 12,650
Municipal obligations.......... 5,097 5,080 800 798 -- --
Equity securities.............. 5,978 6,203 2,498 2,880 353 342
Certificates of deposit........ 175 175 -- -- -- --
Mortgage-backed securities:
Federal National Mortgage
Association................. 514 518 520 520 304 307
------- ------- ------- -------- ------- -------
Total available for sale... $61,390 $61,566 $38,399 $38,944 $29,033 $28,943
======= ======= ======= ======= ======= =======
Held to maturity:
Investment securities:
U.S. Treasury obligations...... -- -- 4,026 4,191 4,030 4,086
U.S. Government Agency
obligations.................. 2,520 2,684 -- -- -- --
Corporate obligations.......... 1,965 2,048 4,438 4,572 5,907 6,012
Municipal obligations.......... 6,773 6,876 7,057 7,196 7,383 7,456
Certificates of deposit........ 455 455 872 950 889 867
Mortgage-backed securities:
Federal National Mortgage
Association................. 2,153 2,254 4,357 4,561 5,657 5,795
------- ------- ------- ------- ------- -------
Total held to maturity .... $13,866 $14,317 $20,750 $21,470 $23,866 $24,216
======= ======= ======= ======= ======= =======
Total...................... $75,256 $75,883 $59,149 $60,414 $52,899 $53,159
======= ======= ======= ======= ======= =======
</TABLE>
63
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of Mutual
Bancshares' investment portfolio at March 31, 1999.
<TABLE>
<CAPTION>
At March 31, 1999
Amount Due or Repricing within:
---------------------------------------------------------------------------------------------------
Over One to Over Five to
One Year or Less Five Years Ten Years Over Ten Years Totals
------------------ ------------------ ----------------- ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Investment securities:
U.S. Government Agency
obligations........... $ 1,141 5.95% $ 2,610 5.51% $ -- --% $ -- --% $ 3,751 5.64%
Corporate obligations....... 11,372 7.04 34,503 2.26 -- -- -- -- 45,875 6.46
Municipal obligations....... 1,835 5.05 1,796 4.51 966 4.14 500 5.55 5,097 4.74
Equity securities........... 2,328 4.15 -- -- -- -- 3,650 2.58 5,978 3.19
Certificates of deposit..... -- -- 175 5.20 -- -- -- -- 175 5.20
Mortgage-backed securities:
Federal National Mortgage
Association............... -- -- -- -- 468 6 46 9.52 514 6.31
------- ---- ------- ----- ------ ----- ------ ----- ------- ----
Total available for sale $16,676 6.34% $39,084 6.12% $1,434 4.75% $4,196 3.01% $61,390 5.94%
======= ==== ======= ===== ====== ===== ====== ===== ======= ====
Held to maturity:
Investment securities:
U.S. Government Agency
obligations............ $ -- --% $ 1,514 7.69% $1,006 7.46% $ -- --% $ 2,520 7.60%
Corporate obligations....... 498 7.23 1,467 7.07 -- -- -- -- 1,965 7.11
Municipal obligations....... 735 5.31 1,839 5.73 1,372 5.11 2,827 6.18 6,773 5.75
Certificates of deposit..... -- -- 455 5.66 -- -- -- -- 455 5.66
Mortgage-backed securities:
Federal National Mortgage
Association................. -- -- 6 6.50 -- -- 2,147 8.13 2,153 8.13
------- ----- ------- ----- ------ ----- ------ ----- ------- ----
Total held to maturity.. $ 1,233 6.09% $ 5,281 6.66% $2,378 6.10% $4,974 7.02% $13,866 6.64%
======= ===== ======= ===== ====== ===== ====== ===== ======= ====
Total.................... $17,909 6.33% $44,365 6.19% $3,812 5.59% $9,170 5.19% $75,256 6.07%
======= ===== ======= ===== ====== ===== ====== ===== ======= ====
</TABLE>
64
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of Everett
Mutual Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the Federal Home Loan Bank
of Seattle or Fed Funds lines may be used to compensate for reductions in the
availability of funds from other sources.
Everett Mutual Bank's deposit composition reflects a deposit mixture
with certificates of deposit accounting for approximately one-half of total
deposits and negotiable order of withdrawal/checking accounts comprising a
relatively modest portion of total deposits. On the other hand, Commercial Bank
of Everett's community bank operating strategy with a focus on small business
lending and relationship banking has resulted in a deposit structure is heavily
weighted towards checking and negotiable order of withdrawal accounts while
certificates of deposit comprise approximately one-third of the total deposit
base. Many of Commercial Bank of Everett's deposits are tied to lending
relationships. Thus, as Commercial Bank of Everett continues to build the loan
portfolio and number of commercial account relationships it is anticipated that
deposit balances will also increase.
Deposit Accounts. Substantially all of Everett Mutual Bank's depositors
are residents of Washington. Deposits are attracted from within Everett Mutual
Bank's market area through the offering of a broad selection of deposit
instruments, including checking accounts, money market deposit accounts, savings
accounts and certificates of deposit. Deposit account terms vary according to
the minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors. In determining the terms of its
deposit accounts, Everett Mutual Bank considers current market interest rates,
profitability to Everett Mutual Bank, matching deposit and loan products and its
customer preferences and concerns. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
At March 31, 1999 Mutual Bancshares had $40.4 million of jumbo
certificates of deposit, including $1.9 million in public unit funds, which
represents 0.5% of total deposits at March 31, 1999. Everett Mutual Bank is also
authorized to utilize brokered deposits as a funding source, but has not done so
to date. Management believes that its jumbo certificates of deposit and the use
of brokered deposits present similar interest rate risk to its other deposit
products.
In the unlikely event Everett Mutual Bank is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts prior to any payment being made to EverTrust Financial Group, Inc., as
the sole stockholder of Everett Mutual Bank. See "Mutual Bancshares' Conversion
- -- Effects of Conversion to Stock Form on Depositors and Borrowers of Everett
Mutual Bank -- Liquidation Rights."
65
<PAGE>
The following table sets forth information concerning Mutual
Bancshares' time deposits and other interest-bearing deposits at March 31, 1999.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- -------- ---- -------- ------ ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
0.0% N/A Non-interest bearing accounts $ 7,782 $ -- 2.1%
2.8 N/A Savings accounts 11,798 300 3.1
2.6 N/A Checking accounts 33,655 300 9.0
4.2 N/A Money market deposit accounts 133,748 1,000 35.6
Certificates of Deposit
4.8 1-11 months Fixed-term, fixed-rate 32,660 500 8.7
5.2 12-23 months Fixed-term, fixed-rate 62,536 500 16.6
5.5 24-35 months Fixed-term, fixed-rate 23,767 500 6.3
5.7 36-59 months Fixed-term, fixed-rate 19,461 500 5.2
6.2 60-84 months Fixed-term, fixed rate 50,489 500 13.4
-------- -----
TOTAL $375,896 100.0%
======== =====
</TABLE>
The following table indicates the amount of Mutual Bancshares' jumbo
certificates of deposit by time remaining until maturity as of March 31, 1999.
Jumbo certificates of deposit are certificates in amounts of $100,000 or more.
Certificates
Maturity Period of Deposits
--------------- -------------
(In thousands)
Three months or less................. $ 9,222
Over three through six months........ 8,561
Over six through twelve months....... 10,691
Over twelve months................... 11,959
--------
Total............................ $40,433
=======
66
<PAGE>
Deposit Flow
The following table sets forth the balances of savings deposits in the
various types of savings accounts offered by Mutual Bancshares at the dates
indicated.
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------------------- ------------------------------
Percent of Percent of Increase Percent of Increase
Amount Total Amount Total (Decrease) Amount Total (Decrease)
--------- ---------- -------- ---------- ---------- -------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings accounts.................... $ 11,798 3.14% $ 10,510 2.99% $ 1,288 $ 10,830 3.28% $ 968
Demand deposit accounts............. 41,437 11.02 37,422 10.66 4,015 32,683 9.91 8,754
Money market deposit accounts....... 133,748 35.58 122,969 35.05 10,779 110,910 33.64 22,838
Fixed-rate certificates which
mature in the year ending:
Within 1 year..................... 125,923 33.50 112,290 31.99 13,905 108,532 32.91 17,663
After 1 year, but within
2 years..................... 28,186 7.50 33,881 9.65 (5,961) 28,900 8.76 (980)
After 2 years, but within
5 years..................... 32,241 8.58 31,769 9.05 678 37,039 11.23 (4,952)
Certificates maturing
thereafter.................. 2,563 0.68 2,130 0.61 221 876 0.27 1,475
-------- ------ -------- ------ ------- -------- ------ -------
Total.......................... $375,896 100.00% $350,971 100.00% $24,925 $329,770 100.00% $46,126
======== ====== ======== ====== ======= ======== ====== =======
</TABLE>
67
<PAGE>
Deposit Accounts
Deposit accounts consisted of the following at March 31, 1999.
Weighted
Average Rate 1999 1998
at March 31, --------------- ---------------
1999 Amount % Amount %
------------ -------- ----- -------- -----
Noninterest-bearing accounts.. --% $ 7,782 2.1% $ 6,064 1.7%
Savings accounts.............. 2.8 11,798 3.1 10,510 3.0
Checking accounts............. 2.6 33,655 9.0 31,358 8.9
Money market accounts......... 4.2 133,748 35.6 122,969 35.1
Time deposits:
1 to 11 months............. 4.8 32,660 8.7 26,665 7.6
12 to 23 months............ 5.2 62,536 16.6 59,723 17.0
24 to 35 months............ 5.5 23,767 6.3 23,191 6.6
36 to 59 months............ 5.7 19,461 5.2 19,986 5.7
60 to 84 months............ 6.2 50,489 13.4 50,505 14.4
---- -------- ----- -------- -----
5.5 188,913 50.2 180,070 51.3
---- -------- ----- -------- -----
4.6% $375,896 100.0% $350,971 100.0%
=== ======== ===== ======== =====
Time Deposits by Rates
The following table sets forth the time deposits of Mutual Bancshares
classified by rates as of the dates indicated.
At March 31,
--------------------------------------------------
1999 1998 1997
------------ ------------- -----------
(Dollars in thousands)
0.00 - 0.99%............... $ 273 $ -- $ 100
1.00 - 1.99%............... 1 -- --
2.00 - 2.99%............... 374 123 181
3.00 - 3.99%............... 79 111 --
4.00 - 4.99%............... 44,666 109 392
5.00 - 5.99%............... 106,603 135,244 118,698
6.00 - 6.99%............... 33,282 40,272 51,397
7.00 - 7.99%............... 3,621 4,198 4,555
8.00 - 8.99%............... 14 13 24
-------- -------- --------
Total................. $188,913 $180,070 $175,347
======== ======== ========
68
<PAGE>
The following table sets forth the amount and maturities of time
deposits at March 31, 1999.
Amount Due
------------------------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years Total
--------- ------- ------- ------- ------- --------
(Dollars in thousands)
0.00 - 0.99%...... $ 223 $ 50 $ -- $ -- $ -- $ 273
1.00 - 1.99%...... 1 -- -- -- -- 1
2.00 - 2.99%...... 374 -- -- -- -- 374
3.00 - 3.99%...... 79 -- -- -- -- 79
4.00 - 4.99%...... 42,432 1,815 381 7 31 44,666
5.00 - 5.99%...... 64,398 20,418 7,868 5,796 8,123 106,603
6.00 - 6.99%...... 14,975 5,709 4,605 4,822 3,171 33,282
7.00 - 7.99%...... 3,427 194 -- -- -- 3,621
8.00 - 8.99%...... 14 -- -- -- -- 14
--------- ------- ------- ------- ------- --------
Total........ $125,923 $28,186 $12,854 $10,625 $11,325 $188,913
======== ======= ======= ======= ======= ========
Deposit Activities
The following table sets forth the savings activities of Mutual
Bancshares for the periods indicated.
Year Ended March 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
Net deposits (withdrawals) before
interest credited.................. $ 8,170 $ 4,720 $ (507)
Interest credited....................... 16,755 16,481 15,629
-------- -------- --------
Net increase (decrease) in deposits..... 24,925 21,201 15,122
-------- -------- --------
Ending balance.......................... $375,896 $350,971 $329,770
======== ======== ========
Borrowings
Savings deposits are the primary source of funds for Everett Mutual
Bank's lending and investment activities and for general business purposes.
Everett Mutual Bank has the ability to use advances from the Federal Home Loan
Bank of Seattle to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The Federal Home Loan Bank of Seattle functions as a
central reserve bank providing credit for savings and loan associations and
certain other member financial institutions. As a member of the Federal Home
Loan Bank of Seattle, Everett Mutual Bank is required to own capital stock in
the Federal Home Loan Bank of Seattle and is authorized to apply for advances on
the security of such stock and certain of its mortgage loans and other assets
(principally securities which are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met. Advances
are made pursuant to several different credit programs. Each credit program has
its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based on the financial condition of
the member institution and the adequacy of collateral pledged to secure the
credit. At March 31, 1999, Everett Mutual Bank maintained a committed credit
facility with the Federal Home Loan Bank of Seattle that provided for
immediately available advances up to an aggregate of 20% of total assets, or
$85.3 million, of which $18.9 million was outstanding. In addition, Everett
Mutual Bank has a $10 million unsecured Fed Funds line from a commercial bank at
March 31, 1999, of which none was outstanding.
69
<PAGE>
Everett Mutual Bank may engage, as one of its capital management
strategies to leverage its extra capital, in wholesale leveraging to leverage
the strong post-conversion capital provided attractive arbitrage opportunities
exist and depending upon the retail banking activity and capitalization. Everett
Mutual Bank will consider and/or undertake such a leverage strategy only after a
complete review of any applicable regulatory requirements or restrictions that
may be imposed upon it as a result of the intended leveraging strategy. The
decision to implement such a leverage strategy will only be taken following this
review. Such borrowings are expected to primarily consist of Federal Home Loan
Bank advances or reverse repurchase agreements. Everett Mutual Bank may consider
limited wholesale leveraging prior to the offering to reduce the exposure of
investing such a large amount of funds at any one point in the interest rate
cycle.
The following table sets forth certain information regarding Federal
Home Loan Bank advances by Mutual Bancshares at the end of and during the
periods indicated. The table includes both short-term and long-term borrowings
unless noted otherwise.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------
1999 1998 1997
------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding at any month end..... $20,954 $20,052 $24,106
Approximate average borrowings outstanding with respect to.... $16,215 $18,003 $20,682
Approximate weighted average rate paid on..................... 6.30% 6.32% 6.26%
Balance outstanding at end of period.......................... $18,949 $15,503 $20,057
Weighted average rate paid on................................. 6.19% 6.37% 6.27%
</TABLE>
Competition
Everett Mutual Bank operates in an intensely competitive market for the
attraction of savings deposits, which is its primary source of funds, and in the
origination of loans. Historically, its most direct competition for savings
deposits has come from credit unions, mutual funds and, to a lesser extent,
community banks, large commercial banks and thrift institutions in its primary
market area. Particularly in times of extremely low or extremely high interest
rates, Everett Mutual Bank has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. Everett Mutual Bank's competition for loans comes
principally from mortgage bankers, commercial banks, other thrift institutions
and insurance companies. Such competition for deposits and the origination of
loans may limit Everett Mutual Bank's future growth and earnings prospects.
Subsidiary Activities
Everett Mutual Bank maintains three subsidiaries including Sound
Financial, Inc., Colby Crest Partners, L.P. and Alpine Ridge Associates, L.P.
Sound Financial, Inc. has two principal activities: Sound Financial, Inc., which
owns the Arlington Branch and leases the facility back to Everett Mutual Bank;
and Sound Financial, Inc., through a turnkey contract with Invest Financial
Services, sells annuities and mutual funds. Sound Financial, Inc. currently
operates with one full time and one part-time registered investment
representative.
70
<PAGE>
Colby Crest Partners, L.P. is a partnership formed in 1992 to construct
and operate a 66 unit low income housing project in downtown Everett. The
project was financed, in part, by housing tax credits which are received by
Colby Crest Partners, L.P. over a ten year period. At March 31, 1999, Everett
Mutual Bank's book value in Colby Crest Partners, L.P. was $284,400. The
estimated remaining tax credit receivable equals $543,000, if fully realized.
Alpine Ridge Associates, L.P. was formed in 1993 by Everett Mutual Bank
and Key Bank of Washington to construct and operate a 60 unit low income
retirement apartment in Mount Vernon, Washington. The project was financed, in
part, by housing tax credits which are received by Alpine Ridge Associates, L.P.
over a ten year period. At March 31, 1999, Everett Mutual Bank's book value in
Alpine Ridge Associates, L.P. was $90,900. The estimated tax credit receivable
equals $345,000, if fully realized.
Commercial Bank of Everett and I-Pro do not have any active
subsidiaries and none are contemplated at the present time. Mutual Bancshares
Capital, Inc. will have an interest in a partnership formed for the purpose of
providing capital to start-up technology companies. See "Business of Mutual
Bancshares Capital, Inc."
Charitable Foundation
The Everett Mutual Foundation is a charitable organization established
in 1990 and funded by Everett Mutual Bank and Mutual Bancshares. At March 31,
1999, Everett Mutual Foundation had $3.2 million in assets. The assets,
liabilities, income and expenses of the Foundation are not included in the
consolidated financial statements as they are not part of Mutual Bancshares.
Earthquakes
Snohomish, King and Pierce Counties, where substantially all of the
real and personal properties securing Everett Mutual Bank's loans are located,
is an earthquake-prone region. A major earthquake could result in material loss
to Everett Mutual Bank in two primary ways. First, while Everett Mutual Bank
maintains adequate insurance coverage on its own properties, if an earthquake
damages real or personal properties collateralizing outstanding loans to the
point of insurable loss, material loss would be suffered to the extent that the
properties are uninsured or inadequately insured. Additionally, a substantial
number of Everett Mutual Bank's borrowers do not have insurance which provides
for coverage due to losses from earthquakes. Second, if the collateralized
properties are only damaged and not destroyed to the point of total insurable
loss, borrowers may suffer sustained job interruption or job loss, which may
materially impair their ability to meet the terms of their loan obligations.
While risk of credit loss can be insured against by, for example, job
interruption insurance or "umbrella" insurance policies, such forms of insurance
often are beyond the financial means of many individuals. Accordingly, for most
individuals, sustained job interruption or job loss would likely result in
financial hardship that could lead to delinquency in their financial obligations
or even bankruptcy. Accordingly, no assurances can be given that a major
earthquake in Everett Mutual Bank's primary market area will not result in
material losses to Everett Mutual Bank.
71
<PAGE>
Properties
The following table sets forth certain information regarding Mutual
Bancshares' and its subsidiaries' offices at March 31, 1999.
<TABLE>
<CAPTION>
Net Book Value of
Leased Date of Total Property or Leasehold Total Deposits
or Year Lease Approximate Improvement at at March 31,
Location Owned Opened Expiration Square Footage March 31, 1999 1999
-------- ------- ------ ---------- ----------------- ------------------------ --------------
(In thousands) (In thousands)
Everett Mutual Bank
<S> <C> <C> <C> <C> <C> <C>
Administration Office Leased 1994 12/31/14 27,000(1) $ 748 $ 2,601
2707 Colby Avenue
Suite 600
Everett, WA 98201
Henry Cogswell College Leased 1991 7/31/11 6,351 -- --
Building Annex
Storage Facility
2801 Wetmore Ave.
Everett, WA 98201
Branch Offices:
Main Branch Leased 1994 12/31/14 6,000 Office 410 74,224
2707 Colby Avenue 4,000 Drive-thru
Suite A
Everett, WA 98201
Silver Lake Branch Owned 1972 N/A 2,916 1,200 46,760
1902 110th SE
Everett, WA 982008
Monroe Branch Owned 1973 N/A 1,917 259 37,598
214 East Main Street
Monroe, WA 98272
Stanwood Branch Owned 1998 N/A 3,000 1,460 3,956
26606 72nd Avenue NW
Stanwood, WA 98292
Madison Branch Owned 1976 N/A 2,708 613 44,430
6726 Evergreen Way
Everett, WA 98203
Marysville Branch Owned 1977 N/A 2,916 713 40,693
1300 State Avenue
Marysville, WA 98270
Snohomish Branch Leased 1990 6/30/15 2,788 410 33,230
1325 Avenue D
Snohomish, WA 98290
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Net Book Value of
Leased Date of Total Property or Leasehold Total Deposits
or Year Lease Approximate Improvement at at March 31,
Location Owned Opened Expiration Square Footage March 31, 1999 1999
- -------- ------ ------ ---------- -------------- --------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Arlington Branch Leased(2) 1981 1/1/06 2,883 255 20,026
535 North Olympic
Arlington, WA 98223
Arlington Branch Leased 1991 Month-to N/A -- --
Parking stalls (seven) month
adjacent to branch
535 North Olympic
Arlington, WA 98223
Lake Stevens Branch Leased 1989 8/27/09 2,685 249 31,931
633 Highway 9
Lake Stevens, WA 98258
North Creek Branch Leased 1989 5/31/03 1,863 150 16,423
18001 Bothell/Everett
Highway
Bothell, WA 98012
Smokey Point Branch Owned 1994 N/A 2,916 922 10,119
17021 Smokey Point Blvd.
Arlington, WA 98223
Commercial Bank of Leased 1996 12/31/04 2,747(3) 92 14,858
Everett
2707 Colby Ave.
Suite 715
Everett, WA 98201
I-Pro, Inc. Leased 1997 6/30/02 4,398 405 N/A
6838 S. 220th Street
Kent, WA 98032
Mutual Bancshares Leased 1998 10/31/03 1,413 20 N/A
Capital, Inc.
22020 17th Ave., SE
Suite 200
Bothell, WA 98021
</TABLE>
- --------------
(1) 27,000 square feet, of which 2,747 square feet is subleased by Commercial
Bank of Everett and 5,600 square feet is subleased by a third party.
(2) Leased from Sound Financial, Inc., a subsidiary of Everett Mutual Bank.
(3) Subleased from Everett Mutual Bank.
The net book value of property includes land, building and leasehold
improvements and furniture, fixtures and equipment.
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<PAGE>
Everett Mutual Bank also operates nine proprietary automated teller
machines that are part of a nationwide cash exchange network, all of which are
located at certain offices of Everett Mutual Bank.
Personnel
At March 31, 1999, Everett Mutual Bank had 110 employees. On that date,
Commercial Bank of Everett, Sound Financial, Inc., I-Pro and Mutual Bancshares
Capital, Inc. had six, one, six and two employees, respectively. The employees
are not represented by a collective bargaining unit and all companies believe
that the relationship with their employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
Everett Mutual Bank, such as claims to enforce liens, condemnation proceedings
on properties in which Everett Mutual Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incident to Everett Mutual Bank's business. Everett Mutual Bank is not a party
to any pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of Everett Mutual Bank.
BUSINESS OF COMMERCIAL BANK OF EVERETT
Commercial Bank of Everett's strategy is to operate as a
community-based financial institution primarily focused on serving the needs of
business banking customers with a high level of customer service. This strategy
is accomplished by providing banking services directly at the customer's place
of business, including lending and non-cash deposit activities, to the greatest
extent possible. Inasmuch, Commercial Bank of Everett does not directly compete
with Everett Mutual Bank's retail customer focus. Rather, Commercial Bank of
Everett and Everett Mutual Bank serve to complement each other through an
organized referral network that provides both banks with the opportunity for
increased business.
Commercial Bank of Everett's lending operations are focused on
commercial loans which are generally made to a wide variety of small businesses
and professionals in the local market. To a lesser extent, Commercial Bank of
Everett has also brokered commercial, multi-family and residential mortgage
loans to Everett Mutual Bank. Commercial Bank of Everett also purchases
participation interests in commercial, multi-family and residential mortgage
loans from Everett Mutual Bank under the same underwriting policies and
conditions as Everett Mutual Bank. To a lesser extent, Commercial Bank of
Everett originates consumer loans for real estate, automobiles, secured and
unsecured personal lines of credit and credit cards.
Business Lending
Commercial Bank of Everett originates business loans to small and
medium sized businesses in its primary market area. Business loans are generally
made to finance the purchase of seasonal inventory needs, new or used equipment,
and for short-term working capital. Such loans are generally secured by
equipment, accounts receivable and inventory, although business loans are
sometimes granted on an unsecured basis. Such loans are made for terms of seven
years or less, depending on the purpose of the loan and the collateral, with
loans to finance operating expenses made for one year or less, with interest
rates that adjust at least annually at a rate equal to the prime rate, as
published in The Wall Street Journal, plus a margin ranging from 0% to 3.50%. At
March 31, 1999, the business loans amounted to $7.9 million, or 58.9%, of
Commercial Bank of Everett's total loans and 2.1% of the total loans of Mutual
Bancshares.
At March 31, 1999, the largest outstanding business loan was a $725,000
equipment term loan to a door manufacturer. Such loan was performing according
to its terms at March 31, 1999.
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<PAGE>
Commercial Bank of Everett underwrites its business loans on the basis
of the borrower's cash flow and ability to service the debt from earnings rather
than on the basis of underlying collateral value, and Commercial Bank of Everett
seeks to structure such loans to have more than one source of repayment. The
borrower is required to provide Commercial Bank of Everett with sufficient
information to allow Commercial Bank of Everett to make its lending
determination. In most instances, this information consists of at least three
years of financial statements, tax returns, a statement of projected cash flows,
current financial information on any guarantor and any additional information on
the collateral. Generally, for loans with balances exceeding $100,000,
Commercial Bank of Everett requires that borrowers and guarantors provide
updated financial information at least annually.
Commercial Bank of Everett's business loans may be structured as term
loans or as lines of credit. Business term loans are generally made to finance
the purchase of long-lived assets and have maturities of five years or less.
Business lines of credit are typically made for the purpose of providing working
capital and are usually approved with a term of between six months and one year.
Commercial Bank of Everett provides borrowers with secured standby
letters of credit based on the same underwriting requirements and conditions as
described above. The letters of credit are backed by signed notes payable to
Commercial Bank of Everett for like terms of the letter of credit. International
letters of credit are offered through a correspondent bank who assumes credit
and payment risk on the instrument. The Commercial Bank of Everett receives a
fee from the borrower and the correspondent bank for arranging the international
letters of credit.
Business loans are often larger and may involve greater risk than other
types of lending. Because payments on such loans are often dependent on
successful operation of the business involved, repayment of such loans may be
subject to a greater extent to adverse conditions in the economy. Commercial
Bank of Everett seeks to minimize these risks through its underwriting
guidelines, which require that the loan be supported by adequate cash flow of
the borrower, profitability of the business, collateral and personal guarantees
of the individuals in the business. In addition, Commercial Bank of Everett
limits this type of lending to its market area.
Commercial and Multi-Family Mortgage Loans
Commercial Bank of Everett acts as a broker of commercial and
multi-family mortgage loans to Everett Mutual Bank for which Commercial Bank of
Everett receives a portion of the loan fee as compensation for the processing
and referral of the loan. From time to time, Commercial Bank of Everett also
purchases participation interests in commercial and multi-family loans from
Everett Mutual Bank to hold in its own portfolio for investment. Such purchases
are made under the same general underwriting policies and conditions as Everett
Mutual Bank. See "Business of Mutual Bancshares -- Lending Activities --
Multi-Family Lending" and "-- Commercial Real Estate Lending." Financing of
commercial and multi-family properties provides loan diversification for
Commercial Bank of Everett from a collateral and asset/liability perspective. As
such, the financing of these types of loans is expected, subject to market
conditions, to continue to remain a part of Commercial Bank of Everett's loan
portfolio. As of March 31, 1999, commercial and multi-family mortgage loans
totaled $1.5 million and $389,000, respectively and together equaled 13.8% of
total loans. The majority of loans are for either commercial or mixed-use
structures and many are owner occupied. Commercial and multi-family loans are
generally extended for up to a 75% loan to value ratio and require a debt
service coverage of at least 1.30 and 1.20 times, respectively.
Residential Mortgage Loans
Residential mortgage loans are primarily offered to Commercial Bank of
Everett's business and consumer customers as an accommodation, and may
frequently have a business related purpose (i.e., working capital for a sole
proprietor is one example). Commercial Bank of Everett also acts a broker of
residential mortgage loans to Everett Mutual Bank for which Commercial Bank of
Everett receives a portion of the fee as compensation for processing and
referral of the loan. From time to time, Commercial Bank of Everett may also
purchase
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<PAGE>
participation interests in residential loans from Everett Mutual Bank to hold in
its own portfolio for investment. Such purchases are made under the same general
underwriting policies and conditions as Everett Mutual Bank. See "Business of
Mutual Bancshares -- Residential One- to Four-Family Lending." Financing of
residential mortgage loans provides loan diversification for Commercial Bank of
Everett from a collateral and asset/liability management perspective. As such,
subject to market conditions, the financing of this type is expected to continue
to remain a part of Commercial Bank of Everett's loan portfolio The residential
mortgage portfolio consists of equal amounts of home equity lines of
credit/second mortgage loans and first mortgage loans. Lines of credit equaled
$965,000 or 7.2% of total loans at March 31, 1999, while permanent residential
mortgage loans totaled $1.1 million or 8.1% of total loans.
Consumer Loans
Consumer loans consist of installment loans for boats, autos and other
purposes and includes a modest balance of credit card loans. Consumer loans
(other than credit card loans) are underwritten using the same guidelines as
Everett Mutual Bank. See "Business of Mutual Bancshares -- Consumer Lending." As
of March 31, 1999, consumer loans, excluding credit card loans, totaled $1.1
million or 8.0% of total loans. At March 31, 1999 there was one $7,300 consumer
loan 90 days or more past due and in nonaccrual status. The loan is unsecured,
but adequately protected by the paying capacity of the guarantor.
Credit card loans are underwritten using suggested Independent
Community Bankers Association guidelines, credit scoring and financial statement
analysis. Credit cards are issued primarily to Commercial Bank of Everett's
business customers. At March 31, 1999 the credit card portfolio consisted of
business credit lines of $345,000 and personal credit card lines of $186,000 for
a total of $531,000 or 3.9% of total loans. Commercial Bank of Everett also
receives credit card applications referred from Everett Mutual Bank branches.
Credit card loans entail greater risk than do other loans especially given their
unsecured status. Commercial Bank of Everett attempts to limit this risk by
adhering to sound underwriting and collection practices, although there can be
no assurances that these will prevent credit card losses. At March 31, 1999 no
credit card loans were 90 days or more past due or in nonaccrual status.
Nonperforming Assets and Delinquencies
Commercial Bank of Everett generally assesses late fees or penalty
charges on delinquent loans of 5% of the payment amount. Substantially all
business loan payments are due 30 days from disbursement and each 30 days
thereafter; however, the borrower is given a 10 day grace period to make the
loan payment. Delinquent business loans are monitored on a weekly basis until
the delinquency is resolved to management's satisfaction. When a consumer loan
borrower fails to make a required payment on a consumer loan by the payment due
date, Commercial Bank of Everett generally institutes the same collection
procedures as for its business loan borrowers.
Commercial Bank of Everett's Board of Directors is informed monthly as
to the status of all loans that are delinquent by more than 90 days or on
nonaccrual, the status on all loans currently in foreclosure or repossession,
and the status of all foreclosed and repossessed property owned by Commercial
Bank of Everett.
Deposit Accounts
Commercial Bank of Everett's deposit base is primarily comprised of
relatively even percentages of non-interest bearing business deposits, money
market deposit accounts and time deposits. As the Commercial Bank of Everett's
operating tenure lengthens, business deposits are anticipated to make up a
greater overall portion of the deposit mix, although this cannot be assured.
Commercial Bank of Everett also offers its business customers the option to
sweep excess account balances in non-interest bearing accounts into non-FDIC
insured money market funds which allows the customer to earn interest on
invested balances. The Commercial Bank of Everett receives a 12b-1 fee from the
mutual fund company for providing this service. Deposits are solicited from
within Commercial Bank of Everett's market area through existing customers and
limited outside advertising. While not
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<PAGE>
intending to compete directly with Everett Mutual Bank for time deposit
accounts, customers of Everett Mutual Bank may be referred to Commercial Bank of
Everett in those cases were the customer desires more complete FDIC deposit
insurance coverage for their funds since both Commercial Bank of Everett and
Everett Mutual Bank are separately insured by the FDIC.
Borrowings
Deposits are the primary source of funds for Commercial Bank of
Everett's lending and investment activities and for general business purposes.
Commercial Bank of Everett has the ability to use advances from the Federal Home
Loan Bank of Seattle to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. The Federal Home Loan Bank of Seattle functions
as a central reserve bank providing credit for savings and loan associations and
certain other member financial institutions. As a member of the Federal Home
Loan Bank of Seattle, Commercial Bank of Everett is required to own capital
stock in the Federal Home Loan Bank of Seattle and is authorized to apply for
advances on the security of such stock and certain of its mortgage loans and
other assets (principally securities which are obligations of, or guaranteed by,
the U.S. Government) provided certain creditworthiness standards have been met.
Advances are made pursuant to several different credit programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit.
Commercial Bank of Everett's use of borrowings has been relatively
limited and primarily for the purpose of supplementing deposit flows and loan
fundings. Commercial Bank of Everett maintains a funding line at the Federal
Home Loan Bank of Seattle equal to 5% of total assets or $990,300, none of which
was outstanding. Commercial Bank of Everett also has available an unsecured
letter of credit line of $250,000 and an unsecured federal funds lines of credit
of $500,000 from a commercial bank in addition to a $2.5 million unsecured
federal funds line of credit from Everett Mutual Bank. As of March 31, 1999, the
only borrowing outstanding consisted of federal funds totaling $2.1 million from
Everett Mutual Bank, which is eliminated in the Consolidated Financial
Statements.
BUSINESS OF I-PRO, INC.
I-Pro was formed in April 1997 by Mutual Bancshares to provide item
processing and information services to banking and nonbanking companies. I-Pro's
objective is to provide superior backroom banking services for Everett Mutual
Bank and Commercial Bank of Everett, and to other financial institutions who are
seeking to provide a high level of service to their customers. I-Pro's focus is
to provide customized service and personal attention thereby providing the
benefits of an in-house system while: (1) eliminating a portion of the burden of
providing administrative oversight of an in-house system; and (2) spreading the
expense of such a system over a larger base.
I-Pro's intent is not to provide cut-rate processing for its clients.
Rather, it is to enhance these functions by providing an array of services built
around the imaging capabilities, from research to item processing to customized
statements to Internet product delivery. As in many industries, too often the
superior service in banking is limited to the branches and "up front" areas,
while the backroom operations struggle to keep service promises and hold costs
down. I-Pro is designed to complement the front line by giving the backroom
speed, flexibility and a greater array of resources all centered about a common
goal: providing customized banking services of the highest quality, at all
levels.
Products and Services
Mailing Automation. I-Pro is in the process of becoming certified for
manifest mailing by the U.S. Post Office. While automation processing will allow
the best possible postal rates for image statement customers, it also
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<PAGE>
allows utilization of technology to eliminate the common statement problems
(hand stuffing, missing items, items in the wrong statement envelope, etc.). The
printing and mailing process allows the statement to go from printer to
intelligent inserter quickly and efficiently. This process makes it possible for
I-Pro to complete mailing cycles two business days after receiving the statement
files, and three business days after quarter end mailings.
Item and Image Processing. I-Pro performs all item-processing functions
and has utilized an imaging system that significantly reduces the number of
times an item is passed through a machine. Also, as a result of the database it
utilizes, image research is very fast and is highly adaptable. For the long
term, images are stored in a way that provides for rapid retrieval, especially
compared to the microfiche and microfilm methods. For clients taking advantage
of I-Pro's full transaction processing features, this makes it possible to
retrieve complete transaction images at any point in the future. Additionally,
since the image system is not proprietary, these images can be viewed using the
image viewer shipped with standard computer systems.
BUSINESS OF MUTUAL BANCSHARES CAPITAL, INC.
Overview
Mutual Bancshares Capital, Inc. was formed in October 1998. Mutual
Bancshares Capital, Inc. is a member of Bancshares Capital Management, LLC,
which serves as General Partner to Bancshares Capital, L.P., an early stage
venture fund providing equity to regionally based high technology and medical
instrumentation companies. Bancshares Capital, L.P. is applying for licensing by
the U.S. Small Business Administration as a small business investment company
(SBIC) . Bancshares Capital, L.P. anticipates a fund size of $5.0 million to
$7.0 million, $2.3 million of which will be invested by Mutual Bancshares
Capital, Inc. Subsequent venture funds of similar or larger size are anticipated
to be formed in the future. A number of Company directors and officers of Mutual
Bancshares Capital, Inc. may also be limited partners.
Investment Strategy
Bancshares Capital, L.P. will provide equity to regionally based high
technology and medical instrumentation companies in the seed, start-up and early
stages of development. Bancshares Capital, L.P. will closely monitor and, if
possible, add value to those investments, with successful ventures returning
cash to the fund over an anticipated three to seven year time frame. It is
anticipated that liquidity of the investment will result from acquisition of
securities by a strategic partner, merger or acquisition of the subject
investment, or by sale of the subject investment in the public markets following
an initial public offering. It is anticipated that the investment in any single
company will be in the range of $100,000 to $1.0 million and Bancshares Capital,
L.P. may co-invest with other entrepreneurs or venture funds as needed or
desired.
Targeted Market
Bancshares Capital, L.P. will be seeking to deploy its venture funds
primarily in the Technology Corridor in the Seattle Metropolitan Area although
opportunities within the Pacific Northwest may be examined on a limited basis.
The corridor that encompasses I-405 and I-5 from Bellevue to Everett is home to
over 300 technology companies, has outstanding support services, is within close
proximity to university and other research institutions and has been the
location of many high technology and medical instrumentation companies
start-ups. While there will be no specific bias toward any one industry,
Bancshares Capital, L.P. expects to invest in companies whose technologies
involve software and digital media, environmental science, medical devices,
telecommunications and internet-related technologies among others.
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Structure of the Partnership Investments
Mutual Bancshares Capital, Inc. has formed Bancshares Capital, L.P.,
which will act as general partner and Bancshares Capital, L.P. will sell limited
partnership interests in the venture fund. In its role as general partner,
Mutual Bancshares Capital, Inc. will receive a 2% management fee plus 20% of the
carried interest (i.e., 3% of the profits of the fund). Mutual Bancshares
Capital, Inc. will contribute 31% of the capital and have a 31% equity interest
in Bancshares Capital, L.P. while the balance of funds and ownership will be
derived from and distributed to the outside limited partners.
Anticipated Timing of Investments
Subject to market conditions and other factors, Bancshares Capital,
L.P. is targeting to make investments equal to $1.0 million in the first year,
$2.4 million in the second year and $3.0 million in the third year of operation.
As discussed above, Mutual Bancshares Capital, Inc.'s capital contribution will
be equal to 31% of the above amounts.
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MANAGEMENT OF EVERTRUST FINANCIAL GROUP, INC.
EverTrust Financial Group, Inc.'s board of directors consists of nine
persons divided into three classes, with approximately one-third of the
directors elected at each annual meeting of stockholders. One class, consisting
of Margaret B. Bavasi, Thomas J. Gaffney and R. Michael Kight, has a term of
office expiring at the first annual meeting of stockholders after their initial
election by stockholders; a second class, consisting of Michael B. Hansen,
George S. Newland and William J. Rucker, has a term of office expiring at the
second annual meeting of stockholders after their initial election by
stockholders; and a third class, consisting of Thomas R. Collins, Michael R.
Deller and Robert A. Leach, Jr., has a term of office expiring at the third
annual meeting of stockholders after their initial election by stockholders.
EverTrust Financial Group, Inc.'s executive officers are elected
annually and hold office until death, resignation or removal by the board of
directors. The executive officers are:
Executive Position
- --------- --------
Michael B. Hansen President and Chief Executive Officer
Jeffrey R. Mitchell Senior Vice President, Chief Financial Officer
and Treasurer
Lorelei Christenson Senior Vice President and Corporate Secretary
Information concerning the principal occupations, employment and
compensation of the directors and executive officers of EverTrust Financial
Group, Inc. is set forth under "-- Management of Everett Mutual Bank" and "--
Executive Officers Who Are Not Directors."
MANAGEMENT OF EVERETT MUTUAL BANK
The board of directors of Everett Mutual Bank presently consists of
nine directors divided into three classes, with approximately one-third of the
directors elected at each annual meeting of stockholders. Because EverTrust
Financial Group, Inc. will own all the issued and outstanding capital stock of
Everett Mutual Bank upon the conversion and stock issuance, the board of
directors of EverTrust Financial Group, Inc. will elect the directors of Everett
Mutual Bank.
Directors
<TABLE>
<CAPTION>
Current
Director Term
Name Age(1) Position with Everett Mutual Bank Since Expires
- ---- ------ --------------------------------- -------- -------
<S> <C> <C> <C> <C>
Margaret B. Bavasi(2) 44 Chairman of the Board 1996 2000
Thomas R. Collins 56 Director 1994 2000
Michael R. Deller(2)(3) 48 Executive Vice President, Chief Operating 1999 2001
Officer and Director
Thomas J. Gaffney(4) 51 Director 1984 2000
Michael B. Hansen(2)(3)(4)(5) 57 President, Chief Executive Officer and 1981 2002
Director
R. Michael Kight(2) 60 Director 1974 2001
Robert A. Leach, Jr.(4) 49 Director 1997 2002
George S. Newland(2) 59 Director 1985 2001
William J. Rucker(2) 59 Director 1976 2002
</TABLE>
(footnotes on following page)
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- ------------
(1) As of March 31, 1999.
(2) Also serves as a Director of Commercial Bank of Everett.
(3) Also serves as a Director of I-Pro, Inc.
(4) Also serves as a Director of Mutual Bancshares Capital, Inc.
(5) Also serves as Chief Executive Officer and Director of Commercial Bank of
Everett.
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age(1) Position with Everett Mutual Bank
- ---- ----- ---------------------------------
<S> <C> <C>
Lorelei Christenson(2) 45 Senior Vice President, Chief Information Officer and Secretary
Terry L. Cullom(3) 56 Vice President and Credit Administrator
Jeffrey R. Mitchell(4) 40 Senior Vice President, Chief Financial Officer and Treasurer
Dale A. Lyski 61 President and Director of Commercial Bank of Everett
John E. Thoresen 48 President of Mutual Bancshares Capital, Inc.
</TABLE>
- -------------------
(1) As of March 31, 1999.
(2) Also serves as Senior Vice President, Chief Information Officer and
Corporate Secretary of Commercial Bank of Everett; President and Director
of I-Pro, Inc.; and Senior Vice President and Corporate Secretary of Mutual
Bancshares Capital, Inc.
(3) Also serves as Vice President and Credit Administrator of Commercial Bank
of Everett
(4) Also serves as Senior Vice President and Cashier of Commercial Bank of
Everett; Senior Vice President, Chief Financial Officer, Treasurer and
Director of I-Pro, Inc.; and Senior Vice President, Chief Financial Officer
and Treasurer of Mutual Bancshares Capital, Inc.
Biographical Information
The principal occupation of each of the above individuals for the past
five years, as well as other information, is set forth below. All of the
individuals reside in Everett, Washington, unless otherwise indicated. No family
relationships exist among the individuals except as otherwise noted.
Margaret B. Bavasi is the former co-owner of the Everett AquaSox
Baseball Club, a minor league baseball club. She served as the Club's Vice
President from 1984 to 1999.
Thomas R. Collins is an attorney and a Partner in the Anderson Hunter
Law Firm, P.S., which firm he has been associated with for 30 years. Mr. Collins
is the brother-in-law of Michael R. Deller, the Executive Vice President and
Chief Operating Officer of Everett Mutual Bank. He resides in Mukilteo,
Washington.
Michael R. Deller has been Executive Vice President and Chief Operating
Officer of Everett Mutual Bank since 1997 and is responsible for branch
administration, marketing and sales. From 1994 to 1997, Mr. Deller was the
Executive Director of the Port of Everett. Prior to that, Mr. Deller was the
director of the first congressional district under U.S. Representative Maria
Cantwell. Mr. Deller is the brother-in-law of Thomas R. Collins. He resides in
Mukilteo, Washington.
Thomas J. Gaffney is the Managing Partner of the Everett office of Moss
Adams LLP, a certified public accounting firm, with which he has been associated
for 30 years.
Michael B. Hansen is President and Chief Executive Officer of Everett
Mutual Bank and Chief Executive Officer of Commercial Bank of Everett. Mr.
Hansen has been employed by Everett Mutual Bank for 20 years. He resides in
Mukilteo, Washington.
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<PAGE>
R. Michael Kight is an attorney and a Partner in the law firm of
Newton-Kight, L.L.P., which he joined 32 years ago. The firm serves as general
counsel to Everett Mutual Bank and Commercial Bank of Everett. Mr. Kight resides
in Marysville, Washington.
Robert A. Leach, Jr. is an investment executive and senior vice
president and branch manager of Ragen Mackenzie, Inc., a financial services
company. Mr. Leach has worked in the financial services industry for 17 years.
He resides in Mukilteo, Washington.
George S. Newland is the President and owner of Newland Const. Co.,
Inc., a general contracting company specializing in commercial, industrial and
institutional projects in the greater Northwest area. Mr. Newland has over 37
years of experience in the construction area.
William J. Rucker is the Chief Executive Officer and owner of H&L
Sporting Goods and Soccer West, retail and institutional sporting goods
businesses.
Lorelei Christenson is Senior Vice President, Chief Information Officer
and Corporate Secretary of Everett Mutual Bank, positions she has held since
1984. Ms. Christenson has served Everett Mutual Bank in various capacities since
1973.
Terry L. Cullom has been Vice President and Credit Administrator of
Everett Mutual Bank since 1992. Mr. Cullom has over 30 years of experience in
lending. He resides in Kirkland, Washington.
Jeffrey R. Mitchell is Senior Vice President, Treasurer and Chief
Financial Officer of Everett Mutual Bank, positions he has held since 1988. He
resides in Mukilteo, Washington.
Dale A. Lyski is President and Chief Operating Officer of Commercial
Bank of Everett, positions he has held since 1996. Prior to that, Mr. Lyski was
Executive Vice President of Everett Mutual Bank from 1989 to 1996. Mr. Lyski has
served Everett Mutual Bank in various capacities since 1986.
John E. Thoresen is President of Mutual Bancshares Capital, Inc., a
position he has held since September 1998. Prior to that time, Mr. Thoresen was
employed by the Economic Development Council of Snohomish County, Inc., a
regional nonprofit business development organization, from 1986 to September
1998. Mr. Thoresen resides in Edmonds, Washington.
Directors' Compensation
All directors receive an annual retainer of $10,000 paid quarterly in
increments of $2,500. Also, all directors, other than the Chairman of the Board,
receive a fee of $550 per board meeting attended and $220 per committee meeting
attended. The Chairman of the Board receives a fee of $660 per board meeting
attended and the chairman of each committee receives $275 per committee meeting
attended. Total fees paid to directors during the year ended March 31, 1999 were
$230,151. Following consummation of the conversion, directors' fees will
continue to be paid by EverTrust Financial Group, Inc.
Meetings and Committees of the Board of Directors
Mutual Bancshares. Mutual Bancshares' board of directors meets
quarterly and has special meetings as needed. During the year ended March 31,
1999, the Board held eight meetings. No director attended fewer than 75% of the
total meetings of the board of directors during this period. Mutual Bancshares
maintains an Executive Committee composed of directors Collins, Gaffney, Leach,
Hansen and Rucker. The Executive Committee meets in between regular quarterly
board meetings.
Everett Mutual Bank. Everett Mutual Bank's Board of Directors meets
monthly and has special meetings as needed. During the year ended March 31,
1999, the Board of Directors met 16 times. No director
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attended fewer than 75% of the total meetings of the board and committees on
which such board members served during this period.
The Executive Committee of Everett Mutual Bank, comprised of Directors
Bavasi, Collins and Leach, sets board policies and reviews the performance and
salary of Everett Mutual Bank's Chief Executive Officer. In fiscal 1999, this
Committee met twice.
The Loan Review Committee of Everett Mutual Bank, comprised of
Directors Bavasi, Collins, Kight and Newland, meets monthly. This Committee
monitors Everett Mutual Bank's lending practices and policies. In fiscal 1999,
this Committee met 13 times.
The Audit and Budget Committee of Everett Mutual Bank, comprised of
Directors Leach, Gaffney and Rucker, meets monthly. This Committee reviews
internal auditing functions and establishes policies to assure full disclosure
of Everett Mutual Bank's financial condition. This Committee also oversees the
audit prepared by an external audit firm and the results of the examinations of
the Federal Deposit Insurance Corporation and the Washington Division of Banks.
In fiscal 1999, this Committee met 12 times.
The Investment Committee of Everett Mutual Bank, comprised of Directors
Kight, Leach, Rucker and Newland, meets quarterly. This Committee reviews the
liquidity investments of Everett Mutual Bank. In fiscal 1999, this Committee met
four times.
The Nominating Committee of Everett Mutual Bank, comprised of Directors
Bavasi, Gaffney, Hansen and Leach, meets as necessary. This Committee reviews
and investigates potential board members when there is a vacancy on the board.
In fiscal 1999, this Committee met twice.
The entire board of directors of Everett Mutual Bank determines the
salaries to be paid to officers and employees of Everett Mutual Bank, based on
recommendations of the chief executive officer. The board of directors met once
during fiscal 1999 to discuss such salary matters.
Commercial Bank of Everett. Commercial Bank of Everett held 13 meetings
of its board of directors during the year ended March 31, 1999. Commercial Bank
of Everett has audit, investment and loan committees. All committee meetings are
held with regular board meetings, with all board members in attendance.
Executive Compensation
Summary Compensation Table. The following table sets forth a summary of
certain information concerning the compensation paid by Everett Mutual Bank,
including amounts deferred to future periods by the officers, for services
rendered in all capacities during the fiscal year ended March 31, 1999 to its
President and Chief Executive Officer and the five other highest compensated
executive officers.
<TABLE>
<CAPTION>
Annual Compensation(1)
---------------------------------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus(2) Compensation(3) Compensation(4)
- -------- ---- ------ -------- --------------- --------------
<S> <C> <C> <C> <C>
Michael B. Hansen 1999 $185,000 $72,000 -- $7,949
President and Chief Executive Officer
of Mutual Bancshares and Everett
Mutual Bank; Chief Executive Officer
of Commercial Bank of Everett
</TABLE>
(table continued on following page)
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<TABLE>
<CAPTION>
Annual Compensation(1)
--------------------------------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus(2) Compensation(3) Compensation(4)
- -------- ---- ------ -------- --------------- --------------
<S> <C> <C> <C> <C>
Michael R. Deller 1999 $120,000 $ 51,000 -- $ 4,723
Executive Vice President and Chief
Operating Officer of Everett
Mutual Bank
Jeffrey R. Mitchell 1999 90,000 36,000 -- 3,912
Senior Vice President, Chief Financial
Officer and Treasurer of Mutual
Bancshares, Everett Mutual Bank,
Commercial Bank of Everett, I-Pro,
Inc. and Mutual Bancshares Capital,
Inc.
Dale A. Lyski 1999 100,019 19,000 -- 4,405
President and Chief Operating Officer
of Commercial Bank of Everett
Lorelei Christenson 1999 90,000 29,000 -- 3,893
Senior Vice President, Chief Information
Officer and Corporate Secretary of
Mutual Bancshares, Everett Mutual Bank,
Commercial Bank of Everett, and Mutual
Bancshares Capital, Inc.; President of
I-Pro, Inc.
Terry Cullom 1999 81,000 20,000 -- 3,515
Vice President and Credit Administrator
of Everett Mutual Bank and Commer-
cial Bank of Everett
</TABLE>
- ----------------
(1) Compensation information for fiscal years ended March 31, 1997 and 1998
have been omitted as Mutual Bancshares was neither a public company nor a
subsidiary thereof at such time. Salary and bonus information does not
exclude amounts deferred under a nonqualified deferred compensation plan.
(2) Paid in April 1999 for fiscal year ending March 31, 1999.
(3) The aggregate amount of perquisites and other personal benefits was less
than 10% of the total annual salary and bonus reported.
(4) Includes amounts paid in connection with contributions made by Mutual
Bancshares on behalf of the officer to vested and unvested defined
contribution plans and the dollar value of any insurance premiums paid by
Mutual Bancshares on behalf of the officer with respect to term life
insurance.
Employment Agreements for Executive Officers. In connection with the
conversion, Everett Mutual Bank intends to enter into three-year employment
agreements with Messrs. Hansen, Deller, and Mitchell, Ms. Christenson, and Mr.
Cullom. Under the employment agreements, the initial salary level for Messrs.
Hansen, Deller, and Mitchell, Ms. Christenson, and Mr. Cullom will be $200,000,
$135,000, $97,000, $97,000 and $87,500, respectively, which amounts will be paid
by Everett Mutual Bank and may be increased at the discretion of the Board of
Directors or an authorized committee of the Board. On each anniversary of the
initial date of the employment agreements, the term of the agreements may be
extended for an additional year at the discretion of the Board. The agreements
may be terminated by Everett Mutual Bank at any time, by the executive if he or
she is assigned duties inconsistent with his or her initial position, duties,
responsibilities and status, or upon the
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occurrence of certain events specified by federal regulations. In the event that
the executive's employment is terminated without cause or upon the executive's
voluntary termination following the occurrence of an event described in the
preceding sentence, Everett Mutual Bank would be required to honor the terms of
the agreement through the expiration of the current term, including payment of
then current cash compensation and continuation of employee benefits.
The employment agreements also provide for a severance payment and
other benefits if the executive is involuntarily terminated because of a change
in control of EverTrust Financial Group, Inc. or Everett Mutual Bank. The
agreements authorize severance payments on a similar basis if the executive
voluntarily terminates his or her employment following a change in control
because he or she is assigned duties inconsistent with his or her position,
duties, responsibilities and status immediately prior to such change in control.
The agreements define the term "change in control" as having occurred when,
among other things, a person other than EverTrust Financial Group, Inc.
purchases shares of EverTrust Financial Group Inc.'s common stock under a tender
or exchange offer for the shares; any person, as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, is or becomes the
beneficial owner, directly or indirectly, of securities of EverTrust Financial
Group, Inc. representing 25% or more of the combined voting power of EverTrust
Financial Group, Inc.'s then outstanding securities; the membership of the Board
of Directors changes as the result of a contested election; or shareholders of
EverTrust Financial Group, Inc. approve a merger, consolidation, sale or
disposition of all or substantially all of EverTrust Financial Group, Inc.'s
assets, or a plan of partial or complete liquidation.
The maximum value of the severance benefits under the employment
agreements is 2.99 times the executive's average annual compensation during the
five-year period prior to the effective date of the change in control. The
employment agreements provide that the value of the maximum benefit may be
distributed, at the executive's election, in the form of a lump sum cash payment
equal to 2.99 times the executive's base amount, or a combination of a cash
payment and continued coverage under EverTrust Financial Group, Inc.'s and
Everett Mutual Bank's health, life and disability programs for a 36-month period
following the change in control, the total value of which does not exceed 2.99
times the executive's base amount. Assuming that a change in control had
occurred at March 31, 1999 and that Messrs. Hansen, Deller, and Mitchell, Ms.
Christenson, and Mr. Cullom each elected to receive a lump sum cash payment,
they would be entitled to a payment of approximately $486,265, $144,592,
$220,949, $199,410 and $207,446, respectively. Section 280G of the Internal
Revenue Code provides that severance payments that equal or exceed three times
the individual's base amount are deemed to be "excess parachute payments" if
they are conditioned upon a change in control. Individuals receiving parachute
payments in excess of 2.99 times of their base amount are subject to a 20%
excise tax on the amount of such excess payments. If excess parachute payments
are made, EverTrust Financial Group, Inc. and Everett Mutual Bank would not be
entitled to deduct the amount of such excess payments. The employment agreements
provide that severance and other payments that are subject to a change in
control will be reduced as much as necessary to ensure that no amounts payable
to the executive will be considered excess parachute payments.
The employment agreements restrict each executive's right to compete
against Everett Mutual Bank for a period of one year from the date of
termination of the agreement if the executive voluntarily terminates employment
except in the event of a change in control.
Existing Employment Agreement for Executive Officer. John E. Thoreson
has an employment agreement with Mutual Bancshares under which he serves as
president of Mutual Bancshares Capital, Inc., a subsidiary of Mutual Bancshares.
He is also permitted to serve on the Board of Directors of Mutual Bancshares or
on the board of directors of any subsidiary without any additional compensation
or payment. He is accorded an annual salary of $150,000, and the welfare,
vacation and deferred compensation benefits accorded other senior management
employees. He is obligated to establish and capitalize a venture fund outlined
in the Bancshares Capital LP Business Plan. In the event that such
capitalization shall be insufficient to obtain a small business investment
company license from the U.S. Small Business Administration, then the agreement
will be terminated and he will receive severance pay equal to 33% of his annual
compensation. The agreement may otherwise be terminated by either party with six
months' written notice.
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Employee Severance Compensation Plan. Everett Mutual Bank's Board of
Directors intends to, upon conversion, establish the Everett Mutual Bank
Employee Severance Compensation Plan which will provide eligible employees with
severance pay benefits in the event of a change in control of Everett Mutual
Bank or EverTrust Financial Group, Inc. following the conversion. Management
personnel with employment agreements or change in control agreements are not
eligible to participate in the severance plan. Generally, employees are eligible
to participate in the severance plan if they have completed at least one year of
service with Everett Mutual Bank. The severance plan vests in each participant a
contractual right to the benefits the participant is entitled to thereunder.
Under the severance plan, in the event of a change in control of Everett Mutual
Bank, or EverTrust Financial Group, Inc., eligible employees who are terminated
or terminate their employment within one year, for reasons specified under the
severance plan, will be entitled to receive a severance payment. If the
participant, whose employment has terminated, has completed at least one year of
service, the participant will be entitled to a cash severance payment equal to
3.846% of annual compensation for each year of service up to a maximum of 100%
of annual compensation. Such payments may tend to discourage takeover attempts
by increasing costs to be incurred by Everett Mutual Bank in the event of a
takeover. In the event the provisions of the severance plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $793,577. However, it is management's
belief that substantially all of Everett Mutual Bank's employees would be
retained in their current positions in the event of a change in control, and
that any amount payable under the severance plan would be considerably less than
the total amount that could be possibly be paid under the severance plan.
Benefits
General. Mutual Bancshares and its subsidiaries currently provide
health and welfare benefits to its employees, including medical, vision, dental,
life, disability, 401(k) savings and pension, subject to certain deductibles and
employee copayments.
401(k) Savings Plan. Mutual Bancshares and its wholly-owned
subsidiaries maintain the Everett Mutual Savings Bank 401(k) Employee Savings
and Profit Sharing Plan and Trust for the benefit of the eligible employees of
Mutual Bancshares and its wholly owned subsidiaries. Mutual Bancshares and its
wholly owned subsidiaries are referred to in this section as the employer. The
plan is a combination 401(k) and profit sharing plan and is part of a
floor/offset arrangement with the defined benefit pension plan. The plan is
intended to be a tax-qualified retirement plan under Sections 401(a) and 401(k)
of the Internal Revenue Code of 1986, as amended. Employees of Mutual Bancshares
and its wholly owned subsidiaries who have completed one year of service and who
have attained age 21 are eligible to participate in the plan.
Participants may contribute the lesser of $10,000 or 8% of their annual
compensation through a pre-tax salary reduction election. The employer matches
the first 4% of a participant's pre-tax salary reduction contribution at the
rate of 50%. Pre-tax salary reduction contributions by a participant above the
first 4% of his compensation are not matched. A participant may not, however,
make contributions to the plan unless he has elected to make a 2% non-deductible
contribution to the plan. The employer matches such mandatory contributions at
the rate of 100%. Participants are at all times 100% vested in their salary
reduction contributions.
To the profit sharing portion of the plan, the employer may also
contribute a discretionary amount with respect to any plan year which is
allocated to participants in proportion that their annual compensation bears to
the total compensation of all participants during the plan year. With respect to
matching and discretionary profit sharing contributions made by the employer,
participants vest in such contributions at the rate of 20% per year, beginning
with the completion of their third year of service with full vesting occurring
after seven years of service. For the plan's fiscal year ended December 31,
1998, Mutual Bancshares and its wholly owned subsidiaries incurred
contribution-related expenses of $93,011 in connection with the 401(k) and
profit sharing portions of the plan. For the plan's fiscal year ended December
31, 1998, employees contributed $171,009 to the plan.
Generally, participants direct the investment of plan assets. In
connection with the conversion, the investment options available to participants
will be expanded to include the opportunity to direct the investment of their
plan
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account balances to purchase shares of EverTrust Financial Group, Inc. common
stock. A participant in the plan who elects to purchase EverTrust Financial
Group, Inc. common stock through the plan will receive the same subscription
priority and be subject to the same individual purchase limitations as if the
participant had elected to make such purchase using other funds. See "Mutual
Bancshares - - Limitation on Purchases of Shares."
Pension Plan. Mutual Bancshares and its wholly-owned subsidiaries
maintain the Everett Mutual Savings Bank Pension Plan. It is part of a
floor/offset arrangement with the 401(k) plan. The pension plan is intended to
be a tax-qualified retirement plan under Section 401(a) of the Internal Revenue
Code of 1986, as amended. Employees of Mutual Bancshares and its wholly owned
subsidiaries who have completed one year of service and who have attained age 21
are eligible to participate in the pension plan.
At his normal retirement age of 62, a participant is entitled to a
retirement benefit equal to 2% of his average monthly compensation based on his
highest paid five years of compensation and multiplied by his total number of
years of service, which may be up to a maximum of 30 years, and reduced by the
monthly benefit equal to the participant's Basic Salary Deferral Account and the
vested portion of his Basic Company Matching Account, as maintained in the
410(k) plan, divided by an actuarial equivalent factor that converts a life
annuity into a lump sum as of the calculation date. Years of service in excess
of 30 are not counted.
The benefit provided to a participant at the early retirement age of 55
with ten years of service who elects to defer the payment of his benefits to
normal retirement age, at early retirement age with 10 years of service who
elects to receive payment of his benefit prior to normal retirement age, or who
postpones annual benefits beyond normal retirement age, are calculated basically
the same as the benefits for normal retirement age, with final average earnings
being multiplied by 2% for each year of such individual's actual years of
service. A participant eligible for early retirement benefits who begins to
receive benefits prior to normal retirement age will have his benefits
actuarially adjusted, as further described in the pension plan.
The pension plan is subject to the same vesting schedule as that
imposed on the profit sharing and matching accounts in the 401(k) plan. Mutual
Bancshares intends to terminate the pension plan following the adoption of the
employee stock ownership plan. No contributions were required to be made to the
pension plan for the plan's fiscal year ending December 31, 1998.
The following table sets forth, as of December 31, 1998, the fiscal
year end for this pension plan, estimated monthly pension benefits for
individuals at age 62 payable in the form of a life annuity under the most
advantageous plan provisions for various levels of compensation and years of
service. The figures in this table are based upon the assumption that the
pension plan continues in its present form and does not reflect offsets for
Social Security or employee stock ownership plan benefits. As of December 31,
1998, the estimated years of credited service of Messrs. Hansen, and Mitchell,
Ms. Christensen and Mr. Cullom were 19, 9, 25 and 5 years, respectively.
Years of Credited Service
Remuneration 10 15 20 25 30
------------ -------- -------- -------- -------- -----
$ 40,000 667 1,000 1,333 1,667 2,000
60,000 1,000 1,500 2,000 2,500 3,000
80,000 1,333 2,000 2,667 3,333 4,000
100,000 1,667 2,500 3,333 4,167 5,000
120,000 2,000 3,000 4,000 5,000 6,000
140,000 2,333 3,500 4,667 5,833 7,000
160,000 2,667 4,000 5,333 6,667 8,000
Non-Qualified Deferred Compensation Program. Mutual Bancshares sponsors
a deferred compensation program for directors and a select group of management
and/or highly compensated employees. The plan was originally effective as of
January 1, 1996, and has been amended and restated as of July 1, 1999 as the
EverTrust Financial Group, Inc. Amended and Restated Voluntary Deferred
Compensation Plan. The board of directors of
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Mutual Bancshares, or the Chief Executive Officer, or the president of Mutual
Bancshares, or of a 50%-or-more-owned subsidiary selects the participants.
The plan is administered by a committee of at least five directors. An
eligible employee is permitted to defer all or a specified portion of his
compensation, including annual base salary and any compensation payable under
any bonus or incentive plan, paid to him. The committee may elect in its sole
discretion to set maximum and/or minimum deferred amounts for each calendar
year. Prior to June 30, 1999, an eligible employee could make such deferrals
only after he had deferred a minimum of 6% of his base salary into the 401(k)
plan. On and after July 1, 1999, the requirement of deferral into the 401(k)
plan has been removed. In general, an eligible employee must elect the amount of
his compensation to be deferred prior to January 1 of the year of the deferral.
Such election is irrevocable during the ensuing calendar year. Deferral amounts
are credited to a participant's Deferred Compensation Account as of the last day
of each calendar quarter and credited with earnings in the Deferred Compensation
Account in accordance with such benchmark investment measures as the committee
determines. Prior to September 30, 1999, the investment benchmark used was based
on the annualized return on equity of Everett Mutual Bank. Effective on or after
October 1, 1999, participants will be entitled to select among other investment
return measures, as determined by the committee.
A participant must elect, at the time of his initial deferral, when to
receive payment of his Deferred Compensation Account. Payments may be made
either in a lump sum; or substantially equal annual installments not to exceed
ten years, as the participant shall have elected. In the event of a severe
financial hardship, the Participant may request an early distribution from his
Deferred Compensation Account, but only to the extent reasonably needed to
satisfy such hardship. In addition, in the event a participant becomes
permanently incapacitated, the committee, in its sole discretion, and upon the
participant's written application, may direct the immediate payment of all or a
portion of the then current value of the participant's Deferred Compensation
Account to the participant.
Mutual Bancshares has established a grantor trust to hold assets that
fund its obligation and that of its 50%-or- more-owned subsidiaries to
participants in the plan.
Employee Stock Ownership Plan. The Board of Directors has authorized
the adoption by EverTrust Financial Group, Inc. of an employee stock ownership
plan for eligible employees of EverTrust Financial Group, Inc. and its wholly
owned subsidiaries, to become effective as of April 1, 1999, subject to the
completion of the conversion. The purpose of the employee stock ownership plan
is to satisfy the requirements for an employee stock ownership plan under the
Internal Revenue Code of 1986, as amended, and the Employee Retirement Income
Security Act of 1974, as amended. Employees of EverTrust Financial Group, Inc.
and its wholly owned subsidiaries who have been credited with at least 1,000
hours of service during a designated 12-month period and who have attained age
21 will be eligible to participate in the employee stock ownership plan.
It is intended that the employee stock ownership plan will purchase 2%
of the shares issued in the conversion. This would range between 117,130 shares,
assuming 5,856,500 shares are issued in the conversion and including shares
contributed to The EverTrust Foundation, and 157,300 shares, assuming 7,865,000
shares are issued in the conversion and including shares contributed to The
EverTrust Foundation. It is anticipated that the employee stock ownership plan
will borrow funds from EverTrust Financial Group, Inc. to purchase the shares.
Such loan will equal 100% of the aggregate purchase price of the common stock.
The employee stock ownership plan will repay the loan principally from the
contributions of the wholly owned subsidiaries of EverTrust Financial Group,
Inc. and from dividends payable on the common stock held by the employee stock
ownership plan over the anticipated five-year term of the loan. The interest
rate for the employee stock ownership plan loan is expected to be the prime rate
as published in The Wall Street Journal on the closing date of the conversion.
See "Pro Forma Data." To the extent that the employee stock ownership plan is
unable to acquire 2% of the common stock issued in the conversion, it is
anticipated that it may acquire additional shares following the conversion
through open market purchases.
In any plan year, EverTrust Financial Group, Inc. and its wholly owned
subsidiaries may make additional discretionary contributions to the employee
stock ownership plan for the benefit of participants. These contributions may be
made from shares of common stock that are acquired through the purchase of
outstanding shares in the market,
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from individual stockholders, or which constitute authorized but unissued shares
or shares held in trust by EverTrust Financial Group, Inc. Several factors will
affect the timing, amount, and manner of such discretionary contributions,
including applicable regulatory policies, the requirements of applicable laws
and regulations, and market conditions.
EverTrust Financial Group, Inc. will hold shares purchased by the
employee stock ownership plan with the proceeds of the loan in a suspense
account and release them on a pro rata basis as the loan is repaid.
Discretionary contributions to the employee stock ownership plan and shares
released from the suspense account will be allocated among participants on the
basis of each participant's proportional share of total compensation.
Forfeitures will be reallocated among the remaining plan participants.
Participants will vest in their accrued benefits under the employee
stock ownership plan at the rate of 20% per year, beginning upon the completion
of two years of service. A participant is fully vested at normal retirement,
which is generally the attainment of age 65 and completion of five years of
participation, in the event of death or disability or upon termination of the
employee stock ownership plan. Benefits are distributable upon a participants'
normal retirement, early retirement, death, disability or termination of
employment. Contributions to the employee stock ownership plan are not fixed, so
benefits payable under the employee stock ownership plan cannot be estimated.
It is anticipated the Board of Directors will select an institutional
trustee to serve as trustee of the employee stock ownership plan. The trustee
must vote all allocated shares held in the employee stock ownership plan in
accordance with the instructions of plan participants and unallocated shares
must be voted in the same ratio on any matter as those shares for which
instructions are given. The trustee will vote, in his discretion, allocated
shares for which no instructions are received .
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan will meet the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
of the Internal Revenue Service and the Department of Labor issued thereunder.
EverTrust Financial Group, Inc. intends to request a determination letter from
the Internal Revenue Service regarding the tax-qualified status of the employee
stock ownership plan. EverTrust Financial Group, Inc. expects, but cannot
guarantee, that a favorable determination letter will be received by the
employee stock ownership plan.
Management Recognition and Development Plan. The Board of Directors of
EverTrust Financial Group, Inc. intends to adopt the EverTrust Financial Group,
Inc.'s Management Recognition and Development Plan, a restricted stock plan, for
senior officers and non-employee directors of EverTrust Financial Group, Inc.
and Everett Mutual Bank and to submit it to the stockholders for approval at a
meeting held no earlier than six months following the conversion. The plan will
enable EverTrust Financial Group, Inc. and Everett Mutual Bank to provide
participants with a proprietary interest in EverTrust Financial Group, Inc. as
an incentive to contribute to the success of EverTrust Financial Group, Inc. and
Everett Mutual Bank. Persons who are awarded stock under the plan will not have
to pay for the stock. Furthermore, some or all of the persons who receive awards
under the management recognition and development plan will also be granted
options under the stock option plan. The plan will comply with all applicable
regulatory requirements. The Washington Department of Financial Institutions and
the Federal Deposit Insurance Corporation will not approve or endorse the plan.
The plan intends to acquire a number of shares of EverTrust Financial
Group, Inc.'s common stock equal to 4% of the common stock issued in the
conversion, including shares issued to The EverTrust Foundation. This would
range from 234,260 shares, assuming 5,856,500 shares are issued in the
conversion, to 314,600 shares, assuming 7,865,000 shares are issued in the
conversion. The plan will acquire the shares on the open market, if available,
with funds contributed by EverTrust Financial Group, Inc. or Everett Mutual Bank
to a trust which EverTrust Financial Group, Inc. may establish in conjunction
with the plan or from authorized but unissued shares or treasury shares of
EverTrust Financial Group, Inc.
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The compensation committee of the Board of Directors of EverTrust
Financial Group, Inc. will administer the management recognition and development
plan, the members of which will also serve as trustees for the plan, if a trust
is formed. The trustees will be responsible for the investment of all funds
contributed by EverTrust Financial Group, Inc. or Everett Mutual Bank to the
trust. The Board of Directors of EverTrust Financial Group, Inc. may terminate
the plan at any time and, upon termination, all unallocated shares of common
stock will revert to EverTrust Financial Group, Inc.
Shares of common stock granted under the plan will be in the form of
restricted stock which will become unrestricted ratably over a specified vesting
period following the date of grant. During the period of restriction, EverTrust
Financial Group, Inc. or the plan will hold all shares in escrow. Under current
regulations, if the management recognition and development plan is implemented
within the first year following the conversion, the minimum vesting period will
be five years. All unvested awards will vest upon the recipient's death or
disability.
A recipient of a plan award in the form of restricted stock generally
will not recognize income upon an award of shares of common stock, and EverTrust
Financial Group, Inc. will not be entitled to a federal income tax deduction,
until the termination of the restrictions. Upon termination of the restrictions,
the recipient will recognize ordinary income in an amount equal to the fair
market value of the common stock at the time and EverTrust Financial Group, Inc.
will be entitled to a deduction in the same amount after satisfying federal
income tax reporting requirements. However, the recipient may elect to recognize
ordinary income in the year the restricted stock is granted in an amount equal
to the fair market value of the shares at that time, determined without regard
to the restrictions. In that event, EverTrust Financial Group, Inc. will be
entitled to a deduction in that year and in the same amount. Any gain or loss
recognized by the recipient upon subsequent disposition of the stock will be
either a capital gain or capital loss.
Although no specific award determinations have been made at this time,
EverTrust Financial Group, Inc. and Everett Mutual Bank anticipate that if
stockholder approval is obtained it would provide awards to its non-employee
directors and senior officers to the extent and under terms and conditions
permitted by applicable regulations. Under current regulations, if the plan is
implemented within one year after the conversion, no senior officer could
receive an award covering in excess of 25%, no non-employee director could
receive in excess of 5% and non-employee directors, as a group, could not
receive in excess of 30% of the number of shares reserved for issuance under the
plan.
1999 Stock Option Plan. The Board of Directors of EverTrust Financial
Group, Inc. intends to adopt the stock option plan and to submit the stock
option plan to the stockholders for approval at a meeting held no earlier than
six months following the conversion. The stock option plan will comply with all
applicable regulatory requirements. However, the stock option plan will not be
approved or endorsed by the Washington Department of Financial Institutions or
the Federal Deposit Insurance Corporation.
EverTrust Financial Group, Inc. will design the stock option plan to
attract and retain qualified management personnel and non-employee directors, to
provide such officers, key employees and non-employee directors with a
proprietary interest in EverTrust Financial Group, Inc. as an incentive to
contribute to the success of EverTrust Financial Group, Inc. and Everett Mutual
Bank, and to reward officers and key employees for outstanding performance. The
stock option plan will provide for the grant of incentive stock options intended
to comply with the requirements of the Internal Revenue Code and for
nonqualified stock options. Upon receipt of stockholder approval of the stock
option plan, EverTrust Financial Group, Inc. may grant stock options to key
employees of EverTrust Financial Group, Inc. and its subsidiaries, including
Everett Mutual Bank. The stock option plan will continue in effect for a period
of ten years from the date the stock option plan is approved by stockholders,
unless terminated earlier.
A number of authorized shares of common stock equal to 10% of the
number of shares of common stock issued in connection with the conversion,
including shares issued to The EverTrust Foundation, will be reserved for future
issuance under the stock option plan. This would range from 585,650 shares,
assuming 5,856,500 shares are issued in the conversion, to 786,500, assuming
7,865,000 shares are issued in the conversion. Shares acquired upon exercise of
options will be authorized but unissued shares or treasury shares. If a stock
split, reverse stock split, stock dividend, or similar event occurs, the number
of shares of common stock under the stock option plan, the number of shares to
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which any award relates and the exercise price per share under any option may be
adjusted by the compensation committee to reflect the increase or decrease in
the total number of shares of common stock outstanding.
The compensation committee of the Board of Directors of EverTrust
Financial Group, Inc. will administer and interpret the stock option plan.
According to applicable federal regulations, the compensation committee will
determine which non-employee directors, officers and key employees will be
granted options, whether, in the case of officers and key employees, the options
will be incentive stock options or nonqualifying stock options, and the number
of shares represented by each option, and the exercisability of options. All
options granted to non-employee directors will be nonqualified stock options.
The per share exercise price of all options will equal at least 100% of the fair
market value of a share of common stock on the date the option is granted.
EverTrust Financial Group, Inc. anticipates that it will grant all
options under the stock option plan subject to a vesting schedule so that the
options become exercisable over a specified period following the date of grant.
Under federal regulations, if the stock option plan is implemented within the
first year following the conversion the minimum vesting period will be five
years. All unvested options will be immediately exercisable upon the recipient's
death or disability.
Each incentive stock option that is awarded to an officer or key
employee will remain exercisable at any time on or after the date it vests
through the earlier to occur of the tenth anniversary of the date of grant or
three months after the date on which the optionee terminates employment, or one
year if the optionee's termination results from death or disability, unless the
compensation committee extends the time period. Each nonqualified stock option
that is awarded to an officer, key employee or non-employee director will remain
exercisable through the earlier to occur of the tenth anniversary of the date of
grant or one year or two years following the grantee's death, disability or
termination of service. All incentive stock options are nontransferable except
by will or the laws of descent or distribution.
Under current provisions of the Internal Revenue Code, the federal tax
treatment of incentive stock options and non-qualified stock options is
different. With respect to incentive stock options, an optionee who satisfies
certain holding period requirements will not recognize compensation income at
the time the option is granted or at the time the option is exercised. If the
holding period requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares of common stock
received upon the exercise of a stock option. If the holding period requirements
are not satisfied, the difference between the fair market value of the common
stock on the date of exercise and the option exercise price, if any, will be
taxable to the optionee at ordinary income tax rates. A federal income tax
deduction generally will not be available to EverTrust Financial Group, Inc. as
a result of the grant or exercise of an incentive stock option, unless the
optionee fails to satisfy the holding period requirements. For non-qualified
stock options, the grant generally is not a taxable event for the optionee and
no tax deduction will be available to EverTrust Financial Group, Inc. However,
upon exercise, the difference between the fair market value of the common stock
on the date of exercise and the option exercise price generally will be treated
as compensation to the optionee upon exercise, and EverTrust Financial Group,
Inc. will be entitled to a compensation expense deduction in the amount of
income recognized by the optionee.
Although no specific award determinations have been made at this time,
EverTrust Financial Group, Inc. and Everett Mutual Bank anticipate that if
stockholder approval is obtained it would provide awards to its directors,
officers and key employees to the extent and under terms and conditions
permitted by applicable regulations.
Loans and Other Transactions with Officers and Directors
Mutual Bancshares has followed a policy of granting loans to its
officers and directors. 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, or in
the case of home mortgages, under the employee loan program, in accordance with
our underwriting guidelines, and do not involve more than the normal risk of
collectibility or present other unfavorable features.
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All loans made to directors and executive officers are subject to
federal regulations restricting loans and other transactions with affiliated
persons of Mutual Bancshares. Loans to all directors and executive officers and
their associates totaled approximately $1.6 million at March 31, 1999, which was
1.21% of pro forma stockholders' equity, assuming 8,596,250 shares are sold in
the conversion. All loans to directors and executive officers were performing in
accordance with their terms at March 31, 1999.
R. Michael Kight is a Partner in the law firm of Newton-Kight, L.L.P.,
which firm is general counsel to Everett Mutual Bank and Commercial Bank of
Everett. Services provided by Newton-Kight, L.L.P. to Everett Mutual Bank and
Commercial Bank of Everett are provided on terms comparable to those which are
available to unaffiliated parties.
George S. Newland is the President and owner of Newland Const. Co.,
Inc., a general contracting company. During fiscal 1999, Mutual Bancshares and
Everett Mutual Bank paid Newland Const. Co., Inc. approximately $343,659 in fees
for construction and periodic maintenance of their offices. Services provided by
Newland Const. Co., Inc. to Everett Mutual Bank and Commercial Bank of Everett
are provided on terms comparable to those which are available to unaffiliated
parties.
REGULATION
The Banks
General. As state-chartered, federally insured financial institutions,
Everett Mutual Bank and Commercial Bank of Everett are subject to extensive
regulation. Lending activities and other investments must comply with various
statutory and regulatory requirements, including prescribed minimum capital
standards. Everett Mutual Bank and Commercial Bank of Everett are regularly
examined by the Federal Deposit Insurance Corporation and their state banking
regulators and file periodic reports concerning their activities and financial
condition with their regulators. Everett Mutual Bank and Commercial Bank of
Everett's relationship with depositors and borrowers also is regulated to a
great extent by both federal and state law, especially in such matters as the
ownership of savings accounts and the form and content of mortgage documents.
Federal and state banking laws and regulations govern all areas of the
operation of Everett Mutual Bank and Commercial Bank of Everett, including
reserves, loans, mortgages, capital, issuance of securities, payment of
dividends and establishment of branches. Federal and state bank regulatory
agencies also have the general authority to limit the dividends paid by insured
banks and bank holding companies if such payments should be deemed to constitute
an unsafe and unsound practice. The respective primary federal regulators of
Mutual Bancshares and Everett Mutual Bank and Commercial Bank of Everett have
authority to impose penalties, initiate civil and administrative actions and
take other steps intended to prevent banks from engaging in unsafe or unsound
practices.
State Regulation and Supervision. As a state-chartered savings bank,
Everett Mutual Bank is subject to applicable provisions of Washington law and
regulations. As a state-chartered commercial bank, Commercial Bank of Everett is
also subject to applicable provisions of Washington law and regulations. State
law and regulations govern Everett Mutual Bank's and Commercial Bank of
Everett's ability to take deposits and pay interest thereon, to make loans on or
invest in residential and other real estate, to make consumer loans, to invest
in securities, to offer various banking services to its customers, and to
establish branch offices. Under state law, savings banks in Washington also
generally have all of the powers that federal mutual savings banks have under
federal laws and regulations. Everett Mutual Bank and Commercial Bank of Everett
are subject to periodic examination and reporting requirements by and of their
state banking regulators.
Deposit Insurance. The Federal Deposit Insurance Corporation is an
independent federal agency that insures the deposits, up to prescribed statutory
limits, of depository institutions. The Federal Deposit Insurance Corporation
currently maintains two separate insurance funds: the Bank Insurance Fund and
the Savings Association Insurance Fund. As insurer of Everett Mutual Bank and
Commercial Bank of Everett's deposits, the Federal Deposit Insurance
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Corporation has examination, supervisory and enforcement authority over Everett
Mutual Bank and Commercial Bank of Everett.
Everett Mutual Bank's accounts are insured by the Bank Insurance Fund
and Commercial Bank of Everett's accounts are also insured by the Bank Insurance
Fund to the maximum extent permitted by law. Everett Mutual Bank and Commercial
Bank of Everett pay deposit insurance premiums based on a risk-based assessment
system established by the Federal Deposit Insurance Corporation. Under
applicable regulations, institutions are assigned to one of three capital groups
that are based solely on the level of an institution's capital--"well
capitalized," "adequately capitalized," and "undercapitalized"--which are
defined in the same manner as the regulations establishing the prompt corrective
action system, as discussed below. These three groups are then divided into
three subgroups which reflect varying levels of supervisory concern, from those
which are considered to be healthy to those which are considered to be of
substantial supervisory concern. The matrix so created results in nine
assessment risk classifications.
Pursuant to the provisions in the Federal Deposit Insurance Act, all
Bank Insurance Fund-insured banks must pay semiannual insurance assessments.
These insurance premiums were substantially reduced by the Federal Deposit
Insurance Corporation effective January 1, 1996 as a result of the Bank
Insurance Fund having reached its designated reserve ratio in 1995. Insurance
premiums for Bank Insurance Fund insured institutions currently range from 0 to
27 basis points. As well capitalized banks, Everett Mutual Bank and Commercial
Bank of Everett qualified for the minimum statutory assessment during fiscal
1999. Everett Mutual Bank's and Commercial Bank of Everett's assessment for the
year ended December 31, 1998, equalled $41,000 and $1,000, respectively.
On September 30, 1996, the Deposit Insurance Fund Act was enacted to
assist depository institutions insured by the Savings Association Insurance Fund
in meeting its designated reserve ratio. Pursuant to the Federal Deposit
Insurance Act, the Federal Deposit Insurance Corporation imposed an assessment
on Savings Association Insurance Fund and Bank Insurance Fund insured financial
institutions beginning January 1, 1997, for the purpose of paying interest on
the obligations issued by the Financing Corporation in the 1980s to help fund
the thrift industry cleanup. Bank Insurance Fund-assessable deposits will be
charged an assessment at a rate of approximately 0.013% until the earlier of
December 31, 1999, or the date upon which the last savings association ceases to
exist, after which time the assessment will be the same for all insured
deposits.
The Federal Deposit Insurance Corporation may terminate the deposit
insurance of any insured depository institution if it determines after a hearing
that the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the Federal Deposit Insurance Corporation. It also may suspend deposit insurance
temporarily during the hearing process for the permanent termination of
insurance, if the institution has no tangible capital. If insurance of accounts
is terminated, the accounts at the institution at the time of termination, less
subsequent withdrawals, shall continue to be insured for a period of six months
to two years, as determined by the Federal Deposit Insurance Corporation.
Management is aware of no existing circumstances that could result in
termination of the deposit insurance of Everett Mutual Bank and Commercial Bank
of Everett.
Prompt Corrective Action. Under Federal Deposit Insurance Corporation
Improvement Act of 1991, each federal banking agency is required to implement a
system of prompt corrective action for institutions which it regulates. The
federal banking agencies have promulgated substantially similar regulations to
implement this system of prompt corrective action. Under the regulations, an
institution shall be deemed to be: "well capitalized" if it has a total
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio
of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital level
for any capital measure; "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, has a Tier I risk-based capital ratio of 4.0% or
more, has a Tier I leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;"
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a Tier
I leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances); "significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6.0%, has a Tier I risk-based capital ratio that
is less than 3.0% or has a Tier
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I leverage capital ratio that is less than 3.0%; and "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or engaging in
an unsafe or unsound practice. The Federal Deposit Insurance Corporation may
not, however, reclassify a significantly undercapitalized institution as
critically undercapitalized.
An institution generally must file a written capital restoration plan
which meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At March 31, 1999, Everett Mutual Bank and Commercial Bank of Everett
were categorized as "well capitalized" under the prompt corrective action
regulations of the Federal Deposit Insurance Corporation.
Standards for Safety and Soundness. The federal banking regulatory
agencies have prescribed, by regulation, guidelines for all insured depository
institutions relating to: internal controls, information systems and internal
audit systems; loan documentation; credit underwriting; interest rate risk
exposure; asset growth; asset quality; earnings and compensation, fees and
benefits. The guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the Federal Deposit
Insurance Corporation determines that either Everett Mutual Bank or Commercial
Bank of Everett fails to meet any standard prescribed by the Guidelines, the
agency may require the Bank to submit to the agency an acceptable plan to
achieve compliance with the standard. Federal Deposit Insurance Corporation
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Capital Requirements. The Federal Deposit Insurance Corporation's
minimum capital standards applicable to Federal Deposit Insurance
Corporation-regulated banks and savings banks require the most highly-rated
institutions to meet a "Tier 1" leverage capital ratio of at least 3% of total
assets. Tier 1 (or "core capital") consists of common stockholders' equity,
noncumulative perpetual preferred stock and minority interests in consolidated
subsidiaries minus all intangible assets other than limited amounts of purchased
mortgage servicing rights and certain other accounting adjustments. All other
banks must have a Tier 1 leverage ratio of at least 100-200 basis points above
the 3% minimum. The Federal Deposit Insurance Corporation capital regulations
establish a minimum leverage ratio of not less than 4% for banks that are not
highly rated or are anticipating or experiencing significant growth.
Any insured bank with a Tier 1 capital to total assets ratio of less
than 2% is deemed to be operating in an unsafe and unsound condition unless the
insured bank enters into a written agreement, to which the Federal Deposit
Insurance Corporation is a party, to correct its capital deficiency. Insured
banks operating with Tier 1 capital levels below 2%, and which have not entered
into a written agreement, are subject to an insurance removal action. Insured
banks operating with lower than the prescribed minimum capital levels generally
will not receive approval of applications submitted to the Federal Deposit
Insurance Corporation. Also, inadequately capitalized state nonmember banks will
be subject to such administrative action as the Federal Deposit Insurance
Corporation deems necessary.
Federal Deposit Insurance Corporation regulations also require that
banks meet a risk-based capital standard. The risk-based capital standard
requires the maintenance of total capital, which is defined as Tier 1 capital
and Tier 2 or supplementary capital, to risk weighted assets of 8% and Tier 1
capital to risk-weighted assets of 4%. In determining the amount of
risk-weighted assets, all assets, plus certain off balance sheet items, are
multiplied by a risk- weight of 0% to 100%, based on the risks the Federal
Deposit Insurance Corporation believes are inherent in the type of asset or
item. The components of Tier 1 capital are equivalent to those discussed above
under the 3% leverage
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requirement. The components of supplementary capital currently include
cumulative perpetual preferred stock, adjustable-rate perpetual preferred stock,
mandatory convertible securities, term subordinated debt, intermediate-term
preferred stock and allowance for possible loan and lease losses. Allowance for
possible loan and lease losses includable in supplementary capital is limited to
a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital
counted toward supplementary capital cannot exceed 100% of Tier 1 capital.
Federal Deposit Insurance Corporation capital requirements are
designated as the minimum acceptable standards for banks whose overall financial
condition is fundamentally sound, which are well-managed and have no material or
significant financial weaknesses. The Federal Deposit Insurance Corporation
capital regulations state that, where the Federal Deposit Insurance Corporation
determines that the financial history or condition, including off- balance sheet
risk, managerial resources and/or the future earnings prospects of a bank are
not adequate and/or a bank has a significant volume of assets classified
substandard, doubtful or loss or otherwise criticized, the Federal Deposit
Insurance Corporation may determine that the minimum adequate amount of capital
for that bank is greater than the minimum standards established in the
regulation.
Mutual Bancshares believes that, under the current regulations, Everett
Mutual Bank and Commercial Bank of Everett will continue to meet their minimum
capital requirements in the foreseeable future. However, events beyond the
control of Everett Mutual Bank and Commercial Bank of Everett, such as a
downturn in the economy in areas where Everett Mutual Bank and Commercial Bank
of Everett have most of their loans, could adversely affect future earnings and,
consequently, the ability of Everett Mutual Bank and Commercial Bank of Everett
to meet their capital requirements.
Activities and Investments of Insured State-Chartered Banks. Federal
law generally limits the activities and equity investments of Federal Deposit
Insurance Corporation-insured, state-chartered banks to those that are
permissible for national banks. Under regulations dealing with equity
investments, an insured state bank generally may not directly or indirectly
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things, acquiring or retaining a majority interest in a subsidiary,
investing as a limited partner in a partnership the sole purpose of which is
direct or indirect investment in the acquisition, rehabilitation or new
construction of a qualified housing project, provided that such limited
partnership investments may not exceed 2% of the bank's total assets, acquiring
up to 10% of the voting stock of a company that solely provides or reinsures
directors', trustees' and officers' liability insurance coverage or bankers'
blanket bond group insurance coverage for insured depository institutions, and
acquiring or retaining the voting shares of a depository institution if certain
requirements are met.
Federal law provides that an insured state-chartered bank may not,
directly, or indirectly through a subsidiary, engage as "principal" in any
activity that is not permissible for a national bank unless the Federal Deposit
Insurance Corporation has determined that such activities would pose no risk to
the insurance fund of which it is a member and the bank is in compliance with
applicable regulatory capital requirements. Any insured state-chartered bank
directly or indirectly engaged in any activity that is not permitted for a
national bank must cease the impermissible activity.
Federal Reserve System. The Federal Reserve Board requires under
Regulation D that all depository institutions, including savings banks, maintain
reserves on transaction accounts or non-personal time deposits. These reserves
may be in the form of cash or non-interest-bearing deposits with the regional
Federal Reserve Bank. Negotiable order of withdrawal accounts and other types of
accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits at a savings bank. Under
Regulation D, a bank must establish reserves equal to 0% of the first $4.9
million of net transaction accounts, 3% of the next $41.6 million, and 10% plus
$1.56 million of the remainder. The reserve requirement on non-personal time
deposits with original maturities of less than 1.5 years is 0%. As of March 31,
1999, Everett Mutual Bank's and Commercial Bank of Everett's deposit with the
Federal Reserve Bank and vault cash exceeded their respective reserve
requirements.
Affiliate Transactions. Mutual Bancshares, Everett Mutual Bank,
Commercial Bank of Everett, I-Pro, Inc. and Mutual Bancshares Capital, Inc. are
legal entities separate and distinct. Various legal limitations restrict Everett
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Mutual Bank and Commercial Bank of Everett from lending or otherwise supplying
funds to Mutual Bancshares, which is an affiliate of these two financial
institution subsidiaries. These restrictions generally limit such transactions
with the affiliate to 10% of the bank's capital and surplus and limiting all
such transactions to 20% of the bank's capital and surplus. Such transactions,
including extensions of credit, sales of securities or assets and provision of
services, also must be on terms and conditions consistent with safe and sound
banking practices, including credit standards, that are substantially the same
or at least as favorable to Everett Mutual Bank and Commercial Bank of Everett
as those prevailing at the time for transactions with unaffiliated companies.
Federally insured banks are subject, with certain exceptions, to
certain restrictions on extensions of credit to their parent holding companies
or other affiliates, on investments in the stock or other securities of
affiliates and on the taking of such stock or securities as collateral from any
borrower. In addition, such banks are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or the providing of any
property or service.
Community Reinvestment Act. Banks are also subject to the provisions of
the Community Reinvestment Act of 1977, which requires the appropriate federal
bank regulatory agency, in connection with its regular examination of a bank, to
assess the bank's record in meeting the credit needs of the community serviced
by the bank, including low and moderate income neighborhoods. The regulatory
agency's assessment of the bank's record is made available to the public.
Further, such assessment is required of any bank which has applied, among other
things, to establish a new branch office that will accept deposits, relocate an
existing office or merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally regulated financial institution.
Dividends Dividends from Everett Mutual Bank and Commercial Bank of
Everett will constitute the major source of funds for dividends which may be
paid by Mutual Bancshares. The amount of dividends payable by Everett Mutual
Bank and Commercial Bank of Everett to Mutual Bancshares will depend upon
Everett Mutual Bank's and Commercial Bank of Everett's earnings and capital
position, and is limited by federal and state laws, regulations and policies.
Federal law further provides that no insured depository institution may
make any capital distribution, which would include a cash dividend, if, after
making the distribution, the institution would be "undercapitalized," as defined
in the prompt corrective action regulations. Moreover, the federal bank
regulatory agencies also have the general authority to limit the dividends paid
by insured banks if such payments should be deemed to constitute an unsafe and
unsound practice.
Mutual Bancshares
General. Mutual Bancshares is a bank holding company registered with
the Federal Reserve. Bank holding companies are subject to comprehensive
regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as
amended, and the regulations of the Federal Reserve. Mutual Bancshares is
required to file with the Federal Reserve annual reports and such additional
information as the Federal Reserve may require and is subject to regular
examinations by the Federal Reserve. The Federal Reserve also has extensive
enforcement authority over bank holding companies, including, among other
things, the ability to assess civil money penalties, to issue cease and desist
or removal orders and to require that a holding company divest subsidiaries,
including its bank subsidiaries,. In general, enforcement actions may be
initiated for violations of law and regulations and unsafe or unsound practices.
Under the Bank Holding Company Act, a bank holding company must obtain
Federal Reserve approval before: acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such shares, unless it
already owns or controls the majority of such shares; acquiring all or
substantially all of the assets of another bank or bank holding company; or
merging or consolidating with another bank holding company.
The Bank Holding Company Act also prohibits a bank holding company,
with certain exceptions, from acquiring direct or indirect ownership or control
of more than 5% of the voting shares of any company that is not a
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bank or bank holding company and from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or managing or controlling banks. The list of
activities permitted by the Federal Reserve includes, among other things:
operating a savings institution, mortgage company, finance company, credit card
company or factoring company; performing certain data processing operations;
providing certain investment and financial advice; underwriting and acting as an
insurance agent for certain types of credit-related insurance; leasing property
on a full-payout, non-operating basis; selling money orders, travelers' checks
and U.S. Savings Bonds; real estate and personal property appraising; providing
tax planning and preparation services; and, subject to certain limitations,
providing securities brokerage services for customers.
Interstate Banking and Branching. The Federal Reserve must approve an
application of an adequately capitalized and adequately managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank located in a state other than such holding company's home state,
without regard to whether the transaction is prohibited by the laws of any
state. The Federal Reserve may not approve the acquisition of a bank that has
not been in existence for the minimum time period, not exceeding five years,
specified by the statutory law of the host state. Nor may the Federal Reserve
approve an application if the applicant, and its depository institution
affiliates, controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. Federal law does
not affect the authority of states to limit the percentage of total insured
deposits in the state which may be held or controlled by a bank holding company
to the extent such limitation does not discriminate against out-of-state banks
or bank holding companies. Individual states may also waive the 30% state-wide
concentration limit contained in the federal law.
The Federal banking agencies are authorized to approve interstate
merger transactions without regard to whether such transaction is prohibited by
the law of any state, unless the home state of one of Everett Mutual Bank and
Commercial Bank of Everett adopted a law prior to June 1, 1997 which applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks. Interstate acquisitions of branches will be
permitted only if the law of the state in which the branch is located permits
such acquisitions. Interstate mergers and branch acquisitions will also be
subject to the nationwide and statewide insured deposit concentration amounts
described above.
Dividends. The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve's view that a bank holding company should pay cash dividends only to the
extent that the company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earning retention that is consistent with
the company's capital needs, asset quality and overall financial condition. The
Federal Reserve also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Bank holding companies, except for certain "well-capitalized" bank
holding companies, are required to give the Federal Reserve prior written notice
of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The Federal
Reserve may disapprove such a purchase or redemption of it determines that the
proposal would constitute an unsafe or unsound practice or would violate any
law, regulation, Federal Reserve order, or any condition imposed by, or written
agreement with, the Federal Reserve.
Capital Requirements. The Federal Reserve has established capital
adequacy guidelines for bank holding companies that generally parallel the
capital requirements of the Federal Deposit Insurance Corporation for Everett
Mutual Bank and Commercial Bank of Everett. The Federal Reserve regulations
provide that capital standards will be applied on a consolidated basis in the
case of a bank holding company with $150 million or more in total consolidated
assets.
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Mutual Bancshares' total risk based capital must equal 8% of
risk-weighted assets and one half of the 8%, or 4%, must consist of Tier 1
(core) capital. As of March 31, 1999 Mutual Bancshares' total risk based capital
was 15.0% of risk-weighted assets and its risk based capital of Tier 1 (core)
capital was 13.7% of risk-weighted assets.
Environmental Issues Associated With Real Estate Lending
The Comprehensive Environmental Response, Compensation and Liability
Act, a federal statute, generally imposes strict liability on, among other
things, all prior and present "owners and operators" of hazardous waste sites.
However, the U.S. Congress created a safe harbor provision for secured creditors
by providing that the term "owner and operator" excludes a person who, without
participating in the management of the site, holds indicia of ownership
primarily to protect its security interest in the site. Since the enactment of
the Comprehensive Environmental Response, Compensation and Liability Act, this
"secured creditor exemption" has been the subject of judicial interpretations
which have left open the possibility that lenders could be liable for cleanup
costs on contaminated property that they hold as collateral for a loan.
In response to the uncertainty created by judicial interpretations, in
April 1992, the United States Environmental Protection Agency, an agency within
the Executive Branch of the government, promulgated a regulation clarifying when
and how secured creditors could be liable for cleanup costs under the
Comprehensive Environmental Response, Compensation and Liability Act. Generally,
the regulation protected a secured creditor that acquired full title to
collateral property through foreclosure as long as the creditor did not
participate in the property's management before foreclosure and undertook
certain due diligence efforts to divest itself of the property. However, in
February 1994, the U.S. Court of Appeals for the District of Columbia Circuit
held that the Environmental Protection Agency lacked authority to promulgate
such regulation on the grounds that Congress meant for decisions on liability
under the Comprehensive Environmental Response, Compensation and Liability Act
to be made by the courts and not the Executive Branch. In January 1995, the U.S.
Supreme Court denied to review the U.S. Court of Appeal's decision. In light of
this adverse court ruling, in October 1995 the Environmental Protection Agency
issued a statement entitled "Policy on Comprehensive Environmental Response,
Compensation and Liability Act Enforcement Against Lenders and Government
Entities that Acquire Property Involuntarily" explaining that as an enforcement
policy, the Environmental Protection Agency intended to apply as guidance the
provisions of the Environmental Protection Agency lender liability rule
promulgated in 1992.
To the extent that legal uncertainty exists in this area, all
creditors, including Everett Mutual Bank and Commercial Bank of Everett, that
have made loans secured by properties with potential hazardous waste
contamination (such as petroleum contamination) could be subject to liability
for cleanup costs, which costs often substantially exceed the value of the
collateral property.
Federal Securities Laws
EverTrust Financial Group, Inc. has filed a registration statement on
Form S-1 ("Registration Statement") with the Securities and Exchange Commission
under the Securities Act for the registration of the common stock to be issued
in the conversion. See "Where You Can Find More Information." Upon completion of
the conversion, the common stock will be registered with the Securities and
Exchange Commission under the Exchange Act and generally may not be deregistered
for at least three years thereafter. EverTrust Financial Group, Inc. will then
be subject to the information, proxy solicitation, insider trading restrictions
and other requirements of the Exchange Act.
The registration under the Securities Act of the common stock to be
issued in the conversion does not cover the resale of such shares. Shares of the
common stock purchased by persons who are not affiliates of EverTrust Financial
Group, Inc. may be resold without registration. Shares purchased by an affiliate
of EverTrust Financial Group, Inc. may comply with the resale restrictions of
Rule 144 under the Securities Act. If EverTrust Financial Group, Inc. meets the
current public information requirements of Rule 144 under the Securities Act,
each affiliate of EverTrust Financial Group, Inc. who complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of certain other persons, would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares
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of EverTrust Financial Group, Inc., or the average weekly volume of trading in
such shares during the preceding four calendar weeks. Provision may be made in
the future by EverTrust Financial Group, Inc. to permit affiliates to have their
shares registered for sale under the Securities Act under certain circumstances.
There are currently no demand registration rights outstanding. However, in the
event EverTrust Financial Group, Inc., at some future time, determines to issue
additional shares from its authorized but unissued shares, EverTrust Financial
Group, Inc. might offer registration rights to certain of its affiliates who
want to sell their shares.
TAXATION
Federal Taxation
General. EverTrust Financial Group, Inc. and subsidiaries will report
their income on a fiscal year basis using the accrual method of accounting and
will be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly Everett Mutual Bank's
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to Everett Mutual Bank or EverTrust
Financial Group, Inc.
Bad Debt Reserve. Historically, savings institutions such as Everett
Mutual Bank which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. Everett Mutual
Bank's deductions with respect to "qualifying real property loans," which are
generally loans secured by certain interest in real property, were computed
using an amount based on Everett Mutual Bank's actual loss experience, or a
percentage equal to 8% of Everett Mutual Bank's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the non-qualifying reserve. Due to Everett Mutual Bank's loss experience,
Everett Mutual Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
The provisions repealing the current thrift bad debt rules were passed
by Congress as part of "The Small Business Job Protection Act of 1996." The new
rules eliminate the 8% of taxable income method for deducting additions to the
tax bad debt reserves for all thrifts for tax years beginning after December 31,
1995. These rules also require that all institutions recapture all or a portion
of their bad debt reserves added since the base year, which is the last taxable
year beginning before January 1, 1988. Everett Mutual Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such
the new rules will have no effect on the net income or federal income tax
expense. For taxable years beginning after December 31, 1995, Everett Mutual
Bank's bad debt deduction will be determined under the experience method using a
formula based on actual bad debt experience over a period of years or, if
Everett Mutual Bank is a "large" association, with assets in excess of $500
million, on the basis of net charge-offs during the taxable year. The new rules
allow an institution to suspend bad debt reserve recapture for the 1996 and 1997
tax years if the institution's lending activity for those years is equal to or
greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only home
purchase or home improvement loans are included and the institution can elect to
have the tax years with the highest and lowest lending activity removed from the
average calculation. If an institution is permitted to postpone the reserve
recapture, it must begin its six year recapture no later than the 1998 tax year.
The unrecaptured base year reserves will not be subject to recapture as long as
the institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
Distributions. To the extent that Everett Mutual Bank makes
"nondividend distributions" to EverTrust Financial Group, Inc., such
distributions will be considered to result in distributions from the balance of
its bad debt reserve as of December 31, 1987, or a lesser amount if Everett
Mutual Bank's loan portfolio decreased since December 31, 1987, and then from
the supplemental reserve for losses on loans ("Excess Distributions"), and an
amount based on the Excess Distributions will be included in Everett Mutual
Bank's taxable income. Nondividend distributions include distributions in excess
of Everett Mutual Bank's current and accumulated earnings and profits,
distributions in redemption of stock and distributions in partial or complete
liquidation. However, dividends paid out of Everett
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Mutual Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from Everett Mutual Bank's bad debt reserve. The amount of additional taxable
income created from an Excess Distribution is an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the distribution.
Thus, if, after the conversion, Everett Mutual Bank makes a "nondividend
distribution," then approximately one and one-half times the Excess Distribution
would be includable in gross income for federal income tax purposes, assuming a
34% corporate income tax rate, exclusive of state and local taxes. See
"Regulation -- The Banks -- Dividends" and "EverTrust Financial Group, Inc.'s
Dividend Policy" for limits on the payment of dividends by Everett Mutual Bank.
Everett Mutual Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a
tax on alternative minimum taxable income at a rate of 20%. In addition, only
90% of alternative minimum taxable income can be offset by net operating loss
carryovers. Alternative minimum taxable income is increased by an amount equal
to 75% of the amount by which Everett Mutual Bank's adjusted current earnings
exceeds its alternative minimum taxable income, which is determined without
regard to this preference and prior to reduction for net operating losses. For
taxable years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of alternative minimum taxable income,
with certain modification, over $2.0 million is imposed on corporations,
including Everett Mutual Bank, whether or not an alternative minimum tax is
paid.
Dividends-Received Deduction. EverTrust Financial Group, Inc. may
exclude from its income 100% of dividends received from its subsidiaries as a
member of the same affiliated group of corporations. The corporate
dividends-received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which EverTrust Financial Group, Inc. and
its subsidiaries will not file a consolidated tax return, except that if
EverTrust Financial Group, Inc. or its subsidiaries owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
Audits. Mutual Bancshares' federal income tax returns have not been
audited during the past five years.
The EverTrust Foundation
General. To continue Everett Mutual Bank's commitment to the
communities that it serves and to complement the Everett Mutual Foundation, the
plan of conversion provides that EverTrust Financial Group, Inc. will establish
The EverTrust Foundation as a non-stock Washington corporation. The foundation
will be funded with cash and the common stock of EverTrust Financial Group, Inc.
By increasing EverTrust Financial Group, Inc.'s visibility and reputation in the
communities that it serves, EverTrust Financial Group, Inc. believes that the
foundation will enhance the long-term value of its community banking franchise.
The foundation will be dedicated to providing funding to support charitable
causes in the geographic market areas served by EverTrust Financial Group, Inc.
and its subsidiaries.
Purpose of the Foundation. Traditionally, Everett Mutual Bank has
emphasized community lending and community development activities within the
communities that it serves. The foundation is being formed as a complement to
the Everett Mutual Foundation's existing community activities. The EverTrust
Foundation will be completely dedicated to community activities and the
promotion of charitable causes, and may be able to support such activities in
ways that are not currently available to the Everett Mutual Foundation.
The board of directors believes the establishment of a charitable
foundation is consistent with Mutual Bancshares' commitment to community
service. The board further believes that the funding of the foundation with cash
and common stock of EverTrust Financial Group, Inc. is a means of enabling the
communities served by EverTrust Financial Group, Inc. to share in the growth and
success of EverTrust Financial Group, Inc. long after completion of the
conversion and stock offering. The foundation will accomplish that goal by
providing for continued ties between the foundation and EverTrust Financial
Group, Inc., forming a partnership with EverTrust Financial Group, Inc.'s
community. The establishment of the foundation also will enable EverTrust
Financial Group, Inc. to
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develop a unified charitable donation strategy. EverTrust Financial Group, Inc.,
however, does not expect the contribution to the foundation to take the place of
its traditional community lending activities.
Structure of the Foundation. Under The EverTrust Foundation's bylaws,
the foundation will be governed by a six member Board of Trustees, including
four members of EverTrust Financial Group, Inc.'s Board of Directors and/or
senior management, and two individuals selected for their experience, expertise
and demonstrated commitment and service to charitable and community purposes.
The current members of the Board of Trustees are anticipated to be Margaret B.
Bavasi, Thomas R. Collins, Thomas J. Gaffney, George S. Newland, Harry Stickle
and Maurice "Ole" Olsen. There are no plans to change the size of the
foundation's board of directors during the one-year period after the completion
of the conversion.
A nominating committee of the foundation's board will nominate
individuals eligible for election to the board of trustees. The members of the
foundation, who are comprised of its board members, will elect the trustees from
those nominated by the nominating committee. Trustees will be appointed for one
year terms. It is not anticipated that the members of EverTrust Financial Group,
Inc.'s and Everett Mutual Bank's boards of directors who also serve as a
director of the foundation will receive any additional compensation for serving
as a director of the foundation. No determination has been made whether the
other foundation trustees will receive any compensation. The articles of
incorporation of the foundation provide 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
articles of incorporation also provide that no part of the net earnings of the
foundation will inure to the benefit of, or be distributable to its trustees,
officers or members. The foundation will make no award, grant or distribution to
any director, officer or employee of EverTrust Financial Group, Inc. or to any
of their affiliates. In addition, the conflict of interest rules of the Federal
Deposit Insurance Corporation and the Washington Division of Banks will apply to
those persons, if they serve as an officer, director or employee of the
foundation.
The board of trustees of the foundation will have the authority for the
affairs of the foundation. Among the responsibility of the foundation trustees
is the establishment of the policies of the foundation with respect to its
grants or donations, consistent with the purposes of the foundation. Although no
formal policy governing foundation grants exists at this time, the foundation's
board of trustees will adopt a policy upon establishment of the foundation. As
trustees of a nonprofit corporation, trustees 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 its charitable purpose. The trustees of the foundation will also be
responsible for directing the activities of the foundation, including the
management of the common stock of EverTrust Financial Group, Inc. held by the
foundation. However, it is expected that as a condition to receiving the
approval of the Washington Division of Banks and the nonobjection of the Federal
Deposit Insurance Corporation to the conversion and stock offering, that the
foundation will be required to commit to the Washington Division of Banks and
the Federal Deposit Insurance Corporation that all shares of common stock held
by the foundation will be voted in the same ratio as all other shares of
EverTrust Financial Group, Inc.'s common stock, on all proposals considered by
stockholders. However, the Washington Division of Banks and the Federal Deposit
Insurance Corporation may waive this voting restriction under certain
circumstances. If a waiver is granted, the Washington Division of Banks and the
Federal Deposit Insurance Corporation may impose additional conditions regarding
the composition of the Foundation's board of trustees.
The foundation's initial place of business is expected to be located at
EverTrust Financial Group, Inc.'s administrative offices. Initially, the
foundation is expected to have no separate employees with the exception of an
executive director. The board of directors of the foundation will appoint such
other officers as may be necessary to manage the operations of the foundation.
In this regard, it is expected that EverTrust Financial Group, Inc. will be
required to provide the Federal Deposit Insurance Corporation with a commitment
that, to the extent applicable, EverTrust Financial Group, Inc. will comply with
the affiliate restrictions set forth in Sections 23A and 23B of the Federal
Reserve Act with respect to any transactions between EverTrust Financial Group,
Inc., its subsidiaries and the foundation.
EverTrust Financial Group, Inc. intends to capitalize The EverTrust
Foundation with cash of up to $1.3 million and a maximum of 390,000 shares or an
amount equal to 8.0% of the shares of common stock of EverTrust
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Financial Group, Inc. sold in the stock offering based on the midpoint of the
estimated valuation range, which would have a market value of $3.3 million to
$3.9 million, and $3.9 million at the maximum, as adjusted, based on the
purchase price of $10.00 per share. Messrs. Collins, Gaffney and Newland and Ms.
Bavasi, who will serve as initial trustees of the foundation, and their
affiliates, intend to purchase, subject to availability, an aggregate of 62,000
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 Messrs. Collins, Gaffney and Newland and Ms. Bavasi and their affiliates will
total 573,000 shares or 6.38% of the total number of shares of common stock to
be issued and outstanding, assuming the sale of 8,986,250 shares of common
stock.
The EverTrust Foundation will receive working capital from the cash
donation and any dividends paid on the common stock, 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 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. One of the conditions imposed on
the gift of common stock by EverTrust Financial Group, Inc. is that the amount
of common stock that may be sold by the foundation in any one year shall not
exceed 5% of the average market value of the assets held by the foundation,
except where the board of directors of the foundation determines that the
failure to sell an amount of common stock greater than such amount would result
in a longer-term reduction of the value of the foundation's assets and as such
would jeopardize the foundation's capacity to carry out its charitable purposes.
Failure to distribute this minimum return will require the payment of
substantial federal taxes. Upon completion of the conversion and the stock
offering and the contribution of shares of common stock to the foundation,
EverTrust Financial Group, Inc. would have 5,856,500, 6,890,000, 7,865,000 and
8,986,250 shares issued and outstanding based on the minimum, midpoint, maximum
and maximum, as adjusted, of the estimated valuation range. Because EverTrust
Financial Group, Inc. will have an increased number of shares outstanding, the
ownership interests of minority stockholders in EverTrust Financial Group,
Inc.'s common stock would be diluted to 5.66%, 5.66%, 4.96% and 4.34% at the
minimum, midpoint and maximum and maximum, as adjusted, of the estimated
valuation range. For additional discussion of the dilutive effect, see "Pro
Forma Data."
Tax Considerations. EverTrust Financial Group, Inc. has been advised by
their outside tax advisors that an organization created and operated for the
above charitable purposes would generally qualify as a Section 501(c)(3) exempt
organization under the Internal Revenue Code, and that this type of an
organization would likely be classified as a private foundation as determined in
Section 501 of the Internal Revenue Code. The foundation will submit a timely
request to the Internal Revenue Service to be recognized as an exempt
organization. As long as the foundation files its application for recognition of
tax-exempt status within 15 months from the date of its organization, and
provided the IRS approves the application, the effective date of the
foundation's status as a Section 501(c)(3) organization will be the date of its
organization. EverTrust Financial Group, Inc.'s outside tax advisor, however,
has not rendered any advice on the regulatory condition to the contribution
which is expected to require that all shares of common stock of EverTrust
Financial Group, Inc. held by the foundation must be voted in the same ratio as
all other outstanding shares of common stock of EverTrust Financial Group, Inc.,
on all proposals considered by stockholders of EverTrust Financial Group, Inc.
Consistent with the expected condition, in the event that EverTrust Financial
Group, Inc. 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 under Section 4941 of the Internal Revenue Code, it is expected that
the Federal Deposit Insurance Corporation and the Washington Division of Banks
would waive such voting restriction upon submission of a legal opinion(s) by
EverTrust Financial Group, Inc. or the foundation satisfactory to them. See "--
Regulatory Conditions Imposed on the Foundation."
Under Washington law, EverTrust Financial Group, Inc. is authorized by
statute to make charitable contributions and case law has recognized the
benefits of such contributions to a Washington corporation. In this regard,
Washington case law provides that a charitable gift must be within reasonable
limits as to amount and purpose to be valid. Under the Internal Revenue Code,
EverTrust Financial Group, Inc. is generally allowed a deduction for charitable
contributions made to qualifying donees within the taxable year of up to 10% of
its taxable income of the consolidated group of corporations (with certain
modifications) for that year. Charitable contributions made by
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EverTrust Financial Group, Inc. in excess of the annual deductible amount will
be deductible over each of the five succeeding taxable years, subject to certain
limitations. EverTrust Financial Group, Inc. believe that the conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised in the
conversion. In making such a determination, EverTrust Financial Group, Inc.
considered the dilutive impact of the contribution of common stock to the
foundation on the amount of common stock available to be offered for sale in the
stock offering. Based on such consideration, EverTrust Financial Group, Inc.
believes that the contribution to the foundation in excess of the 10% annual
deduction limitation is justified given EverTrust Financial Group, Inc.'s
capital position and its earnings, the substantial additional capital being
raised in the stock offering and the potential benefits of the foundation to the
communities served by EverTrust Financial Group, Inc. In this regard, assuming
the sale of shares at the maximum of the estimated offering range, EverTrust
Financial Group, Inc. would have pro forma stockholders' equity of $121.3
million or 23.27% of pro forma consolidated assets. See "Historical and Pro
Forma Regulatory Capital Compliance," "Capitalization," "Comparison of Valuation
and Pro Forma Information with No Foundation" and "Pro Forma Data." EverTrust
Financial Group, Inc. believes that the amount of the charitable contribution is
reasonable given EverTrust Financial Group, Inc.'s pro forma capital positions.
As such, EverTrust Financial Group, Inc. believes that the contribution does not
raise safety and soundness concerns.
EverTrust Financial Group, Inc. has received an opinion of its outside
tax advisors that EverTrust Financial Group, Inc.'s contribution of its own
stock to the foundation should not constitute an act of self-dealing. EverTrust
Financial Group, Inc. should also, more likely than not be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution less the nominal par value that the foundation is required to pay
to EverTrust Financial Group, Inc. for such stock, subject to the annual
deduction limitation described above. EverTrust Financial Group, Inc., however,
would be able to carry forward any unused portion of the deduction for five
years following the contribution, subject to certain limitations. EverTrust
Financial Group, Inc.'s outside tax advisors, however, have not rendered advice
as to fair market value for purposes of determining the amount of the tax
deduction. Assuming the close of the Offerings at the maximum of the estimated
price range, EverTrust Financial Group, Inc. estimates that all of the
contribution should be deductible over the six-year period. EverTrust Financial
Group, Inc. may make further contributions to the foundation following the
initial contribution. In addition, EverTrust Financial Group, Inc. also may
continue to make charitable contributions to other qualifying organizations. Any
of these future contributions would be based on an assessment of, among other
factors, the financial condition of EverTrust Financial Group, Inc. at that
time, the interests of stockholders and depositors of EverTrust Financial Group,
Inc., and the financial condition and operations of the foundation.
Although EverTrust Financial Group, Inc. has received an opinion of
their outside tax advisors that EverTrust Financial Group, Inc. will more likely
than not be entitled to a deduction for the charitable contribution, there can
be no assurances that the Internal Revenue Service will recognize the foundation
as a Section 501(c)(3) exempt organization or that a deduction for the
charitable contribution will be allowed. In either case, EverTrust Financial
Group, Inc.'s contribution to the foundation would be expensed without tax
benefit, resulting in a reduction in earnings in the year in which the Internal
Revenue Service makes the determination.
As a private foundation, earnings and gains, if any, from the sale of
common stock or other assets are generally exempt from federal and state
corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private foundation will generally be subject
to a federal excise tax of 2.0%. The foundation will be required to make an
annual filing with the Internal Revenue Service within four and one-half months
after the close of the foundation's fiscal year. The foundation also will 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 the
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. Numerous other restrictions exist in the operation of the foundation
including transactions with related entities, level of investment and
distributions for charitable purposes.
Regulatory Conditions Imposed on the Foundation. Establishment of The
EverTrust Foundation is expected to be subject to the following conditions being
agreed to in writing by the foundation as a condition to receiving the
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Federal Deposit Insurance Corporation's nonobjection and the Washington Division
of Banks' approval of the conversion:
(1) the foundation will be subject to examination by the Federal
Deposit Insurance Corporation and the Washington Division of Banks;
(2) the foundation must comply with supervisory directives imposed by
the Federal Deposit Insurance Corporation and the Washington Division of Banks;
(3) the foundation will operate in accordance with written policies
adopted by its board of directors, 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 stockholders of EverTrust Financial Group, Inc.; provided,
however, that, consistent with the condition, the Federal Deposit Insurance
Corporation and the Washington Division of Banks would waive this voting
restriction under certain circumstances and subject to certain conditions if
compliance with the voting restriction would:
o cause a violation of the law of the State of Washington;
o would cause the foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the
foundation; or
o would cause the foundation to be subject to an excise tax under
Section 4941 of the Internal Revenue Code;
(5) the foundation must submit a proposed operating plan to the Federal
Deposit Insurance Corporation prior to the conversion; and
(6) the foundation must submit annual reports to the Federal Deposit
Insurance Corporation. In order to obtain a waiver of condition number 4 above,
EverTrust Financial Group, Inc.'s or the foundation's legal counsel would be
required to render an opinion satisfactory to the Federal Deposit Insurance
Corporation and the Washington Division of Banks. While there is no current
intention for EverTrust Financial Group, Inc. or the foundation to seek a waiver
from the Federal Deposit Insurance Corporation and the Washington Division of
Banks from these restrictions, there can be no assurances that a legal opinion
addressing these issues could be rendered, or if rendered, that the Federal
Deposit Insurance Corporation and the Washington Division of Banks would grant
an unconditional waiver of the voting restriction. If the voting restriction is
waived or becomes unenforceable, the Federal Deposit Insurance Corporation and
the Division 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 EverTrust Financial Group, Inc., Everett
Mutual Bank or any affiliate or impose other conditions relating to control of
the foundation's common stock as is determined by the Federal Deposit Insurance
Corporation or the Washington Division of Banks 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.
Washington Taxation
Mutual Bancshares is subject to a business and occupation tax imposed
under Washington law at the rate of 1.50% of gross receipts. Interest received
on loans secured by mortgages or deeds of trust on residential properties and
certain investment securities are exempt from such tax.
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MUTUAL BANCSHARES' CONVERSION
The Washington Division of Banks has approved the plan of conversion
with the condition that it is approved by the members of Everett Mutual
Bancshares entitled to vote and to the satisfaction of certain other conditions
imposed by the Washington Division of Banks in its approval. The Washington
Division of Banks' approval is not a recommendation or endorsement of the plan
of conversion.
General
On March 20, 1999, the Board of Directors of Everett Mutual Bank and
Mutual Bancshares, respectively, unanimously adopted, and on May 24, 1999,
subsequently amended, the plan of conversion, under which Mutual Bancshares will
become a stock bank holding company. In connection with the conversion, Mutual
Bancshares has changed its name to EverTrust Financial Group, Inc. References to
Mutual Bancshares are to the entity in its mutual form of ownership. References
to EverTrust Financial Group, Inc. are to the entity, which is offering the
common stock for sale, and which will be the resulting stock company in the
mutual to stock conversion of Mutual Bancshares.
The following discussion of the plan of conversion contains all
material terms about the conversion. Nevertheless, readers are urged to read
carefully the plan of conversion, which is attached as Exhibit A to Everett
Mutual Bancshares' Proxy Statement and is available to members of Mutual
Bancshares upon request. The plan of conversion is also filed as an exhibit to
the Registration Statement. See "Where You Can Find More Information." A special
meeting of Mutual Bancshares' members entitled to vote on the conversion has
been called for that purpose to be held on ________, 1999.
The plan of conversion provides generally that:
1. Mutual Bancshares will convert from mutual to stock form;
2. the common stock will be offered by EverTrust Financial Group,
Inc. in the subscription offering to persons having subscription
rights and in a direct community offering to certain members of
the general public, with preference given to natural persons
residing in Snohomish County;
3. if necessary, shares of common stock not subscribed for in the
subscription and direct community offering will be offered to
certain members of the general public in a syndicated community
offering through a syndicate of registered broker-dealers under
selected dealers agreements; and
4. the conversion will be completed only upon the sale of at least
$55,250,000 of common stock to be issued pursuant to the plan of
conversion.
As part of the conversion, EverTrust Financial Group, Inc. is making a
subscription offering of its common stock to holders of subscription rights in
the following order of priority:
o Persons with $50 or more on deposit at Everett Mutual Bank as of
December 31, 1997;
o EverTrust Financial Group, Inc.'s employee stock ownership plan;
o Persons with $50 or more on deposit at Everett Mutual Bank as of
June 30, 1999;
o Everett Mutual Bank's depositors and borrowers as of _________
__, 1999;
o Persons with $50 or more on deposit at Commercial Bank of Everett
as of December 31, 1997; and
o All other people.
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Shares of common stock not subscribed for in the subscription and
direct community offering may be offered for sale in the syndicated community
offering. Regulations require that the syndicated community offering be
completed within 45 days after completion of the fully extended subscription
offering unless extended by Everett Mutual Bank or EverTrust Financial Group,
Inc. with the approval of the regulatory authorities. If the syndicated
community offering is determined not to be feasible, the Boards of Directors of
Everett Mutual Bank and EverTrust Financial Group, Inc. will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock. The plan of conversion provides
that the conversion must be completed within 24 months after the date of the
approval of the plan of conversion by the members of Mutual Bancshares.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Mutual Bancshares.
The completion of the offerings, however, depends on market conditions
and other factors beyond Mutual Bancshares and Everett Mutual Bank's control. No
assurance can be given as to the length of time after approval of the plan of
conversion at the special meeting that will be required to complete the direct
community or syndicated community offerings or other sale of the common stock.
If delays are experienced, significant changes may occur in the estimated pro
forma market value of Mutual Bancshares and its subsidiaries, together with
corresponding changes in the net proceeds realized by EverTrust Financial Group,
Inc. from the sale of the common stock. In the event the conversion is
terminated, Mutual Bancshares would be required to charge all conversion
expenses against current income.
Orders for shares of common stock will not be filled until at least
5,525,000 shares of common stock have been subscribed for or sold and the
Washington Division of Banks approves the final valuation and the conversion
closes. If the conversion is not completed within 45 days after the last day of
the fully extended subscription offering and the Washington Division of Banks
consents to an extension of time to complete the conversion, subscribers will be
given the right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Everett Mutual Bank's savings account rate, from the date
payment is received until the funds are returned to the subscriber. If such
period is not extended, or, in any event, if the conversion is not completed,
all withdrawal authorizations will be terminated and all funds held will be
promptly returned together with accrued interest at Everett Mutual Bank's
savings account rate from the date payment is received until the conversion is
terminated.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in
the best interests of Mutual Bancshares, its members and the communities it
serves. By converting to the stock form of organization, Mutual Bancshares will
be structured in the form used by holding companies of commercial banks and by a
growing number of savings institutions. Management of Mutual Bancshares believes
that the conversion offers a number of advantages which will be important to the
future growth and performance of Mutual Bancshares and Everett Mutual Bank. The
capital raised in the conversion is intended to support Everett Mutual Bank's
current lending and investment activities by permitting the origination of
larger loan amounts and may also support possible future expansion and
diversification of operations, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such expansion or
diversification. The conversion is also expected to afford Mutual Bancshares'
management, members and others the opportunity to become stockholders of
EverTrust Financial Group, Inc. and participate more directly in, and contribute
to, any future growth of EverTrust Financial Group, Inc. and Everett Mutual
Bank. The conversion will also enable EverTrust Financial Group, Inc. and
Everett Mutual Bank to raise additional capital in the public equity or debt
markets should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any such financing
activities.
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Effects of Conversion to Stock Form on Depositors and Borrowers of Everett
Mutual Bank
Voting Rights. Savings members and borrowers who are not shareholders
will have no voting rights in EverTrust Financial Group, Inc. and therefore will
not be able to elect directors of EverTrust Financial Group, Inc. or to control
its affairs. After the conversion, voting rights will be vested exclusively in
EverTrust Financial Group, Inc. with respect to Everett Mutual Bank and the
other subsidiaries and the holders of the common stock as to matters pertaining
to EverTrust Financial Group, Inc. Each holder of common stock shall be entitled
to vote on any matter to be considered by the stockholders of EverTrust
Financial Group, Inc. A stockholder will be entitled to one vote for each share
of common stock owned.
Deposit Accounts and Loans. Everett Mutual Bank's deposit accounts,
account balances and existing Federal Deposit Insurance Corporation insurance
coverage of deposit accounts will not be affected by the conversion.
Furthermore, the conversion will not affect the loan accounts, loan balances or
obligations of borrowers under their individual contractual arrangements with
Everett Mutual Bank.
Tax Effects. EverTrust Financial Group, Inc. and Everett Mutual Bank
have received an opinion from Breyer & Associates PC, Washington, D.C., that the
conversion will constitute a nontaxable reorganization under Section
368(a)(1)(F) of the Internal Revenue Code. Among other things, the opinion
states that:
1. no gain or loss will be recognized to Mutual Bancshares in its
mutual or stock form by reason of the conversion;
2. no gain or loss will be recognized to its account holders upon
the issuance to them of accounts in Everett Mutual Bank
immediately after the conversion, in the same dollar amounts and
on the same terms and conditions as their accounts at Everett
Mutual Bank in its mutual form plus interest in the liquidation
account;
3. the tax basis of account holders' accounts in Everett Mutual Bank
immediately after the conversion will be the same as the tax
basis of their accounts immediately prior to conversion;
4. the tax basis of each account holder's interest in the
liquidation account will be equal to the value, if any, of that
interest;
5. the tax basis of the common stock purchased in the conversion
will be the amount paid and the holding period for the stock will
begin at the date of purchase; and
6. no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion,
except to the extent subscription rights are deemed to have value
as discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service,
an opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached therein. If
there is a disagreement, no assurance can be given that the conclusions reached
in an opinion of counsel would be sustained by a court if contested by the
Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the
opinion provides that the receipt of subscription rights by certain persons
under the plan of conversion will be taxable to the extent, if any, that the
subscription rights are deemed to have a fair market value. RP Financial, a
financial consulting firm retained by Mutual Bancshares, whose findings are not
binding on the Internal Revenue Service, has issued a letter indicating that the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
common stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the direct community offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of the rights may only be taxable to those
persons who
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exercise their subscription rights. Mutual Bancshares and Everett Mutual Bank
could also recognize a gain on the distribution of such subscription rights.
Holders of subscription rights are encouraged to consult with their own tax
advisors as to the tax consequences in the event the subscription rights are
deemed to have a fair market value.
EverTrust Financial Group, Inc. and Everett Mutual Bank has also
received an opinion from Deloitte & Touche LLP, Seattle, Washington, that,
assuming the conversion does not result in any federal income tax liability to
Everett Mutual Bank, its account holders, or EverTrust Financial Group, Inc.,
implementation of the plan of conversion will not result in any Washington
income tax liability to such entities or persons.
The opinions of Breyer & Associates PC and Deloitte & Touche LLP and
the letter from RP Financial are filed as exhibits to the Registration
Statement. See "Where You Can Find More Information."
Prospective Investors Are Urged to Consult With Their Own Tax Advisors
Regarding The Tax Consequences of The Conversion Particular to Them.
Liquidation Account. In the unlikely event of a complete liquidation of
Everett Mutual Bank in its present mutual form, each depositor in Everett Mutual
Bank would receive a pro rata share of any assets of Everett Mutual Bank
remaining after payment of claims of all creditors, including the claims of all
depositors up to the withdrawal value of their accounts. Each depositor's pro
rata share of such remaining assets would be in the same proportion as the value
of his deposit account to the total value of all deposit accounts in Everett
Mutual Bank at the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in Everett
Mutual Bank, including certificates of deposit, shall not be entitled to share
in any residual assets in the event of liquidation of Everett Mutual Bank.
However, under the Washington Division of Banks' regulations, Everett Mutual
Bank shall, at the time of the conversion, establish a liquidation account in an
amount equal to its total equity as of the date of the latest statement of
financial condition contained in the final prospectus relating to the
conversion.
The liquidation account shall be maintained by Everett Mutual Bank
subsequent to the conversion for the benefit of eligible account holders and
supplemental eligible account holders who retain their savings accounts in
Everett Mutual Bank. Each eligible account holder and supplemental eligible
account holder shall, with respect to each savings account held, have a related
inchoate interest in a subaccount portion of the liquidation account balance.
The initial subaccount balance for a savings account held by an
eligible account holder or a supplemental eligible account holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the savings account and the denominator is the total amount of the
"qualifying deposits" of all eligible account holders. The initial subaccount
balance shall not be increased, and it shall be decreased as provided below.
If the deposit balance in any savings account of an eligible account
holder or supplemental eligible account holder at the close of business on any
annual closing day of Everett Mutual Bank subsequent to December 31, 1997 or
June 30, 1999 is less than the lesser of the deposit balance in a savings
account at the close of business on any other annual closing date subsequent to
December 31, 1997 or June 30, 1999, or the amount of the "qualifying deposit" in
a savings account on December 31, 1997 or June 30, 1999, then the subaccount
balance for a savings account shall be adjusted by reducing the subaccount
balance in an amount proportionate to the reduction in the deposit balance. Once
reduced, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related savings
account. If any savings account is closed, the related subaccount balance shall
be reduced to zero.
Only upon a complete liquidation of Everett Mutual Bank, each eligible
account holder and supplemental eligible account holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for savings account(s) then held
by the holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of savings
accounts and other liabilities or similar transactions with another federally
insured institution in which Everett
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Mutual Bank is not the surviving institution shall be considered to be a
complete liquidation. In any of these transactions the liquidation account shall
be assumed by the surviving institution.
In the unlikely event Everett Mutual Bank is liquidated depositors will
be entitled to full payment of their deposit accounts before any payment is made
to EverTrust Financial Group, Inc. as the sole stockholder of Everett Mutual
Bank.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories set forth in
the plan of conversion. Subscription priorities have been established for the
allocation of stock to the extent that the common stock is available. These
priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at Everett Mutual Bank as of December 31, 1997 will receive
nontransferable subscription rights to subscribe for up to the greater of 25,000
shares of common stock, one-tenth of one percent of the total offering of common
stock or 15 times the product, rounded down to the next whole number, obtained
by multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposit of the
eligible account holder and the denominator is the total amount of qualifying
deposits of all eligible account holders. If the exercise of subscription rights
in this category results in an oversubscription, shares of common stock will be
allocated among subscribing eligible account holders so as to permit each one,
to the extent possible, to purchase a number of shares sufficient to make the
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated proportionately, based on the amount of their respective qualifying
deposits as compared to total qualifying deposits of all subscribing eligible
account holders. Subscription rights received by officers and directors in this
category based on their increased deposits in Everett Mutual Bank in the one
year period preceding December 31, 1997 are subordinated to the subscription
rights of other eligible account holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion
provides that the employee stock ownership plan shall receive nontransferable
subscription rights to purchase up to 10% of the shares of common stock issued
in the conversion. The plan intends to purchase 2% of the shares of common stock
issued in the conversion. In the event the number of shares offered in the
conversion is increased, the plan shall have a priority right to purchase any
shares exceeding that amount up to 2% of the common stock. If the plan's
subscription is not filled in its entirety, the plan may purchase shares in the
open market or may purchase shares directly from EverTrust Financial Group, Inc.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of June 30, 1999 will receive nontransferable
subscription rights to subscribe for up to the greater of 25,000 shares of
common stock, one-tenth of one percent of the total offering of common stock or
15 times the product, rounded down to the next whole number, obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
supplemental eligible account holder and the denominator is the total amount of
qualifying deposits of all supplemental eligible account holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing supplemental eligible
account holders so as to permit each one, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing supplemental eligible
account holders proportionately, based on the amount of their respective
qualifying deposits as compared to total qualifying deposits of all supplemental
eligible account holders.
Category 4: Other Members. Each depositor and borrower of Everett
Mutual Bank as of ________, 1999 will receive nontransferable subscription
rights to purchase up to 25,000 shares of common stock in the conversion to the
extent shares are available following subscriptions by eligible account holders,
EverTrust Financial Group, Inc.'s
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employee stock ownership plan and supplemental eligible account holders. If
there is an oversubscription in this category, the available shares will be
allocated proportionately based on the amount of the respective subscriptions.
Category 5: Commercial Bank of Everett Eligible Account Holders. Each
depositor of Commercial Bank of Everett on December 31, 1997 will receive
nontransferable subscription rights to purchase up to 25,000 shares of common
stock in the conversion to the extent shares are available following
subscriptions by eligible account holders, EverTrust Financial Group, Inc.'s
employee stock ownership plan, supplemental eligible account holders and other
members. If there is an oversubscription in this category, the available shares
will be allocated proportionately based on the amount of the respective
subscriptions.
In addition to the purchase limitations described above, purchases of
shares of common stock in the conversion by any person, and associates thereof,
or a group of persons acting in concert, may not exceed $500,000, except that
the employee stock ownership plan intends to purchase 2% of the total shares of
the common stock issued in the conversion, and shares purchased by the employee
stock ownership plan and attributable to any participant thereunder shall not be
aggregated with shares purchased by such participant or any other purchaser.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the Washington Division of Banks or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of the shares. Once tendered, subscription orders cannot be revoked without the
consent of Everett Mutual Bank and EverTrust Financial Group, Inc.
EverTrust Financial Group, Inc. and Everett Mutual Bank will make
reasonable attempts to provide a prospectus and related offering materials to
holders of subscription rights. However, the subscription offering and all
subscription rights under the plan of conversion will expire at Noon, Pacific
Time, on ___________ __, 1999, whether or not EverTrust Financial Group, Inc.
and Everett Mutual Bank has been able to locate each person entitled to such
subscription rights. Orders for common stock in the subscription offering
received in hand by Everett Mutual Bank after that time will not be accepted.
The subscription offering may be extended by EverTrust Financial Group, Inc. and
Everett Mutual Bank up to ___________ ___, 1999 without the Washington Division
of Banks' approval. The Washington Division of Banks' regulations require that
EverTrust Financial Group, Inc. complete the sale of common stock within 45 days
after the close of the subscription offering. If the direct community offering
and the syndicated community offerings are not completed within that period, all
funds received will be promptly returned with interest at Everett Mutual Bank's
savings account rate and all withdrawal authorizations will be canceled. If
regulatory approval of an extension of the time period has been granted, all
subscribers will be notified of the extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by EverTrust Financial Group, Inc. from a
subscriber, the subscriber's order will be rescinded and all funds received will
be promptly returned with interest, or withdrawal authorizations will be
canceled. No single extension can exceed 90 days.
Direct Community Offering. Concurrently with the subscription offering,
EverTrust Financial Group, Inc. is offering shares of the common stock to
certain members of the general public in a direct community offering, with
preference given to natural persons residing in Snohomish County, Washington.
Purchasers in the direct community offering are eligible to purchase up to
$250,000 of common stock in the conversion, which equals 25,000 shares. No
person, and associates thereof, and persons acting in concert with such person,
may purchase in the aggregate, shares with an aggregate purchase price of more
than $500,000, or 50,000 shares based on the $10.00 purchase price, of the
shares of the common stock issued in the conversion. If not enough shares are
available to fill orders in the direct community offering, the available shares
will be allocated on a pro rata basis determined by the amount of the respective
orders. Orders for the common stock in the direct community offering will be
filled to the extent such shares remain available after the satisfaction of all
orders received in the subscription offering. The direct community offering may
terminate on or at any time subsequent to Noon, Pacific Time, on _____________
____, 1999, but no later than
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45 days after the close of the subscription offering, unless extended by
EverTrust Financial Group, Inc. and Everett Mutual Bank, with approval of the
Washington Division of Banks. If regulatory approval of an extension of the time
period has been granted, all subscribers will be notified of the extension and
of the duration of any extension that has been granted, and will be given the
right to increase, decrease or rescind their orders. If an affirmative response
is not received by EverTrust Financial Group, Inc. and Everett Mutual Bank from
a subscriber, the subscriber's order will be rescinded and all funds received
will be promptly returned with interest. EverTrust Financial Group, Inc. and
Everett Mutual Bank have the absolute right to accept or reject in whole or in
part any orders to purchase shares in the direct community offering. If an order
is rejected in part, the purchaser does not have the right to cancel the
remainder of the order. EverTrust Financial Group, Inc. presently intends to
terminate the direct community offering as soon as it has received orders for
all shares available for purchase in the conversion.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The plan of conversion provides that all
shares of common stock not purchased in the subscription and direct community
offering, if any, may be offered for sale to certain members of the general
public in a syndicated community offering through a syndicate of registered
broker-dealers to be managed by Charles Webb acting as agent of EverTrust
Financial Group, Inc. EverTrust Financial Group, Inc. and Everett Mutual Bank
have the right to reject orders, in whole or part, in their sole discretion in
the syndicated community offering. If an order is rejected in part, the
purchaser does not have the right to cancel the remainder of the order. Neither
Charles Webb nor any registered broker-dealer shall have any obligation to take
or purchase any shares of the common stock in the syndicated community offering;
however, Charles Webb has agreed to use its best efforts in the sale of shares
in the syndicated community offering.
Stock sold in the syndicated community offering will be sold at the
$10.00 purchase price, the same price as all other shares in the offering. See
"-- Stock Pricing and Number of Shares to be Issued." No person, together with
any associate or group of persons acting in concert, will be permitted to
subscribe in the syndicated community offering for shares of common stock with
an aggregate purchase price of more than $250,000, or 25,000 shares of common
stock. See "-- Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings" for a description of the commission to be paid
to any selected dealers and to Charles Webb.
Charles Webb may enter into agreements with selected dealers to assist
in the sale of shares in the syndicated community offering. During the
syndicated community offering, selected dealers may only solicit indications of
interest from their customers to place orders with EverTrust Financial Group,
Inc. as of a certain date for the purchase of shares. When and if Charles Webb
and EverTrust Financial Group, Inc. believe that enough indications of interest
and orders have been received in the subscription offering, the direct community
offering and the syndicated community offering to complete the conversion,
Charles Webb will request, as of that certain date, selected dealers to submit
orders to purchase shares for which they have received indications of interest
from their customers. Selected dealers will send confirmations to such customers
on the next business day after that certain date. Selected dealers may settle
the trade by debiting the accounts of their customers on a date which will be
three business days from that certain date. Customers who authorize selected
dealers to debit their brokerage accounts are required to have the funds for
payment in their account on but not before the settlement date. On the
settlement date, selected dealers will remit funds to the account that EverTrust
Financial Group, Inc. established for each selected dealer. Each customer's
funds so forwarded to EverTrust Financial Group, Inc., along with all other
accounts held in the same title, will be insured by the Federal Deposit
Insurance Corporation up to the applicable $100,000 legal limit. After payment
has been received by EverTrust Financial Group, Inc. from selected dealers,
funds will earn interest at Everett Mutual Bank's savings account rate until the
completion of the offering. At the consummation of the conversion, the funds
received will be used to purchase the shares of common stock ordered. The shares
of common stock issued in the conversion cannot and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency. If the
conversion is not completed, funds with interest will be returned promptly to
the selected dealers, who, in turn, will promptly credit their customers'
brokerage accounts.
The syndicated community offering may close as early as Noon, Pacific
Time, on ____________ ___, 1999, or any date thereafter at the discretion of
EverTrust Financial Group, Inc. The syndicated community offering will
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terminate no more than 45 days following _____________ ___, 1999, unless
extended by EverTrust Financial Group, Inc., with approval from the Washington
Division of Banks, but in no case later than ___________ ___, 1999. The
syndicated community offering may run concurrent to the subscription and direct
community offering, or subsequent thereto.
If EverTrust Financial Group, Inc. is unable to find purchasers from
the general public for all unsubscribed shares, other purchase arrangements will
be made by the Board of Directors of EverTrust Financial Group, Inc. and Everett
Mutual Bank, if feasible. Any other arrangements must be approved by the
Washington Division of Banks. The Washington Division of Banks may grant one or
more extensions of the offering period, provided that no single extension
exceeds 90 days, subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and the extensions do
not go more than two years beyond the date on which the members approved the
plan of conversion. If the conversion is not completed within 45 days after the
close of the subscription offering, either all funds received will be returned
with interest, and withdrawal authorizations canceled, or, if the Washington
Division of Banks has granted an extension of time, all subscribers will be
given the right to increase, decrease or rescind their subscriptions at any time
prior to 20 days before the end of the extension period. If an extension of time
is obtained, all subscribers will be notified of the extension and of their
rights to modify their orders. If an affirmative response to any resolicitation
is not received by EverTrust Financial Group, Inc. from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest, or withdrawal authorizations will be canceled. No single
extension can exceed 90 days.
Persons in Non-Qualified States. EverTrust Financial Group, Inc. will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock under the plan of
conversion reside. Under certain circumstances, however, EverTrust Financial
Group, Inc. is not required to offer stock in the subscription offering to any
person who resides in a foreign country or who resides in a state of the United
States, even though the person may be an eligible subscriber. Generally, these
circumstances occur in states where a small number of persons otherwise eligible
to subscribe for shares of common stock reside, or EverTrust Financial Group,
Inc. determines that compliance with the securities laws of such state is
impracticable for reasons of cost or otherwise. Many states request or require
that EverTrust Financial Group, Inc., or its officers, directors or trustees,
register as a broker, dealer, salesman or selling agent, under the securities
laws of the state. This registration may be an expensive and time consuming
effort that may not be completed by the time the offering begins. States may
also request or require EverTrust Financial Group, Inc. to register or otherwise
qualify the subscription rights or common stock for sale or submit additional
filings regarding the sale of the stock. Where a state has only a small number
of persons eligible to subscribe for shares, EverTrust Financial Group, Inc.
will base its decision as to whether or not to offer the common stock in the
state on a number of factors. Some of these factors include the size of accounts
held by account holders in the state, the cost of reviewing the registration and
qualification requirements of the state, and of actually registering or
qualifying the shares, or the need to register EverTrust Financial Group, Inc.,
its officers, directors or employees as brokers, dealers or salesmen.
Eligible account holders, or supplemental eligible account holders, who
reside in these states will receive a letter from Charles Webb that indicates
they will not be eligible to purchase shares of common stock in the offering.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
EverTrust Financial Group, Inc. and Everett Mutual Bank have retained
Charles Webb to consult with, advise and to assist EverTrust Financial Group,
Inc., on a best efforts basis, in the distribution of the shares of common stock
in the offering. The services that Charles Webb will provide include, but are
not limited to training the employees of Everett Mutual Bank who will perform
certain ministerial functions in the subscription offering and direct community
offering regarding the mechanics and regulatory requirements of the stock
offering process, managing the stock information center by assisting interested
stock subscribers and by keeping records of all stock orders, preparing
marketing materials, and assisting in the solicitation of proxies from Mutual
Bancshares' members for use at the special meeting.
For its services, Charles Webb will receive a fixed management fee and
a success fee of $715,000. If selected dealers are used to assist in the sale of
shares of common stock in the direct community offering, Charles Webb will
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be paid a fee of up to 5.5% of the aggregate purchase price of the shares sold
by such dealers. EverTrust Financial Group, Inc. and Everett Mutual Bank have
agreed to reimburse Charles Webb for its out-of-pocket expenses, and its legal
fees up to a total of $70,000, and to indemnify Charles Webb against certain
claims or liabilities, including certain liabilities under the Securities Act,
and will contribute to payments Charles Webb may be required to make in
connection with any such claims or liabilities.
Sales of shares of common stock will be made primarily by registered
representatives affiliated with Charles Webb or by the broker-dealers managed by
Charles Webb. A stock information center will be established at the main office
of Everett Mutual Bank. EverTrust Financial Group, Inc. will rely on Rule 3a4-1
of the Securities Exchange Act and sales of common stock will be conducted
within the requirements of such Rule, so as to permit officers, directors and
employees to participate in the sale of the common stock in those states where
the law so permits. No officer, director or employee of EverTrust Financial
Group, Inc. or Everett Mutual Bank will be compensated directly or indirectly by
the payment of commissions or other remuneration in connection with his or her
participation in the sale of common stock.
Procedure for Purchasing Shares in the Subscription and Direct
Community Offering
To purchase shares in the subscription and direct community offering,
an executed stock order form along with the required full payment for each share
subscribed, or with appropriate authorization for withdrawal of full payment
from the subscriber's deposit account with Everett Mutual Bank or Commercial
Bank of Everett, must be received by Everett Mutual Bank by Noon, Pacific Time,
on ______________ ___, 1999. Stock order forms will be provided to each
accountholder, regardless of the number of accounts held. Stock order forms that
are not received by that time or are executed defectively or are received
without full payment, or without appropriate withdrawal instructions, are not
required to be accepted. EverTrust Financial Group, Inc. and Everett Mutual Bank
have the right to waive or permit the correction of incomplete or improperly
executed stock order forms, but do not represent that they will do so. Under the
plan of conversion, the interpretation by EverTrust Financial Group, Inc. and
Everett Mutual Bank of the terms and conditions of the plan of conversion and of
the stock order form will be final. Once received, an executed stock order form
may not be modified, amended or rescinded without the consent of EverTrust
Financial Group, Inc. and Everett Mutual Bank, unless the conversion has not
been completed within 45 days after the end of the subscription offering, unless
such period has been extended.
In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, they must list all accounts on
the stock order form giving all names in each account, the account number and
the approximate account balance as of the appropriate eligibility date. Failure
to list an account could result in fewer shares allocated if there is an
over-subscription than if all accounts had been disclosed.
Full payment for subscriptions may be made in cash only if delivered in
person at an office of Everett Mutual Bank, by check, bank draft, or money
order, or by authorization of withdrawal from deposit accounts maintained with
Everett Mutual Bank. Appropriate means by which such withdrawals may be
authorized are provided on the stock order form. No wire transfers will be
accepted and full payment is required. Interest will be paid on payments made by
cash, check, bank draft or money order at Everett Mutual Bank's savings account
rate from the date payment is received until the completion or termination of
the conversion. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the conversion, unless the certificate matures after the date of
receipt of the stock order form but prior to closing, in which case funds will
earn interest at the savings account rate from the date of maturity until the
conversion is completed or terminated, but a hold will be placed on such funds,
thereby making them unavailable to the depositor until completion or termination
of the conversion. When the conversion is completed, the funds received in the
offering will be used to purchase the shares of common stock ordered. The shares
of common stock issued in the conversion cannot and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency. If the
conversion is not consummated for any reason, all funds submitted will be
promptly refunded with interest as described above.
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If a subscriber authorizes Everett Mutual Bank or Commercial Bank of
Everett to withdraw the amount of the aggregate purchase price from his or her
deposit account, Everett Mutual Bank or Commercial Bank of Everett will do so as
of the effective date of the conversion, though the account must contain the
full amount necessary for payment at the time the subscription order is
received. Everett Mutual Bank and Commercial Bank of Everett will waive any
applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at
Everett Mutual Bank's or Commercial Bank of Everett's savings account rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for the
shares of common stock subscribed for at the $10.00 purchase price after the
conversion, provided that there is in force from the time of its subscription
until that time, a loan commitment from an unrelated financial institution or
EverTrust Financial Group, Inc. to lend to the employee stock ownership plan, at
that time, the aggregate purchase price of the shares for which it subscribed.
Certificates representing shares of common stock purchased, and any
refund due, will be mailed to purchasers at the address that is specified in a
properly completed stock order form or to the last address of the person
appearing on the records of Everett Mutual Bank as soon as practicable following
completion of the sale of all shares of common stock. Any certificates returned
as undeliverable will be disposed of in accordance with applicable law.
Purchasers may not be able to sell the shares of common stock which they
purchased until certificates for the common stock are available and delivered to
them, even though trading of the common stock may have begun.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to _______, 1999 in accordance with Rule 15c2-8 under the Securities
Exchange Act, no prospectus will be mailed any later than five days prior to
such date or hand delivered any later than two days prior to that date. Signing
the stock order form will confirm receipt or delivery in accordance with Rule
15c2-8. Stock order forms will only be distributed with a prospectus. Everett
Mutual Bank will accept for processing only orders submitted on original stock
order forms. Everett Mutual Bank is not obligated to accept orders submitted on
photocopied or telecopied stock order forms. Orders cannot and will not be
accepted without the execution of the certification appearing on the reverse
side of the stock order form.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Mutual Bancshares and its subsidiaries, as converted, as
determined by an independent appraisal. Mutual Bancshares and Everett Mutual
Bank have retained RP Financial to prepare an appraisal of the pro forma market
value of Mutual Bancshares and its subsidiaries, as well as a business plan. RP
Financial will receive a fee expected to total approximately $45,000 for its
appraisal services and assistance in the preparation of a business plan, plus
reasonable out-of-pocket expenses incurred in connection with the appraisal.
Mutual Bancshares and Everett Mutual Bank have agreed to indemnify RP Financial
under certain circumstances against liabilities and expenses, including legal
fees, arising out of, related to, or based upon the conversion.
For its analysis, RP Financial undertook substantial investigations to
learn about Mutual Bancshares' and its subsidiaries' businesses and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, RP Financial reviewed
Mutual Bancshares' Application for Approval of Conversion and EverTrust
Financial Group, Inc.'s Form S-1 Registration Statement. Furthermore, RP
Financial visited Everett Mutual Bank's facilities and had discussions with
Mutual Bancshares' management and its special conversion legal counsel, Breyer &
Associates PC. No detailed individual analysis of the separate components of
Mutual Bancshares' and its subsidiaries' assets and liabilities was performed in
connection with the evaluation.
In estimating the pro forma market value of Mutual Bancshares and its
subsidiaries, as required by applicable regulatory guidelines, RP Financial's
analysis utilized three selected valuation procedures, the Price/Book method,
the Price/Earnings method, and Price/Assets method, all of which are described
in its report. RP Financial placed the
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greatest emphasis on the Price/Earnings and Price/Book methods in estimating pro
forma market value. In applying these procedures, RP Financial reviewed, among
other factors, the economic make-up of Mutual Bancshares' and its subsidiaries'
primary market area, their financial performance and condition in relation to
publicly-traded institutions that RP Financial deemed comparable, the specific
terms of the offering of EverTrust Financial Group, Inc.'s common stock, the pro
forma impact of the additional capital raised in the conversion, conditions of
securities markets in general, and the market for thrift institution common
stock in particular. RP Financial's analysis provides an approximation of the
pro forma market value of Mutual Bancshares and its subsidiaries, based on the
valuation methods applied and the assumptions outlined in its report. Included
in its report were certain assumptions as to the pro forma earnings of EverTrust
Financial Group, Inc. after the conversion that were utilized in determining the
appraised value. These assumptions included estimated expenses and an assumed
after-tax rate of return on the net conversion proceeds as described under "Pro
Forma Data," purchases by the employee stock ownership plan of 8% of the common
stock sold in the conversion and purchases in the open market by the management
recognition and development plan of a number of shares equal to 4% of the common
stock sold in the conversion at the purchase price. See "Pro Forma Data" for
additional information concerning these assumptions. The use of different
assumptions may yield different results.
On the basis of the foregoing, RP Financial has advised Mutual
Bancshares and its subsidiaries that, in its opinion, as of June 11, 1999, the
aggregate estimated pro forma market value of Mutual Bancshares and its
subsidiaries, and, therefore, the common stock was within the valuation range of
$55,250,000 to $74,750,000 with a midpoint of $65,000,000, which is the
estimated value of the shares to be sold in the offering. After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the estimated valuation range
which is equal to the valuation range of $55,250,000 to $74,750,000 with a
midpoint of $65,000,000, which is the estimated value of the shares to be sold
in the offering. Assuming that the shares are sold at $10.00 per share in the
conversion, the estimated number of shares would be between 5,525,000 and
7,465,000 with a midpoint of 6,500,000. The purchase price of $10.00 was
determined by discussion among the Boards of Directors of Mutual Bancshares and
Everett Mutual Bank and Charles Webb, taking into account, among other factors
the requirement under Washington Division of Banks regulations that the common
stock be offered in a manner that will achieve the widest distribution of the
stock and the desired liquidity in the common stock subsequent to the
conversion. Since the outcome of the offerings relate in large measure to market
conditions at the time of sale, it is not possible to determine the exact number
of shares that will be issued by EverTrust Financial Group, Inc. at this time.
The estimated valuation range may be amended, with the approval of the
Washington Division of Banks, if necessitated by developments following the date
of such appraisal in, among other things, market conditions, the financial
condition or operating results of Mutual Bancshares and its subsidiaries,
regulatory guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the
Registration Statement. See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of Mutual Bancshares and its
subsidiaries, as of the close of the subscription offering.
No sale of the shares will take place unless RP Financial confirms to
the Washington Division of Banks that, to the best of RP Financial's knowledge
and judgment, nothing of a material nature has occurred that would cause it to
conclude that the actual total purchase price on an aggregate basis was
incompatible with its estimate of the total pro forma market value of Mutual
Bancshares and its subsidiaries, at the time of the sale. If, however, the facts
do not justify that statement, the offering or other sale may be canceled, a new
estimated valuation range and price per share set and new subscription, direct
community and syndicated community offerings held. Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.
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Depending upon market and financial conditions, the number of shares
sold may be more than 8,596,250 shares or less than 5,525,000 shares. If the
total amount of shares sold is less than 5,525,000 or more than 8,596,250, 15%
above the maximum of the estimated valuation range, for aggregate gross proceeds
of less than $55,250,000 or more than $85,962,500, subscription funds will be
returned promptly with interest to each subscriber unless he indicates
otherwise. If RP Financial establishes a new valuation range, it must be
approved by the Washington Division of Banks.
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase arrangements will be
made by the Boards of Directors of Everett Mutual Bank and EverTrust Financial
Group, Inc., if possible. Other purchase arrangements must be approved by the
Washington Division of Banks and may provide for purchases for investment
purposes by directors, officers, their associates and other persons in excess of
the limitations provided in the plan of conversion and in excess of the proposed
director purchases discussed earlier, although no such purchases are currently
intended. If such other purchase arrangements cannot be made, the plan of
conversion will terminate.
In formulating its appraisal, RP Financial relied upon the
truthfulness, accuracy and completeness of all documents Mutual Bancshares and
its subsidiaries furnished to it. RP Financial also considered financial and
other information from regulatory agencies, other financial institutions, and
other public sources, as appropriate. While RP Financial believes this
information to be reliable, RP Financial does not guarantee the accuracy or
completeness of the information and did not independently verify the financial
statements and other data provided by Mutual Bancshares and its subsidiaries or
independently value the assets or liabilities of Mutual Bancshares and its
subsidiaries. The appraisal by RP Financial is not intended to be, and must not
be interpreted as, a recommendation of any kind as to the advisability of voting
to approve the plan of conversion or of purchasing shares of common stock.
Moreover, because the appraisal is necessarily based on many factors which
change from time to time, there is no assurance that persons who purchase shares
in the conversion will later be able to sell shares after the conversion at
prices at or above the purchase price.
Limitations on Purchases of Shares
The plan of conversion provides for certain limitations to be placed
upon the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The plan
of conversion provides for the following purchase limitations:
1. The maximum purchase in the subscription offering by any person
or group of persons through a single account is $250,000, which
equals 25,000 shares;
2. No person may purchase more than $250,000, which equals 25,000
shares, in the direct community offering; and
3. The maximum purchase in the conversion by any person, related
persons or persons acting in concert is $500,000, which equals
50,000 shares.
For purposes of the plan of conversion, the directors are not deemed to
be acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitations are exceeded.
Everett Mutual Bank's and EverTrust Financial Group, Inc.'s Boards of
Directors may, in their sole discretion, increase the maximum purchase
limitation up to 9.99% of the shares of common stock sold in the conversion,
provided that orders for shares which exceed 5% of the shares of common stock
sold in the conversion may not exceed, in the aggregate, 10% of the shares sold
in the conversion. Everett Mutual Bank and EverTrust Financial Group, Inc. do
not intend to increase the maximum purchase limitation unless market conditions
justify that an increase in the maximum purchase limitation is necessary to sell
a number of shares in excess of the minimum of the estimated valuation range. If
the Boards of Directors decide to increase the purchase limitation set forth
above, persons who subscribed for the
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maximum number of shares of common stock will be, and other large subscribers in
the discretion of EverTrust Financial Group, Inc. and Everett Mutual Bank may
be, given the opportunity to increase their subscriptions accordingly, based on
the rights and preferences of any person who has priority subscription rights.
The term "acting in concert" is defined in the plan of conversion to
mean knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not by an express agreement; or
a combination or pooling of voting or other interests in the securities of an
issuer for a common purpose under any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. In general, a
person who acts in concert with another party shall also be deemed to be acting
in concert with any person who is also acting in concert with that other party.
EverTrust Financial Group, Inc. and Everett Mutual Bank may presume that certain
persons are acting in concert based upon, among other things, joint account
relationships and the fact that persons may have filed joint Schedules 13D with
the Securities And Exchange Commission with respect to other companies.
The term "associate" of a person is defined in the plan of conversion
to mean any corporation or organization, other than Everett Mutual Bank or a
majority-owned subsidiary of Everett Mutual Bank or Mutual Bancshares, of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; any trust or
other estate in which a person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity; and any
relative or spouse of a person, or any relative of a spouse, who either has the
same home as a person or who is a director or officer of Everett Mutual Bank or
any of its subsidiaries, or Mutual Bancshares. For example, a corporation of
which a person serves as an officer would be an associate of a person and,
therefore, all shares purchased by the corporation would be included with the
number of shares which a person could purchase individually under the above
limitations.
The term "officer" is defined in the plan of conversion to mean an
executive officer of Everett Mutual Bank, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Everett Mutual Bank and
EverTrust Financial Group, Inc. and by NASD members. See "-- Restrictions on
Transferability by Directors and Officers and NASD Members."
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased in the offering by directors and
officers of EverTrust Financial Group, Inc. may not be sold for a period of one
year following consummation of the conversion, except in the event of the death
of the stockholder or in any exchange of the common stock in connection with a
merger or acquisition of EverTrust Financial Group, Inc. Shares of common stock
received by directors or officers through the employee stock ownership plan or
the management recognition and development plan or upon exercise of options
issued under the stock option plan or purchased after the conversion are free of
restriction. Accordingly, shares of common stock issued by EverTrust Financial
Group, Inc. to directors and officers shall bear a legend giving appropriate
notice of the restriction and, in addition, EverTrust Financial Group, Inc. will
give appropriate instructions to the transfer agent for EverTrust Financial
Group, Inc.'s common stock with respect to the restriction on transfers. Any
shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted common stock shall also be restricted.
Purchases of outstanding shares of common stock of EverTrust Financial
Group, Inc. by directors, executive officers, or any person who was an executive
officer or director of Everett Mutual Bank after adoption of the plan of
conversion, and their associates during the three-year period following
conversion may be made only through a broker or dealer registered with the
Securities and Exchange Commission, except with the prior written approval of
the Washington Division of Banks. This restriction does not apply, however, to
negotiated transactions involving more than 1% of EverTrust Financial Group,
Inc.'s outstanding common stock or to the purchase of stock pursuant to the
stock option plan.
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EverTrust Financial Group, Inc. has filed with the Securities and
Exchange Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. The
registration under the Securities Act of shares of the common stock to be issued
in the conversion does not cover the resale of the shares. Shares of common
stock purchased by persons who are not affiliates of EverTrust Financial Group,
Inc. may be resold without registration. Shares purchased by an affiliate of
EverTrust Financial Group, Inc. will be subject to the resale restrictions under
Rule 144 of the Securities Act. If EverTrust Financial Group, Inc. meets the
current public information requirements of Rule 144 under the Securities Act,
each affiliate of EverTrust Financial Group, Inc. who complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of certain other persons, would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares of EverTrust
Financial Group, Inc. or the average weekly volume of trading in the shares
during the preceding four calendar weeks. Provision may be made in the future by
EverTrust Financial Group, Inc. to permit affiliates to have their shares
registered for sale under the Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates
face certain restrictions on the transfer of securities purchased in accordance
with subscription rights and to certain reporting requirements upon purchase of
the securities.
RESTRICTIONS ON ACQUISITION OF EVERTRUST FINANCIAL GROUP, INC.
The following discussion is a summary of certain provisions of federal
law and regulations and Washington corporate law, as well as the Articles of
Incorporation and Bylaws of EverTrust Financial Group, Inc., relating to stock
ownership and transfers, the Board of Directors and business combinations, all
of which may be deemed to have "anti-takeover" effects. The description of these
provisions is necessarily general and reference should be made to the actual law
and regulations and to the Articles of Incorporation and Bylaws of EverTrust
Financial Group, Inc. See "Where You Can Find More Information" on how to obtain
a copy of these documents.
Change of Control Regulations
The Change in Bank Control Act, together with Washington regulations,
require that the consent of the Washington Division of Banks and the Federal
Reserve be obtained prior to any person or company acquiring "control" of a
Washington-chartered savings bank or a Washington-chartered savings bank holding
company. Upon acquiring control, such acquiror will be deemed to be a bank
holding company. Control is conclusively presumed to exist if, among other
things, an individual or company acquires the power, directly or indirectly, to
direct the management or policies of EverTrust Financial Group, Inc. or Everett
Mutual Bank or to vote 25% or more of any class of voting stock. Control is
rebuttably presumed to exist under the Change in Bank Control Act if, among
other things, a person acquires more than 10% of any class of voting stock, and
the issuer's securities are registered under Section 12 of the Exchange Act or
the person would be the single largest stockholder. Restrictions applicable to
the operations of bank holding companies and conditions imposed by the Federal
Reserve in connection with its approval of such acquisitions may deter potential
acquirors from seeking to obtain control of EverTrust Financial Group, Inc. See
"Regulation -- Mutual Bancshares."
Anti-takeover Provisions in EverTrust Financial Group, Inc.'s
Articles of Incorporation and Bylaws
The Articles of Incorporation and Bylaws of EverTrust Financial Group,
Inc. contain certain provisions that are intended to encourage a potential
acquiror to negotiate any proposed acquisition of EverTrust Financial Group,
Inc. directly with EverTrust Financial Group, Inc.'s Board of Directors. An
unsolicited non-negotiated takeover proposal can seriously disrupt the business
and management of a corporation and cause it great expense. Accordingly, the
Board of Directors believes it is in the best interests of EverTrust Financial
Group, Inc. and its stockholders to encourage potential acquirors to negotiate
directly with management. The Board of Directors believes that these provisions
will encourage such negotiations and discourage hostile takeover attempts. It is
also the Board of Directors' view that these provisions should not discourage
persons from proposing a merger or transaction at prices reflective of the true
value of EverTrust Financial Group, Inc. and that otherwise is in the best
interests of all stockholders. However, these
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provisions may have the effect of discouraging offers to purchase EverTrust
Financial Group, Inc. or its securities which are not approved by the Board of
Directors but which certain of EverTrust Financial Group, Inc.'s stockholders
may deem to be in their best interests or pursuant to which stockholders would
receive a substantial premium for their shares over the current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors and management more difficult. The
Boards of Directors of Everett Mutual Bank and EverTrust Financial Group, Inc.
believe these provisions are in the best interests of the stockholders because
they will assist EverTrust Financial Group, Inc.'s Board of Directors in
managing the affairs of EverTrust Financial Group, Inc. in the manner they
believe to be in the best interests of stockholders generally and because a
company's board of directors is often best able in terms of knowledge regarding
the company's business and prospects, as well as resources, to negotiate the
best transaction for its stockholders as a whole.
The following description of certain of the provisions of the Articles
of Incorporation and Bylaws of EverTrust Financial Group, Inc. is necessarily
general and reference should be made in each instance to such Articles of
Incorporation and Bylaws. See "Where You Can Find More Information" regarding
how to obtain a copy of these documents.
Board of Directors. The Articles of Incorporation provide that the
number of directors shall not be less than five nor more than 15. The initial
number of directors is nine, but such number may be changed by resolution of the
Board of Directors. These provisions have the effect of enabling the Board of
Directors to elect directors friendly to management in the event of a
non-negotiated takeover attempt and may make it more difficult for a person
seeking to acquire control of EverTrust Financial Group, Inc. to gain majority
representation on the Board of Directors in a relatively short period of time.
EverTrust Financial Group, Inc. believes these provisions to be important to
continuity in the composition and policies of the Board of Directors.
The Articles of Incorporation provide that there will be staggered
elections of directors so that the directors will each be initially elected to
one, two or three-year terms, and thereafter all directors will be elected to
terms of three years each. This provision also has the effect of making it more
difficult for a person seeking to acquire control of EverTrust Financial Group,
Inc. to gain majority representation on the Board of Directors.
Cumulative Voting. The Articles of Incorporation specifically do not
permit cumulative voting for the election of directors. Cumulative voting in
election of directors entitles a stockholder to cast a total number of votes
equal to the number of directors to be elected multiplied by the number of his
or her shares and to distribute that number of votes among such number of
nominees as the stockholder chooses. The absence of cumulative voting for
directors limits the ability of a minority stockholder to elect directors.
Because the holder of less than a majority of EverTrust Financial Group, Inc.'s
shares cannot be assured representation on the Board of Directors, the absence
of cumulative voting may discourage accumulations of EverTrust Financial Group,
Inc.'s shares or proxy contests that would result in changes in EverTrust
Financial Group, Inc.'s management. The Board of Directors believes that
elimination of cumulative voting will help to assure continuity and stability of
management and policies; directors should be elected by a majority of the
stockholders to represent the interests of the stockholders as a whole rather
than be the special representatives of particular minority interests; and
efforts to elect directors representing specific minority interests are
potentially divisive and could impair the operations of EverTrust Financial
Group, Inc.
Special Meetings. The Articles of Incorporation of EverTrust Financial
Group, Inc. provide that special meetings of stockholders of EverTrust Financial
Group, Inc. may be called by the President or by the Board of Directors. If a
special meeting is not called by such person or entity, stockholder proposals
cannot be presented to the stockholders for action until the next annual
meeting. Stockholders are not permitted to call special meetings under EverTrust
Financial Group, Inc.'s Articles of Incorporation.
Authorized Capital Stock. The Articles of Incorporation of EverTrust
Financial Group, Inc. authorize the issuance of 49,000,000 shares of common
stock and 1,000,000 shares of preferred stock. The shares of common stock and
preferred stock were authorized in an amount greater than that to be issued in
the conversion to provide EverTrust Financial Group, Inc.'s Board of Directors
with flexibility to effect, among other transactions, financings, acquisitions,
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stock dividends, stock splits and employee stock options. However, these
additional authorized shares may also be used by the Board of Directors
consistent with its fiduciary duty to deter future attempts to gain control of
EverTrust Financial Group, Inc. The Board of Directors also has sole authority
to determine the terms of any one or more series of Preferred Stock, including
voting rights, conversion rates, and liquidation preferences. As a result of the
ability to fix voting rights for a series of Preferred Stock, the Board has the
power, to the extent consistent with its fiduciary duty, to issue a series of
Preferred Stock to persons friendly to management in order to attempt to block a
post tender offer merger or other transaction by which a third party seeks
control, and thereby assist management to retain its position. EverTrust
Financial Group, Inc.'s Board currently has no plan for the issuance of
additional shares, other than the issuance of additional shares pursuant to
stock benefit plans.
Director Nominations. The Articles of Incorporation of EverTrust
Financial Group, Inc. require a stockholder who intends to nominate a candidate
for election to the Board of Directors at a stockholders' meeting to give
written notice to the Secretary of EverTrust Financial Group, Inc. at least 30
days (but not more than 60 days) in advance of the date of the meeting at which
such nominations will be made. The nomination notice is also required to include
specified information concerning the nominee and the proposing stockholder. The
Board of Directors of EverTrust Financial Group, Inc. believes that it is in the
best interests of EverTrust Financial Group, Inc. and its stockholders to
provide sufficient time for the Board of Directors to study all nominations and
to determine whether to recommend to the stockholders that such nominees be
considered.
Supermajority Voting Provisions. EverTrust Financial Group, Inc.'s
Articles of Incorporation require the affirmative vote of 80% of the outstanding
shares entitled to vote to approve a merger, consolidation, or other business
combination, unless the transaction is approved, prior to consummation, by the
vote of at least 80% of the number of the Continuing Directors (as defined in
the Articles of Incorporation) on EverTrust Financial Group, Inc.'s Board of
Directors. "Continuing Directors" generally includes all members of the Board of
Directors who are not affiliated with any individual, partnership, trust or
other person or entity (or the affiliates and associates of such person or
entity) which is a beneficial owner of 10% or more of the voting shares of
EverTrust Financial Group, Inc. This provision could tend to make the
acquisition of EverTrust Financial Group, Inc. more difficult to accomplish
without the cooperation or favorable recommendation of EverTrust Financial
Group, Inc.'s Board of Directors.
Amendment of Articles of Incorporation and Bylaws. EverTrust Financial
Group, Inc.'s Articles of Incorporation may be amended by the vote of the
holders of a majority of the outstanding shares of its common stock, except that
the provisions of the Articles of Incorporation governing the duration of the
corporation, the purpose and powers of the corporation, authorized capital
stock, denial of preemptive rights, the number and staggered terms of directors,
removal of directors, approval of certain business combinations, the evaluation
of certain business combinations, elimination of directors' liability,
indemnification of officers and directors, calling of special meetings of
shareholders, the authority to repurchase shares and the manner of amending the
Articles of Incorporation may not be repealed, altered, amended or rescinded
except by the vote of the holders of at least 80% of the outstanding shares of
EverTrust Financial Group, Inc. This provision is intended to prevent the
holders of a lesser percentage of the outstanding stock of EverTrust Financial
Group, Inc. from circumventing any of the foregoing provisions by amending the
Articles of Incorporation to delete or modify one of such provisions.
EverTrust Financial Group, Inc.'s Bylaws may only be amended by a
majority vote of the Board of Directors of EverTrust Financial Group, Inc. or by
the holders of at least 80% of the outstanding stock by EverTrust Financial
Group, Inc.
Purpose and Takeover Defensive Effects of EverTrust Financial Group,
Inc.'s Articles of Incorporation and Bylaws. The Board of Directors believes
that the provisions described above are prudent and will reduce EverTrust
Financial Group, Inc.'s vulnerability to takeover attempts and certain other
transactions that have not been negotiated with and approved by its Board of
Directors. These provisions will also assist in the orderly deployment of the
conversion proceeds into productive assets during the initial period after the
conversion. The Board of Directors believes these provisions are in the best
interest of Everett Mutual Bank and EverTrust Financial Group, Inc. and its
stockholders. In the judgment of the Board of Directors, EverTrust Financial
Group, Inc.'s Board will be in the best position to determine the true value of
EverTrust Financial Group, Inc. and to negotiate more effectively for what may
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be in the best interests of its stockholders. Accordingly, the Board of
Directors believes that it is in the best interest of EverTrust Financial Group,
Inc. and its stockholders to encourage potential acquirors to negotiate directly
with the Board of Directors of EverTrust Financial Group, Inc. and that these
provisions will encourage such negotiations and discourage hostile takeover
attempts. It is also the view of the Board of Directors that these provisions
should not discourage persons from proposing a merger or other transaction at a
price reflective of the true value of EverTrust Financial Group, Inc. and that
is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of EverTrust
Financial Group, Inc. for its stockholders, with due consideration given to
matters such as the management and business of the acquiring corporation and
maximum strategic development of EverTrust Financial Group, Inc.'s assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive
EverTrust Financial Group, Inc.'s remaining stockholders of benefits of certain
protective provisions of the Exchange Act, if the number of beneficial owners
became less than 300, thereby allowing for deregistration under the Exchange
Act.
Despite the belief of Everett Mutual Bank and EverTrust Financial
Group, Inc. as to the benefits to stockholders of these provisions of EverTrust
Financial Group, Inc.'s Articles of Incorporation and Bylaws, these provisions
may also have the effect of discouraging a future takeover attempt that would
not be approved by EverTrust Financial Group, Inc.'s Board, but pursuant to
which stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have any opportunity to do so. Such provisions
will also render the removal of EverTrust Financial Group, Inc.'s Board of
Directors and of management more difficult. The Board of Directors of Everett
Mutual Bank and EverTrust Financial Group, Inc., however, have concluded that
the potential benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, EverTrust Financial Group, Inc. may
adopt additional anti-takeover charter provisions or other devices regarding the
acquisition of its equity securities that would be permitted for a Washington
business corporation.
The cumulative effect of the restriction on acquisition of EverTrust
Financial Group, Inc. contained in the Articles of Incorporation and Bylaws of
EverTrust Financial Group, Inc. and in Federal and Washington law may be to
discourage potential takeover attempts and perpetuate incumbent management, even
though certain stockholders of EverTrust Financial Group, Inc. may deem a
potential acquisition to be in their best interests, or deem existing management
not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF EVERTRUST FINANCIAL GROUP, INC.
General
EverTrust Financial Group, Inc. is authorized to issue 49,000,000
shares of common stock having no par value per share and 1,000,000 shares of
preferred stock having no par value per share. EverTrust Financial Group, Inc.
currently expects to issue up to 7,475,000 shares of common stock, subject to
adjustment up to 8,596,500 shares, and no shares of preferred stock in the
conversion. Each share of EverTrust Financial Group, Inc.'s common stock will
have the same relative rights as, and will be identical in all respects with,
each other share of common stock. Upon
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payment of the purchase price for the common stock, in accordance with the plan
of conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The common stock of EverTrust Financial Group, Inc. represents
nonwithdrawable capital. The common stock is not a savings or deposit account
and is not insured by the Federal Deposit Insurance Corporation or any other
government agency.
Common Stock Dividends. EverTrust Financial Group, Inc. can pay
dividends out of statutory surplus or from certain net profits if, as and when
declared by its Board of Directors. The payment of dividends by EverTrust
Financial Group, Inc. is subject to limitations which are imposed by law and
applicable regulation. See "EverTrust Financial Group, Inc.'s Dividend Policy"
and "Regulation." The holders of common stock of EverTrust Financial Group, Inc.
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of EverTrust Financial Group, Inc. out of
funds legally available therefor. If EverTrust Financial Group, Inc. issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock with respect to dividends.
Stock Repurchases. Federal Reserve regulations place certain
limitations on the repurchase of EverTrust Financial Group, Inc.'s capital
stock. See "How EverTrust Financial Group, Inc. Intends to Use the Conversion
Offering Proceeds."
Voting Rights. Upon conversion, the holders of common stock of
EverTrust Financial Group, Inc. will possess exclusive voting rights in
EverTrust Financial Group, Inc. They will elect EverTrust Financial Group,
Inc.'s Board of Directors and act on such other matters as are required to be
presented to them under Washington law or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition of
EverTrust Financial Group, Inc.," each holder of common stock will be entitled
to one vote per share and will not have any right to cumulate votes in the
election of directors. If EverTrust Financial Group, Inc. issues preferred
stock, holders of EverTrust Financial Group, Inc. preferred stock may also
possess voting rights. Certain matters require a vote of 80% of the outstanding
shares entitled to vote thereon. See "Restrictions on Acquisition of EverTrust
Financial Group, Inc."
As a state mutual savings bank, corporate powers and control of Everett
Mutual Bank are vested in its Board of Directors, who elect the officers of
Everett Mutual Bank and who fill any vacancies on the Board of Directors as it
exists upon conversion. Subsequent to the conversion, voting rights will be
vested exclusively in the owners of the shares of capital stock of Everett
Mutual Bank, all of which will be owned by EverTrust Financial Group, Inc., and
voted at the direction of EverTrust Financial Group, Inc.'s Board of Directors.
Consequently, the holders of the common stock will not have direct control of
Everett Mutual Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of Everett Mutual Bank, EverTrust Financial Group, Inc., as holder of Everett
Mutual Bank's capital stock would be entitled to receive, after payment or
provision for payment of all debts and liabilities of Everett Mutual Bank,
including all deposit accounts and accrued interest thereon, and after
distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders (see "Mutual
Bancshares' Conversion"), all assets of Everett Mutual Bank available for
distribution. In the event of liquidation, dissolution or winding up of
EverTrust Financial Group, Inc., the holders of its common stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of EverTrust Financial Group, Inc. available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of liquidation or
dissolution.
Preemptive Rights. Holders of the common stock of EverTrust Financial
Group, Inc. will not be entitled to preemptive rights with respect to any shares
that may be issued. The common stock is not subject to redemption.
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Preferred Stock
None of the shares of EverTrust Financial Group, Inc.'s authorized
preferred stock will be issued in the conversion and there are no plans to issue
the preferred stock. Such stock may be issued with such designations, powers,
preferences and rights as the board of directors may from time to time
determine. The board of directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights that
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control.
Restrictions on Acquisition
Acquisitions of EverTrust Financial Group, Inc. are restricted by
provisions in its Articles of Incorporation and Bylaws and by the rules and
regulations of various regulatory agencies. See "Regulation" and "Restrictions
on Acquisition of EverTrust Financial Group, Inc."
REGISTRATION REQUIREMENTS
EverTrust Financial Group, Inc. will register the common stock with the
Securities and Exchange Commission pursuant to Section 12(g) of the Securities
Exchange Act upon the completion of the conversion and will not deregister its
common stock for a period of at least three years following the completion of
the conversion. Upon the registration of the common stock, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of the Securities Exchange Act will be
applicable.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for EverTrust
Financial Group, Inc. by Breyer & Associates PC, Washington, D.C. The federal
tax consequences of the offering have been opined upon by Breyer & Associates PC
and the Washington tax consequences of the offering have been opined upon by
Deloitte & Touche LLP, Seattle, Washington. Breyer & Associates PC and Deloitte
& Touche LLP have consented to the references herein to their opinions. Certain
legal matters will be passed upon for Charles Webb by Patton Boggs LLP,
Washington, D.C.
EXPERTS
The consolidated financial statements of Mutual Bancshares as of March
31, 1999 and 1998, and for each of the three years ended March 31, 1999, 1998
and 1997, included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
RP Financial has consented to the publication in this prospectus of the
summary of its report to Everett Mutual Bank setting forth its opinion as to the
estimated pro forma market value of EverTrust Financial Group, Inc. and Everett
Mutual Bank, as converted, and its letter with respect to subscription rights
and to the use of its name and statements with respect to it appearing in this
prospectus.
WHERE YOU CAN FIND MORE INFORMATION
EverTrust Financial Group, Inc. has filed with the Securities and
Exchange Commission a Registration Statement on Form S-1 (File No. 333-______)
under the Securities Act with respect to the common stock offered in the
conversion. This prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Securities and Exchange Commission. Such
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York
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10048. Copies may be obtained at prescribed rates from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Registration Statement also is available through the
Securities and Exchange Commission's World Wide Web site on the Internet
(http://www.sec.gov).
Everett Mutual Bank has filed with the Washington Division of Banks an
Application for Approval of Conversion, which includes proxy materials for
Mutual Bancshares' special meeting of members and certain other information.
This prospectus omits certain information contained in the Application for
Approval of Conversion. The Application, including the proxy materials, exhibits
and certain other information that are a part of the Application for Approval of
Conversion, may be inspected, without charge, at the office of the Washington
Division of Banks, Department of Financial Institutions, General Administration
Building, 3rd Floor, Room 300, 210 11th Avenue West, Olympia, Washington 98504.
A copy of the Application for Approval of Conversion has also been filed with
the Federal Deposit Insurance Corporation.
Copies of EverTrust Financial Group, Inc.'s Articles of Incorporation
and Bylaws may be obtained by written request to Everett Mutual Bank.
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<PAGE>
Index To Consolidated Financial Statements
Mutual Bancshares
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report - Deloitte & Touche LLP...................................................... F-1
Consolidated Balance Sheets as of March 31, 1999 and 1998 ................................................ F-2
Consolidated Statements of Income for the Years Ended March 31, 1999, 1998 and 1997 ..................... 23
Consolidated Statements of Changes in Equity Capital for the Years Ended March 31, 1999 and 1998.......... F-3
Consolidated Statements of Cash Flows for the Years Ended March 31, 1999 and 1998......................... F-4
Notes to Consolidated Financial Statements................................................................ F-5
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
125
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Trustees
Mutual Bancshares
Everett, Washington
We have audited the accompanying consolidated statements of financial condition
of Mutual Bancshares and subsidiaries (the Company) as of March 31, 1999 and
1998, and the related consolidated statements of operations, comprehensive
income, equity, and cash flows for each of the three years in the period ended
March 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles.
May 14, 1999
F-1
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands)
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
ASSETS 1999 1998
- ------ -------- --------
Cash and cash equivalents, including interest
bearing deposits of $4,583 and $11,121 ............. $ 13,230 $ 19,136
Securities available for sale, amortized cost
of $61,390 and $38,399 ............................. 61,566 38,944
Securities held to maturity, fair value of
$14,317 and $21,470 ................................ 13,866 20,750
Federal Home Loan Bank stock, at cost ................ 3,994 3,660
Loans receivable, net ................................ 315,327 311,951
Loans held for sale .................................. 29,641 13,705
Accrued interest receivable .......................... 3,177 3,030
Premises and equipment, net .......................... 7,953 8,760
Prepaid expenses and other assets .................... 3,335 1,369
-------- --------
Total ................................................ $452,089 $421,305
======== ========
LIABILITIES AND RETAINED EARNINGS
- ---------------------------------
Liabilities:
Deposit accounts ................................... $375,896 $350,971
Federal Home Loan Bank advances .................... 18,949 15,503
Accounts payable and other liabilities ............. 4,981 3,735
-------- --------
Total liabilities ................................ 399,826 370,209
Commitments and contingencies ........................ -- --
Equity:
Retained earnings .................................. 52,147 50,736
Accumulated other comprehensive income ............. 116 360
-------- --------
Total equity ..................................... 52,263 51,096
-------- --------
Total ................................................ $452,089 $421,305
======== ========
See notes to consolidated financial statements.
F-2
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
------ ------ ------
NET INCOME ......................................... $1,411 $4,534 $3,510
OTHER COMPREHENSIVE INCOME, net of income taxes:
Gross unrealized gain (loss) on securities:
Unrealized holding gain (loss) during the
period, net of deferred income tax expense
(benefit) of $(54), $216, and $(31) .......... (104) 419 (61)
Less adjustment of gains included in net income,
net of income tax of $(72), $-0-, and $-0- ... (140) -- --
------ ------ ------
Other comprehensive income (loss) .......... (244) 419 (61)
------ ------ ------
COMPREHENSIVE INCOME ............................... $1,167 $4,953 $3,449
====== ====== ======
See notes to consolidated financial statements.
F-3
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (in thousands)
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other
Retained comprehensive
Earnings income (loss) Total
-------- ------------- -------
<S> <C> <C> <C>
BALANCE, April 1, 1996 .......................... $42,692 $ 2 $42,694
Net income .................................... 3,510 -- 3,510
Other comprehensive loss, net of income taxes . -- (61) (61)
------- ----- -------
BALANCE, March 31, 1997 ......................... 46,202 (59) 46,143
Net income .................................... 4,534 -- 4,534
Other comprehensive income, net of income taxes -- 419 419
------- ----- -------
BALANCE, March 31, 1998 ......................... 50,736 360 51,096
Net income .................................... 1,411 -- 1,411
Other comprehensive loss, net of income taxes . -- (244) (244)
------- ----- -------
BALANCE, March 31, 1999 ......................... $52,147 $ 116 $52,263
======= ===== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .............................................. $ 1,411 $ 4,534 $ 3,510
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of premises
and equipment ..................................... 1,474 1,081 1,015
Stock dividends and accretion of investment
security discounts ................................ (457) (654) (754)
Loss (gain) on sale of premises and equipment
and real estate owned ............................. (7) (100) 240
Amortization of investment security premiums ........ 244 96 100
Book loss on limited partnership .................... 125 120 122
Provision for losses on loans and real estate owned . 780 420 420
Amortization of deferred loan fees and costs ........ (1,184) (1,049) (882)
Loan fees deferred .................................. 1,145 1,197 1,032
Proceeds from sale of loans ......................... 5,297 7,206 5,055
Loans originated for sale ........................... (34,485) (12,821) (9,743)
Cash provided (used) by changes in operating
assets and liabilities:
Accrued interest receivable ..................... (147) (225) (149)
Prepaid expenses and other assets ............... (283) 719 (723)
Accounts payable and other liabilities .......... 1,255 554 519
Deferred taxes .................................. (1,683) (235) (242)
-------- -------- --------
Net cash provided (used) by operating activities ........ (26,515) 843 (480)
INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 19,952 32,628 37,316
Proceeds from maturities of securities held to maturity . 7,106 3,860 5,449
Proceeds from sale of securities available for sale ..... 3,561 1,333 --
Purchases of securities available for sale .............. (46,647) (43,109) (49,239)
Purchases of securities held to maturity ................ (157) (675) (4,880)
Purchases of FHLB stock ................................. (44) -- --
Loan principal payments ................................. 112,285 82,264 71,828
Loans originated or acquired ............................ (103,275) (97,408) (73,988)
Proceeds from sales of reacquired assets and
real estate owned ..................................... 130 1,114 1,830
Investment in real estate owned ......................... (9) (42) (548)
Net additions to premises and equipment ................. (664) (2,719) (968)
-------- -------- --------
Net cash used by investing activities ............... (7,762) (22,754) (13,200)
-------- -------- --------
BALANCE, carried forward .................................. (34,277) (21,911) (13,680)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (continued)
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BALANCE, brought forward .................................. $(34,277) $(21,911) $(13,680)
FINANCING ACTIVITIES:
Net increase in deposit accounts ........................ 24,925 21,201 15,122
Proceeds from Federal Home Loan Bank advances ........... 16,000 -- --
Repayments of Federal Home Loan Bank advances ........... (12,554) (4,554) (4,054)
-------- -------- --------
Net cash provided by financing activities ............... 28,371 16,647 11,068
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................. (5,906) (5,264) (2,612)
CASH AND CASH EQUIVALENTS:
Beginning of year ....................................... 19,136 24,400 27,012
-------- -------- --------
End of year ............................................. $ 13,230 $ 19,136 $ 24,400
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits .................................. $ 16,807 $ 16,381 $ 15,685
Federal income taxes .................................. 2,337 2,352 1,949
Interest on borrowings ................................ 1,000 1,160 1,315
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Real estate acquired through foreclosure .............. $ 117 $ 102 $ 795
Company financing of sales of real estate owned ....... -- 502 866
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MUTUAL BANCSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998, AND 1997 (tables in thousands)
- --------------------------------------------------------------------------------
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and basis of presentation: The consolidated
financial statements include Mutual Bancshares (the Company), Mutual Bancshares
Capital (MB Cap), I-Pro Inc. (I-Pro), Commercial Bank of Everett (CBE), and
Everett Mutual Bank (EMB), and EMB's wholly owned subsidiary, Sound Financial,
Inc. All significant intercompany transactions and balances have been
eliminated.
Holding company formation: In September 1993, Mutual Bancshares, a bank holding
company, was formed as the parent company for EMB and subsidiaries. The Company
is subject to regulation by the Federal Reserve Board (FRB) and the Federal
Deposit Insurance Corporation (FDIC). On September 1, 1996 (inception), CBE was
formed as a wholly owned subsidiary of the Company. On April 2, 1997, I-Pro was
formed as a wholly owned subsidiary of the Company. On October 29, 1998, MB Cap
was formed as a wholly owned subsidiary of the Company.
Nature of business: Through its subsidiaries, EMB and CBE (collectively, the
Banks), the Company is primarily engaged in attracting deposits from the general
public through its 11 branches in Snohomish County and using those funds,
together with borrowings, to originate loans secured by real estate and to
purchase investment securities. The Company sells nonproprietary mutual funds
and annuities through another subsidiary, Sound Financial, Inc. The Company also
is engaged in providing deposit services and loans to customers who are
predominately local businesses and individuals through CBE's one branch in
Everett. Through its subsidiary, I-Pro, the Company is engaged in providing item
processing and statement rendering services. The Company will provide equity to
high technology businesses in the seed, startup, and early stage of development
through its subsidiary, MB Cap.
Cash and cash equivalents: For purposes of the statements of cash flows, cash
and cash equivalents include cash on hand and in banks, overnight investments
and highly liquid debt instruments with maturities at the time of purchase of
three months or less. For those short-term investments, the carrying value is a
reasonable estimate of fair value.
Federal Reserve Board regulations require depository institutions to maintain
certain minimum reserve balances. Included in cash were balances maintained at
the Federal Reserve Bank of San Francisco of $925,000 and $919,000 at March 31,
1999 and 1998.
Investment securities:
Securities available for sale: Securities available for sale are carried at
fair value. Unrealized holding gains and losses are excluded from earnings
and reported net of tax, in other comprehensive income. Gains and losses on
the sale of investment securities are computed under the specific
identification method.
Securities held to maturity: Securities held to maturity are stated at cost
and are adjusted for amortization of premiums and accretion of discounts
using the level yield method. Securities held to maturity are designated as
such at the date of purchase based on management's positive intent and
F-7
<PAGE>
ability to hold such investments to maturity. Unrealized losses resulting
from market valuation differences deemed other than temporary are included
in earnings.
Loans: Loans held for investment are reported at the principal amount
outstanding, net of unamortized nonrefundable loan fees and related direct loan
origination costs. Deferred net fees and costs are recognized in interest income
over the loan term using a method that generally produces a level yield on the
unpaid loan balance. Interest is accrued primarily on a simple interest basis.
Nonaccrual loans are those for which management has discontinued accrual of
interest because there exists significant uncertainty as to the full and timely
collection of either principal or interest or such loans have become
contractually past due 90 days with respect to principal or interest.
When a loan is placed on nonaccrual, all previously accrued but uncollected
interest is reversed against current period operating results. All subsequent
payments received are first applied to unpaid principal and then to unpaid
interest. Interest income is accrued at such time as the loan is brought fully
current as to both principal and interest, and, in management's judgement, such
loans are considered to be fully collectible. However, Company policy also
allows management to continue the recognition of interest income on certain
loans designated as nonaccrual. This policy applies only to loans that are well
secured and in management's judgement are considered to be fully collectible.
Although the accrual of interest income is suspended, any payments received may
be applied to the loan according to its contractual terms and interest income
recognized when cash is received.
Loans are considered impaired when, based on current information, management
determines it is probable that the Company will be unable to collect all amounts
due according to the terms of the loan agreement, including scheduled interest
payments. Impaired loans are carried at the lower of the recorded investment in
the loan, the estimated present value of expected future cash flows discounted
at the loan's effective rate, or at the fair value of the collateral, if the
loan is collateral dependent. Excluded from impairment analysis are large groups
of smaller balance homogeneous loans such as consumer and residential mortgage
loans.
Loans held for sale: Loans originated and held for sale are carried at the lower
of cost or market value on an aggregate basis. Nonrefundable fees and direct
loan origination costs related to loans held for sale are deferred and
recognized when the loans are sold.
Reserve for loan losses: The Company maintains an allowance for credit losses to
absorb losses inherent in the loan portfolio. The allowance is based on ongoing,
quarterly assessments of the probable estimated losses inherent in the loan
portfolio. The allowance is increased by the provision for credit losses, which
is charged against current period operating results and decreased by the amount
of chargeoffs, net of recoveries.
The Company's methodology for assessing the appropriateness of the allowance
consists of several key elements which include the formula allowance, specific
allowance and the unallocated allowance. The allowance also incorporates the
results of measuring impaired loans as provided in Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS No. 118, Accounting by Creditor for Impairment of a
Loan - Income Recognition and Disclosures. These accounting standards prescribe
the measurement methods, income recognition and disclosures related to impaired
loans. A loan is considered impaired when, based on current information,
management determines it is probable that the Company will be unable to collect
all amounts due according to the terms of the loan agreement. Impairment is
measured by the difference between the recorded investment in the loan
(including accrued interest and net deferred loan fees or costs) and the
estimated present value of total expected future cash flows, discounted at the
loan's effective rate, or the
F-8
<PAGE>
fair value of the collateral, if the loan is collateral dependent. Impairment is
recognized by adjusting an allocation of the existing allowance for loan losses.
The formula allowance is calculated by applying a loss percentage factor to the
various loan pool types based on past due ratios, historical loss experience,
the regulatory and internal credit grading and classification system and general
economic, business and regulatory conditions which could affect the
collectibility of the portfolio. These factors may be adjusted for significant
events, in management's judgement, as of the evaluation date. The Company
derives the loss percentage factors for problem graded loans using regulatory
guidelines; and, for pass graded loans by using estimated credit losses over the
upcoming twelve months based on the annual rate of chargeoffs experienced over
the previous three years on similar loans, adjusted for current conditions and
trends.
Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a credit that management
believes indicate the probability that a loss has been incurred.
The unallocated allowance is comprised of two components. The first component
recognizes the estimation risk associated with the formula and specific
allowances. The second component is based upon management's evaluation of
various conditions that are not directly measured in the determination of the
formula and specific allowances. The conditions evaluated in connection with the
unallocated allowance may include loan volumes and concentrations, seasoning of
the loan portfolio, specific industry conditions within portfolio segments,
governmental regulatory actions, recent loss experience in particular segments
of the portfolio and the duration of the current business cycle.
Mortgage servicing rights: Originated servicing rights are recorded when
mortgage loans are originated and subsequently sold or securitized (and held as
available-for-sale securities) with the servicing rights retained. The total
costs of the mortgage loans are allocated between servicing rights and the loans
(without the servicing rights) based on their relative fair values. The cost
relating to the mortgage servicing rights is capitalized and amortized in
proportion to, and over the period of, estimated future net servicing income.
Amounts capitalized are recorded at cost, net of accumulated amortization and
valuation allowance.
In order to determine the fair market value of servicing rights, the Banks use a
valuation model that evaluates the difference between the price of loans sold
with servicing released as compared to loans sold with servicing retained. The
cost is then allocated between the principal balance of the loan sold and the
related servicing rights. Assumptions used in the valuation model include the
cost of servicing the loan and anticipated prepayment speeds.
The Banks assess impairment of the capitalized mortgage servicing rights based
on recalculation of the current market price of servicing rights discounted for
changes in actual prepayment speeds of the loans. Impairment is assessed on a
pool-by-pool basis with any impairment recognized through a valuation allowance
for the combined pools. The pools are combined as they all have similar interest
rates, terms, and risk characteristics.
Real estate owned: Real estate owned (REO) includes properties acquired through
foreclosure that are transferred to REO. These properties are initially recorded
at the lower of cost or fair value. Write-downs that result from the ongoing
periodic valuation of the foreclosed properties are charged to operations in the
period in which they are identified. Gains or losses at the time the property is
sold are charged or credited to operations in the period in which they are
realized. The amounts the Company will ultimately recover from real estate owned
may differ substantially from the carrying value of the
F-9
<PAGE>
assets because of future market factors beyond the control of the Company or
because of changes in the Company's strategy for recovering its investments.
Real estate held for investment: Real estate held for investment represents the
Company's investment in two real estate partnerships of which the principal
activity is the development of low-income housing. The Company's investment has
been recorded using the equity method of accounting. The Company earns
low-income housing tax credits on these real estate partnerships which reduces
the Company's federal income tax provision and liability.
Premises and equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The depreciation and amortization are
computed on the straight-line method. Estimated useful lives are as follows:
Buildings and improvements ......................... Up to 27.5 years
Furniture, fixtures, and automobiles ............... 3 - 15 years
The Company capitalizes expenditures for betterments and major renewals, and
charges ordinary maintenance and repairs to operations as incurred.
The Company periodically reviews buildings and improvements for impairment.
Impairment exists when the estimated undiscounted cash flows for the property is
less than its carrying` value. If identified, an impairment loss is recognized
through a charge to earnings based on the fair value of the property.
Income taxes: Income taxes are accounted for using the asset and liability
method. Under this method, a deferred tax asset or liability is determined based
on the enacted tax rates which will be in effect when the differences between
the financial statement carrying amounts and tax bases of existing assets and
liabilities are expected to be reported in the Company's income tax returns. The
deferred tax provision for the year is equal to the change in the deferred tax
liability from the beginning to the end of the year. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company reports income and expenses using the accrual method of accounting
and files a consolidated tax return that includes all of its subsidiaries.
Interest rate risk management: In order to reduce the risk of significant
mortgage interest rate fluctuations, EMB is authorized to utilize financial
futures contracts, option contracts and forward commitments to hedge certain
mortgage loans held for sale and loan origination commitments. Gains and losses
on open futures contracts, option contracts and forward commitments are included
in lower of cost or market computations for mortgage loans held for sale or
matched against loan origination commitments. There were $-0- and $4,000,000 in
open forward commitments to hedge against interest rate fluctuations at March
31, 1999 and 1998, respectively. Gains and losses on closed futures contracts,
option contracts and forward commitments are recognized as part of the net gain
on sale of the related hedged mortgage loans.
Use of estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the financial statements.
Changes in these estimates and assumptions are considered reasonably possible
and may have a material impact on the financial statements. The Banks use
significant estimates in determining reported reserves and allowances for loan
losses, tax liabilities, and other contingencies.
F-10
<PAGE>
Recently issued accounting standards adopted in these financial statements:
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, was issued in June 1997 and requires businesses to
disclose comprehensive income and its components in their general-purpose
financial statements. SFAS No. 130 was adopted by the Company on April 1, 1998.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, was issued in June 1997 and redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. This statement does not affect
the results of operations or financial condition of the Company. SFAS No. 131
was adopted by the Company on April 1, 1998.
SFAS No. 132, Employers' Disclosure About Pensions and Other Postretirement
Benefits, was issued in February 1998 and standardizes the annual disclosure
requirements for pensions and other postretirement benefits. This statement does
not affect the results of operations or financial condition of the Company. SFAS
No. 132 was adopted by the Company on April 1, 1998.
Recently issued accounting standards not yet adopted: SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued in June 1998 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company will implement this statement on April 1, 2000.
The impact of the adoption of the provisions of this statement on the results of
operations or financial condition of the Company has not yet been determined. On
May 20, 1999, an exposure draft was issued amending SFAS No. 133 to extend the
implementation by one year.
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
was issued in October 1998. Prior to issuance of SFAS No. 134, when a mortgage
banking company securitized mortgage loans held for sale but did not sell the
security in the secondary market, the security was classified as trading. SFAS
No. 134 requires that the security be classified either trading, available for
sale, or held to maturity according to the Company's intent, unless the Company
has already committed to sell the security before or during the securitization
process. The statement is effective for all fiscal years beginning after
December 15, 1998. This statement is not expected to have a material impact on
the results of operations or financial condition of the Company.
Reclassifications: Certain reclassifications have been made in the 1998 and 1997
consolidated financial statements to conform with the classifications used in
1999.
F-11
<PAGE>
NOTE 2: SECURITIES AVAILABLE FOR SALE
Securities available for sale classified by type and contractual maturity date
consisted of the following at March 31 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999:
Debt securities:
U.S. Government agency securities due:
Within one year .................... $ 1,141 $ 6 $ -- $ 1,147
After one but within five years .... 2,610 2 (10) 2,602
------- ---- ----- -------
3,751 8 (10) 3,749
Municipal obligations due:
Within one year .................... 80 -- -- 80
After one but within five years .... 1,796 6 (18) 1,784
After five but within ten years .... 966 2 (6) 962
After ten years .................... 2,255 -- (1) 2,254
------- ---- ----- -------
5,097 8 (25) 5,080
Obligations of corporations due:
Within one year .................... 11,372 43 (15) 11,400
After one but within five years .... 34,503 141 (203) 34,441
------- ---- ----- -------
45,875 184 (218) 45,841
Mortgage-backed securities due:
After five but within ten years ...... 468 1 -- 469
After ten years ...................... 46 3 -- 49
------- ---- ----- -------
514 4 -- 518
Certificates of deposit due:
After one but within five years ...... 175 -- -- 175
Equity securities:
Mutual funds ......................... 2,221 -- -- 2,221
Other stock .......................... 3,757 225 -- 3,982
------- ---- ----- -------
5,978 225 -- 6,203
------- ---- ----- -------
$61,390 $429 $(253) $61,566
======= ==== ===== =======
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
Debt securities:
U.S. Treasury securities due:
Within one year .................... $ 1,985 $ 8 $ -- $ 1,993
After one but within five years .... 100 -- -- 100
------- ---- ----- -------
2,085 8 -- 2,093
U.S. Government agency securities due:
Within one year .................... 2,013 -- (3) 2,010
After one but within five years .... 6,833 23 -- 6,856
------- ---- ----- -------
8,846 23 (3) 8,866
Municipal obligations due:
After five but within ten years .... 800 -- (2) 798
Obligations of corporations due:
Within one year .................... 1,964 4 -- 1,968
After one but within five years .... 21,097 129 (1) 21,225
After five but within ten years .... 589 5 -- 594
------- ---- ----- -------
23,650 138 (1) 23,787
Mortgage-backed securities due:
Within one year ...................... 474 -- (3) 471
After ten years ...................... 46 3 -- 49
------- ---- ----- -------
520 3 (3) 520
Equity securities:
Other stock .......................... 2,498 398 (16) 2,880
------- ---- ----- -------
$38,399 $570 $ (25) $38,944
======= ==== ===== =======
</TABLE>
Fair value equals quoted market price, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar
securities.
Gross realized gains on the sale of securities available for sale were $322,535,
$13,309, and $-0- for the years ended March 31, 1999, 1998, and 1997,
respectively. Gross realized losses on the sale of securities available for sale
were $7,282, $13,764, and $-0- for the years ended March 31, 1999, 1998, and
1997, respectively.
The expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without penalties.
F-13
<PAGE>
NOTE 3: SECURITIES HELD TO MATURITY
Securities held to maturity classified by type and contractual maturity date
consisted of the following at March 31 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999:
Debt securities:
U.S. Government agency securities due:
After one but within five years .... $ 1,514 $ 70 $ -- $ 1,584
After five but within ten years .... 1,006 94 -- 1,100
------- ---- ----- -------
2,520 164 -- 2,684
Municipal obligations due:
Within one year .................... 735 3 -- 738
After one but within five years .... 1,839 49 -- 1,888
After five but within ten years .... 1,372 36 -- 1,408
After ten years .................... 2,827 15 -- 2,842
------- ---- ----- -------
6,773 103 -- 6,876
Obligations of corporations due:
Within one year .................... 498 6 -- 504
After one but within five years .... 1,467 77 -- 1,544
------- ---- ----- -------
1,965 83 -- 2,048
Mortgage-backed securities due:
After five but within ten years ...... 6 -- -- 6
After ten years ...................... 2,147 101 -- 2,448
------- ---- ----- -------
2,153 101 -- 2,254
Certificates of deposit due:
After one but within five years ...... 455 -- -- 455
------- ---- ----- -------
$13,866 $451 $ -- $14,317
======= ==== ===== =======
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized
cost gains losses Fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
Debt securities:
U.S. Government agency securities due:
Within one year .................... 1,500 -- -- 1,500
After one but within five years .... 1,519 77 -- 1,596
After five but within ten years .... 1,007 88 -- 1,095
------- ---- ----- -------
4,026 165 -- 4,191
Municipal obligations due:
Within one year .................... 405 1 -- 406
After one but within five years .... 2,296 32 (2) 2,326
After five but within ten years .... 1,551 26 -- 1,577
After ten years .................... 2,805 82 -- 2,887
------- ---- ----- -------
7,057 141 (2) 7,196
Obligations of corporations due:
Within one year .................... 2,495 20 -- 2,515
After one but within five years .... 1,943 114 -- 2,057
------- ---- ----- -------
4,438 134 -- 4,572
Mortgage-backed securities due:
After five but within ten years ...... 10 -- -- 10
After ten years ...................... 4,347 205 (1) 4,551
------- ---- ----- -------
4,357 205 (1) 4,561
Certificates of deposit due:
Within one year ...................... 429 71 -- 500
After one but within five years ...... 443 7 -- 450
------- ---- ----- -------
872 78 -- 950
------- ---- ----- -------
$20,750 $723 $ (3) $21,470
======= ==== ===== =======
</TABLE>
Fair value equals quoted market price, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar
securities.
Investment securities with a par value of $2,100,000 and a market value of
$2,130,427 were pledged to secure public deposits at March 31, 1999.
The expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without penalties.
F-15
<PAGE>
NOTE 4: LOANS RECEIVABLE
Loans receivable consisted of the following at March 31 (in thousands):
1999 1998
-------- --------
Real estate:
1-4 family residential ............................... $101,649 $ 95,305
1-4 family construction and land development ......... 34,928 36,444
Income property:
Commercial construction ............................ 12,491 4,620
Commercial real estate ............................. 72,573 76,121
Multifamily construction ........................... 14,012 7,153
Multifamily residential ............................ 115,972 111,975
Consumer:
Residental mortgages ................................. 4,867 4,318
Home equity and second mortgages ..................... 13,734 11,548
Credit cards ......................................... 488 124
Automobiles .......................................... 787 1,036
Other installment loans .............................. 1,612 1,524
Business loans ....................................... 8,949 6,226
-------- --------
382,062 356,394
Less:
Undisbursed loan proceeds ............................ (28,183) (22,563)
Deferred loan fees and other ......................... (3,239) (3,278)
Reserve for loan losses .............................. (5,672) (4,897)
-------- --------
344,968 325,656
Loans receivable held for sale ......................... (29,641) (13,705)
-------- --------
Loans receivable, net .................................. $315,327 $311,951
======== ========
A substantial portion of the Company's revenues are derived from the origination
of loans in the Puget Sound region of Washington State. The customers' ability
to honor their commitments to repay such loans is dependent upon the region's
economy.
Single-family residential, permanent, and construction loans are primarily
secured by collateral located in Western Washington. Income property loans, by
county or state in which the property resides, are as follows at March 31, 1999
(in thousands):
Snohomish King Pierce
County County County Other Total
--------- ------- ------- ------- --------
Income property:
Commercial construction ... $ 3,191 $ 3,865 $ 4,935 $ 500 $ 12,491
Commercial real estate .... 44,710 22,773 2,082 3,008 72,573
Multifamily construction .. 2,100 10,337 -- 1,575 14,012
Multifamily residential ... 44,430 50,659 10,183 10,700 115,972
------- ------- ------- ------- --------
$94,431 $87,634 $17,200 $15,783 $215,048
======= ======= ======= ======= ========
F-16
<PAGE>
Outstanding commitments to borrowers for loans totalled $12,111,452 and
$4,082,600 at March 31, 1999 and 1998, respectively.
The Banks serviced loans for others totalling $72,637,330 and $100,496,449, as
of March 31, 1999 and 1998, respectively.
The activity in the reserve for loan losses was as follows for the years ended
March 31 (in thousands):
1999 1998 1997
------ ------ ------
Balance, beginning of year .................. $4,897 $4,509 $4,178
Provision for loan losses ................... 780 420 420
Reserves charged off, net of recoveries ..... (5) (32) (89)
------ ------ ------
Balance, end of year ........................ $5,672 $4,897 $4,509
====== ====== ======
The Banks originate both adjustable and fixed interest rate loans. At March 31,
1999, the composition of those loans was as follows (in thousands):
Fixed Adjustable
Term to maturity or rate adjustment rate rate Total
----------------------------------- ------- ---------- --------
Due within one year ................... $ 1,444 $168,978 $170,422
After one but within three years ...... 6,446 66,015 72,461
After three but within five years ..... 20,870 17,422 38,292
After five but within 15 years ........ 41,576 7,454 49,030
After 15 years ........................ 22,216 -- 22,216
------- -------- --------
$92,552 $259,869 $352,421
======= ======== ========
The adjustable rate loans have various interest rate adjustment limitations and
are generally indexed to Treasury rates or to the Office of Thrift Supervision
national monthly median cost of funds ratio to SAIF-insured institutions. Future
market factors may affect the correlation of the interest rate adjustment with
the rate the Banks pay on the short-term deposits and Federal Home Loan Bank of
Seattle (FHLB) advances that have been primarily utilized to fund these loans.
The average balance of impaired loans during 1999, 1998 and 1997 was $3,137,000,
$3,670,000 and $4,465,000, and the Company recognized $283,000 and $331,000 of
related interest income, respectively. Interest income is normally recognized on
the accrual basis; however, if the impaired loan is nonperforming, interest
income is recorded on the receipt of cash.
F-17
<PAGE>
Impaired loans consist of the following at March 31 (in thousands):
1999 1998
------ ------
Loans with allocated reserves of $164 and $154 ......... $2,644 $2,694
Loans without allocated reserves ....................... 378 841
------ ------
Total impaired loans ................................. $3,022 $3,535
====== ======
Loans on nonaccrual status ............................. $ 378 $ 575
Loans under foreclosure ................................ -- 266
Performing loans judged to be impaired ................. 2,644 2,694
------ ------
$3,022 $3,535
====== ======
NOTE 5: ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at March 31 (in
thousands):
1999 1998
------ ------
Investment securities .................................. $1,020 $ 869
Loans .................................................. 2,157 2,161
------ ------
$3,177 $3,030
====== ======
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at March 31 (in thousands):
1999 1998
------- -------
Land ................................................... $ 1,491 $ 1,491
Buildings (including leasehold improvements) ........... 6,771 6,438
Furniture, fixtures and automobiles .................... 5,661 5,454
------- -------
13,923 13,383
Less accumulated depreciation and amortization ......... (5,970) (4,623)
------- -------
$ 7,953 $ 8,760
======= =======
During the current fiscal year, management reviewed and changed the estimated
useful lives of computers and other office equipment. The Company's policy now
is to expense computers, with the exception of server equipment, in the period
costs are incurred. Other office equipment useful lives have been shortened from
five to three years.
F-18
<PAGE>
The Company has noncancellable operating leases for office facilities, branches,
and equipment. Future minimum rental commitments for all noncancellable leases
are as follows (in thousands):
2000 ..................................................... $ 692
2001 ..................................................... 689
2002 ..................................................... 680
2003 ..................................................... 653
2004 ..................................................... 633
Thereafer ................................................... 6,316
------
$9,663
======
Rent expense for the years ended March 31, 1999, 1998, and 1997, totalled
$710,000, $660,000, and $637,000, respectively.
NOTE 7: DEPOSIT ACCOUNTS
Deposit accounts, with respective interest rate ranges, consisted of the
following at March 31 (in thousands):
Weighted
average rate
at March 31,
1999 1999 % 1998 %
------------ -------- ----- -------- -----
Noninterest-bearing accounts .. --% $ 7,782 2.1% $ 6,064 1.7%
Savings accounts .............. 2.8 11,798 3.1 10,510 3.0
Checking accounts ............. 2.6 33,655 9.0 31,358 8.9
Money market accounts ......... 4.2 133,748 35.6 122,969 35.1
Time deposits by original term:
1 to 11 months .............. 4.8 32,660 8.7 26,665 7.6
12 to 23 months ............. 5.2 62,536 16.6 59,723 17.0
24 to 35 months ............. 5.5 23,767 6.3 23,191 6.6
36 to 59 months ............. 5.7 19,461 5.2 19,986 5.7
60 to 84 months ............. 6.2 50,489 13.4 50,505 14.4
--- -------- ----- -------- -----
5.5 188,913 50.2 180,070 51.3
--- -------- ----- -------- -----
4.6% $375,896 100.0% $350,971 100.0%
=== ======== ===== ======== =====
Time deposits are scheduled to mature as follows (in thousands):
Year ending March 31,
---------------------
2000 ............................................. $125,923
2001 ............................................. 28,186
2002 ............................................. 12,854
2003 ............................................. 10,625
2004 ............................................. 8,762
Thereafter .......................................... 2,563
--------
$188,913
========
F-19
<PAGE>
Included in deposits are time deposits greater than or equal to $100,000 of
$40,433,000 and $31,977,000 at March 31, 1999 and 1998, respectively. Interest
on time deposits greater than or equal to $100,000 totalled $2,157,000,
$1,915,000, and $1,934,000 for the years ended March 31, 1999, 1998, and 1997,
respectively.
NOTE 8: FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Scheduled maturities of advances from the FHLB were as follows at March 31 (in
thousands):
1999 1998
----------------------- -----------------------
Interest rate Interest rate
Amount ranges Amount ranges
------- ------------- ------- -------------
Nonamortizing:
Due within 1 year ........ $ 1,000 5.91% $ 500 6.21%
1 year - 2 years ......... 3,500 6.05 - 6.35 1,000 5.91
2 years - 3 years ........ 1,000 6.03 3,500 6.05 - 6.35
3 years - 5 years ........ 4,600 6.12 - 6.40 4,000 6.03 - 6.31
5 years - 10 years ....... 6,500 5.39 - 6.67 3,900 6.12 - 6.64
Over 10 years ............ 1,500 6.69 - 6.93 1,700 6.58 - 6.93
Amortizing:
Over 10 years ............ 849 8.19 903 8.19
------- -------
$18,949 $15,503
======= =======
Advances are collateralized by securities and mortgage pool securities of the
U.S. Government and agencies thereof.
At March 31, 1999, EMB had available unsecured lines of credit with commercial
banks totalling $10,000,000 and a revolving line of credit with the FHLB of up
to 20% of total assets. There were no advances outstanding as of March 31, 1999,
on the lines of credit with the commercial bank.
At March 31, 1999, CBE had available an unsecured letter of credit line and a
federal funds line with a commercial bank in the amount of $250,000 and
$500,000, respectively, maturing on April 1, 1999, and a revolving line of
credit with the FHLB of up to 5% of total assets. As of March 31, 1999, there
were no outstanding borrowings on the line of credit.
NOTE 9: FEDERAL TAXES ON INCOME
Under prior law, EMB has qualified under a provision of the Internal Revenue
Code to deduct from taxable income an allowance for bad debts based on a
percentage of taxable income before such deduction or based on the experience
method. The experience method provides financial institutions the ability to add
to the reserve for losses on loans the greater of two computational alternates:
(1) the base-year amount, or (2) the six-year moving average amount.
In August 1996, the President of the United States signed the Small Business Job
Protection Act of 1996 (the Act). Under the Act, the percentage taxable income
method of accounting for tax basis bad debts is no longer available effective
for the years ended after December 31, 1995. As a result, EMB is required to use
the experience method of accounting for tax basis bad debts for 1997 and later
years. In addition, EMB is also required to recapture its post-1987 additions to
its bad debt reserves made pursuant to the percentage taxable income method. As
of March 31, 1996, these additions were $3,766,000 which, pursuant to the Act,
are being included in taxable income ratably over a six-taxable-year period
beginning with the year ended
F-20
<PAGE>
March 31, 1997. The recapture of the post-1987 additions to tax-basis bad debt
reserves does not result in a charge to earnings as these amounts are included
in the deferred tax liability at March 31, 1997.
Retained earnings at March 31, 1999, 1998, and 1997, includes approximately
$3,691,000 in tax-basis bad debt reserves for which no income tax liability has
been recorded. In the future, if this tax bad debt reserve is used for purposes
other than to absorb bad debts or if legislation is enacted requiring recapture
of all tax bad debt reserves, EMB will incur a federal tax liability at the then
prevailing corporate tax rate.
A reconciliation of the tax provision based on the statutory corporate rate on
pretax income and the provisions as shown in the accompanying consolidated
statements of operations is as follows for the years ended March 31 (in
thousands):
1999 1998 1997
----- ------ ------
Income tax expense at statutory rate ............ $ 568 $2,260 $1,665
Income tax effect of:
Tax-exempt interest ........................... (128) (107) (99)
Low-income housing tax credit ................. (216) (216) (217)
Other, net .................................... 37 177 38
----- ------ ------
$ 261 $2,114 $1,387
===== ====== ======
The net deferred tax asset (liability), which is included in the accompanying
consolidated statements of financial condition, consists of the following at
March 31 (in thousands):
1999 1998
------ ------
Deferred tax liabilities:
Loan origination fees and costs ....................... $ (83) $ (112)
Prepaid expenses ...................................... (40) (35)
FHLB dividends ........................................ (379) (279)
Other, net ............................................ (194) (171)
Unrealized gain on securities ......................... (63) (160)
------ ------
(696) (597)
Deferred tax assets:
Deferred compensation ................................. 266 161
Bad debt deduction .................................... 1,314 762
Accrued vacation ...................................... 74 54
Pension ............................................... 165 137
Depreciation .......................................... 201 7
Charitable contribution ............................... 883 --
------ ------
2,903 1,121
------ ------
$2,207 $ 524
====== ======
NOTE 10: EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit plan and a defined
contribution plan with a 401(k) feature. All employees of the Company are
eligible to participate in the 401(k) plan once certain length of
F-21
<PAGE>
service and other requirements are achieved. All employees are eligible to
participate in the defined benefit plan upon attainment of age 21 and the
completion of one year of service. In addition, the employee must agree to
contribute at least 2% of salary on an after-tax basis to the defined
contribution plan in order to receive benefit service under the defined benefit
plan. Employees are fully vested in employer-matched 401(k) contributions at a
rate of 20% per year after three years of service. The Company's funding policy
is to contribute amounts to its pension plan sufficient to meet the minimum
funding requirements of the Employee Retirement Income Security Act of 1974. The
actuarial cost method used to compute the pension contribution is the projected
unit cost method. Information presented below reflects a measurement date of
December 31, 1998, 1997, and 1996.
Weighted average assumptions used in accounting for the pension plans were as
follows for the periods ended December 31:
1998 1997 1996
---- ---- ----
Assumed discount rate ............................ 6.9% 7.5% 7.5%
Rate of compensation increase .................... 6.0 6.0 6.0
Expected return on assets ........................ 8.0 8.0 8.0
Changes in the benefit obligation were as follows for the years ended December
31 (in thousands):
1998 1997
------ ------
Benefit obligation, beginning of year ................ $1,448 $1,603
Actuarial loss (gain) .............................. 258 (25)
Interest cost ...................................... 107 119
Service cost ....................................... 105 115
Benefits paid ...................................... (39) (353)
Expenses ........................................... (10) (11)
------ ------
Benefit obligation, end of year ...................... $1,869 $1,448
====== ======
Changes in pension plans' assets were as follows for the years ended December 31
(in thousands):
1998 1997
------ ------
Fair value of assets, beginning of year .............. $1,538 $1,654
Actual return on assets ............................ 66 248
Benefits paid ...................................... (39) (353)
Expenses ........................................... (10) (11)
------ ------
Fair value of assets, end of year ................... $1,555 $1,538
====== ======
F-22
<PAGE>
Reconciliations of funded status were as follows as of December 31 (in
thousands):
1998 1997
------ ------
Funded status ........................................ $ (314) $ 90
Unrecognized net loss ................................ (122) (476)
------ ------
Accrued benefit cost ................................. $ (436) $ (386)
====== ======
Net periodic expense for the pension plans was as follows for the years ended
December 31 (in thousands):
1998 1997 1996
----- ----- -----
Interest cost ................................... $ 107 $ 119 $ 108
Service cost .................................... 105 115 112
Expected return on assets ....................... (121) (131) (116)
Amortization of unrecognized transition asset ... -- -- (29)
Amortization of gains or losses ................. (41) (26) (19)
----- ----- -----
Net periodic expense ............................ $ 50 $ 77 $ 56
===== ===== =====
The Company also maintains a nonqualified deferred compensation plan for certain
key management personnel, for which the cost is accrued but unfunded.
Participants may elect to defer all or a specific portion of their compensation.
The Company does not provide a matching contribution on amounts deferred.
However, the Company does provide interest quarterly on amounts contributed by
participants. At March 31, 1999, 1998, and 1997, the liability for accumulated
deferred compensation was $1,277,000, $970,000, and $765,000, respectively, and
is included in the consolidated statements of financial condition. Annual
expense for the Company related to this plan totalled $148,000, $111,000, and
$71,000, in 1999, 1998, and 1997, respectively.
NOTE 11: INTEREST RATE RISK
EMB is engaged principally in providing first mortgage permanent and
construction loans for both residential and commercial property. Thirty (30)
year, fixed rate residential home mortgages are originated primarily for sale in
the secondary market and EMB is authorized to hedge against interest rate
fluctuations with financial futures contracts, option contracts and forward
commitments. There were $-0- and $4,000,000 of open forward commitments to hedge
interest rate fluctuations at March 31, 1999 and 1998. Forward commitments have
little credit risk because established exchanges are the counterparties.
EMB also originates adjustable and fixed rate home mortgages which are held for
investment. Adjustable loans have various interest rate adjustment limitations
and are generally indexed to Treasury rates or to the Office of Thrift
Supervision national monthly median cost of funds ratio to SAIF-insured
institutions. As of March 31, 1999 and 1998, adjustable rate mortgages held for
investment totalled $248,904,000 and $257,655,000, respectively. Fixed rate
mortgages held for investment totalled $90,116,000 and $72,680,000, at December
31, 1999 and 1998, respectively.
EMB originates both fixed and variable rate residential and commercial property
construction loans. Variable rate adjustments are tied to the prime interest
rate. The maturities on these loans range from six to 18 months.
EMB's adjustable and fixed rate home mortgages and residential and commercial
construction loans are funded by short-term deposits and FHLB advances.
F-23
<PAGE>
EMB manages interest rate risk by matching assets and liabilities within
reasonable limits. This has been accomplished through short-term maturities and
variable rates, and where appropriate, hedging techniques are employed through
the use of financial futures contracts, option contracts and forward
commitments.
CBE originates commercial loans that are adjustable to the prime lending rate
index to customers who are predominately local businesses and individuals,
funded through short-term deposits and borrowings.
At March 31, 1999, the Company had interest-earning assets of $438,114,000
having a weighted average effective yield of 7.56%, and interest-bearing
liabilities of $387,050,000 having a weighted average effective interest rate of
4.75%. The Company's one-year interest rate sensitivity gap, excluding passbook
savings accounts, was a negative 14.75% at March 31, 1999. The gap position
reflects the shorter duration of the interest-sensitive liabilities.
NOTE 12: REGULATORY CAPITAL REQUIREMENTS
The Company and the Banks are 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 Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Banks must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company and the Banks' 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 Company and the Banks to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of March 31, 1999, that the Company
and the Banks meet all capital adequacy requirements to which they are subject.
As of March 31, 1999 and 1998, the most recent notifications from the Federal
Deposit Insurance Corporation (FDIC) categorized the Banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institutions' categories.
F-24
<PAGE>
Actual capital amounts and ratios for the Company and the Banks are also
presented in the table.
<TABLE>
<CAPTION>
To be categorized
as well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provision
--------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999 (in thousands):
Total capital (to risk-weighted assets)
The Company .......................... $56,995 15.0% greater/ $30,491 greater/ 8.0% greater/ $ N.A. greater/ N.A.%
EMB .................................. 46,004 12.8 equal to 28,713 equal to 8.0 equal to 35,897 equal to 10.0
CBE .................................. 3,022 19.4 1,249 8.0 1,561 10.0
Tier I capital (to risk-weighted assets)
The Company .......................... 52,119 13.7 greater/ 15,245 greater/ 4.0 greater/ N.A. greater/ N.A.
EMB .................................. 41,404 11.5 equal to 14,359 equal to 4.0 equal to 21,538 equal to 6.0
CBE .................................. 2,832 18.1 624 4.0 937 6.0
Tier I capital (to average assets)
The Company .......................... 52,119 11.8 greater/ 17,673 greater/ 4.0 greater/ N.A. greater/ N.A.
EMB .................................. 41,404 9.9 equal to 16,748 equal to 4.0 equal to 20,935 equal to 5.0
CBE .................................. 2,832 17.9 634 4.0 793 5.0
As of March 31, 1998 (in thousands):
Total capital (to risk-weighted assets)
The Company .......................... $54,955 16.1% greater/ $27,235 greater/ 8.0% greater/ $ N.A. greater/ N.A.%
EMB .................................. 45,313 13.8 equal to 26,241 equal to 8.0 equal to 37,701 equal to 10.0
CBE .................................. 3,134 39.8 630 8.0 758 10.0
Tier I capital (to risk-weighted assets)
The Company .......................... 50,642 14.9 greater/ 13,617 greater/ 4.0 greater/ N.A. greater/ N.A.
EMB .................................. 41,204 12.6 equal to 13,120 equal to 4.0 equal to 14,681 equal to 6.0
CBE .................................. 3,036 38.5 315 4.0 473 6.0
Tier I capital (to average assets)
The Company .......................... 50,692 12.2 greater/ 16,591 greater/ 4.0 greater/ N.A. greater/ N.A.
EMB .................................. 41,204 10.5 equal to 15,946 equal to 4.0 equal to 19,933 equal to 5.0
CBE .................................. 3,036 30.3 400 4.0 560 5.0
</TABLE>
NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
F-25
<PAGE>
The fair values of financial instruments were as follows at March 31 (in
thousands):
1999 1998
-------------------- --------------------
Carrying Carrying
amount Fair value amount Fair value
-------- ---------- -------- ----------
Financial assets:
Cash and cash equivalents ........ $ 13,230 $ 13,230 $ 19,136 $ 19,136
Securities available for sale .... 61,566 61,566 38,944 38,944
Securities held to maturity ...... 13,866 14,317 20,750 21,470
Loans held for sale .............. 29,641 29,767 13,705 13,962
Loans receivable ................. 315,327 317,531 311,951 313,330
Federal Home Loan Bank stock ..... 3,994 3,994 3,660 3,660
-------- -------- -------- --------
437,624 440,405 408,146 410,502
Financial liabilities:
Deposits ......................... 375,896 378,849 350,971 353,151
Federal Home Loan Bank advances .. 18,949 19,236 15,503 15,796
-------- -------- -------- --------
394,845 398,085 366,474 368,947
-------- -------- -------- --------
Net financial instruments .......... $ 42,779 $ 42,320 $ 41,672 $ 41,555
======== ======== ======== ========
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument as of March 31, 1999 and 1998:
Cash and cash equivalents: The carrying amount represented fair value.
Securities available for sale and held to maturity: Fair values were based
on quoted market prices, if available. If a quoted market price was not
available, fair value was estimated using quoted market prices for similar
securities.
Loans held for sale: Fair values were based on quoted market prices.
Loans receivable: Loans were priced using the discounted cash flow method.
The discount rate used was the rate currently offered on similar products.
Deposits: The fair value of checking accounts, savings accounts, and money
market accounts was the amount payable on demand at the reporting date. For
time deposit accounts, the fair value was determined using the discounted
cash flow method. The discount rate was equal to the rate currently offered
on similar products.
Federal Home Loan Bank advances: Borrowings were priced using the
discounted cash flow method. The discount rate used was the rate currently
offered on similar products.
F-26
<PAGE>
NOTE 14: MUTUAL BANCSHARES (PARENT COMPANY ONLY)
Summary financial information as of March 31:
STATEMENTS OF FINANCIAL CONDITION (in thousands):
ASSETS 1999 1998
- ------ ------- -------
Cash ....................................................... $ 499 $ 146
Securities available for sale, amortized cost of $5 and $6 . 4,746 5,862
Accrued interest receivable ................................ 24 96
Investment in subsidiaries ................................. 47,581 44,979
Prepaid expenses and other assets .......................... 1,714 568
------- -------
Total .................................................. $54,564 $51,651
======= =======
LIABILITIES AND RETAINED EARNINGS
- ---------------------------------
Liabilities:
Accounts payable and other liabilities ................... $ 2,301 $ 555
Retained earnings .......................................... 52,147 50,736
Accumulated other comprehensive income ..................... 116 360
------- -------
Total equity ........................................... 52,263 51,096
------- -------
Total .................................................. $54,564 $51,651
======= =======
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (in thousands): 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
INCOME:
Income from equity investment in subsidiaries ........ $ 3,849 $ 4,726 $ 3,800
Interest from investment securities available for sale 417 250 147
Other income ......................................... 9
------- ------- -------
Total income ....................................... 4,275 4,976 3,947
OTHER EXPENSE:
Salary and employee benefits ......................... 349 291 201
Occupancy and equipment .............................. 8 1 1
Information processing costs ......................... 111 2 --
Contributions ........................................ 3,255 35 --
Other, net ........................................... 393 180 384
------- ------- -------
4,116 509 586
------- ------- -------
Income before federal income taxes ................. 159 4,467 3,361
FEDERAL INCOME TAXES ................................... (1,252) (67) (149)
------- ------- -------
NET INCOME ............................................. $ 1,411 $ 4,534 $ 3,510
======= ======= =======
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (in thousands): 1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................ $ 1,411 $ 4,534 $ 3,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of investment security discounts .... (38) (112) (95)
Amortization of investment security premiums .. 53 20 --
Equity in undistributed income of subsidiaries 408 (376) (1,300)
Cash provided (used) by changes in operating
assets and liabilities:
Accrued interest receivable ............... 73 (79) --
Prepaid expenses and other assets ......... (1,145) (494) 20
Accounts payable and other liabilities .... 1,747 154 374
------- -------- --------
Net cash provided by operating activities ......... 2,509 3,647 2,469
INVESTING ACTIVITIES:
Proceeds from maturities of securities held
to maturity ..................................... 6,525 11,326 21,628
Proceeds from maturities of securities available
for sale ........................................ -- 51 --
Proceeds from sale of securities available for sale 4,116 -- --
Purchases of securities held to maturity .......... -- (100) --
Purchases of securities available for sale ........ (9,547) (14,382) (21,030)
Contribution to Mutual Bancshares Capital ......... (3,250) -- --
Contribution to I-Pro Inc. ........................ -- (500) --
Contribution to commercial bank ................... -- -- (3,500)
------- -------- --------
Net cash used by investing activities ............. (2,156) (3,605) (2,902)
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 353 42 (433)
CASH AND CASH EQUIVALENTS:
Beginning of year ................................. 146 104 537
------- -------- --------
End of year ....................................... $ 499 $ 146 $ 104
======= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for federal income taxes $ 135 $ 79 $ 120
</TABLE>
NOTE 15: CONTINGENCIES
In the normal course of business, the Company has various legal claims and other
contingent matters outstanding. The Company believes that any liability
ultimately arising from these actions would not have a material adverse effect
on the results of operations or consolidated financial position at March 31,
1999.
F-28
<PAGE>
NOTE 16: LINES OF BUSINESS
Mutual Bancshares is managed by legal entities. The entities are EMB, CBE, MB
Cap, and I-Pro. MB Cap, I-Pro, and the holding company have been included in all
others as their operating results are not significant when taken on an
individual basis.
The principal activities of each legal entity is described in Note 1. Each
entity is managed by an executive team responsible for sales, marketing,
operations, and certain administrative functions. Back office support is
provided to each entity for credit administration, information systems, finance,
and human resources.
The costs of these functions is allocated based on actual time spent conducting
business for each entity.
Financial highlights by lines of business are as follows:
<TABLE>
<CAPTION>
Year ended March 31, 1999
-------------------------------------------------------
(in thousands)
EMB CBE Other Eliminations Total
-------- -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Condensed income statement:
Net interest income after provision for loan loss $ 14,317 $ 530 $ 430 $ -- $ 15,277
Other income .................................... 1,916 91 4,104 (4,184) 1,927
Other expense ................................... 9,953 928 4,986 (335) 15,532
-------- -------- ------- -------- --------
Income before income taxes ...................... 6,280 (307) (452) (3,849) 1,672
Income taxes .................................... 1,823 (103) (1,459) -- 261
-------- -------- ------- -------- --------
Net income ...................................... $ 4,457 $ (204) $ 1,007 $ (3,849) $ 1,411
======== ======== ======= ======== ========
March 31, 1999
-------------------------------------------------------
Total assets ...................................... $426,538 $ 19,806 $56,900 $(51,155) $452,089
======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31, 1998
-------------------------------------------------------
(in thousands)
EMB CBE Other Eliminations Total
-------- -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Condensed income statement:
Net interest income after provision for loan loss $ 14,486 $ 412 $ 245 $ -- $ 15,143
Other income .................................... 1,801 60 4,852 (4,921) 1,792
Other expense ................................... 8,946 733 802 (194) 10,287
-------- -------- ------- -------- --------
Income before income taxes ...................... 7,341 (261) 4,295 (4,727) 6,648
Income taxes .................................... 2,328 (88) (126) -- 2,114
-------- -------- ------- -------- --------
Net income ...................................... $ 5,013 $ (173) $ 4,421 $ (4,727) $ 4,534
======== ======== ======= ======== ========
March 31, 1998
-------------------------------------------------------
Total assets ...................................... $404,448 $ 10,285 $45,938 $(45,938) $421,305
======== ======== ======= ======== ========
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Year ended March 31, 1997
-----------------------------------------------------
(in thousands)
EMB CBE Other Eliminations Total
-------- ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Condensed income statement:
Net interest income after provision for loan loss $ 13,436 $ 36 $ 147 $ -- $ 13,619
Other income .................................... 1,116 8 3,800 (3,850) 1,074
Other expense ................................... 8,827 433 586 50 9,796
-------- ------ ------- -------- --------
Income before income taxes ...................... 5,725 (389) 3,361 (3,800) 4,897
Income taxes .................................... 1,634 (98) (149) -- 1,387
-------- ------ ------- -------- --------
Net income ...................................... $ 4,091 $ (291) $ 3,510 $ (3,800) $ 3,510
======== ====== ======= ======== ========
March 31, 1997
-----------------------------------------------------
Total assets ...................................... $391,323 $5,306 $46,543 $(44,014) $399,158
======== ====== ======= ======== ========
</TABLE>
NOTE 17: SUBSEQUENT EVENTS
On March 19, 1999, and March 20, 1999, the Boards of Directors of Everett Mutual
Bank and Mutual Bancshares, respectively, unanimously adopted, and on May 24,
1999, subsequently amended, the plan of conversion, under which Mutual
Bancshares will become a stock bank holding company and Everett Mutual Bank will
be held as its wholly owned subsidiary. In connection with the conversion,
Mutual Bancshares will change its name to EverTrust Financial Group, Inc. The
conversion is expected to be completed by September 30, 1999.
F-30
<PAGE>
NOTE 18: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Results of operations on a quarterly basis were as follows (in thousands):
Year ended March 31, 1999
-------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Interest income ..................... $8,471 $8,367 $8,496 $ 8,560
Interest expense .................... 4,445 4,517 4,478 4,397
------ ------ ------ -------
Net interest income ............. 4,026 3,850 4,018 4,163
Provision for loan losses ........... 105 105 120 450
------ ------ ------ -------
Net interest income after
provision for loan losses ..... 3,921 3,745 3,898 3,713
Noninterest income .................. 552 435 471 469
Noninterest expense ................. 3,036 2,648 2,785 7,063 (1)
------ ------ ------ -------
Income before provision for
income taxes .................. 1,437 1,532 1,584 (2,881)
Provision for income taxes .......... 415 442 462 (1,058)(2)
------ ------ ------ -------
Net income .......................... $1,022 $1,090 $1,122 $(1,823)
====== ====== ====== =======
(1) The fourth quarter increase in noninterest expense is due primarily to
$3,100,000 in charitable contributions provided primarily to The Everett
Mutual Foundation and $426,000 additional depreciation costs due to the
change in estimated useful lives of computers and other office equipment.
(2) Change in the provision for income taxes is due primarily to the fourth
quarter operating results.
F-31
<PAGE>
Year ended March 31, 1998
-------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Interest income ........................ $8,311 $8,328 $8,388 $ 8,435
Interest expense ....................... 4,420 4,518 4,541 4,420
------ ------ ------ -------
Net interest income ................ 3,891 3,810 3,847 4,015
Provision for loan losses .............. 120 120 60 120
------ ------ ------ -------
Net interest income after provision
for loan losses .................. 3,771 3,690 3,787 3,895
Noninterest income ..................... 470 413 430 479
Noninterest expense .................... 2,509 2,479 2,582 2,717
------ ------ ------ -------
Income before provision for
income taxes ..................... 1,732 1,624 1,635 1,657
Provision for income taxes ............. 557 536 471 550
------ ------ ------ -------
Net income ............................. $1,175 $1,088 $1,164 $ 1,107
====== ====== ====== =======
Year ended March 31, 1997
-------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Interest income ........................ $7,689 $7,682 $7,788 $ 7,890
Interest expense ....................... 4,226 4,255 4,276 4,253
------ ------ ------ -------
Net interest income ................ 3,463 3,427 3,512 3,637
Provision for loan losses .............. 120 220 40 40
------ ------ ------ -------
Net interest income after provision
for loans losses ................. 3,343 3,207 3,472 3,597
Noninterest income ..................... 346 335 157 236
Noninterest expense .................... 2,200 2,203 2,446 2,947
------ ------ ------ -------
Income before provision for
income taxes ..................... 1,489 1,339 1,183 886
Provision for income taxes ............. 430 427 310 220
------ ------ ------ -------
Net income ............................. $1,059 $ 912 $ 873 $ 666
====== ====== ====== =======
F-32
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by EverTrust Financial Group, Inc. or Everett Mutual Bank Savings
Bank. This prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby to any person or in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of EverTrust Financial Group, Inc. or Everett Mutual Bank
since any of the dates as of which information is furnished herein or since the
date hereof.
Table of Contents Page
----------------- ----
Summary.......................................................
Risk Factors..................................................
Selected Consolidated Financial Information...................
How EverTrust Financial Group, Inc. Intends to Use
the Conversion Offering Proceeds............................
EverTrust Financial Group, Inc.'s Dividend Policy.............
Market for EverTrust Financial Group, Inc.'s Common Stock.....
Capitalization................................................
Historical and Pro Forma Regulatory Capital Compliance........
Pro Forma Data................................................
Shares to be Purchased by Management with
Subscription Rights.........................................
Mutual Bancshares and Subsidiaries Consolidated
Statements of Income........................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................
Business of Mutual Bancshares.................................
Business of Commercial Bank of Everett........................
Business of I-Pro, Inc........................................
Business of Mutual Bancshares Capital, Inc....................
Management of EverTrust Financial Group, Inc..................
Management of Everett Mutual Bank.............................
Regulation....................................................
Taxation......................................................
Mutual Bancshares' Conversion.................................
Restrictions on Acquisition of EverTrust Financial
Group, Inc..................................................
Description of Capital Stock of EverTrust Financial
Group, Inc..................................................
Registration Requirements.....................................
Legal and Tax Opinions........................................
Experts.......................................................
Where You Can Find More Information...........................
Index to Consolidated Financial Statements....................
Until the later of _____________, 1999, or 90 days after commencement of the
syndicated community offering of common stock, if any, all dealers that buy,
sell or trade these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
[Logo for EverTrust Financial Group, Inc.]
5,856,500 to 8,986,250 Shares of
Common Stock
Prospectus
CHARLES WEBB AND COMPANY,
a division of Keefe, Bruyette & Woods, Inc.
________ __, 1999
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Legal fees and expenses ....................................... $ 225,000
Securities marketing legal fees ............................... 35,000
EDGAR, copying, printing, postage and mailing ................. 180,000
Appraisal and business plan preparation ....................... 55,000
Accounting fees ............................................... 75,000
Securities marketing fees and expenses ........................ 775,000
Data processing fees and expenses ............................. 20,000
SEC registration fee .......................................... 24,982
Blue Sky filing fees and expenses ............................. 5,000
State of Washington Department of Financial Institutions
filing fee................................................... 2,000
NASD fairness filing fee ...................................... 9,487
NASDAQ listing fee ............................................ 40,000
Other expenses ................................................ 50,475
----------
Total ..................................................... $1,500,000
==========
Item 14. Indemnification of Officers and Directors
In accordance with the Washington Business Corporation Law, RCW
ss.23B.08.570, Article XIII of the Registrant's Amended and Restated Articles of
Incorporation provides as follows:
"ARTICLE XIII. Indemnification. The corporation shall indemnify and advance
expenses to its directors, officers, agents and employees as follows:
A. Directors and Officers. In all circumstances and to the full extent
permitted by the Washington Business Corporation Act now or hereafter in
force, the corporation shall indemnify any person who is or was a director,
officer or agent of the corporation and who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (including an action by or in
the right of the corporation), by reason of the fact that he is or was an
agent of the corporation, against expenses, judgments, fines, and amounts
paid in settlement and incurred by him in connection with such action, suit
or proceeding. However, such indemnity shall not apply on account of: (a)
acts or omissions of the director and officer finally adjudged to be in
violation of law; (b) conduct of the director and officer finally adjudged
to be in violation of RCW 23B.08.310, or (c) any transaction with respect
to which it was finally adjudged that such director and officer personally
received a benefit in money, property, or services to which the director
was not legally entitled. The corporation shall advance expenses incurred
in a proceeding for such persons pursuant to the terms set forth in a
separate directors' resolution or contract.
B. Implementation. The Board of Directors may take such action as is
necessary to carry out these indemnification and expense advancement
provisions. It is expressly empowered to adopt, approve and amend from time
to time such Bylaws, resolutions, contracts or further indemnification and
expense advancement arrangements as may be permitted by law, implementing
these provisions. Such Bylaws, resolutions, contracts, or further
arrangements shall include, but not be limited to, implementing the manner
in which determinations as to any indemnity or advancement of expenses
shall be made.
C. Survival of Indemnification Rights. No amendment or repeal of this
Article shall apply to or have any effect on any right to indemnification
provided hereunder with respect to acts or omissions occurring prior to
such amendment or repeal.
II-1
<PAGE>
D. Service for Other Entities. The indemnification and advancement of
expenses provided under this Article shall apply to directors, officers,
employees, or agents of the corporation for both (a) service in such
capacities for the corporation, and (b) service at the corporations's
request as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. A person is considered to be
serving an employee benefit plan at the corporation's request if such
person's duties to the corporation also impose duties on, or otherwise
involve services by, the director to the plan or to participants in or
beneficiaries of the plan.
E. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against liability
asserted against him and incurred by him in such capacity or arising out of
his status as such, whether or not the corporation would have had the power
to indemnify him against such liability under the provisions of this bylaw
and Washington law.
F. Other Rights. The indemnification provided by this section shall
not be deemed exclusive of any other right to which those indemnified may
be entitled under any other bylaw, agreement, vote of stockholders, or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such an office,
and shall continue as to a person who has ceased to be a director, trustee,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person."
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this Registration
Statement are as follows:
(a) List of Exhibits
1.1 -- Form of proposed Agency Agreement among EverTrust Financial Group, Inc.,
Everett Mutual Bank and Charles Webb & Company (a)
1.2 -- Engagement Letter between Everett Mutual Bank and Charles Webb & Company
2 -- Plan of Conversion of Everett Mutual Bank (attached as an exhibit to the
Proxy Statement included herein as Exhibit 99.5)
3.1 -- Articles of Incorporation of EverTrust Financial Group, Inc.
3.2 -- Bylaws of EverTrust Financial Group, Inc.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Associates PC regarding legality of securities
registered
8.1 -- Federal Tax Opinion of Breyer & Associates PC (a)
8.2 -- State Tax Opinion of Deloitte & Touche LLP (a)
8.3 -- Opinion of RP Financial, LP as to the value of subscription rights
II-2
<PAGE>
10.1 -- Proposed Form of Employment Agreement for Executive Officers
10.2 -- Proposed Form of Employee Stock Ownership Plan
10.3 -- Everett Mutual Bank 401(k) Plan (a)
10.4 -- Proposed Form of Everett Mutual Bank Employee Severance Compensation
Plan
21 -- Subsidiaries of EverTrust Financial Group, Inc.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Breyer & Associates PC (contained in opinion included as
Exhibit 5)
23.3 -- Consent of Breyer & Associates PC as to its Federal Tax Opinion
(contained in opinion included as Exhibit 8.1) (a)
23.4 -- Consent of Deloitte & Touche LLP as to its State Tax Opinion (contained
in opinion included in Exhibit 8.2) (a)
23.5 -- Consent of RP Financial, LC.
24 -- Power of Attorney (contained in signature page to the Registration
Statement)
99.1 -- Order and Certification Form (contained in the marketing materials
included as Exhibit 99.2)
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with RP Financial, LC.
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of Mutual Bancshares
- ----------
(a) To be filed by amendment.
II-3
<PAGE>
Financial Statements and Schedules
Index To Consolidated Financial Statements
Mutual Bancshares
Page
----
Independent Auditors' Report - Deloitte & Touche LLP ................... F-1
Consolidated Balance Sheets as of March 31, 1999 and 1998 .............. F-2
Consolidated Statements of Income for the Years Ended
March 31, 1999, 1998 and 1997 ......................................... 23
Consolidated Statements of Changes in Equity Capital for the
Years Ended March 31, 1999 and 1998 .................................... F-3
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999 and 1998 ................................................ F-4
Notes to Consolidated Financial Statements ............................. F-5
All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be the initial bona fide
offering thereof.
II-4
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended ("Exchange Act") (and,
where applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Everett, Washington on
the 18th day of June, 1999.
EVERTRUST FINANCIAL GROUP, INC.
By: /s/ Michael B. Hansen
-------------------------------------
Michael B. Hansen
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of EverTrust Financial Group,
Inc., do hereby severally constitute and appoint Michael B. Hansen, our true and
lawful attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Michael B. Hansen may deem
necessary or advisable to enable EverTrust Financial Group, Inc., to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
Registration Statement on Form S-1 relating to the offering of EverTrust
Financial Group, Inc.'s Common Stock, including specifically but not limited to,
power and authority to sign for us or any of us in our names in the capacities
indicated below the Registration Statement and any and all amendments (including
post-effective amendments) thereto; and we hereby ratify and confirm all that
Michael B. Hansen shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Michael B. Hansen President and Chief Executive June 18, 1999
- -------------------------- Officer and Director
Michael B. Hansen (Principal Executive Officer)
/s/ Jeffrey R. Mitchell Vice President, Chief Financial June 18, 1999
- -------------------------- Officer and Treasurer
Jeffrey R. Mitchell (Principal Financial and
Accounting Officer)
/s/ Margaret B. Bavasi Chairman of the Board June 18, 1999
- --------------------------
Margaret B. Bavasi
/s/ Michael R. Deller Director June 18, 1999
- --------------------------
Michael R. Deller
II-6
<PAGE>
Signatures Title Date
- ---------- ----- ----
/s/ Thomas J. Gaffney Director June 18, 1999
- --------------------------
Thomas J. Gaffney
/s/ R. Michael Kight Director June 18, 1999
- --------------------------
R. Michael Kight
/s/ George S. Newland Director June 18, 1999
- --------------------------
George S. Newland
/s/ William J. Rucker Director June 18, 1999
- --------------------------
William J. Rucker
/s/ Thomas R. Collins Director June 18, 1999
- --------------------------
Thomas R. Collins
/s/ Robert a. Leach, Jr. Director June 18, 1999
- --------------------------
Robert A. Leach, Jr.
II-7
<PAGE>
As filed with the Securities and Exchange Commission on June 18, 1999
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EVERTRUST FINANCIAL GROUP, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Washington 6036 [Applied For]
- ------------------------------- ------------------ -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
2707 Colby Avenue, Suite 600
Everett, Washington 98201
(425) 258-3645
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
John F. Breyer, Jr., Esquire Beth A. Freedman, Esquire
BREYER & ASSOCIATES PC SILVER, FREEDMAN & TAFF, L.L.P.
Suite 700 East Suite 700 East
1100 New York Avenue, N.W. 1100 New York Avenue, N.W.
Washington, D.C. 20005 Washington, D.C. 20005
---------------------------- -------------------------------
(Name and address of agent for service)
================================================================================
<PAGE>
INDEX TO EXHIBITS
1.1 -- Form of proposed Agency Agreement among EverTrust Financial Group, Inc.,
Everett Mutual Bank and Charles Webb & Company (a)
1.2 -- Engagement Letter between Everett Mutual Bank and Charles Webb & Company
2 -- Plan of Conversion of Everett Mutual Bank (attached as an exhibit to the
Proxy Statement included herein as Exhibit 99.5)
3.1 -- Articles of Incorporation of EverTrust Financial Group, Inc.
3.2 -- Bylaws of EverTrust Financial Group, Inc.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Associates PC regarding legality of securities
registered
8.1 -- Federal Tax Opinion of Breyer & Associates PC (a)
8.2 -- State Tax Opinion of Deloitte & Touche LLP (a)
8.3 -- Opinion of RP Financial, LP as to the value of subscription rights
10.1 -- Proposed Form of Employment Agreement for Executive Officers
10.2 -- Proposed Form of Employee Stock Ownership Plan
10.3 -- Everett Mutual Bank 401(k) Plan (a)
10.4 -- Proposed Form of Everett Mutual Bank Employee Severance Compensation
Plan
21 -- Subsidiaries of EverTrust Financial Group, Inc.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Breyer & Associates PC (contained in opinion included as
Exhibit 5)
23.3 -- Consent of Breyer & Associates PC as to its Federal Tax Opinion
(contained in opinion included as Exhibit 8.1) (a)
23.4 -- Consent of Deloitte & Touche LLP as to its State Tax Opinion (contained
in opinion included in Exhibit 8.2) (a)
23.5 -- Consent of RP Financial, LC.
24 -- Power of Attorney (contained in signature page to the Registration
Statement)
99.1 -- Order and Certification Form (contained in the marketing materials
included as Exhibit 99.2)
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with RP Financial, LC.
<PAGE>
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of Mutual Bancshares
- ----------
(a) To be filed by amendment.
Exhibit 1.2
Engagement Letter between Everett Mutual Bank and Charles Webb & Company
<PAGE>
[Charles Webb & Company Letterhead]
April 9, 1999
Mr. Michael B. Hansen
President and Chief Executive Officer
Everett Mutual Bank
2707 Colby Avenue
Suite 600
Everett, Washington 98201
Dear Mr. Hansen:
This proposal is in connection with Everett Mutual Bank (the "Bank") intention
to convert from a mutual to a capital stock form of organization (the
"Conversion"). In order to effect the Conversion, it is contemplated that all of
the Bank's common stock to be outstanding pursuant to the Conversion will be
issued to a holding company (the "Company") to be formed by the Bank, and that
the Company will offer and sell shares of its common stock first to eligible
persons (pursuant to the Bank's Plan of Conversion) in a Subscription and
Community Offering.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Bank's and the Company's exclusive financial advisor
and marketing agent in connection with the Conversion. This letter sets forth
selected terms and conditions of our engagement.
1. Advisory/Conversion Services. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designed to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy (for both regular and
special dividends), stock
<PAGE>
Mr. Michael B. Hansen
April 9, 1999
Page 2 of 5
repurchase strategy and communication with market makers. Prior to the closing
of the offering, Webb shall furnish to client a Post-Conversion reference manual
which will include specifics relative to these items. (The nature of the
services to be provided by Webb as the Bank's and the Company's financial
advisor and marketing agent are further described in Exhibit A attached hereto.)
2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and its counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement, Application
for Conversion or any offering or other documents naming Webb as the Bank's and
the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably requests, and will permit Webb to discuss with
management the operations and prospects of the Bank. Webb will treat all
material non-public information as confidential. The Bank acknowledges that Webb
will rely upon the accuracy and completeness of all information received from
the Bank, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Bank's and the
Company's financial advisor and marketing agent.
4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), Federal Deposit Insurance Corp. ("FDIC") Federal
Reserve Bank and such state securities commissioners as may be determined by the
Bank.
5. Agency Agreement. The specific terms of the conversion services, conversion
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between Webb and the Bank and
the Company to be executed prior to commencement of the offering, and dated the
date that the Company's Prospectus is declared effective and/or authorized to be
disseminated by the appropriate regulatory agencies, the SEC, the NASD, the FDIC
and such state securities commissioners and other regulatory agencies as
required by applicable law.
6. Representations, Warranties and Covenants. The Agency Agreement will provide
for customary representations, warranties and covenants by the Bank and Webb,
and for the
<PAGE>
Mr. Michael B. Hansen
April 9, 1999
Page 3 of 5
Company to indemnify Webb and their controlling persons (and, if applicable, the
members of the selling group and their controlling persons), and for Webb to
indemnify the Bank and the Company against certain liabilities, including,
without limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) Management Fee. A Management Fee of $25,000 payable in four
consecutive monthly installments of $6,250 commencing with the signing of
this letter. Such fees shall be deemed to have been earned when due. Should
the Conversion be terminated for any reason not attributable to the action
or inaction of Webb, Webb shall have earned and be entitled to be paid fees
accruing through the stage at which point the termination occurred.
(b) Success Fee. A Success Fee of $715,000.00. The Management Fee
described in 7(a) will be applied against the Success Fee.
(c) Broker-Dealer Pass-Thru. If any shares of the Company's stock
remain available after the subscription offering, at the request of the
Bank, Webb will seek to form a syndicate of registered broker-dealers to
assist in the sale of such common stock on a best efforts basis, subject to
the terms and conditions set forth in the selected dealers agreement. Webb
will endeavor to distribute the common stock among dealers in a fashion
which best meets the distribution objectives of the Bank and the Plan of
Conversion. Webb will be paid a fee not to exceed 5.5% of the aggregate
Purchase Price of the shares of common stock sold by them. Webb will pass
onto selected broker-dealers, who assist in the syndicated community, an
amount competitive with gross underwriting discounts charged at such time
for comparable amounts of stock sold at a comparable price per share in a
similar market environment. Fees with respect to purchases affected with
the assistance of a broker/dealer other than Webb shall be transmitted by
Webb to such broker/dealer. The decision to utilize selected broker-dealers
will be made by the Bank upon consultation with Webb. In the event, with
respect to any stock purchases, fees are paid pursuant to this subparagraph
7(c), such fees shall be in lieu of, and not in addition to, payment
pursuant to subparagraph 7(a) and 7(b).
8. Additional Services. Webb further agrees to provide financial advisory
assistance to the Company and the Bank for a period of one year following
completion of the Conversion, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations matters, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and the
<PAGE>
Mr. Michael B. Hansen
April 9, 1999
Page 4 of 5
Bank of any fees in addition to those set forth in Section 7 hereof. Nothing in
this Agreement shall require the Company and the Bank to obtain such services
from Webb. Following this initial one year term, if both parties wish to
continue the relationship, a fee will be negotiated and an agreement entered
into at that time.
9. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Conversion; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
If Webb incurs expenses on behalf of Client, Client will reimburse Webb for such
expenses.
Webb shall be reimbursed for reasonable out-of-pocket expenses, including costs
of travel, meals and lodging, photocopying, telephone, facsimile and couriers
and reasonable fees and expenses of their counsel (such fees of counsel will not
be incurred without the prior approval of Client). Such reimbursement of
out-of-pocket expenses will not exceed $35,000. The selection of such counsel
will be done by Webb, with the approval of the Bank. Such reimbursement of legal
fees will not exceed $35,000.
10. Conditions. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Bank subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
12. Benefit. This Agreement shall inure to the benefit of the parties hereto and
their respective successors and to the parties indemnified pursuant to the terms
and conditions of the Agency Agreement and their successors, and the obligations
and liabilities assumed hereunder by the parties hereto shall be binding upon
their respective successors provided, however, that this Agreement shall not be
assignable by Webb.
13. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute the binding obligations of the parties hereto and which shall
survive the
<PAGE>
Mr. Michael B. Hansen
April 9, 1999
Page 5 of 5
termination of this Agreement or the completion of the services furnished
hereunder and shall remain operative and in full force and effect. You further
acknowledge that any report or analysis rendered by Webb pursuant to this
engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/ Patricia McJoynt
------------------------------------------
Patricia A. McJoynt
Executive Vice President
EVERETT MUTUAL BANK
By: /s/ Michael B. Hansen Date: 4/12/99
------------------------------------------ -------------
Michael B. Hansen
President and Chief Executive Officer
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO EVERETT MUTUAL BANK
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
General Services
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center, meet with
prospective shareholders at individual and community information meetings,
solicit local investor interest through a tele-marketing campaign, answer
inquiries, and otherwise assist in the sale of stock in the Subscription and
Community Offerings.
This effort will be lead by a Principal of Webb/KBW.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Conversion Offering Enhancement Services- Continued
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
Aftermarket Support Services.
Webb will use their best efforts to secure market making and on-going research
commitment from at least two NASD firms, one of which will be Keefe, Bruyette &
Woods, Inc.
Exhibit 3.1
Articles of Incorporation of EverTrust Financial Group, Inc.
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
EVERTRUST FINANCIAL GROUP, INC.
Pursuant to the provisions of Title 23B of the Revised Code of Washington
("RCW") (Washington Business Corporation Act), the following shall constitute
the Amended and Restated Articles of Incorporation of EverTrust Financial Group,
Inc., a Washington corporation:
ARTICLE I. Name. The name of the corporation is EverTrust Financial Group,
Inc. (the "corporation").
ARTICLE II. Duration. The duration of the corporation is perpetual.
ARTICLE III. Purpose and Powers. The nature of the business and the objects
and purposes to be transacted, promoted or carried on by the corporation are to
engage in the activities of a savings and loan holding company and in any other
lawful act or business for which corporations may be organized under the
Washington Business Corporation Act (as now in existence or as may hereafter be
amended, the "WBCA").
ARTICLE IV. Capital Stock. The total number of shares of all classes of
capital stock which the corporation has authority to issue is 50,000,000, of
which 49,000,000 shall be common stock of no par value per share, and of which
1,000,000 shall be serial preferred stock of no par value per share. The shares
may be issued from time to time as authorized by the Board of Directors without
further approval of the shareholders, except to the extent that such approval is
required by governing law, rule or regulation. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the stated par value per share. Upon payment of such consideration
such shares shall be deemed to be fully paid and nonassessable. Upon
authorization by its Board of Directors, the corporation may issue its own
shares in exchange for or in conversion of its outstanding shares or distribute
its own shares, pro rata to its shareholders or the shareholders of one or more
classes or series, to effectuate stock dividends or splits, and any such
transaction shall not require consideration.
Except as expressly provided by applicable law, these Articles of
Incorporation or by any resolution of the board of directors designating and
establishing the terms of any series of preferred stock, no holders of any class
or series of capital stock shall have any right to vote as a separate class or
series or to vote more than one vote per share. The shareholders of the
corporation shall not be entitled to cumulative voting in any election of
directors.
A description of the different classes and series (if any) of the
corporation's capital stock and a statement of the designations, and the
relative rights, preferences and limitations of the shares of each class and
series (if any) of capital stock are as follows:
A. Common Stock. On matters on which holders of common stock are
entitled to vote, each holder of shares of common stock shall be entitled
to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends, the
full amount of dividends and of sinking fund, retirement fund or other
retirement payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available
for the payment of dividends, but only when and as declared by the board of
directors.
In the event of any liquidation, dissolution or winding up of the
corporation, the holders of the common stock (and the holders of any class
or series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind,
the assets of the corporation available for distribution remaining after:
(i) payment or provision for payment of the corporation's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account; and (iii) distributions or provision
for distributions to holders of any class or series of stock having
preference over the common stock in the liquidation, dissolution or winding
up of
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the corporation. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of
common stock.
B. Serial Preferred Stock. The board of directors of the corporation
is authorized by resolution or resolutions from time to time adopted to
provide for the issuance of preferred stock in series and to fix and state
the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof, including, but not
limited to, determination of any of the following:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any, with
respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding
up of the corporation;
(f) Whether the shares or such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price(s) at
which such shares may be redeemed or purchased through the application
of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of stock of the
corporation, and, if so convertible or exchangeable, the conversion
price(s), or the rate or rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
serial preferred stock and whether such shares may be reissued as
shares of the same or any other series of serial preferred stock.
Each share of each series of preferred stock shall have the same
relative rights as and be identical in all respects with all other shares
of the same series.
C. 1. Notwithstanding any other provision of these Articles of
Incorporation, in no event shall any record owner of any outstanding common
stock which is beneficially owned, directly or indirectly, by a person who,
as of any record date for the determination of shareholders entitled to
vote on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of common stock ("Limit"), be entitled, or
permitted to any vote in respect of the shares held in excess of the Limit,
unless a majority of the Whole Board (as hereinafter defined) shall have by
resolution granted in advance such entitlement or permission. The number of
votes which may be cast by any record owner by virtue of the provisions
hereof in respect of common stock beneficially owned by such person owning
shares in excess of the Limit shall be a number equal to the total number
of votes which a single record owner of all common stock owned by such
person would be entitled to cast, multiplied by a fraction, the numerator
of which is the number
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of shares of such class or series which are both beneficially owned by such
person and owned of record by such record owner and the denominator of
which is the total number of shares of common stock beneficially owned by
such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of this
Article VII.
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of these
Articles of Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 (or any successor rule or statutory provision),
or, if said Rule 13d-3 shall be rescinded and there shall be no
successor rule or provision thereto, pursuant to said Rule 13d-3 as in
effect on the date of filing of these Articles of Incorporation;
provided, however, that a person shall, in any event, also be deemed
the "beneficial owner" of any common stock:
(i) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A) the
right to acquire (whether such right is exercisable immediately
or only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with the corporation to
effect any transaction which is described in any one or more of
subparagraphs A(1)(a) through (h) of Article X hereof or upon the
exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (B) sole or shared voting or investment
power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall
not be deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a particular
meeting of shareholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of which neither
such person nor any such affiliate is otherwise deemed the
beneficial owner); or
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned person or any
of its affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the corporation; and
provided further, however, that (i) no director or officer of the
corporation (or any Affiliate of any such director or officer)
shall, solely by reason of any or all of such directors of
officers acting in their capacities as such, be deemed, for any
purposes hereof, to beneficially own any common stock
beneficially owned by any other such director or officer (or any
Affiliate thereof), and (ii) neither any employee stock ownership
or similar plan of the corporation or any subsidiary of the
corporation, nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to
beneficially own any common stock held under any such plan. For
purposes of computing the percentage beneficial ownership of
common stock of a person, the outstanding common stock shall
include shares deemed owned by such person through application of
this subsection but shall not include any other common stock
which may be issuable by the corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding
common stock shall include only common stock then outstanding and
shall not include any common stock which may be issuable by the
corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or
other entity.
(d) "Whole Board" shall mean the total number of directors which
the corporation would have if there were no vacancies on the board of
directors.
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3. The board of directors shall have the power to construe and apply
the provisions of this Section C and to make all determinations necessary
or desirable to implement such provisions, including but not limited to
matters with respect to (i) the number of shares of common stock
beneficially owned by any person, (ii) whether a person is an affiliate of
another, (iii) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the definition
of beneficial ownership, (iv) the application of any other definition or
operative provision of this Section C to the given facts, or (v) any other
matter relating to the applicability or effect of this Section C.
4. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own common stock in
excess of the Limit (or holds of record common stock beneficially owned by
any person in excess of the Limit) supply the corporation with complete
information as to (i) the record owner(s) of all shares beneficially owned
by such person who is reasonably believed to own shares in excess of the
Limit, and (ii) any other factual matter relating to the applicability or
effect of this section as may reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the corporation entitling the holders thereof to
cast a majority of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the holders of shares
of capital stock of the corporation entitled to vote shall constitute a
quorum at all meetings of the shareholders, and every reference in these
Articles of Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining any quorum
requirement or any requirement for shareholder consent or approval shall be
deemed to refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
board of directors pursuant to this Section C in good faith and on the
basis of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the corporation and
its shareholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason,
the remaining provisions (or portions thereof) of this Section C shall
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or
otherwise rendered inapplicable, it being the intent of the corporation and
its shareholders that each such remaining provision (or portion thereof) of
this Section C remain, to the fullest extent permitted by law, applicable
and enforceable as to all shareholders, including shareholders owning an
amount of stock over the Limit, notwithstanding any such finding.
ARTICLE V. Preemptive Rights. Holders of the capital stock of the
corporation shall not be entitled to preemptive rights with respect to any
shares of the corporation which may be issued.
ARTICLE VI. Initial Directors. The persons who shall serve as the initial
directors of the corporation are: Margaret B. Bavasi, Thomas R. Collins, Michael
R. Deller, Thomas J. Gaffney, Michael B. Hansen, R. Michael Kight, Robert A.
Leach, Jr., George S. Newland, and William J. Rucker. The address of each
initial director is 2707 Colby Avenue, Suite 600, Everett, Washington 98201. The
initial directors shall serve until the first annual meeting of shareholders, at
which time they may stand for reelection.
ARTICLE VII. Directors.
A. Number. The corporation shall be under the direction of a Board of
Directors. The number of directors shall be as stated in the corporation's
bylaws, but in no event shall be fewer than five nor more than 15.
B. Classified Board. The board of directors shall be divided into
three groups, with each group containing one-third of the total number of
directors, or as near as may be. The terms of the directors in the first
group
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shall expire at the first annual shareholders' meeting following their
election, the terms of the second group shall expire at the second
shareholders' meeting following their election, and the terms of the third
group shall expire at the third annual shareholders' meeting following
their election. At each annual shareholders' meeting held thereafter,
directors shall be chosen for a term of three years to succeed those whose
terms expire.
C. Vacancies. Any vacancy occurring in the board of directors may be
filled only by the affirmative vote of a majority of the remaining
directors, although less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected for the unexpired term
of his predecessor in office. A directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board
of directors for a term continuing only until the next election of
directors by the shareholders.
ARTICLE VIII. Removal of Directors. Notwithstanding any other provisions of
these articles of incorporation or the corporation's bylaws (and notwithstanding
the fact that some lesser percentage may be specified by law, these articles of
incorporation or the corporation's bylaws), any director or the entire Board of
Directors may be removed only for cause and only by the affirmative vote of the
holders of at least 80% of the total votes eligible to be cast at a legal
meeting called expressly for such purpose. For purpose of this Article VIII,
"cause" shall mean fraudulent or dishonest acts, a gross abuse of authority in
discharge of duties to the corporation or acts that are detrimental or hostile
to the interests of the corporation.
ARTICLE IX. Registered Office and Agent. The registered office of the
corporation shall be located at 2707 Colby Avenue, Suite 600, Everett,
Washington 98201. The initial registered agent of the corporation at such
address shall be Michael B. Hansen.
ARTICLE X. Notice for Shareholder Nominations and Proposals.
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of shareholders
may be made by the board of directors of the corporation or by any
shareholder of the corporation entitled to vote generally in the election
of directors. In order for a shareholder of the corporation to make any
such nominations and/or proposals, he or she shall give notice thereof in
writing, delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the corporation not less than thirty days nor
more than sixty days prior to any such meeting; provided, however, that if
less than thirty-one days' notice of the meeting is given to shareholders,
such written notice shall be delivered or mailed, as prescribed, to the
Secretary of the corporation not later than the close of the tenth day
following the day on which notice of the meeting was mailed to
shareholders. Each such notice given by a shareholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed
in such notice, (ii) the principal occupation or employment of each such
nominees, (iii) the number of shares of stock of the corporation which are
beneficially owned by each such nominee, (iv) such other information as
would be required to be included in a proxy statement soliciting proxies
for the election of the proposed nominee pursuant to Regulation 14A of the
General Rules and Regulations of the Securities Exchange Act of 1934,
including, without limitation, such person's written consent to being named
in the proxy statement as a nominee and to serving as a director, if
elected, and (v) as to the shareholder giving such notice (a) his name and
address as they appear on the corporation's books and (b) the class and
number of shares of the corporation which are beneficially owned by such
shareholder. In addition, the shareholder making such nomination shall
promptly provide any other information reasonably requested by the
corporation.
B. Each such notice given by a shareholder to the Secretary with
respect to business proposals to bring before a meeting shall set forth in
writing as to each matter: (i) a brief description of the business desired
to be brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business; (iii) the
class and number of shares of the corporation which are beneficially owned
by the shareholder; and (iv) any material interest of the shareholder in
such business. Notwithstanding anything in this Certificate to the
contrary, no business shall be conducted at the meeting except in
accordance with the procedures set forth in this Article.
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C. The Chairman of the annual or special meeting of shareholders may,
if the facts warrant, determine and declare to the meeting that a
nomination or proposal was not made in accordance with the foregoing
procedure, and, if the Chairman should so determine, the Chairman shall so
declare to the meeting and the defective nomination or proposal shall be
disregarded and laid over for action at the next succeeding adjourned,
special or annual meeting of the shareholders taking place thirty days or
more thereafter. This provision shall not require the holding of any
adjourned or special meeting of shareholders for the purpose of considering
such defective nomination or proposal.
ARTICLE XI. Approval of Certain Business Combinations. The shareholder vote
required to approve Business Combinations (as hereinafter defined) shall be as
set forth in this section.
A. (1) Except as otherwise expressly provided in this Article XI, the
affirmative vote of the holders of (i) at least 80% of the outstanding
shares entitled to vote thereon (and, if any class or series of shares is
entitled to vote thereon separately, the affirmative vote of the holders of
at least 80% of the outstanding shares of each such class or series), and
(ii) at least a majority of the outstanding shares entitled to vote
thereon, not including shares deemed beneficially owned by a Related Person
(as hereinafter defined), shall be required to authorize any of the
following:
(a) any merger or consolidation of the corporation with or into a
Related Person;
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security
device, of all or any Substantial Part (as hereinafter defined) of the
assets of the corporation (including without limitation any voting
securities of a subsidiary) or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the corporation or a subsidiary of the corporation;
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the
corporation or a subsidiary of the corporation;
(e) the issuance of any securities of the corporation or a
subsidiary of the corporation to a Related Person;
(f) the acquisition by the corporation or a subsidiary of the
corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the corporation,
or any recapitalization involving the common stock of the corporation;
(h) any liquidation or dissolution of the corporation; and
(i) any agreement, contract or other arrangement providing for
any of the transactions described in this Article XI.
(2) Such affirmative vote shall be required notwithstanding any other
provision of these Articles of Incorporation, any provision of law, or any
agreement with any regulatory agency or national securities exchange which
might otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article XI shall
mean any transaction which is referred to in any one or more of
subparagraphs (a) through (i) above.
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B. The provisions of Part A of this Article XI shall not be applicable
to any particular Business Combination, which shall require only such
affirmative vote as is required by any other provision of these Articles of
Incorporation, any provision of law, or any agreement with any regulatory
agency or national securities exchange, if such particular Business
Combination shall have been approved by two-thirds of the Continuing
Directors (as hereinafter defined); provided, however, that such approval
shall only be effective if obtained at a meeting at which a Continuing
Director Quorum (as hereinafter defined) is present.
C. For the purposes of this Article XI the following definitions
apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which
together with its "affiliates" (as that term is defined in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act
of 1934), "beneficially owns" (as that term is defined in Rule 13d-3
of the General Rules and Regulations under the Securities Act of 1934)
in the aggregate 10% or more of the outstanding shares of the common
stock of the corporation (excluding tax-qualified benefit plans of the
corporation); and (b) any "affiliate" (as that term is defined in Rule
12b-2 under the Securities Exchange Act of 1934) of any such
individual, corporation, partnership or other person or entity.
Without limitation, any shares of the common stock of the corporation
which any Related Person has the right to acquire pursuant to any
agreement, or upon exercise or conversion rights, warrants or options,
or otherwise, shall be deemed "beneficially owned" by such Related
Person.
(2) The term "Substantial Part" shall mean more than 25% of the
total assets of the corporation as of the end of its most recent
fiscal year prior to when the determination is made.
(3) The term "Continuing Director" shall mean any member of the
board of directors of the corporation who is unaffiliated with the
Related Person and was a member of the board of directors prior to the
time the Related Person became a Related Person, and any successor of
a Continuing Director who is unaffiliated with the Related Person and
is recommended to succeed a Continuing Director by a majority of
Continuing Directors then on the board of directors.
(4) The term "Continuing Director Quorum" shall mean seventy-five
percent (75%) of the Continuing Directors capable of exercising the
powers conferred on them.
D. Nothing contained in this Article XI shall be construed to relieve
a Related Person from any fiduciary obligation imposed by law. In addition,
nothing contained in the Article XI shall prevent any shareholders of the
corporation from objecting to any Business Combination and from demanding
any appraisal rights which may be available to such shareholder.
E. No amendment, alteration, change, or repeal of any provision of the
Article XI may be effected unless it is approved at a meeting of the
corporation's shareholders called for that purpose. Notwithstanding any
other provision of this charter, the affirmative vote of the holders of not
less than 80% of the outstanding shares entitled to vote thereon shall be
required to amend, alter, change, or repeal, directly or indirectly, any
provision of this Article XI; provided, however, that the preceding
provisions of this Part E shall not be applicable to any amendment to this
Article XI if such amendment receives this affirmative vote required by law
and any other provisions of these Articles of Incorporation and if such
amendment has been approved by a majority of the Continuing Directors.
ARTICLE XII. Evaluation of Business Combinations. In connection with the
exercise of its judgment in determining what is in the best interests of the
corporation and of the shareholders, when evaluating a Business Combination (as
defined in Article XI) or a tender or exchange offer, the board of directors of
the corporation, in addition to considering the adequacy of the amount to be
paid in connection with any such transaction, shall consider all of the
following factors and any other factors which it deems relevant: (i) the social
and economic effects of the transaction on the corporation and its subsidiaries,
employees, depositors, loan and other customers, creditors and other elements of
the communities in which the corporation and its subsidiaries operate or are
located; (ii) the business and
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financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the corporation and its
subsidiaries and the other elements of the communities in which the corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
ARTICLE XIII. Limitation of Directors' Liability. To the fullest extent
permitted by the WBC, a director of the corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for conduct
as a director, except for liability of the director for acts or omissions that
involve: (i) intentional misconduct by the director; (ii) a knowing violation of
law by the director; (iii) conduct violating RCW Section 23B.08.310 (relating to
unlawful distributions by the corporation); or (iv) any transaction from which
the director will personally receive a benefit in money, property or services to
which the director is not legally entitled. If the WBC is amended in the future
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the full extent permitted by the WBC, as so
amended, without any requirement or further action by shareholders. An amendment
or repeal of this Article XII shall not adversely affect any right or protection
of a director of the corporation existing at the time of such amendment or
repeal.
ARTICLE XIV. Indemnification. The corporation shall indemnify and advance
expenses to its directors, officers, agents and employees as follows:
A. Directors and Officers. In all circumstances and to the full extent
permitted by the WBC, the corporation shall indemnify any person who is or
was a director, officer or agent of the corporation and who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (including
an action by or in the right of the corporation), by reason of the fact
that he is or was an agent of the corporation, against expenses, judgments,
fines, and amounts paid in settlement and incurred by him in connection
with such action, suit or proceeding. However, such indemnity shall not
apply to: (a) acts or omissions of the director or officer finally adjudged
to violate law; (b) conduct of the director or officer finally adjudged to
violate RCW Section 23B.08.310 (relating to unlawful distributions by the
corporation), or (c) any transaction with respect to which it was finally
adjudged that such director and officer personally received a benefit in
money, property, or services to which the director was not legally
entitled. The corporation shall advance expenses incurred in a proceeding
for such persons pursuant to the terms set forth in a separate directors'
resolution or contract.
B. Implementation. The board of directors may take such action as is
necessary to carry out these indemnification and expense advancement
provisions. It is expressly empowered to adopt, approve and amend from time
to time such bylaws, resolutions, contracts or further indemnification and
expense advancement arrangements as may be permitted by law, implementing
these provisions. Such bylaws, resolutions, contracts, or further
arrangements shall include, but not be limited to, implementing the manner
in which determinations as to any indemnity or advancement of expenses
shall be made.
C. Survival of Indemnification Rights. No amendment or repeal of this
Article XIV shall apply to or have any effect on any right to
indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
D. Service for Other Entities. The indemnification and advancement of
expenses provided under this Article XIV shall apply to directors,
officers, employees, or agents of the corporation for both (a) service in
such capacities for the corporation, and (b) service at the corporations's
request as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. A person is considered to be
serving an employee benefit plan at the corporation's request if such
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person's duties to the corporation also impose duties on, or otherwise
involve services by, the director to the plan or to participants in or
beneficiaries of the plan.
E. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against liability
asserted against him and incurred by him in such capacity or arising out of
his status as such, whether or not the corporation would have had the power
to indemnify him against such liability under the provisions of this bylaw
and the WBC.
F. Other Rights. The indemnification provided by this section shall
not be deemed exclusive of any other right to which those indemnified may
be entitled under any other bylaw, agreement, vote of shareholders, or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such an office,
and shall continue as to a person who has ceased to be a director, trustee,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
ARTICLE XV. Special Meeting of Shareholders. Special meetings of the
shareholders for any purpose or purposes may be called only by the president or
by the Board of Directors. The right of shareholders of the corporation to call
special meetings is specifically denied.
ARTICLE XVI. Repurchase of Shares. The corporation may from time to time,
pursuant to authorization by the board of directors of the corporation and
without action by the shareholders, purchase or otherwise acquire shares of any
class, bonds, debentures, notes, scrip, warrants, obligations, evidences of
indebtedness, or other securities of the corporation in such manner, upon such
terms, and in such amounts as the board of directors shall determine; subject,
however, to such limitations or restrictions, if any, as are contained in the
express terms of any class of shares of the corporation outstanding at the time
of the purchase or acquisition in question or as are imposed by law.
ARTICLE XVII. Amendment of Bylaws. In furtherance and not in limitation of
the powers conferred by statute, the board of directors of the corporation is
expressly authorized to make, repeal, alter, amend and rescind the bylaws of the
corporation by a majority vote of the board of directors. Notwithstanding any
other provision of these Articles of Incorporation or the bylaws of the
corporation (and notwithstanding the fact that some lesser percentage may be
specified by law), the bylaws shall not be adopted, repealed, altered, amended
or rescinded by the shareholders of the corporation except by the vote of the
holders of not less than 80% of the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the shareholders called for
that purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such meeting),
or, as set forth above, by the board of directors.
ARTICLE XVIII. Amendment of Articles of Incorporation. The corporation
reserves the right to repeal, alter, amend or rescind any provision contained in
the Articles of Incorporation in the manner now or hereafter prescribed by law,
and all rights conferred on shareholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
II, III, IV (other than a change to the number of authorized shares in
connection with a split of, or stock dividend in, the corporation's own shares,
provided the corporation has only one class of shares outstanding or a change in
the par value of such shares), V, VI, VIII, X, XI, XII, XIII, XIV, XV, XVI, XVII
and this Article XVIII of these Articles of Incorporation may not be repealed,
altered, amended or rescinded in any respect unless the same is approved by the
affirmative vote of the holders of not less than 80% of the votes entitled to be
cast by each separate voting group entitled to vote thereon, cast at a meeting
of the shareholders called for that purpose (provided that notice of such
proposed adoption, repeal, alteration, amendment or rescission is included in
the notice of such meeting).
ARTICLE XIX. Incorporator. The name and mailing address of the incorporator
are Michael B. Hansen, P.O. Box 569, Everett, Washington 98206-0569.
* * *
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Executed this 11th day of June 1999.
/s/ Michael B. Hansen
---------------------
Michael B. Hansen
Incorporator
10
Exhibit 3.2
Bylaws of EverTrust Financial Group, Inc.
<PAGE>
BYLAWS
OF
EVERTRUST FINANCIAL GROUP, INC.
ARTICLE I
Principal Office
SECTION 1. Principal Office. The principal office and place of business of
the corporation in the state of Washington shall be located in the City of
Everett, Snohomish County.
SECTION 2. Other Offices. The corporation may have such other offices as
the Board of Directors may designate or the business of the corporation may
require from time to time.
ARTICLE II
Shareholders
SECTION 1. Place of Meetings. All annual and special meetings of the
shareholders shall be held at the principal office of the corporation or at such
other place within the State of Washington as the Board of Directors may
determine.
SECTION 2. Annual Meeting. A meeting of the shareholders of the corporation
for the election of directors and for the transaction of any other business of
the corporation shall be held annually on the ______ _____day of July, if not a
legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday, at _:00 p.m., Pacific time, or at such other date and time
as the Board of Directors may determine.
SECTION 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes shall be called in accordance with the procedures set forth
in the Articles of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules prescribed by the presiding officer of the
meeting, unless otherwise prescribed by these bylaws. The Board of Directors
shall designate, when present, either the chairman of the board or the president
to preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in the case of a special meeting of shareholders, the
purpose or purposes for which the meeting is called, shall be delivered not less
than 10 nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the chairman of the board, the president,
the secretary, or the directors calling the meeting, to each shareholder of
record entitled to vote at such meeting; provided, however, that notice of a
shareholders meeting to act on an amendment to the Articles of Incorporation, a
plan of merger or share exchange, a proposed sale of assets pursuant to Section
23B.12.020 of the Revised Code of Washington or its successor, or the
dissolution of the corporation shall be given no fewer than 20 nor more than 60
days before the meeting date. If mailed, such notice shall be deemed to be
delivered when deposited in the mail, addressed to the shareholder at the
address as it appears on the stock transfer books or records of the corporation
as of the record date prescribed in Section 6 of this Article II, with postage
thereon prepaid. When any shareholders' meeting, either annual or special, is
adjourned for 120 days or more, notice of the adjourned meeting shall be given
as in the case of an original meeting. It shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 120 days or
of the business to be transacted at the meeting, other than an announcement at
the meeting at which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors
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shall fix, in advance, a date as the record date for any such determination of
shareholders. Such date in any case shall be not more than 60 days, and in case
of a meeting of shareholders, not less than 10 days prior to the date on which
the particular action, requiring such determination of shareholders, is to be
taken. If no record date is fixed for the determination of shareholders entitled
to notice of or to vote at a meeting of shareholders, or shareholders entitled
to receive payment of a dividend, the day before the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment.
SECTION 7. Voting Lists. At least 10 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the corporation shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
This list of shareholders shall be kept on file at the home office of the
corporation and shall be subject to inspection by any shareholder at any time
during usual business hours, for a period of 10 days prior to such meeting. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to inspection by any shareholder during the entire time of
the meeting. The original stock transfer book shall be prima facie evidence of
the shareholders entitled to examine such list or transfer books or to vote at
any meeting of shareholders. Failure to comply with the requirements of this
bylaw shall not affect the validity of any action taken at the meeting.
SECTION 8. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. If a quorum is
present or represented at a meeting, a majority of those present or represented
may transact any business which comes before the meeting, unless a greater
percentage is required by law. If less than a quorum of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified, and in the case of any adjourned meeting called for the election of
directors, those who attend the second of the adjourned meetings, although less
than a quorum, shall nevertheless constitute a quorum for the purpose of
electing directors.
SECTION 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. All proxies shall be filed
with the secretary of the corporation before or at the commencement of meetings.
No proxy may be effectively revoked until notice in writing of such revocation
has been given to the secretary of the corporation by the shareholder (or his
duly authorized attorney in fact, as the case may be) granting the proxy. No
proxy shall be valid after eleven months from the date of its execution unless
it is coupled with an interest.
SECTION 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. A certified copy of
a resolution adopted by such directors shall be conclusive as to their action.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
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Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do is
contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
If shares are held jointly by three or more fiduciaries, the will of the
majority of the fiduciaries shall control the manner of voting or giving of a
proxy, unless the instrument or order appointing such fiduciaries otherwise
directs.
A shareholder, whose shares are pledged, shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter, the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 11. Voting. Every holder of outstanding shares of capital stock of
the corporation entitled to vote at any meeting shall be entitled to the number
of votes (if any) as set forth in the Articles of Incorporation. Shareholders
shall not be entitled to cumulative voting rights in the election of directors.
Unless otherwise provided in the Articles of Incorporation, by statute, or by
these bylaws, a majority of those votes cast by shareholders at a lawful meeting
shall be sufficient to pass on a transaction or matter.
SECTION 12. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III
Board of Directors
SECTION 1. General Powers. All corporate powers shall be exercised by, or
under authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors. The Board of Directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
SECTION 2. Number, Term and Election. The Board of Directors shall consist
of nine (9) members. The number of directors may be increased or decreased from
time to time by amendment to or in the manner provided in these bylaws, but
shall be no less than and no more than the numbers set forth in the Articles of
Incorporation. No decrease, however, shall have the effect of shortening the
term of any incumbent director unless such director is removed in accordance
with the provisions of these bylaws. Unless removed in accordance with the
Articles of Incorporation, each director shall hold office until his successor
shall have been elected and qualified.
SECTION 3. Regular Meetings. An annual meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after the annual
meeting of shareholders, and at the same place as other regularly scheduled
meetings of the Board of Directors. The Board of Directors may provide, by
resolution, the time and place, for the holding of additional regular meetings
without other notice than such resolution. The president of the corporation, the
Board of Directors or any director may call a special meeting of the Board.
Regular meetings may be held in or out of the state of Washington.
Members of the Board of Directors may participate in regular or special
meetings by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other.
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Such participation shall constitute attendance in person, but shall not
constitute attendance for the purpose of compensation pursuant to SECTION 13 of
this Article.
SECTION 4. Notice of Special Meeting. Written notice of any special meeting
shall be given to each director at least two days prior thereto. If mailed to
the address at which the director is most likely to be reached, such notice
shall be deemed to be delivered when deposited in the mail so addressed, with
postage thereon prepaid. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Special meetings may be held in or out of the state of Washington.
SECTION 5. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.
SECTION 6. Manner of Acting. The act of the majority of the directors
present at a meeting or adjourned meeting at which a quorum is present shall be
the act of the board of directors, unless a greater number is prescribed by
these bylaws.
SECTION 7. Action Without a Meeting. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 8. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the principal office of the corporation
addressed to the chairman of the board or the president. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof by
the chairman of the board or the president.
SECTION 9. Removal. A director or the entire board of directors may be
removed only in accordance with the procedures set forth in the Articles of
Incorporation.
SECTION 10. Vacancies. Vacancies of the board of directors may be filled
only in accordance with the procedures set forth in the Articles of
Incorporation.
SECTION 11. Compensation. Directors, as such, may receive a stated fee for
their services. By resolution of the board of directors, a reasonable fixed sum,
and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Nothing herein shall be construed to preclude any director from serving the
corporation in any other capacity and receiving remuneration therefor.
SECTION 12. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on a corporation
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation within five
(5) days after the date he receives a copy of the minutes of the meeting. Such
right to dissent shall not apply to a director who voted in favor of such
action.
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ARTICLE IV
Committees of the Board of Directors
SECTION 1. Appointment. The board of directors may, by resolution adopted
by a majority of the full board, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any such committee.
SECTION 2. Authority. Any such committee shall have all the authority of
the board of directors, except to the extent, if any, that such authority shall
be limited by the resolution appointing the committee; and except also that no
committee shall have the authority of the board of directors with reference to:
the declaration of dividends; the amendment of the charter or bylaws of the
Corporation, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this Article
III, each member of a committee shall hold office until the next regular annual
meeting of the board of directors following his or her designation and until a
successor is designated as a member of the committee.
SECTION 4. Meetings. Unless the board of directors shall otherwise provide,
regular meetings of any committee appointed pursuant to this Article III shall
be at such times and places as are determined by the board of directors, or by
any such committee. Special meetings of any such committee may be held at the
principal executive office of the Corporation, or at any place which has been
designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any member thereof upon not
less than one day's notice stating the place, date, and hour of the meeting,
which notice shall been given in the manner provided for the giving of notice to
members of the board of directors of the time and place of special meetings of
the board of directors.
SECTION 5. Quorum. A majority of the members of any committee shall
constitute a quorum for the transaction of business at any meeting thereof.
SECTION 6. Action Without a Meeting. Any action required or permitted to be
taken by any committee at a meeting may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
members of any such committee.
SECTION 7. Resignations and Removal. Any member of any committee may be
removed at any time with or without cause by resolution adopted by a majority of
the full board of directors. Any member of any committee may resign from any
such committee at any time by giving written notice to the president or
secretary of the Corporation. Unless otherwise specified, such resignation shall
take effect upon its receipt; the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 8. Procedure. Unless the board of directors otherwise provides,
each committee shall elect a presiding officer from its members and may fix its
own rules of procedure which shall not be inconsistent with these bylaws. It
shall keep regular minutes of its proceedings and report the same to the board
of directors for its information at the meeting held next after the proceedings
shall have occurred.
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ARTICLE V
Officers
SECTION 1. Positions. The officers of the Corporation shall be a president,
a secretary and a treasurer, each of whom shall be elected by the board of
directors. The board of directors may also designate the chairman of the board
as an officer. The president shall be the chief executive officer unless the
board of directors designates the chairman of the board as chief executive
officer. The president shall be a director of the Corporation. The offices of
the secretary and treasurer may be held by the same person and a vice president
may also be either the secretary or the treasurer. The board of directors may
designate one or more vice presidents as executive vice president or senior vice
president. The board of directors may also elect or authorize the appointment of
such other officers as the business of the Corporation may require. The officers
shall have such authority and perform such duties as the board of directors may
from time to time authorize or determine. In the absence of action by the board
of directors, the officers shall have such powers and duties as generally
pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the shareholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the corporation to enter
into an employment contract with any officer in accordance with applicable law.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds of the
board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. Except as otherwise prescribed by these bylaws with
respect to certificates for shares, the Board of Directors may authorize any
officer, employee, or agent of the bank to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the corporation. Such
authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the corporation
and no evidence of indebtedness shall be issued in its name, unless authorized
by the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness in the name of the
corporation shall be signed by one or more officer, employee, or agent of the
corporation in such manner as shall from time to time be determined by the Board
of Directors.
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SECTION 4. Deposits. All funds of the corporation not otherwise employed
shall be deposits form time to time to the credit of the corporation in any of
its duly authorized depositories as the Board of Directors may select.
SECTION 5. Contracts with Directors and Officers. To the fullest extent
authorized by and in conformance with Washington law, the corporation may enter
into contracts with and otherwise transact business as vendor, purchaser, or
otherwise, with its directors, officers, employees and shareholders and with
corporations, associations, firms, and entities in which they are or may become
interested as directors, officers, shareholders, or otherwise, as freely as
though such interest did not exist, except that no loans shall be made by the
corporation secured by its shares. In the absence of fraud, the fact that any
director, officer, employee, shareholder, or any corporation, association, firm
or other entity of which any director, officer, employee or shareholder is
interested, is in any way interested in any transaction or contract shall not
make the transaction or contract void or voidable, or require the director,
officer, employee or shareholder to account to this corporation for any profits
therefrom if the transaction or contract is or shall be authorized, ratified, or
approved by (i) the vote of a majority of the Board of Directors excluding any
interested director or directors, (ii) the written consent of the holders of a
majority of the shares entitled to vote, or (iii) a general resolution approving
the acts of the directors and officers adopted at a shareholders meeting by vote
of the holders of the majority of the shares entitled to vote. All loans to
officers and directors shall be subject to Federal and state laws and
regulations. Nothing herein contained shall create or imply any liability in the
circumstances above described or prevent the authorization, ratification or
approval of such transactions or contracts in any other manner.
SECTION 6. Shares of Another Corporation. Shares of another corporation
held by this corporation may be voted by the president or any vice president, or
by proxy appointment form by either of them, unless the directors by resolution
shall designate some other person to vote the shares.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. Certificates representing shares of
capital stock of the corporation shall be in such form as shall be determined by
the Board of Directors. Such certificates shall be signed by the chief executive
officer or by any other officer of the corporation authorized by the Board of
Directors, attested by the secretary or an assistant secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar, other than the corporation itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for the like
number of shares has been surrendered and canceled, except that in case of a
lost or destroyed certificate, a new certificate may be issued therefor upon
such terms and indemnity to the corporation as the Board of Directors may
prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of capital stock of the
corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by power of attorney duly executed and filed with the
corporation. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name of shares of capital
stock stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
SECTION 3. Certification of Beneficial Ownership. The Board of Directors
may adopt by resolution a procedure whereby a shareholder of the bank may
certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. Upon receipt by the corporation of a certification
complying with such procedure, the persons specified in the certification shall
be deemed, for the purpose or purposes set forth in the certification, to be the
holders of record of the number os shares specified in place of the shareholder
making the certification.
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SECTION 4. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the corporation shall end on the last day of March of
each year. The corporation shall be subject to an annual audit as of the end of
its fiscal year by the independent public accountants appointed by and
responsible to the Board of Directors.
ARTICLE IX
Dividends
Subject to the terms of the corporation's Articles of Incorporation and the
laws of the State of Washington, the Board of Directors may, from time to time,
declare, and the corporation may pay, dividends upon its outstanding shares of
capital stock.
ARTICLE X
Corporate Seal
The corporation need not have a corporate seal. If the directors adopt a
corporate seal, the seal of the corporation shall be circular in form and
consist of the name of the corporation, the state and year of incorporation, and
the words "Corporate Seal."
ARTICLE XI
Amendments
In accordance with the corporation's Articles of Incorporation, these
bylaws may be repealed, altered, amended or rescinded by the shareholders of the
corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
shareholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these bylaws.
* * * * *
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Exhibit 4
Form of Certificate for Common Stock
<PAGE>
EVERTRUST FINANCIAL GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, OF
EverTrust Financial Group, Inc., a stock corporation incorporated under the laws
of the State of Washington. The shares represented by this Certificate are
transferable only on the stock transfer books of the Corporation by the holder
of record hereof or by his duly authorized attorney or legal representative upon
the surrender of this Certificate properly endorsed. Such shares are
non-withdrawable and not insurable. Such shares are not insured by the Federal
government. The Articles and shares represented hereby are issued and shall be
held subject to all provisions of the Articles of Incorporation and Bylaws of
the Corporation and any amendments thereto (copies of which are on file with the
Transfer Agent), to all of which provisions the holder by acceptance hereof,
assents.
IN WITNESS WHEREOF,EverTrust Financial Group, Inc. has caused this
Certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
CORPORATE SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRANSFER AGENT
[SEAL]
<PAGE>
EVERTRUST FINANCIAL GROUP, INC.
The shares represented by this Certificate are issued subject to all the
provisions of the Articles of Incorporation and Bylaws of EverTrust Financial
Group, Inc. ("Corporation") as from time to time amended (copies of which are on
file with the Transfer Agent and at the principal executive offices of the
Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Articles of Incorporation to the effect that in no event shall
any record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the outstanding shares of common stock (the "Limit") be entitled or permitted to
vote in respect of the shares held in excess of the Limit, unless a majority of
the whole Board of Directors, as defined, shall have by resolution granted in
advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of preferred stock in
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Articles of Incorporation, or to amend certain provisions of the Articles of
Incorporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT
MIN ACT - ______Custodian_______ under Uniform Gifts to Minors Act _______
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above list
For value received, __________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address,
including postal zip code, of assignee
- --------------------------------------------------------------------------------
shares of the Common Stock evidenced by this Certificate, and do hereby
irrevocably constitute and appoint ________________________________ Attorney, to
transfer the said shares on the books of the within named Corporation, with full
power of substitution.
Dated _________________
----------------------------------------
Signature
----------------------------------------
Signature
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate in
every particular, without alteration or
enlargement or any change whatever.
Exhibit 5
Opinion of Breyer & Associates PC Regarding Legality of Securities Registered
<PAGE>
1100 New York Avenue, N.W.
Suite 700 East
Washington, D.C. 20005-3934
Telephone (202) 737-7900
Facsimile (202) 737-7979
Breyer & Associates PC E-mail [email protected]
================================================================================
Attorneys at Law
June 18, 1999
Board of Directors
EverTrust Financial Group, Inc.
2707 Colby Avenue, Suite 600
Everett, Washington 98201
RE: EverTrust Financial Group, Inc.
Registration Statement on Form S-1
Gentlemen and Lady:
You have requested our opinion as special counsel for EverTrust Financial
Group, Inc., a Washington corporation, in connection with the above-referenced
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of EverTrust
Financial Group, Inc. will be offered and sold in the manner described in the
Prospectus, which is part of the Registration Statement. We have examined such
records and documents and made such examination as we have deemed relevant in
connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common stock
of EverTrust Financial Group, Inc. will upon issuance be legally issued, fully
paid and nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Opinions."
Very truly yours,
/s/ BREYER & ASSOCIATES PC
--------------------------
BREYER & ASSOCIATES PC
Washington, D.C.
Exhibit 8.3
Opinion of RP Financial, LP as to the Value of Subscription Rights
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
June 11, 1999
Board of Trustees
Mutual Bancshares, Inc.
2707 Colby Avenue, Suite 600
Everett, Washington 98201
Re: Plan of Reorganization and Stock Issuance Plan: Subscription Rights
-------------------------------------------------------------------
Members of the Board of Trustees:
All capitalized terms not otherwise defined in this letter have the
meanings given to such terms in an amended Plan of Reorganization and Stock
Issuance Plan (the "Plan") adopted by the Board of Trustees of Mutual
Bancshares, Inc. ("MBSI"). Pursuant to the Plan, MBSI will change its name to
EverTrust Financial Group, Inc. ("EverTrust" or the "Company"), and convert to
the stock form of ownership. Simultaneously, the Company will issue shares of
common stock.
We understand that, in accordance with the Plan, Subscription Rights to
purchase shares of Common Stock in Bancorp are to be issued to: (1) Eligible
Account Holders; (2) the Employee Stock Ownership Plan; (3) Supplemental
Eligible Account Holders; (4) Other Members; and (5) Commercial Bank of Everett
Eligible Account Holders. Based solely upon our observation that the
Subscription Rights will be available to such parties without cost, will be
legally non-transferable and of short duration, and will afford such parties the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public, 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 estimated 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
stock as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the Subscription
Offering will thereafter be able to buy or sell such shares at the same price
paid in the Subscription Offering.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP FINANCIAL, LC.
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
Exhibit 10.1
Proposed Form of Employment Agreement for Executive Officers
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
this ___ day of __________, 1999 by and between EverTrust Financial Group, Inc.
(the "Company"), and its wholly owned subsidiary, Everett Mutual Bank (the
"Bank"), and____________ (the "Employee").
WHEREAS, the Employee is currently serving as the _________________________
of the Company and of the Bank;
WHEREAS, the Employee has made and will continue to make a major
contribution to the success of the Company and the Bank in the position of
__________________________;
WHEREAS, the board of directors of the Company and the board of directors
of the Bank (collectively, the "Board of Directors") recognize that the
possibility of a change in control of the Bank or the Company may exist and that
such possibility, and the uncertainty and questions which may arise among
management, may result in the departure or distraction of key management to the
detriment of the Company, the Bank and their respective stockholders;
WHEREAS, the Board of Directors believes that it is in the best interests
of the Company and the Bank for the Company and the Bank to enter into this
Agreement with the Employee in order to assure continuity of management of the
Company and its subsidiaries; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an offeror other than the
Company purchases shares of stock of the Company or the Bank pursuant to a
tender or exchange offer for such shares (2) an event of a nature that
results in the acquisition of control of the Company or the Bank within the
meaning of the Bank Holding Company Act of 1956, as amended, under 12
U.S.C. Section 1841 (or any successor statute or regulation) or requires
the filing of a notice with the Federal Deposit Insurance Corporation under
12 U.S.C. Section 1817(j) (or any successor statute or regulation); (2) an
event that would be required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the Effective Date, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); (3) any person (as the term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly of securities of the
Company or the Bank representing 25% or more of the combined voting power
of the Company's or the Bank's outstanding securities; (4) individuals who
are members of the board of directors of the Company immediately following
the Effective Date or who are members of the board of directors of the Bank
immediately
1
<PAGE>
following the Effective Date (in each case, the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequently whose election was approved by a
vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's or the Bank's
stockholders was approved by the nominating committee serving under an
Incumbent Board, shall be considered a member of the Incumbent Board; or
(5) consummation of a plan of reorganization, merger, consolidation, sale
of all or substantially all of the assets of the Company or a similar
transaction in which the Company is not the resulting entity, or a
transaction at the completion of which the former stockholders of the
acquired corporation become the holders of more than 40% of the outstanding
common stock of the Company and the Company is the resulting entity of such
transaction; provided that the term "Change in Control" shall not include
an acquisition of securities by an employee benefit plan of the Bank or the
Company.
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the
affiliated group (as defined in Section 1504 of the Internal Revenue Code
of 1986, as amended (the "Code"), without regard to subsection (b) thereof)
that includes the Bank, including but not limited to the Company.
(c) The term "Date of Termination" means the date upon which the
Employee's employment with the Company or the Bank or both ceases, as
specified in a notice of termination pursuant to Section 8 of this
Agreement.
(d) The term "Effective Date" means the date of this Agreement.
(e) The term "Involuntary Termination" means the termination of the
employment of Employee (i) by either the Company or the Bank or both
without his express written consent; or (ii) by the Employee by reason of a
material diminution of or interference with his duties, responsibilities or
benefits, including (without limitation) any of the following actions
unless consented to in writing by the Employee: (1) a requirement that the
Employee be based at any place other than Everett Washington, or within a
radius of 35 miles from the location of the Company's administrative
offices as of the date of this Agreement, except for reasonable travel on
Company or Bank business; (2) a material demotion of the Employee; (3) a
material reduction in the number or seniority of personnel reporting to the
Employee or a material reduction in the frequency with which, or in the
nature of the matters with respect to which such personnel are to report to
the Employee, other than as part of a Bank- or Company-wide reduction in
staff; (4) a reduction in the Employee's salary or a material adverse
change in the Employee's perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and
with equitable effect to all members of the senior management of the Bank
or the Company; (5) a material permanent increase in the required hours of
work or the workload of the Employee; or (6) the failure of the board of
directors of the Company (or a board of directors of a successor of the
Company) to elect him as ____________________ ______________ of the Company
(or a successor of the Company) or any action by the board of directors of
the Company (or a board of directors of a successor of the Company)
removing him from such office, or the failure of the board of directors of
the Bank (or any successor of the Bank) to elect him as ___________________
of the Bank (or any successor of the Bank) or any action by such board (or
a board of a successor of the Bank) removing him from such office. The term
"Involuntary Termination" does not include Termination for Cause,
termination of employment due
2
<PAGE>
to death or permanent disability pursuant to Section 7(f) of this
Agreement, retirement or suspension or temporary or permanent prohibition
from participation in the conduct of the Bank's affairs under Section 8 of
the Federal Deposit Insurance Act.
(f) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee with either the Company or
the Bank, as the case may be, because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of a fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and- desist order, or
(except as provided below) material breach of any provision of this
Agreement. No act or failure to act by the Employee shall be considered
willful unless the Employee acted or failed to act with an absence of good
faith and without a reasonable belief that his action or failure to act was
in the best interest of the Company or the Bank. The Employee shall not be
deemed to have been Terminated for Cause unless and until there shall have
been delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of
the Board of Directors at a meeting of the Board duly called and held for
such purpose (after reasonable notice to the Employee and an opportunity
for the Employee, together with the Employee's counsel, to be heard before
the Board), stating that in the good faith opinion of the Board of
Directors the Employee has engaged in conduct described in the preceding
sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be a period of three years
commencing on the Effective Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Effective Date, and on each
anniversary thereafter, the term of this Agreement shall be extended for a
period of one year in addition to the then-remaining term, provided that (i)
neither the Employee nor the Company has given notice to the other in writing at
least 90 days prior to such anniversary that the term of this Agreement shall
not be extended further; and (ii) prior to such anniversary, the Board of
Directors explicitly reviews and approves the extension. Reference herein to the
term of this Agreement shall refer to both such initial term and such extended
terms.
3. Employment. The Employee shall be employed as the ______________________
Officer of the Company and as the ______________________________ of the Bank. As
such, the Employee shall render ______________________________ services as are
customarily performed by persons situated in similar executive capacities, and
shall have such other powers and duties as the Board of Directors may prescribe
from time to time. The Employee shall also render services to any subsidiary or
subsidiaries of the Company or the Bank as requested by the Company or the Bank
from time to time consistent with his executive position. The Employee shall
devote his best efforts and reasonable time and attention to the business and
affairs of the Company and the Bank to the extent necessary to discharge his
responsibilities hereunder. The Employee may (i) serve on charitable boards or
committees and, in addition, on such corporate boards as are approved in a
resolution adopted by a majority of the Board of Directors, which approval shall
not be withheld unreasonably and (ii) manage personal investments, so long as
such activities do not interfere materially with performance of his
responsibilities hereunder.
3
<PAGE>
4. Cash Compensation.
(a) Salary. The Company and the Bank jointly agree to pay the Employee
during the term of this Agreement a base salary (the "Salary") the
annualized amount of which shall be not less than the annualized aggregate
amount of the Employee's base salary from the Company and any Consolidated
Subsidiaries in effect at the Effective Date; provided that any amounts of
salary actually paid to the Employee by any Consolidated Subsidiaries shall
reduce the amount to be paid by the Company and the Bank to the Employee.
The Salary shall be paid no less frequently than monthly and shall be
subject to customary tax withholding. The amount of the Employee's Salary
shall be increased (but shall not be decreased) from time to time in
accordance with the amounts of salary approved by the Board of Directors or
the board of directors of any of the Consolidated Subsidiaries after the
Effective Date. The amount of the Salary shall be reviewed by the Board of
Directors at least annually during the term of this Agreement.
(b) Bonuses. The Employee shall be entitled to participate in an
equitable manner with all other executive officers of the Company and the
Bank in such performance-based and discretionary bonuses, if any, as are
authorized and declared by the Board of Directors for executive officers.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in
performing services under this Agreement in accordance with the policies
and procedures applicable to the executive officers of the Company and the
Bank, provided that the Employee accounts for such expenses as required
under such policies and procedures.
5. Benefits.
(a) Participation in Benefit Plans. The Employee shall be entitled to
participate, to the same extent as executive officers of the Company and
the Bank generally, in all plans of the Company and the Bank relating to
pension, retirement, thrift, profit-sharing, savings, group or other life
insurance, hospitalization, medical and dental coverage, travel and
accident insurance, education, cash bonuses, and other retirement or
employee benefits or combinations thereof. In addition, the Employee shall
be entitled to be considered for benefits under all of the stock and stock
option related plans in which the Company's or the Bank's executive
officers are eligible or become eligible to participate.
(b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans or perquisites
which are or may become generally available to the Company's or the Bank's
executive officers, including but not limited to supplemental retirement,
incentive compensation, supplemental medical or life insurance plans,
company cars, club dues, physical examinations, financial planning and tax
preparation services.
6. Vacations; Leave. The Employee shall be entitled (i) to annual paid
vacation in accordance with the policies established by the Board of Directors
for executive officers, and (ii) to voluntary leaves of absence, with or without
pay, from time to time at such times and upon such conditions as the Board of
Directors may determine in its discretion.
4
<PAGE>
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may terminate the
Employee's employment at any time, but, except in the case of Termination
for Cause, termination of employment shall not prejudice the Employee's
right to compensation or other benefits under this Agreement. In the event
of Involuntary Termination other than after a Change in Control which
occurs during the term of this Agreement, the Company and the Bank jointly
shall (i) pay to the Employee during the remaining term of this Agreement
the Salary at the rate in effect immediately prior to the Date of
Termination, payable in such manner and at such times as the Salary would
have been payable to the Employee under Section 4(a) if the Employee had
continued to be employed by the Company and the Bank, and (ii) provide to
the Employee during the remaining term of this Agreement substantially the
same group life insurance, hospitalization, medical, dental, prescription
drug and other health benefits, and long-term disability insurance (if any)
for the benefit of the Employee and his dependents and beneficiaries who
would have been eligible for such benefits if the Employee had not suffered
Involuntary Termination, on terms substantially as favorable to the
Employee, including amounts of coverage and deductibles and other costs to
him, as if he had not suffered Involuntary Termination.
(b) Termination for Cause. In the event of Termination for Cause, the
Company and the Bank shall pay to the Employee the Salary and provide
benefits under this Agreement only through the Date of Termination, and
shall have no further obligation to the Employee under this Agreement.
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 90 days' written
notice to the Company and the Bank or such shorter period as may be agreed
upon between the Employee and the Board of Directors. In the event of such
voluntary termination, the Company and the Bank shall be obligated jointly
to continue to pay to the Employee the Salary and provide benefits under
this Agreement only through the Date of Termination, at the time such
payments are due, and shall have no further obligation to the Employee
under this Agreement.
(d) Change in Control. In the event of Involuntary Termination after a
Change in Control which occurs at any time following the Effective Date
while the Employee is employed under this Agreement, the Company and the
Bank jointly shall (i) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 299% of the
Employee's "base amount" as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"); and (ii) provide to the Employee
during the remaining term of this Agreement substantially the same group
life insurance, hospitalization, medical, dental, prescription drug and
other health benefits, and long-term disability insurance (if any) for the
benefit of the Employee and his dependents and beneficiaries who would have
been eligible for such benefits if the Employee had not suffered
Involuntary Termination, on terms substantially as favorable to the
Employee, including amounts of coverage and deductibles and other costs to
him, as if he had not suffered Involuntary Termination.
(e) Death. In the event of the death of the Employee while employed
under this Agreement and prior to any termination of employment, the
Company and the Bank jointly shall pay to the Employee's estate, or such
person as the Employee may have previously designated in writing, the
Salary which was not previously paid to the Employee and which he would
have earned if he had
5
<PAGE>
continued to be employed under this Agreement through the last day of the
calendar month in which the Employee died, together with the benefits
provided hereunder through such date.
(f) Disability. If the Employee becomes entitled to benefits under the
terms of the then-current disability plan, if any, of the Company or the
Bank (the "Disability Plan") or becomes otherwise unable to fulfill his
duties under this Agreement, he shall be entitled to receive such group and
other disability benefits, if any, as are then provided by the Company or
the Bank for executive employees. In the event of such disability, this
Agreement shall not be suspended, except that (i) the obligation to pay the
Salary to the Employee shall be reduced in accordance with the amount of
disability income benefits received by the Employee, if any, pursuant to
this paragraph such that, on an after-tax basis, the Employee shall realize
from the sum of disability income benefits and the Salary the same amount
as he would realize on an after-tax basis from the Salary if the obligation
to pay the Salary were not reduced pursuant to this Section 7(f); and (ii)
upon a resolution adopted by a majority of the disinterested members of the
Board of Directors, the Company and the Bank may discontinue payment of the
Salary beginning six months following a determination that the Employee has
become entitled to benefits under the Disability Plan or otherwise unable
to fulfill his duties under this Agreement.
(g) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (1) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations
which were suspended.
(h) Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Bank
under this Agreement shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
(i) Default of the Bank. If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(j) Termination by Regulators. All obligations under this Agreement
shall be terminated, except to the extent determined that continuation of
this Agreement is necessary for the continued operation of the Bank: (1) at
the time the Federal Deposit Insurance Corporation enters into an agreement
to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (2) by the FDIC, at the time it
approves a supervisory merger to resolve problems related to operation of
the Bank. Any rights of the parties that have already vested, however,
shall not be affected by any such action.
(k) Reductions of Benefits. Notwithstanding any other provision of
this Agreement, if payments and the value of benefits received or to be
received under this Agreement, together with
6
<PAGE>
any other amounts and the value of benefits received or to be received by
the Employee, would cause any amount to be nondeductible by the Company or
any of the Consolidated Subsidiaries for federal income tax purposes
pursuant to or by reason of Section 280G of the Code, then payments and
benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to be
received by the Employee without causing any amount to become nondeductible
pursuant to or by reason of Section 280G of the Code. The Employee shall
determine the allocation of such reduction among payments and benefits to
the Employee.
(l) Further Reductions. Any payments made to the Executive
pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. 1828(k) and any
regulations promulgated thereunder.
8. Notice of Termination. In the event that the Company or the Bank, or
both, desire to terminate the employment of the Employee during the term of this
Agreement, the Company or the Bank, or both, shall deliver to the Employee a
written notice of termination, stating whether such termination constitutes
Termination for Cause or Involuntary Termination, setting forth in reasonable
detail the facts and circumstances that are the basis for the termination, and
specifying the date upon which employment shall terminate, which date shall be
at least 30 days after the date upon which the notice is delivered, except in
the case of Termination for Cause. In the event that the Employee determines in
good faith that he has experienced an Involuntary Termination of his employment,
he shall send a written notice to the Company and the Bank stating the
circumstances that constitute such Involuntary Termination and the date upon
which his employment shall have ceased due to such Involuntary Termination. In
the event that the Employee desires to effect a Voluntary Termination, he shall
deliver a written notice to the Company and the Bank, stating the date upon
which employment shall terminate, which date shall be at least 90 days after the
date upon which the notice is delivered, unless the parties agree to a date
sooner.
9. Attorneys' Fees. The Company and the Bank jointly shall pay all legal
fees and related expenses (including the costs of experts, evidence and counsel)
incurred by the Employee as a result of (i) the Employee's contesting or
disputing any termination of employment, or (ii) the Employee's seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Company or the Bank (or a successor)
or the Consolidated Subsidiaries under which the Employee is or may be entitled
to receive benefits; provided that the Company's and the Bank's obligation to
pay such fees and expenses is subject to the Employee's prevailing with respect
to the matters in dispute in any action initiated by the Employee or the
Employee's having been determined to have acted reasonably and in good faith
with respect to any action initiated by the Company or the Bank.
10. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and no
party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other parties; provided,
however, that the Company and the Bank shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) by an assumption agreement in form and substance satisfactory to
the Employee, to expressly assume and agree to
7
<PAGE>
perform this Agreement in the same manner and to the same extent that the
Company and/or the Bank would be required to perform it if no such
succession or assignment had taken place. Failure to obtain such an
assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the
Employee to compensation and benefits from the Company and the Bank in the
same amount and on the same terms as the compensation pursuant to Section
7(d) of this Agreement. For purposes of implementing the provisions of this
Section 10(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Company and Bank at
their home offices, to the attention of the Board of Directors with a copy to
the Secretary of the Company and the Secretary of the Bank, or, if to the
Employee, to such home or other address as the Employee has most recently
provided in writing to the Company or the Bank.
12. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
13. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
15. Governing Law. This Agreement shall be governed by the laws of the
State of Washington.
16. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
17. Deferral of Non-Deductible Compensation. In the event that the
Employee's aggregate compensation (including compensatory benefits which are
deemed remuneration for purposes of Section 162(m) of the Code) from the Company
and the Consolidated Subsidiaries for any calendar year exceeds the maximum
amount of compensation deductible by the Company or any of the Consolidated
Subsidiaries in any calendar year under Section 162(m) of the Code (the "maximum
allowable amount"), then any such amount in excess of the maximum allowable
amount shall be mandatorily deferred with interest thereon at 8% per annum to a
calendar year such that the amount to be paid to the Employee in such calendar
year, including deferred amounts and interest thereon,
8
<PAGE>
does not exceed the maximum allowable amount. Subject to the foregoing, deferred
amounts including interest thereon shall be payable at the earliest time
permissible.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: EVERTRUST FINANCIAL GROUP, INC.
- -------------------------------- -------------------------------
Lori Christenson, Secretary By:
Its:
Attest: EVERETT MUTUAL BANK
- -------------------------------- -------------------------------
Lori Christenson, Secretary By:
Its:
Employee
-------------------------------
9
Exhibit 10.2
Proposed Form of Employee Stock Ownership Plan
<PAGE>
EVERETT HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of April 1, 1999
<PAGE>
EVERETT HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
PREAMBLE...................................................................... 1
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION..................................... 2
1.1 Definitions.............................................. 2
(a) Account.................................................. 2
(b) Act...................................................... 2
(c) Administrator............................................ 2
(d) Annual Additions......................................... 2
(e) Authorized Leave of Absence.............................. 2
(f) Beneficiary.............................................. 3
(g) Board of Directors....................................... 3
(h) Break.................................................... 3
(i) Code..................................................... 3
(j) Compensation............................................. 3
(k) Date of Hire............................................. 3
(l) Disability............................................... 3
(m) Disability Retirement Date............................... 3
(n) Early Retirement Date.................................... 4
(o) Effective Date........................................... 4
(p) Eligibility Period....................................... 4
(q) Employee................................................. 4
(r) Employee Stock Ownership Account......................... 4
(s) Employee Stock Ownership Contribution.................... 4
(t) Employee Stock Ownership Suspense Account................ 4
(u) Employer................................................. 4
(v) Employer Securities...................................... 4
(w) Entry Date............................................... 5
(x) Exempt Loan.............................................. 5
(y) Exempt Loan Suspense Account............................. 5
(z) Financed Shares.......................................... 5
(aa) Former Participant....................................... 5
(bb) Fund..................................................... 5
(cc) Hour of Service.......................................... 5
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(v) Employer Securities...................................... 4
(w) Entry Date............................................... 5
(x) Exempt Loan.............................................. 5
(y) Exempt Loan Suspense Account............................. 5
(z) Financed Shares.......................................... 5
(aa) Former Participant....................................... 5
(bb) Fund..................................................... 5
(cc) Hour of Service.......................................... 5
(dd) Investment Adjustments................................... 6
(ee) Limitation Year.......................................... 6
(ff) Normal Retirement Date................................... 6
(gg) Participant.............................................. 6
(hh) Plan..................................................... 6
(ii) Plan Year................................................ 6
(jj) Qualified Domestic Relations Order....................... 6
(kk) Related Employer......................................... 7
(ll) Retirement............................................... 7
(mm) Service.................................................. 7
(nn) Sponsor.................................................. 7
(oo) Trust Agreement.......................................... 7
(pp) Trustee.................................................. 7
(qq) Valuation Date........................................... 7
(rr) Year of Eligibility Service.............................. 7
(ss) Year of Vesting Service.................................. 7
1.2 Plurals and Gender............................................... 8
1.3 Incorporation of Trust Agreement................................. 8
1.4 Headings......................................................... 8
1.5 Severability..................................................... 8
1.6 References to Governmental Regulations........................... 8
1.7 Notices.......................................................... 8
1.8 Evidence......................................................... 8
1.9 Action by Employer............................................... 9
ARTICLE II
PARTICIPATION............................................................10
2.1 Commencement of Participation....................................10
2.2 Termination of Participation.....................................10
2.3 Resumption of Participation......................................10
2.4 Determination of Eligibility.....................................11
2.5 Restricted Participation.........................................11
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ARTICLE III
CREDITED SERVICE.........................................................12
3.1 Service Counted for Eligibility Purposes.........................12
3.2 Service Counted for Vesting Purposes.............................12
3.3 Credit for Pre-Break Service.....................................12
3.4 Service Credit During Authorized Leaves..........................12
3.5 Service Credit During Maternity or Paternity Leave...............13
3.6 Ineligible Employees.............................................13
ARTICLE IV
CONTRIBUTIONS............................................................14
4.1 Employee Stock Ownership Contribution............................14
4.2 Time and Manner of Employee Stock Ownership Contribution.........14
4.3 Records of Contributions.........................................15
4.4 Erroneous Contributions..........................................15
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS....................................17
5.1 Establishment of Separate Participant Accounts...................17
5.2 Establishment of Suspense Accounts...............................17
5.3 Allocation of Earnings, Losses and Expenses......................18
5.4 Allocation of Forfeitures........................................18
5.5 Allocation of Employee Stock Ownership Contribution..............18
5.6 Limitation on Annual Additions...................................19
5.7 Erroneous Allocations............................................22
5.8 Value of Participant's Account...................................22
5.9 Investment of Account Balances...................................22
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY.........................23
6.1 Normal Retirement................................................23
6.2 Early Retirement.................................................23
6.3 Disability Retirement............................................23
6.4 Death Benefits...................................................23
6.5 Designation of Beneficiary and Manner of Payment.................24
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ARTICLE VII
VESTING AND FORFEITURES..................................................25
7.1 Vesting on Death, Disability and Normal Retirement...............25
7.2 Vesting on Termination of Participation..........................25
7.3 Disposition of Forfeitures.......................................25
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS......................................27
8.1 Right to Demand Employer Securities..............................27
8.2 Voting Rights....................................................27
8.3 Nondiscrimination in Employee Stock Ownership Contribution.......27
8.4 Dividends........................................................28
8.5 Exempt Loans.....................................................28
8.6 Exempt Loan Payments.............................................30
8.7 Put Option.......................................................31
8.8 Diversification Requirements.....................................31
8.9 Independent Appraiser............................................32
8.10 Nonterminable Rights.............................................32
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS...............................................33
9.1 Payments on Termination of Service - In General..................33
9.2 Commencement of Payments.........................................33
9.3 Mandatory Commencement of Benefits...............................33
9.4 Required Beginning Dates.........................................36
9.5 Form of Payment..................................................36
9.6 Payments Upon Termination of Plan................................36
9.7 Distributions Pursuant to Qualified Domestic
Relations Orders...............................................37
9.8 Cash-Out Distributions...........................................37
9.9 ESOP Distribution Rules..........................................37
9.10 Direct Rollover..................................................38
9.11 Waiver of 30-day Notice..........................................39
9.12 Re-employed Veterans.............................................39
9.13 Share Legend.....................................................39
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS...................................40
10.1 Top-Heavy Rules to Control.......................................40
10.2 Top-Heavy Plan Definitions.......................................40
10.3 Calculation of Accrued Benefits..................................41
10.4 Determination of Top-Heavy Status................................43
10.5 Determination of Super Top-Heavy Status..........................43
10.6 Minimum Contribution.............................................43
10.7 Vesting..........................................................44
10.8 Maximum Benefit Limitation.......................................45
ARTICLE XI
ADMINISTRATION...........................................................46
11.1 Appointment of Administrator.....................................46
11.2 Resignation or Removal of Administrator..........................46
11.3 Appointment of Successors: Terms of Office, Etc.................46
11.4 Powers and Duties of Administrator...............................46
11.5 Action by Administrator..........................................48
11.6 Participation by Administrator...................................48
11.7 Agents...........................................................48
11.8 Allocation of Duties.............................................48
11.9 Delegation of Duties.............................................48
11.10 Administrator's Action Conclusive................................49
11.11 Compensation and Expenses of Administrator.......................49
11.12 Records and Reports..............................................49
11.13 Reports of Fund Open to Participants.............................49
11.14 Named Fiduciary..................................................49
11.15 Information from Employer........................................50
11.16 Reservation of Rights by Employer................................50
11.17 Liability and Indemnification....................................50
ARTICLE XII
CLAIMS PROCEDURE.........................................................51
12.1 Notice of Denial.................................................51
12.2 Right to Reconsideration.........................................51
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12.3 Review of Documents..............................................51
12.4 Decision by Administrator........................................51
12.5 Notice by Administrator..........................................51
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER.......................................53
13.1 Amendments.......................................................53
13.2 Effect of Change In Control......................................53
13.3 Consolidation or Merger of Trust.................................55
13.4 Bankruptcy or Insolvency of Employer.............................55
13.5 Voluntary Termination............................................56
13.6 Partial Termination of Plan or Permanent Discontinuance
of Contributions...............................................56
ARTICLE XIV
MISCELLANEOUS............................................................57
14.1 No Diversion of Funds............................................57
14.2 Liability Limited................................................57
14.3 Facility of Payment..............................................57
14.4 Spendthrift Clause...............................................57
14.5 Benefits Limited to Fund.........................................58
14.6 Cooperation of Parties...........................................58
14.7 Payments Due Missing Persons.....................................58
14.8 Governing Law....................................................58
14.9 Nonguarantee of Employment.......................................58
14.10 Counsel..........................................................59
vi
<PAGE>
EVERETT HOLDING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
--------
Effective as of April 1, 1999, Everett Holding Company, a Washington
corporation (the "Sponsor"), has adopted the Everett Holding Company Employee
Stock Ownership Plan in order to enable Participants to share in the growth and
prosperity of the Sponsor and its wholly owned subsidiary, Everett Mutual Bank,
and to provide Participants with an opportunity to accumulate capital for their
future economic security by accumulating funds to provide retirement, death and
disability benefits. The Plan is a stock bonus plan designed to meet the
applicable requirements of Section 409 of the Code and of an employee stock
ownership plan, as defined in Section 4975(e)(7) of the Code and Section
407(d)(6) of the Act. The employee stock ownership plan is intended to invest
primarily in "qualifying employer securities" as defined in Section 4975(e)(8)
of the Code. The Sponsor intends that the Plan will qualify under Sections
401(a) and 501(a) of the Code and will comply with the provisions of the Act.
The Plan has been drafted to comply with all applicable provisions of law,
including the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of
1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989, the
Omnibus Budget Reconciliation Act of 1993, the Small Business Job Protection Act
of 1996, and the Taxpayer Relief Act of 1997.
The terms of this Plan shall apply only with respect to Employees of
the Employer on and after April 1, 1999.
1
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ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Account" shall mean a Participant's or Former Participant's entire
accrued benefit under the Plan, including the balance credited to his Employee
Stock Ownership Account and any other account described in Section 5.1.
(b) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute, together with the
applicable regulations promulgated thereunder.
(c) "Administrator" shall mean the fiduciary provided for in Article
XI.
(d) "Annual Additions" shall mean, with respect to each Participant,
the sum of those amounts allocated to the Participant's Account under this Plan
and accounts under any other qualified defined contribution plan to which the
Employer or a Related Employer contributes for any Limitation Year, consisting
of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Employee contributions (if any).
Annual Additions shall not include any Investment Adjustment. Annual
Additions also shall not include employer contributions which are used by the
Trust to pay interest on an Exempt Loan nor any forfeitures of Employer
Securities purchased with the proceeds of an Exempt Loan, provided that not more
than one-third of the employer contributions are allocated to Participants who
are among the group of employees deemed "highly compensated employees" within
the meaning of Code Section 414(q), as further described in Section 8.3.
(e) "Authorized Leave of Absence" shall mean an absence from Service
with respect to which the Employee may or may not be entitled to Compensation
and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for
up to 36 months, provided that the Employee resumes Service within 90
days after discharge, or such longer period of time during which such
Employee's employment rights are protected by law; or
2
<PAGE>
(2) Any other absence or leave expressly approved and granted by
the Employer which does not exceed 24 months, provided that the
Employee resumes Service at or before the end of such approved leave
period. In approving such leaves of absence, the Employer shall treat
all Employees on a uniform and nondiscriminatory basis.
(f) "Beneficiary" shall mean such legal or natural persons, who may be
designated contingently or successively, as may be designated by the Participant
pursuant to Section 6.5 to receive benefits after the death of the Participant,
or in the absence of a valid designation, such persons specified in Section
6.5(b) to receive benefits after the death of the Participant.
(g) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
(h) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, together with the applicable
regulations promulgated thereunder.
(j) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime pay, commissions, elective deferrals to a cash or
deferred arrangement described in Code Section 401(k), and any amount
contributed on a pre-tax salary reduction basis to a cafeteria plan described in
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior Plan Year. Notwithstanding anything herein to the contrary, the
annual Compensation of each Participant taken into account under the Plan for
any purpose during any Plan Year shall not exceed $160,000, as adjusted from
time to time in accordance with Section 415(d) of the Code.
(k) "Date of Hire" shall mean the date on which an Employee shall
perform his first Hour of Service. Notwithstanding the foregoing, in the event
that an Employee incurs one or more consecutive Breaks after his initial Date of
Hire which results in the forfeiture of his pre-Break Service pursuant to
Section 3.3, his "Date of Hire" shall thereafter be the date on which he
completes his first Hour of Service after such Break or Breaks.
(l) "Disability" shall mean a physical or mental impairment which
prevents a Participant from performing the duties assigned to him by the
Employer and which either has caused the Social Security Administration to
classify the individual as "disabled" for purposes of Social Security.
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(m) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(n) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the later of the date on which a Participant
attains age 55 and completes 5 Years of Vesting Service.
(o) "Effective Date" shall mean April 1, 1999.
(p) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding Eligibility Periods after
the initial Eligibility Period shall be based on Plan Years, the first of which
shall include the first anniversary of an Employee's Date of Hire.
(q) "Employee" shall mean any person who is classified as an employee
by the Employer or a Related Employer, including officers, but excluding
directors in their capacity as such.
(r) "Employee Stock Ownership Account" shall mean the separate
bookkeeping account established for each Participant pursuant to Section 5.1(a).
(s) "Employee Stock Ownership Contribution" shall mean the cash,
Employer Securities, or both that are contributed to the Plan by the Employer
pursuant to Article IV.
(t) "Employee Stock Ownership Suspense Account" shall mean the
temporary account in which the Trustee may maintain any Employee Stock Ownership
Contribution that is made prior to the last day of the Plan Year for which it is
made, as described in Section 5.2.
(u) "Employer" shall mean Everett Holding Company, a Washington
corporation, and its wholly owned subsidiary, Everett Mutual Bank, or any
successors to the aforesaid corporations by merger, consolidation or otherwise,
which may agree to continue this Plan, or any Related Employer or any other
business organization which, with the consent of the Sponsor, shall agree to
become a party to this Plan. To the extent required by the Code or the Act,
references herein to the Employer shall also include all Related Employers,
whether or not they are participating in this Plan.
(v) "Employer Securities" shall mean the common stock issued by Everett
Holding Company, a Washington corporation. Such term shall also mean, in the
discretion of the Board of Directors, any other common stock issued by the
Employer or any Related Employer having voting power and dividend rights equal
to or in excess of:
(1) that class of common stock of the Employer or a Related
Employer having the greatest voting power, and
4
<PAGE>
(2) that class of common stock of the Employer or a Related
Employer having the greatest dividend rights.
Non-callable preferred stock shall be treated as Employer Securities if such
stock is convertible at any time into stock which meets the requirements of (1)
and (2) next above and if such conversion is at a conversion price which (as of
the date of the acquisition by the Plan) is reasonable. For purposes of the last
preceding sentence, preferred stock shall be treated as non-callable if, after
the call, there will be a reasonable opportunity for a conversion which meets
the requirements of the last preceding sentence.
(w) "Entry Date" shall mean each April 1 and October 1.
(x) "Exempt Loan" shall mean a loan described at Section 4975(d)(3) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(y) "Exempt Loan Suspense Account" shall mean the account to which
Financed Shares are initially credited until they are released in accordance
with Section 8.5.
(z) "Financed Shares" shall mean the Employer Securities acquired by
the Trustee with the proceeds of an Exempt Loan and which are credited to the
Exempt Loan Suspense Account until they are released in accordance with Section
8.5.
(aa) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested Account in the Plan which has
not been distributed in full.
(bb) "Fund" shall mean the trust fund maintained by the Trustee
pursuant to the Trust Agreement in order to provide for the payment of the
benefits specified in the Plan.
(cc) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by the Employer or a Related
Employer for the performance of duties or for reasons other than the performance
of duties (such as vacation time, holidays, sickness, disability, paid lay-offs,
jury duty and similar periods of paid nonworking time). To the extent not
otherwise included, Hours of Service shall also include each hour for which back
pay, irrespective of mitigation of damages, is either awarded or agreed to by
the Employer or a Related Employer. Hours of working time shall be credited on
the basis of actual hours worked, even though compensated at a premium rate for
overtime or other reasons. In computing and crediting Hours of Service for an
Employee under this Plan, the rules set forth in Sections 2530.200b-2(b) and (c)
of the Department of Labor Regulations shall apply, said sections being herein
incorporated by reference. Hours of Service shall be credited to the Plan Year
or other relevant period during which the services were performed or the
nonworking time occurred, regardless of the time when
5
<PAGE>
compensation therefor may be paid. Any Employee for whom no hourly employment
records are kept by the Employer or a Related Employer shall be credited with 45
Hours of Service for each calendar week in which he would have been credited
with a least one Hour or Service under the foregoing provisions, if hourly
records were available. Effective January 1, 1985, for absences commencing on or
after that date, solely for purposes of determining whether a Break for
participation and vesting purposes has occurred in an Eligibility Period or a
Plan Year, an individual who is absent from work for maternity or paternity
reasons shall receive credit for the Hours of Service which would otherwise have
been credited to such individual but for such absence, or in any case in which
such hours cannot be determined, 8 Hours of Service per day of such absence. For
purposes of this Section 1.1(cc), an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this provision shall be credited (1) in the
computation period in which the absence begins if the crediting is necessary to
prevent a Break in that period, or (2) in all other cases, in the following
computation period.
(dd) "Investment Adjustments" shall mean the increases and/or decreases
in the value of a Participant's Account attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(ee) "Limitation Year" shall mean the Plan Year.
(ff) "Normal Retirement Date" shall mean the first day of the month
coincident with or next following the later of the date on which a Participant
attains age 65 or the fifth anniversary of the date he commenced participation
in the Plan.
(gg) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof; provided, however, that the term "Participant"
shall not include (1) leased Employees (as defined in Section 414(n)(2) of the
Code), (2) any Employee who is regularly employed outside the Employer's own
offices in connection with the operation and maintenance of buildings or other
properties acquired through foreclosure or deed, (3) any individual who is
employed by a Related Employer that has not adopted the Plan in accordance with
Section 1.1(u) hereof, (4) any Employee who is a non-resident alien individual
and who has no earned income from sources within the United States, or (5) any
Employee who is included in a unit of Employees covered by a collective-
bargaining agreement with the Employer or a Related Employer that does not
expressly provide for participation of such Employees in the Plan, where there
has been good-faith bargaining between the Employer or a Related Employer and
Employees' representatives on the subject of retirement benefits. To the extent
required by the Code or the Act, or appropriate based on the context, references
herein to Participant shall include Former Participant.
(hh) "Plan" shall mean the Everett Holding Company Employee Stock
Ownership Plan, as described herein or as hereafter amended from time to time.
6
<PAGE>
(ii) "Plan Year" shall mean any 12 consecutive month period commencing
on each April 1 and ending on the next following March 31.
(jj) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order that satisfies the requirements to be a "qualified domestic
relations order," as defined in Section 414(p) of the Code.
(kk) "Related Employer" shall mean any entity that is:
(1) a member of a controlled group of corporations that includes
the Employer, while it is a member of such controlled group (within
the meaning of Section 414(b) of the Code);
(2) a member of a group of trades or businesses under common
control with the Employer, while it is under common control (within
the meaning of Section 414(c) of the Code);
(3) a member of an affiliated service group that includes the
Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code); or
(4) a leasing or other organization that is required to be
aggregated with the Employer pursuant to the provisions of Section
414(n) or 414(o) of the Code.
(ll) "Retirement" shall mean termination of employment which qualifies
as early, normal or Disability retirement as described in Article VI.
(mm) "Service" shall mean, for purposes of eligibility to participate
and vesting, employment with the Employer or any Related Employer, and for
purposes of allocation of the Employee Stock Ownership Contribution and
forfeitures, employment with the Employer.
(nn) "Sponsor" shall mean Everett Holding Company, a Washington
corporation.
(oo) "Trust Agreement" shall mean the agreement, dated ________, 1999,
by and between Everett Holding Company, a Washington corporation, and First
Bankers Trust Company, N.A., of Quincy, Illinois.
(pp) "Trustee" shall mean the trustee or trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(qq) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the direction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
7
<PAGE>
(rr) "Year of Eligibility Service" shall mean an Eligibility Period
during which an Employee is credited with at least 1,000 Hours of Service,
except as otherwise specified in Article III.
(ss) "Year of Vesting Service" shall mean a Plan Year during which an
Employee is credited with at least 1,000 Hours of Service, except as otherwise
specified in Article III.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan. All
contributions made under the Plan will be held, managed and controlled by the
Trustee pursuant to the terms and conditions of the Trust Agreement.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
1.7 Notices.
Any notice or document required to be filed with the Administrator or
Trustee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Administrator in care of the Sponsor or
to the Trustee, each at its principal business offices. Any notice required
under the Plan may be waived in writing by the person entitled to notice.
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1.8 Evidence.
Evidence required of anyone under the Plan may be by certificate,
affidavit, document or other information which the person acting on it considers
pertinent and reliable, and signed, made or presented by the proper party or
parties.
1.9 Action by Employer.
Any action required or permitted to be taken by any entity
constituting the Employer under the Plan shall be by resolution of its Board of
Directors or by a person or persons authorized by its Board of Directors.
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who is otherwise eligible to become a Participant in
accordance with Section 1.1(gg) hereof shall initially become a Participant on
the Entry Date coincident with or next following the later of the following
dates, provided he is employed by the Employer on that Entry Date:
(1) The date on which he completes a Year of Eligibility Service;
and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12 consecutive month period prior to the Effective
Date shall become a Participant on the Effective Date, provided he is still
employed by the Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Eligibility Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to Section
3.3, shall be treated as a new Employee and shall again be required to satisfy
the eligibility requirements contained in Section 2.1(a) before resuming
participation on the appropriate Entry Date, as specified in Section 2.1(a).
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2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating their Date
of Hire, their Hours of Service during their Eligibility Period, their date of
birth, the original date of their reemployment with the Employer, if any, and
any Breaks they may have incurred.
2.5 Restricted Participation
Subject to the terms and conditions of the Plan, during the period
between the Participant's date of termination of participation in the Plan (as
described in Section 2.2) and the distribution of his entire Account (as
described in Article IX), and during any period that a Participant does not meet
the requirements of Section 2.1(a) or is employed by a Related Employer that is
not participating in the Plan, the Participant or, in the event of the
Participant's death, the Beneficiary of the Participant, will be considered and
treated as a Participant for all purposes of the Plan, except as follows:
(a) the Participant will not share in the Employee Stock
Ownership Contribution and forfeitures (as described in Sections 7.2
and 7.3), except as provided in Sections 5.4 and 5.5; and
(b) the Beneficiary of a deceased Participant cannot designate a
Beneficiary under Section 6.5.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Eligibility Service
completed by an Employee shall be counted in determining his eligibility to
become a Participant on and after the Effective Date, whether such Service was
completed before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Vesting Service completed by an Employee (including Years
of Vesting Service completed prior to the Effective Date) shall be counted in
determining his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section
3.3;
(b) Service prior to the Effective Date of this Plan if such
Service would have been disregarded under the "break in service" rules
(within the meaning of Section 1.411(a)-5(b)(6) of the Treasury
Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for eligibility and vesting purposes only if either:
(a) He was vested in any portion of his accrued benefit at the
time the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed
the greater of 5 or the number of his Years of Eligibility Service or
Years of Vesting Service, as the case may be, credited to him before
the Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has
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incurred a Break during any Plan Year in which he is absent from Service for one
or more Authorized Leaves of Absence, he shall be credited with 45 Hours of
Service for each week during any such leave period. Notwithstanding the
foregoing, if an Employee fails to return to Service on or before the end of a
leave period, he shall be deemed to have terminated Service as of the first day
of such leave period and his credit for Hours of Service, determined under this
Section 3.4, shall be revoked. Notwithstanding anything contained herein to the
contrary, an Employee who is absent by reason of military service as set forth
in Section 1.1(e)(1) shall be given Service credit under this Plan for such
military leave period to the extent, and for all purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(cc), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(cc).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(cc); and
(b) the number of days of such absence.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any
Employee who is ineligible to participate in this Plan either because of his
failure
(a) To meet the eligibility requirements contained in Article II;
or
(b) To be a Participant, as defined in Section 1.1(gg),
shall, nevertheless, earn Years of Eligibility Service and Years of Vesting
Service pursuant to the rules contained in this Article III. However, such
Employee shall not be entitled to an allocation of any contributions or
forfeitures hereunder unless and until he becomes a Participant in this Plan,
and then, only during his period of participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contribution.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership Contribution to the Fund in such amount as may be
determined by resolution of the Board of Directors in its discretion; provided,
however, that the Employer shall contribute an amount in cash not less than the
amount required to enable the Trustee to discharge any indebtedness incurred
with respect to an Exempt Loan in accordance with Section 8.6(c). If any part of
the Employee Stock Ownership Contribution under this Section 4.1 for any Plan
Year is in cash in an amount exceeding the amount needed to pay the amount due
during or prior to such Plan Year with respect to an Exempt Loan, such cash
shall be applied by the Trustee, as directed by the Administrator in its sole
discretion, either to the purchase of Employer Securities or to repay an Exempt
Loan. Contributions hereunder shall be in the form of cash, Employer Securities
or any combination thereof. In determining the value of Employer Securities
transferred to the Fund as an Employee Stock Ownership Contribution, the
Administrator may determine the average of closing prices of such securities for
a period of up to 90 consecutive days immediately preceding the date on which
the securities are contributed to the Fund. In the event that the Employer
Securities are not readily tradable on an established securities market, the
value of the Employer Securities transferred to the Fund shall be determined by
an independent appraiser in accordance with Section 8.9.
(b) In no event shall the Employee Stock Ownership Contribution exceed
for any Plan Year the maximum amount that may be deducted by the Employer under
Section 404 of the Code, nor shall such contribution cause the Employer to
violate its regulatory capital requirements. Each Employee Stock Ownership
Contribution by the Employer shall be deemed to be made on the express condition
that the Plan, as then in effect, shall be qualified under Sections 401(a) and
501(a) of the Code and that the amount of such contribution shall be deductible
from the Employer's income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contribution.
(a) The Employee Stock Ownership Contribution (if any) for each Plan
Year shall be paid to the Trustee in one lump sum or installments at any time on
or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year; provided, however,
that the Employee Stock Ownership Contribution (if any) for a Plan Year shall be
made in a timely manner to make any required payment of principal and/or
interest on an Exempt Loan for such Plan Year. Any portion of the Employee Stock
Ownership Contribution for each Plan Year that may be made prior to the last day
of the Plan Year shall, if there is an Exempt Loan outstanding at such time, at
the election of the Administrator, either (i) be applied immediately to make
payments on such
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Exempt Loan or (ii) be maintained by the Trustee in the Employee Stock Ownership
Suspense Account described in Section 5.2 until the last day of such Plan Year.
(b) If an Employee Stock Ownership Contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
Contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by the Employer, which specifies that the Employee Stock Ownership
Contribution is made with respect to the Plan Year in which it is received by
the Trustee. Any Employee Stock Ownership Contribution paid by the Employer
during any Plan Year but after the due date (including any extensions) for
filing of its federal income tax return for the fiscal year of the Employer
ending on or before the last day of the preceding Plan Year shall be treated,
for allocation purposes, as an Employee Stock Ownership Contribution to the Fund
for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership Contribution shall be made for any Plan Year during
which a limitations account created pursuant to Section 5.6(c)(3) is in
existence until the balance of such limitations account has been reallocated in
accordance with Section 5.6(c)(3).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the Employee Stock Ownership Contribution contemplated in Section
4.1, a certificate of the Administrator, in such form as the Trustee shall
approve, setting forth:
(a) The aggregate amount of such contribution, if any, to the Fund for
such Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each
such Participant; and
(d) Any other information reasonably required for the proper operation
of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's written request, a contribution which was made by a mistake of fact,
or conditioned upon the initial qualification of the Plan, under Code Section
401(a), or upon the deductibility of the contribution under Section 404 of the
Code, shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of
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the initial qualification of the Plan, a contribution shall not be returned
unless an Application for Determination has been timely filed with the Internal
Revenue Service. Any portion of a contribution returned pursuant to this Section
4.4 shall be adjusted to reflect its proportionate share of the losses of the
Fund, but shall not be adjusted to reflect any earnings or gains.
Notwithstanding any provisions of this Plan to the contrary, the right or claim
of any Participant or Beneficiary to any asset of the Fund or any benefit under
this Plan shall be subject to and limited by this Section 4.4.
(b) In no event shall Employee contributions be accepted. Any such
Employee contributions (and any earnings attributable thereto) mistakenly
received by the Trustee shall promptly be returned to the Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain a separate Account for
each Participant in the Plan and for each Former Participant in accordance with
the provisions of this Article V. Such separate Account shall be for bookkeeping
purposes only and shall not require a segregation of the Fund, and no
Participant, Former Participant or Beneficiary shall acquire any right to or
interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The Administrator may establish
subaccounts hereunder, an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust, and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities. Each Participant's Employer Stock
Account shall reflect his share of any Employee Stock Ownership Contribution
made in Employer Securities, his allocable share of forfeitures (as described in
Section 5.4), and any Employer Securities attributable to earnings on such
stock. Each Participant's Other Investments Account shall reflect any Employee
Stock Ownership Contribution made in cash, any cash dividends on Employer
Securities allocated and credited to his Employee Stock Ownership Account (other
than currently distributable dividends) and his share of corresponding cash
forfeitures, and any income, gains, losses, appreciation, or depreciation
attributable thereto.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
Account is to be deferred, the Administrator shall establish a separate,
nonforfeitable account in the Fund to which the balance in his Employee Stock
Ownership Account in the Plan shall be transferred after such Participant incurs
a Break. Unless the Former Participant's distribution accounts are segregated
for investment purposes pursuant to Article IX, they shall share in Investment
Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
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5.2 Establishment of Suspense Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Suspense Account. There shall be credited to such account any Employee Stock
Ownership Contribution that may be made prior to the last day of the Plan Year
and that are allocable to the Employee Stock Ownership Suspense Account pursuant
to Section 4.2(a). The Employee Stock Ownership Suspense Account shall share
proportionately as to time and amount in any Investment Adjustments. As of the
last day of each Plan Year, the balance of the Employee Stock Ownership Suspense
Account shall be added to the Employee Stock Ownership Contribution and
allocated to the Employee Stock Ownership Accounts of Participants as provided
in Section 5.5, except as provided herein. In the event that the Plan takes an
Exempt Loan, the Employer Securities purchased thereby shall be allocated as
Financed Shares to a separate Exempt Loan Suspense Account, from which Employer
Securities shall be released in accordance with Section 8.5 and shall be
allocated in accordance with Section 8.6(b).
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(3)) in the proportion that the
value of each such account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership Contribution and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
accounts and for the time such funds were in such accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to
the Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership Contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Employee Stock Ownership Contribution.
As of the last day of each Plan Year for which the Employer shall make
an Employee Stock Ownership Contribution, the Administrator shall allocate the
Employee Stock Ownership Contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership Account of each Participant who
completed a Year of Vesting Service during that Plan Year, provided that he is
still employed by the Employer on the last day of the Plan Year. Such allocation
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shall be made in the same proportion that each such Participant's Compensation
for such Plan Year bears to the total Compensation of all such Participants for
such Plan Year, subject to Section 5.6. Notwithstanding the foregoing, if a
Participant attains his Normal Retirement Date, dies or suffers a Disability and
terminates Service prior to the last day of the Plan Year but after completing a
Year of Vesting Service, he shall be entitled to an allocation based on his
Compensation earned prior to his termination and during the Plan Year.
Furthermore, if a Participant completes a Year of Vesting Service and is on a
Leave of Absence on the last day of the Plan Year because of pregnancy or other
medical reason, such a Participant shall be entitled to an allocation based on
his Compensation earned during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's Account under this Plan (and
accounts under any other defined contribution plan maintained by the Employer or
a Related Employer) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation (as defined below) for
such Limitation Year; or
(2) $30,000. Whenever otherwise allowed by law, the maximum
amount of $30,000 shall be automatically adjusted annually for
cost-of-living increases in accordance with Section 415(d) of the
Code, and the highest such increase effective at any time during the
Limitation Year shall be effective for the entire Limitation Year,
without any amendment to this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services, pre-tax
elective deferrals and salary reduction contributions under a plan described in
Section 401(k) or 125 of the Code, and other amounts received (without regard to
whether or not an amount is paid in cash) for personal services actually
rendered in the course of employment with the Employer or a Related Employer, to
the extent that the amounts are includable in gross income (including, but not
limited to, commissions paid to salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in Treas. Regs. Section 1.62-2(c)), and
excluding the following:
(1) Employer contributions by the Employer or a Related Employer
to a plan of deferred compensation (other than elective deferrals
under a plan described in Section 401(k) of the Code) which are not
includable in the Employee's gross income for the taxable year in
which contributed, or employer contributions by the Employer or a
Related Employer under a simplified employee pension plan to the
extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
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(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee
either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
(4) Other amounts which received special tax benefits (other than
pre-tax salary reduction contributions under a plan described in
Section 125 of the Code), or contributions made by the employer
(whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in section 403(b) of the
Code (whether or not the contributions are actually excludable from
the gross income of the Employee).
(c) In the event that the limitations on Annual Additions described in
Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
Limitation Year shall be reduced to the minimum extent required by such
limitations, in the following order of priority:
(1) The Administrator shall determine to what extent the Annual
Additions to any Participant's Employee Stock Ownership Account must
be reduced in each Limitation Year. The Administrator shall reduce the
Annual Additions to all other qualified, tax-exempt retirement plans
maintained by the Employer or a Related Employer in accordance with
the terms contained therein for required reductions or reallocations
mandated by Section 415 of the Code before reducing any Annual
Additions in this Plan.
(2) If any further reductions in Annual Additions are necessary,
then the Employee Stock Ownership Contribution and forfeitures
allocated during such Limitation Year to the Participant's Employee
Stock Ownership Account shall be reduced. The amount of any such
reductions in the Employee Stock Ownership Contribution and
forfeitures shall be reallocated to all other Participants in the same
manner as set forth under Sections 5.4 and 5.5.
(3) Any amounts which cannot be reallocated to other Participants
in a current Limitation Year in accordance with Section 5.6(c)(2)
above because of the limitations contained in Sections 5.6(a) and (d)
shall be credited to an account designated as the "limitations
account" and carried forward to the next and subsequent Limitation
Years until it can be reallocated to all Participants as set forth in
Sections 5.4 and 5.5, as appropriate. No Investment Adjustments shall
be allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership Contribution may be
made to this Plan for that Limitation Year.
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(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the limitations
account described in Section 5.6(c)(3) above which have not be
reallocated as set forth herein shall be distributed to the
Participants who are still employed by the Employer on the date of
termination, in the proportion that each Participant's Compensation
bears to the Compensation of all Participants.
(d) The Annual Additions credited to a Participant's Account for each
Limitation Year are further limited so that in the case of an Employee who is a
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer or Related
Employer, the sum of (1) and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Limitation
Year; plus
(2) (A) The sum of Annual Additions credited to the Participant
under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined for
such Limitation Year and for each prior year of service with the
Employer or a Related Employer:
(i) The product of 1.25 multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Limitation
Year.
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(7) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply.
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If, even after the reductions provided for in Section 5.6(c), the sum of the
fractions still exceeds 1.0, then the benefits of the Participant provided under
the pension plan shall be reduced to the extent necessary, in accordance with
Treasury Regulations issued under the Code. Solely for the purposes of this
Section 5.6(d), the term "years of service" shall mean all years of service
defined by Treasury Regulations issued under Section 415 of the Code.
Notwithstanding the foregoing, the provisions of this Section 5.6(d) shall
expire with respect to all Limitation Years beginning after December 31, 1999.
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his Account in excess of those permitted under Sections 5.3, 5.4,
5.5, and 5.6. If it is determined at any time that the Administrator and/or
Trustee have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error. To the extent
applicable, such correction shall be made in accordance with the provisions of
IRS Revenue Procedure 98-22 (or any amendment or successor thereto).
5.8 Value of Participant's Account.
At any time, the value of a Participant's Account shall consist of the
aggregate value of his Employee Stock Ownership Account and his distribution
account, if any, determined as of the next- preceding Valuation Date. The
Administrator shall maintain adequate records of the cost basis of Employer
Securities allocated to each Participant's Employee Stock Ownership Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. All sales of Employer Securities by the Trustee
attributable to the Employee Stock Ownership Accounts of all Participants shall
be charged pro rata to the Employee Stock Ownership Accounts of all
Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his Account, payable pursuant to the provisions of Section 9.1. A
Participant who remains in Service after his Normal Retirement Date shall not be
entitled to any retirement benefits until his actual termination of Service
thereafter (except as provided in Section 9.4), and he shall meanwhile continue
to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior to
his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the vested value of his Account, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his Account, payable pursuant to the provisions
of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his Account shall be payable pursuant to
the provisions of Section 9.1. The Administrator shall direct the Trustee to
distribute his Account to any surviving Beneficiary designated by the
Participant or, if none, to such persons specified in Section 6.5(b).
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his Account to any
surviving Beneficiary designated by him or, if none, to such persons specified
in Section 6.5(b).
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the balance credited to the
Account of a deceased Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death and of the right of
any person to receive payment shall be conclusive.
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6.5 Designation of Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary to
receive the sum or sums to which he may be entitled upon his death. The
Participant may also designate the manner in which any death benefits under this
Plan shall be payable to his Beneficiary, provided that such designation is in
accordance with Section 9.5. Such designation of Beneficiary and manner of
payment shall be in writing and delivered to the Administrator, and shall be
effective when received by the Administrator while the Participant is alive. The
Participant shall have the right to change such designation by notice in writing
to the Administrator while the Participant is alive. Such change of Beneficiary
or the manner of payment shall become effective upon its receipt by the
Administrator while the Participant is alive. Any such change shall be deemed to
revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary, or
if no designated Beneficiary survives the Participant, the balance credited to
his Account shall be paid to the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Participant: the Participant's (1) widow or widower, (2) natural-born or adopted
children, (3) natural-born or adoptive parents, and (4) estate. The
Administrator shall determine which Beneficiary, if any, shall have been validly
designated or entitled to receive the balance credited to the Participant's
Account in accordance with the foregoing order of preference, and its decision
shall be binding and conclusive on all persons.
(c) Notwithstanding the foregoing, if a Participant is married on the
date of his death, the sum or sums to which he may be entitled under this Plan
upon his death shall be paid to his spouse, unless the Participant's spouse
shall have consented to the election of another Beneficiary. Such a spousal
consent shall be in writing and shall be witnessed either by a representative of
the Administrator or by a notary public. Any designation by an unmarried
Participant shall be rendered ineffective by any subsequent marriage, and any
consent of a spouse shall be effective only as to that spouse. If it is
established to the satisfaction of the Administrator that spousal consent cannot
be obtained because there is no spouse, because the spouse cannot be located, or
other reasons prescribed by governmental regulations, the consent of the spouse
may be waived, and the Participant may designate a Beneficiary or Beneficiaries
other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or Normal Retirement Date
(whether or not he actually retires at that time) while he is still employed by
the Employer, the Participant's entire Account shall be fully vested and
nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal Retirement, a Participant shall be vested in a
percentage of his Employee Stock Ownership Account, such vested percentage to be
determined under the following table, based on the Years of Vesting Service
(including Years of Vesting Service prior to the Effective Date) credited to him
at the time of his termination of participation:
Years of Vesting Service Percentage Vested
------------------------ -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3. In such event, Employer Securities shall be
forfeited only after other assets. Distribution of the vested portion of a
terminated Participant's interest in the Plan shall be payable in any manner
permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least 5
Breaks, the forfeitable portion of his Employee Stock Ownership Account shall be
reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at
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least 5 Breaks, or in the event that a Participant terminates Service and incurs
at least 5 Breaks but has not received a distribution, then the forfeitable
portion of his Employee Stock Ownership Account, including Investment
Adjustments, shall be reallocated to other Participants, pursuant to Section
5.4, as of the date the Participant incurs such Break or Breaks, as the case may
be.
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of 5 years after the date of his rehire by the Employer, or the
close of the first period of 5 consecutive Breaks commencing after the
withdrawal, in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Account shall be
entitled to demand that his interest in the Account be distributed to him in the
form of Employer Securities, all subject to Section 9.9. The Administrator shall
notify the Participant of his right to demand distribution of his vested Account
balance entirely in whole shares of Employer Securities (with the value of any
fractional share paid in cash). However, if the charter or by-laws of the
Employer restrict ownership of substantially all of the outstanding Employer
Securities to Employees and the Trust, then the distribution of a Participant's
vested Account shall be made entirely in the form of cash or other property, and
the Participant is not entitled to a distribution in the form of Employer
Securities.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer Securities
in such account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the same proportion as the Participants who directed the Trustee as to
the manner of voting their shares in the Employee Stock Ownership Accounts with
respect to such issue. In the event that a Participant fails to give timely
voting instructions to the Trustee with respect to the voting of Employer
Securities that are allocated to his Employee Stock Ownership Account, the
Trustee shall vote such shares as directed by the Administrator.
8.3 Nondiscrimination in Employee Stock Ownership Contribution.
In the event that the amount of the Employee Stock Ownership
Contribution that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership Contribution for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who:
(a) Was at any time during the Plan Year or the preceding Plan Year a 5
percent owner of the Employer; or
(b) Received compensation (within the meaning of Section 415(c)(3) of
the Code) from the Employer for the preceding Plan Year in excess of $80,000, as
adjusted under Code
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Section 414(q), and, if the Employer so elects, was in the "top-paid group" of
Employees (as defined below) for such year.
An Employee shall be deemed a member of the "top-paid group" of
Employees for a given Plan Year if such Employee is in the group of the top 20%
of the Employees of the Employer when ranked on the basis of compensation (as
defined above).
A former Employee shall be included in the group of Employees described above if
either:
(c) Such former Employee was included in such group when such
Employee separated from Service, or
(d) Such former Employee was included in such group at any time
after attaining age 55.
The determination of who is included in the group of Employees
described above, including the determination of the number and identity of
Employees in the "top-paid group," will be made in accordance with Section
414(q) of the Code and the regulations thereunder.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership Account as of the record date for the
dividend payment may be allocated to the Participant's Employee Stock Ownership
Account, paid in cash to the Participant, or used by the Trustee to make
payments on an Exempt Loan, pursuant to the direction of the Administrator. If
the Administrator shall direct that the aforesaid dividends shall be paid
directly to Participants, the dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in cash
shall be made to the Participants with respect to the Employer Securities in
their Employee Stock Ownership Accounts within 90 days of the close of the Plan
Year in which the dividends were paid. If dividends on Employer Securities
already allocated to Participants' Employee Stock Ownership Accounts are used to
make payments on an Exempt Loan, the Employer Securities which are released from
the Exempt Loan Suspense Account shall first be allocated to each Employee Stock
Ownership Account in an amount equal to the amount of dividends that would have
been allocated to such Account if the dividends had not been used to make
payments on an Exempt Loan, and the remaining Employer Securities (if any) which
are released shall be allocated in the proportion that the value of each
Employee Stock Ownership Account bears to the value of all such Accounts, all in
accordance with Section 404(k) of the Code. Dividends on Employer Securities
obtained pursuant to an Exempt Loan and still held in the Exempt Loan Suspense
Account may be used to make payments on an Exempt Loan, as described in Section
8.6.
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8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Financed Shares acquired with the
proceeds of the Exempt Loan and Financed Shares that were used as collateral for
a prior Exempt Loan repaid with the proceeds of the current Exempt Loan. Such
Financed Shares so pledged shall be placed in an Exempt Loan Suspense Account.
No person or institution entitled to payment under an Exempt Loan shall have
recourse against Trust assets other than the Financed Shares, the Employer Stock
Ownership Contribution (other than contributions of Employer Securities) that is
available under the Plan to meet obligations under the Exempt Loan, and earnings
attributable to such Financed Shares and the investment of such contribution.
Any Employee Stock Ownership Contribution paid during the Plan Year in which an
Exempt Loan is made (whether before or after the date the proceeds of the Exempt
Loan are received), any Employee Stock Ownership Contribution paid thereafter
until the Exempt Loan has been repaid in full, and all earnings from investment
of such Employee Stock Ownership Contribution, without regard to whether any
such Employee Stock Ownership Contribution and earnings have been allocated to
Participants' Employee Stock Ownership Accounts, shall be available to meet
obligations under the Exempt Loan as such obligations accrue, or prior to the
time such obligations accrue, unless otherwise provided by the Employer at the
time any such contribution is made. Any pledge of Employer Securities shall
provide for the release of Financed Shares upon the payment of any portion of
the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of Financed Shares released from such pledge shall equal the number of
Financed Shares held immediately before release for the current Plan Year
multiplied by a fraction. The numerator of the fraction is the sum of principal
and interest paid in such Plan Year. The denominator of the fraction is the sum
of the numerator plus the principal and interest to be paid for all future
years. Such years will be determined without taking into account any possible
extension or renewal periods. If interest on any Exempt Loan is variable, the
interest to be paid in future years under the Exempt Loan shall be computed by
using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may, in accordance with
the direction of the Administrator, obtain an Exempt Loan pursuant to the terms
of which the number of Financed Shares to be released from encumbrance shall be
determined with reference to principal payments only. In the event that such an
Exempt Loan is obtained, annual payments
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of principal and interest shall be at a cumulative rate that is not less rapid
at any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) the Employee Stock Ownership Contribution to the Trust made to meet the
Plan's obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Financed Shares and
investments of such contributions (both received during or prior to the Plan
Year); (2) the proceeds of a subsequent Exempt Loan made to repay a prior Exempt
Loan; and (3) the proceeds of the sale of any Financed Shares. Such contribution
and earnings shall be accounted for separately by the Plan until the Exempt Loan
is repaid.
(b) Employer Securities released from the Exempt Loan Suspense Account
by reason of the payment of principal or interest on an Exempt Loan from amounts
allocated to Participants' Employee Stock Ownership Accounts shall immediately
upon release be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as they
are due, provided, however, that no such contribution shall exceed the
limitations in Section 5.6. In the event that such contributions by reason of
the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the
Administrator's direction the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to
meet such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Employer Securities released
from the pledge of the prior Exempt Loan shall be pledged as
collateral to secure the new Exempt Loan. Such Employer Securities
will be released from this new pledge and allocated to the Employee
Stock Ownership Accounts of the Participants in accordance with the
applicable provisions of the Plan;
(2) Purchase any Financed Shares in an amount necessary to
provide the Trustee with sufficient funds to meet the principal and
interest repayments. Any such sale by the Plan shall meet the
requirements of Section 408(e) of the Act; or
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(3) Any combination of the foregoing.
However, the Employer shall not, pursuant to the provisions of this
subsection, do, fail to do or cause to be done any act or thing which would
result in a disqualification of the Plan as an employee stock ownership plan
under Section 4975(e)(7) of the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement, while such shares are held by the Plan or when such
shares are distributed from the Plan.
8.7 Put Option.
In the event that the Employer Securities distributed to a Participant
are not readily tradable on an established market, the Participant shall be
entitled to require that the Employer repurchase the Employer Securities under a
fair valuation formula, as provided by governmental regulations. The Participant
or Beneficiary shall be entitled to exercise the put option described in the
preceding sentence for a period of not more than 60 days following the date of
distribution of Employer Securities to him. If the put option is not exercised
within such 60-day period, the Participant or Beneficiary may exercise the put
option during an additional period of not more than 60 days after the beginning
of the first day of the first Plan Year following the Plan Year in which the
first put option period occurred, all as provided in regulations promulgated by
the Secretary of the Treasury.
If a Participant exercises the foregoing put option with respect to
Employer Securities that were distributed as part of a total distribution
pursuant to which a Participant's Employee Stock Ownership Account is
distributed to him in a single taxable year, the Employer or the Plan may elect
to pay the purchase price of the Employer Securities over a period not to exceed
5 years. Such payments shall be made in substantially equal installments not
less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price, and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, if permissible under Section
9.5, the amount to be paid for such securities shall be paid not later than 30
days after the exercise of the put option.
8.8 Diversification Requirements.
Each Participant who has completed at least 10 years of participation
in the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his
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"qualified election period" to direct the Plan as to the investment of at least
25 percent of his Employee Stock Ownership Account (to the extent such
percentage exceeds the amount to which a prior election under this Section 8.8
had been made). For purposes of this Section 8.8, the term "qualified election
period" shall mean the 5-Plan-Year period beginning with the Plan Year after the
Plan Year in which the Participant attains age 55 (or, if later, beginning with
the Plan Year after the first Plan Year in which the Employee first completes at
least 10 years of participation in the Plan). In the case of an Employee who has
attained age 60 and completed 10 years of participation in the prior Plan Year
and in the case of the election year in which any other Participant who has met
the minimum age and service requirements for diversification can make his last
election hereunder, he shall be entitled to direct the Plan as to the investment
of at least 50 percent of his Employee Stock Ownership Account (to the extent
such percentage exceeds the amount to which a prior election under this Section
8.8 had been made). The Plan shall make available at least 3 investment options
(chosen by the Administrator in accordance with regulations prescribed by the
Department of Treasury) to each Participant making an election hereunder. The
Plan shall be deemed to have met the requirements of this Section if the portion
of the Participant's Employee Stock Ownership Account covered by the election
hereunder is distributed to the Participant or his designated Beneficiary within
90 days after the period during which the election may be made. In the absence
of such a distribution, the Trustee shall implement the Participant's election
within 90 days following the expiration of the qualified election period.
Notwithstanding the foregoing, if the fair market value of the Employer
Securities allocated to the Employee Stock Ownership Account of a Participant
otherwise entitled to diversify hereunder is $500 or less as of the Valuation
Date immediately preceding the first day of any election period, then such
Participant shall not be entitled to an election under this Section 8.8 for that
qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of the regulations
promulgated under Code Section 170(a)(1) shall value the Employer Securities in
those Plan Years when such securities are not readily tradable on an established
securities market.
8.10 Nonterminable Rights.
The provisions of this Article VIII shall continue to be applicable to
Employer Securities held by the Trustee, whether or not allocated to
Participants' and Former Participants' Accounts, even if the Plan ceases to be
an employee stock ownership plan, as defined in Section 4975(e)(7) of the Code.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested Account in the Plan. As soon as practicable after a
Participant's Retirement, Disability, death or other termination of Service, the
Administrator shall ascertain the value of his vested Account, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement, Disability or Death. Upon a
Participant's Retirement, Disability or death, payment of benefits under this
Plan shall, unless the Participant otherwise elects (in accordance with Section
9.3), commence as soon as practicable after the Valuation Date next following
the date of the Participant's Retirement, Disability or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement,
Disability or death, he shall be accorded an opportunity to commence receipt of
benefits as soon as practicable after the Valuation Date next following the date
of his termination of Service. A Participant who terminates Service with a
vested Account balance shall be entitled to receive from the Administrator a
statement of his benefits. In the event that a Participant elects not to
commence receipt of distribution in accordance with this Section 9.2(b) after
the Participant incurs a Break, the Administrator shall transfer his vested
Account balance to a distribution account. If a Participant's vested Account
balance does not exceed (or at the time of any prior distribution did not
exceed) $5,000, the Plan Administrator shall distribute the vested portion of
his Account balance as soon as administratively feasible without the consent of
the Participant or his spouse.
(c) Distribution of Accounts Greater Than $5,000. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $5,000, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Administrator shall notify the Participant of the right to defer
any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code Section 401(a)(9)
or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest to occur of the
close of the Plan Year in which (i)
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the Participant attains age 65, (ii) the tenth anniversary of the Plan Year in
which the Participant commenced participation, or (iii) the Participant
terminates Service with the Employer and all Related Employers.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated Beneficiary,
(iii) a period certain not extending beyond the life expectancy
of the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated Beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the Participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the Participant or
the joint life and last survivor expectancy of the Participant and the
Participant's designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at least
equal the quotient obtained by dividing the Participant's benefit by
the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for
the first distribution calendar year, shall not be less than the
quotient obtained by dividing the Participant's Account balance by the
lesser of (1) the applicable life expectancy, or (2) if the
Participant's spouse is not the designated Beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions after the
death of the Participant shall be distributed using the applicable
life expectancy in subsection (iii) of Section 9.3(b) above as the
relevant divisor without regard to Proposed Regulations section
1.401(a)(9)-2.
(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before the
Participant's required beginning date.
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The minimum distribution for other calendar years, including the
minimum distribution for the distribution calendar year in which the
Participant's required beginning date occurs, must be made on or
before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 9.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his Account
balance has begun, the entire Account balance shall be distributed by December
31 of the calendar year containing the fifth anniversary of the death of the
Participant, except in the following events:
(i) If any portion of the Participant's Account balance is
payable to (or for the benefit of) a designated Beneficiary over a
period not extending beyond the life expectancy of such Beneficiary
and such distributions begin not later than December 31 of the
calendar year immediately following the calendar year in which the
Participant died; or
(ii) If any portion of the Participant's Account balance is
payable to (or for the benefit of) the Participant's spouse over a
period not extending beyond the life expectancy of such spouse and
such distributions begin no later than December 31 of the calendar
year in which the Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time of
his death, the Participant's designated Beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
Beneficiary, or if the designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and if
life expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any election not to recalculate shall be irrevocable and shall apply
to all subsequent years. The life
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expectancy of a nonspouse Beneficiary may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant who is a
5-percent owner of the Employer is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70-1/2. The
required beginning date of a Participant who is not a 5-percent owner shall be
April 1 of the calendar year following the later of either: (i) the calendar
year in which the Participant attains age 70-1/2, or (ii) the calendar year in
which the Participant retires.
(b) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this section if such Participant is a 5-percent owner as defined in
section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested Account balance shall be distributed in a
lump sum payment. Notwithstanding the preceding sentence, but subject to Section
9.3, the Administrator may not distribute a lump sum without the Participant's
consent when the present value of a Participant's total Account balance is in
excess of $5,000. This form of payment shall be the normal form of distribution.
Furthermore, however, in the event that the Administrator must commence
distributions, as required by Section 9.4 herein, with respect to an Employee
who has attained age 70-1/2 and is still employed by the Employer, if the
Employee does not elect a lump sum distribution, payments shall be made in
installments in such amounts as shall satisfy the minimum distribution rules of
Section 9.3.
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9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: The
Account balance of each affected Participant and Former Participant shall
immediately become fully vested and nonforfeitable; the Account balance of all
Participants and Former Participants shall be determined within 60 days after
such termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
promptly notify the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto, shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.7, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions.
If a Participant receives a distribution of his entire vested Account
balance because of the termination of his participation in the Plan, the Plan
shall disregard a Participant's Service with respect to which such cash-out
distribution shall have been made, in computing his Account balance in the event
that a Former Participant shall again become an Employee and become eligible to
participate in the Plan. Such a distribution shall be deemed to be made on
termination of participation in the Plan if it is made not later than the close
of the second Plan Year following the Plan Year in which such termination
occurs. The forfeitable portion of a Participant's Account balance shall be
restored upon repayment to the Plan by such Former Participant of the full
amount of the cash-out distribution, provided that the Former Participant again
becomes an Employee. Such repayment must be made by the Employee not later than
the end of the 5-year period beginning with the date of the distribution.
Forfeitures required to be restored by virtue of
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such repayment shall be restored from the following sources in the following
order of preference: (i) current forfeitures; (ii) an additional Employee Stock
Ownership Contribution, as appropriate, and as subject to Section 5.6; and (iii)
investment earnings of the Fund. In the event that a Participant's Account
balance is totally forfeitable, a Participant shall be deemed to have received a
distribution of zero upon his termination of Service. In the event of a return
to Service within 5 years of the date of his deemed distribution, the
Participant shall be deemed to have repaid his distribution in accordance with
the rules of this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing) shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, Disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, Disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities or cash, or a combination
of Employer Securities and cash, in the discretion of the Administrator, subject
to the Participant's right to demand Employer Securities in accordance with
Section 8.1. Fractional shares, however, may be distributed in the form of cash.
9.10 Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
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rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or Former Participant. In addition, the Participant's or Former
Participant's surviving spouse and the Participant's or Former Participant's
spouse or former spouse who is the alternate payee under a Qualified Domestic
Relations Order are "distributees" with regard to the interest of the spouse or
former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which Sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that: (1) the Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
9.12 Re-employed Veterans.
Notwithstanding anything to the contrary set forth in the Plan, if an
Employee has been rehired by the Employer and is eligible for the benefits
provided by the Uniformed Services Employment and Reemployment Rights Act by
virtue of his prior military service and by virtue of his having met all the
requirements of that Act for being accorded the benefits provided thereunder, he
shall not be deemed to have incurred a Break because of his period of military
service. The Employee's military service shall be treated as Service hereunder
for eligibility, vesting and benefit accrual purposes. Such Employee shall be
entitled to all Employer contributions to which he otherwise would have been
entitled had he been employed by the Employer during the period of his military
service. In computing contribution amounts dependent upon or limited by the
amount of Compensation the Employee earned or would have earned, the Employee
shall be treated as receiving Compensation from the Employer during the period
of military service equal to the Compensation that Employee otherwise would have
received from the Employer during that period, or, if the Compensation the
Employee otherwise would have received is not reasonably certain, the Employee's
average Compensation from the Employer during the period immediately preceding
the period of military service. Such Employee shall not, however, be credited
with any earnings on any such additional Employer or Employee contributions
described in this Section before the contribution is actually made. Furthermore,
no forfeitures shall be allocated to such Employee's Accounts hereunder for the
period of military service. The rules governing the limitations on all such
contributions that may be required hereunder shall be governed by Section 414(u)
of the Code and any regulations promulgated thereunder.
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9.13 Share Legend.
Employer Securities held or distributed by the Trustee may include such
legend restrictions on transferability as the Employer may reasonably require in
order to assure compliance with applicable Federal and State securities and
other laws.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X for
such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q))
and any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code), (2) in a group of trades or businesses under common
control with such Employer, while it is under common control (within the meaning
of Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the 4 immediately preceding Plan Years, is
one of the following:
(1) An officer of the Employer who has compensation greater than
50% of the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser, the
greater of 3 or 10% of the Employees) shall be deemed officers;
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(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation in
effect under Section 415(c)(1)(A) of the Code, and owning (or
considered as owning, within the meaning of Section 318 of the Code)
the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the outstanding
stock of the Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions of
this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who is
not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirements of Sections 401(a)(4) and 410 of the Code.
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
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(1) With respect to this Plan or any other defined contribution
plan (other than a defined contribution pension plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the respective plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions actually made after the
valuation date but before the Determination Date (and, in the first
plan year of a plan, also including any contributions made after the
Determination Date which are allocated as of a date in the first plan
year).
(2) With respect to any defined contribution pension plan in a
Required Aggregation Group or a Permissive Aggregation Group, the
Employee's account balances under the plan, determined as of the most
recent plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present value
of the Employee's accrued benefits under the plan, determined as of
the most recent plan valuation date within a 12-month period ending on
the Determination Date, pursuant to the actuarial assumptions used by
such plan, and calculated as if the Employee terminated Service under
such plan as of the valuation date (except that, in the first plan
year of a plan, a current Participant's estimated Accrued Benefit as
of the Determination Date shall be taken into account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the 5-year period ending on
the Determination Date, any Accrued Benefit for such individual shall
not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions, but
shall exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or
plans, as the case may be, during the 5-year period ending on the
Determination Date.
(3) Rollover and direct plan-to-plan transfers shall be taken
into account as follows:
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(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall continue
to count the amount transferred; the receiving plan shall not
count the amount transferred.
(B) If the transfer is not initiated by the Employee or is
made between plans maintained by related employers, the
transferring plan shall no longer count the amount transferred;
the receiving plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer at
any time during the 5-year period ending on the Determination Date, any Accrued
Benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any Plan Year in which the Plan is top-heavy, each Non-Key
Employee who has met the age and service requirements, if any, contained in the
Plan, shall be entitled to
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a minimum contribution (which may include forfeitures otherwise allocable) equal
to a percentage of such Non-Key Employee's compensation (as defined in Section
415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit
plan maintained by the Employer, then the minimum contribution under
this Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan
shall in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group;
provided, however, that this Section 10.7(b)(1) shall not apply if
this Plan is included in a Required Aggregation Group and this Plan
enables a defined benefit plan in such Required Aggregation Group to
meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution
is being accrued or made on account of such Plan Year, in whole or in
part, on behalf of the Non-Key Employee, in accordance with Section
416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1)
any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
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10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Accrued Benefit derived from Employer contributions (not including
contributions made pursuant to Code Section 401(k), if any) shall continue to
vest according to the following schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service" shall
have the same meaning as Year of Vesting Service, as set forth in Section
1.1(ss), and as modified by Section 3.2.
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 or more Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i) shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the Plan Year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to 5
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. The authority to control and
manage the operation and administration of the Plan is vested in the
Administrator appointed by the Board of Directors. The Administrator shall have
the rights, duties and obligations of an "administrator," as that term is
defined in section 3(16)(A) of the Act, and of a "plan administrator," as that
term is defined in Section 414(g) of the Code. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Sponsor and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any Administrator
with or without cause, by giving notice in writing, mailed or delivered to the
Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Sponsor
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Sponsor in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities
in connection with the administration of this Plan:
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(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To exercise discretion in determining all questions arising in the
administration, interpretation and application of the Plan, including questions
of eligibility and of the status and rights of Participants, Beneficiaries and
any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and direct the Trustee regarding the known
future needs for funds to be available for distribution in order that the
Trustee may establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies
to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to
the Plan for each fiscal year;
(g) To direct the Trustee concerning all matters requiring the
Administrator's direction pursuant to the provisions of this Plan and the Trust
Agreement;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against
the Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee;
(l) To have all such other powers as may be necessary to discharge its
duties hereunder; and
(m) To direct the Trustee to pay all expenses of administering this
Plan, except to the extent that the Employer pays such expenses.
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Full discretion is granted to the Administrator to interpret the Plan
and to determine the benefits, rights and privileges of Participants,
Beneficiaries or other persons affected by this Plan. The Administrator shall
exercise its discretion under the terms of this Plan and shall administer the
Plan in accordance with its terms, such administration to be exercised uniformly
so that all persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrator.
No member of the committee constituting the Administrator shall be
precluded from becoming a Participant in the Plan if he would be otherwise
eligible, but he shall not be entitled to vote or act upon matters or to sign
any documents relating specifically to his own participation under the Plan,
except when such matters or documents relate to benefits generally. If this
disqualification results in the lack of a quorum, then the Board of Directors
shall appoint a sufficient number of temporary members of the committee
constituting the Administrator who shall serve for the sole purpose of
determining such a question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services and
all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator
may be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
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11.9 Delegation of Duties.
The Administrator may delegate any of its duties to any Employees of
the Employer, to the Trustee with its written consent, or to any other person or
firm, provided that the Administrator shall prudently choose such agents and
rely in good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall
be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his Account balance, as well as a complete copy of the Plan and
the Trust Agreement and copies of annual reports to the Internal Revenue
Service, shall be made available by the Administrator to the Employer for
examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's Account
balance shall not be made available for examination by any other Participant.
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11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of Section 402 of
the Act and shall be the designated agent for receipt of service of process on
behalf of the Plan. It shall use the care and diligence in the performance of
its duties under this Plan that are required of fiduciaries under the Act.
Nothing in this Plan shall preclude the Employer from purchasing liability
insurance to protect the Administrator with respect to its duties under this
Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Responsibilities of Directors.
Subject to the rights reserved to the Board of Directors acting on
behalf of the Employer as set forth in this Plan, no member of the Board of
Directors shall have any duties or responsibilities under this Plan, except to
the extent he shall be acting in the capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) To the extent not prohibited by the Act, the Administrator shall
not be responsible in any way for any action or omission of the Employer, the
Trustee or any other person in the performance of their duties and obligations
set forth in this Plan and in the Trust Agreement. To the extent not prohibited
by the Act, the Administrator shall also not be responsible for any act or
omission of any of its agents, or with respect to reliance upon advice of its
counsel (whether or not such counsel is also counsel to the Employer or the
Trustee), provided that such agents or counsel were prudently chosen by the
Administrator and that the Administrator relied in good faith upon the action of
such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary
for the claimant to perfect his claim, if possible, and an explanation of why
such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above,
the claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within
60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
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12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Sponsor reserves the right at any time and from time to time, for
any reason and retroactively if deemed necessary or appropriate by it, to the
extent permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's Account balance as of the effective date of the amendment
or change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Vesting Service is permitted to elect to have the vesting schedule in effect
before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit; and.
(d) No amendment may increase the duties of the Trustee without its
consent.
Amendments may be made in the form of Board of Directors' resolutions
or separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Effect of Change In Control
(a) In the event of a "change in control" of the Sponsor, as defined in
paragraph (d) below, this Plan shall terminate at the effective time of such
change in control unless the Board of Directors shall affirmatively determine
prior to such effective time that the Plan shall not terminate. Nothing in this
Plan shall prevent the Sponsor from becoming a party to such a change in
control. In the event that the Board of Directors determines that the Plan shall
not terminate upon a change in control, any successor corporation or other
entity formed and resulting from such change in control shall have the right to
become the sponsor of this Plan by adopting the same by resolution. If, within
180 days from the effective time of such change in control, such entity does not
affirmatively adopt this Plan, then this Plan shall automatically be terminated,
all affected Participants' and Former Participants' Account balances shall
become fully vested and nonforfeitable, and the Trustee shall make payments to
the persons entitled thereto in accordance with Article IX.
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(b) In the event that the Plan terminates upon a change in control in
accordance with paragraph (a) above, the Account balances of all affected
Participants and Former Participants shall become fully vested and
nonforfeitable, and the Trustee shall either (i) make payments to each
Participant and Beneficiary in accordance with Section 9.5 or, (ii) in the
discretion of the Sponsor, continue the Trust Agreement and make distributions
upon the contingencies and in all the circumstances under which distributions
would have been made, on a fully vested basis, had there been no termination of
the Plan.
(c) Notwithstanding any provision of the Plan to the contrary, at and
after the effective time of a change in control, whether or not the Plan
terminates at such time, each of the following provisions shall become
applicable; provided, however, that any such provision shall not apply if the
Board of Directors determines that such provision either (i) would adversely
affect the tax-qualified status of the Plan pursuant to Code Section 401(a),
(ii) would adversely affect the accounting treatment of the change in control as
a pooling of interests, if the Board of Directors desires that such treatment
apply, or (iii) should not apply for any other reason:
(1) The Plan shall be interpreted, maintained and operated
exclusively for the benefit of those individuals who are participating
in the Plan as of the effective time of the change in control and
their Beneficiaries. Notwithstanding the provisions of Section 2.1(a),
no Employee shall become a Participant for the first time at or after
the effective time of a change in control.
(2) After a Participant's Retirement, Disability or other
termination of Service, such Participant's Account, regardless of its
value, shall not be distributed and shall share in the allocation of
the Employee Stock Ownership Contribution and Investment Adjustments
until such time as either (A) the Fund is liquidated in connection
with the termination of the Plan, or (B) the Participant (or his
Beneficiary) receives a full distribution of his Account either upon
his election in accordance with Section 9.2(c) or as required in
accordance with Section 8.8, 9.3 or 9.4.
(3) Upon the termination of the Plan, Employer Securities that
are allocated to the Exempt Loan Suspense Account and that are not
used to repay an Exempt Loan shall be allocated as Investment
Adjustments in accordance with Section 5.3.
(4) Employer Securities that are released from the Exempt Loan
Suspense Account in accordance with Section 8.5 shall be allocated to
the Employee Stock Ownership Account of each Participant regardless of
whether he completed a Year of Vesting Service during the Plan Year or
was an Employee on the last day of such Plan Year.
(5) The Administrator shall consist of a committee selected by
the Board of Directors, and such committee shall have the exclusive
authority (i) to remove the Trustee and to appoint a successor
trustee, (ii) to adopt amendments to the Plan or the Trust Agreement
to effectuate the provisions and intent of this Section 13.2, and
(iii) to perform any or all of the
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functions and to exercise all of the discretion that are delegated to
the Administrator pursuant to Article XI.
(6) Any application for a favorable determination letter with
respect to the tax-qualified status of the Plan under Code Section
401(a) with respect to its termination shall be subject to the prior
review, comment and approval (which approval shall not be unreasonably
withheld) of the Administrator, as defined in paragraph (5) above.
(d) For purposes of this Section 13.2, the term "change in control"
means the occurrence of any one or more of the events specified in the following
clauses (i) through (iii): (i) any third person, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the
beneficial owner of shares of the Sponsor with respect to which 25% or more of
the total number of votes for the election of the Board of Directors may be
cast, (ii) as a result of, or in connection with, any cash tender offer, merger
or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors of the Sponsor
shall cease to constitute a majority of the Board of Directors, or (iii) the
effective time of a transaction that is approved by the stockholders of the
Sponsor and that provides either for the Sponsor to cease to be an independent
publicly-owned corporation or for a sale or other disposition of all or
substantially all of the assets of the Sponsor.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
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transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors, or of any new or successor
employer of the affected Participants, shall authorize such transfer of assets,
and, in the case of the new or successor employer of the affected Participants,
its resolutions shall include an assumption of liabilities imposed under this
Plan with respect to such Participants' inclusion in the new employer's plan;
and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, or similar federal or state statute, or any federal or
state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically with
respect to such entity on such date (provided, however, that if a proceeding is
brought against the Employer for reorganization under Chapter 11 of the United
States Bankruptcy Code or any similar federal or state statute, then this Plan
shall terminate automatically if and when said proceeding results in a
liquidation of the Employer, or the approval of any Plan providing therefor, or
the proceeding is converted to a case under Chapter 7 of the Bankruptcy Code or
any similar conversion to a liquidation proceeding under federal or state law
including, but not limited to, a receivership proceeding). In the event of any
such termination as provided in the foregoing sentence, the Trustee shall make
payments to the persons entitled thereto in accordance with Section 9.6 hereof.
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of such
notice, the Account balances of all affected Participants and Former
Participants shall become fully vested and nonforfeitable, and the Trustee shall
make payments to each Participant or Beneficiary in accordance with Section 9.6.
Alternatively, the Sponsor, in its discretion, may determine to continue the
Trust Agreement and to continue the maintenance of the Fund, in which event
distributions shall be made upon the
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contingencies and in all the circumstances under which such distributions would
have been made, on a fully vested basis, had there been no termination of the
Plan. In addition, an entity other than the Sponsor that is participating in
this Plan may terminate its participation in the Plan on a prospective basis by
action of its board of directors. Upon such termination of participation,
Participants who are employees of such entity shall be entitled to distributions
from this Plan in accordance with Article IX and this Article XIII.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue permanently its
contributions hereunder, the right of each affected Participant and Former
Participant in his Account balance shall be fully vested and nonforfeitable. The
Sponsor, in its discretion, shall decide whether to direct the Trustee to make
immediate distribution of such portion of the Fund assets to the persons
entitled thereto or to make distribution in the circumstances and contingencies
which would have controlled such distributions if there had been no partial
termination or permanent discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to the extent that a return of the Employer's contribution
is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person, shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Facility of Payment.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minors
Act, or corresponding legislation (who shall be an adult, a guardian of the
minor or a trust company), and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, including in the case of
certain judgments and settlements described in subparagraph (C) of Section
401(a)(13) of the Code, no benefits or other amounts payable under the Plan
shall be subject in any manner to anticipation, sale, transfer, assignment,
pledge, encumbrance, charge or alienation. If the Administrator determines that
any person entitled to any payments under the Plan has become insolvent or
bankrupt or has attempted to anticipate, sell, transfer, assign, pledge,
encumber, charge or otherwise in any manner alienate any benefit or other amount
payable to him under the Plan or that there is any danger of any levy or
attachment or other court process or encumbrance on the part of any creditor of
such person entitled to payments under the Plan against any benefit or other
accounts payable to such person, the Administrator may, at any time, in its
discretion, and in accordance
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with applicable law, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and
the Employer shall be under no legal liability to make any such contributions,
except as otherwise provided herein. The benefits of this Plan shall be provided
solely by the assets of the Fund, and no liability for the payment of benefits
under the Plan or for any loss of assets due to any action or inaction of the
Trustee shall be imposed upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and papers
which are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort
to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period of
5 years from the date such benefit shall be due, any such persons entitled to
benefits have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Trustee shall send a
certified letter to all such persons at their last known address advising them
that their interest in benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Trustee for a period of 3 additional
years (or a total of 8 years from the time the benefits first became payable),
and thereafter such amounts shall be reallocated among current Participants in
the same manner that a current contribution would be allocated. However, if a
person subsequently makes a valid claim with respect to such reallocated amounts
and any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Washington, and all
questions pertaining to its validity, construction and administration shall be
determined in accordance with the laws of that State, except to the extent
superseded by the Act.
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14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who
may be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder, or with
respect to any action or proceeding or any question of law, and they shall be
fully protected to the extent allowable by law with respect to any action taken
or omitted by them in good faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be affixed on
this _____ day of _______, 1999.
EVERTRUST FINANCIAL GROUP, INC.
ATTEST:
By _________________________________
Michael B. Hansen
President and Chief Executive Officer
______________________________
Lori Christenson, Secretary
[Corporate Seal]
62
Exhibit 10.4
Proposed Form of Everett Mutual Bank Employee Severance Compensation Plan
<PAGE>
EVERETT MUTUAL BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of Everett Mutual Bank Employee Severance Compensation Plan
(the "Plan") is to assure for Everett Mutual Bank (the "Bank") the services of
the Employees in the event of a Change in Control of EverTrust Financial Group,
Inc. (the "Holding Company") or the Bank. The benefits contemplated by the Plan
recognize the value to the Bank of the services and contributions of the
eligible Employees and the effect upon the Bank resulting from uncertainties
relating to continued employment, reduced employee benefits, management changes
and employee relations that may arise if a Change in Control occurs or is
threatened. The Bank's and the Holding Company's Boards of Directors believe
that it is in the best interests of the Bank and the Holding Company to provide
eligible Employees with such benefits in order to defray the costs and changes
in employee status that could follow a Change in Control. The Boards of
Directors believe that the Plan will also aid the Bank in attracting and
retaining highly qualified individuals who are essential to its success and that
the Plan's assurance of fair treatment of the Bank's employees will reduce the
distractions and other adverse effects on Employees' performance if a Change in
Control occurs or is threatened.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date, the Bank hereby establishes a severance
compensation plan to be known as the "Everett Mutual Bank Employee Severance
Compensation Plan." The purposes of the Plan are as set forth above.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all Employees,
who, at or after the Effective Date, meet the eligibility requirements of
Article III. The Plan shall not apply to any Employee whose employment was
terminated prior to the Effective Date.
1.3 Contractual Right to Benefits
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer.
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ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all
wages, salary, bonus, and incentive compensation (other than stock based
compensation), paid (including accrued amounts) by an Employer as
consideration for the Participant's services during the 12 months ended the
date as of which Annual Compensation is to be determined, which are or
would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Bank" means Everett Mutual Bank or any successor as provided for
in Article VII hereof.
(c) "Change in Control" means (1) an offeror other than the Company
purchases shares of stock of the Company or the Bank pursuant to a tender
or exchange offer for such shares (2) an event of a nature that results in
the acquisition of control of the Company or the Bank within the meaning of
the Bank Holding Company Act of 1956, as amended, under 12 U.S.C. Section
1841 (or any successor statute or regulation) or requires the filing of a
notice with the Federal Deposit Insurance Corporation under 12 U.S.C.
Section 1817(j) (or any successor statute or regulation); (2) an event that
would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(3) any person (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly of securities of the Company
or the Bank representing 25% or more of the combined voting power of the
Company's or the Bank's outstanding securities; (4) individuals who are
members of the board of directors of the Company immediately following the
Effective Date or who are members of the board of directors of the Bank
immediately following the Effective Date (in each case, the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequently whose election
was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board, or whose nomination for election by the
Company's or the Bank's stockholders was approved by the nominating
committee serving under an Incumbent Board, shall be considered a member of
the Incumbent Board; or (5) consummation of a plan of reorganization,
merger, consolidation, sale of all or substantially all of the assets of
the Company or a similar transaction in which the Company is not the
resulting entity, or a transaction at the completion of which the former
stockholders of the acquired corporation become the holders of more than
40% of the outstanding common stock of the Company and the Company is the
resulting entity of such transaction; provided that the term "Change
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in Control" shall not include an acquisition of securities by an employee
benefit plan of the Bank or the Company.
(d) "Continuous Employment" means the absence of any interruption or
termination of service as an Employee of the Bank or an affiliate. Service
shall not be considered interrupted in the case of sick leave, military
leave or any other leave of absence approved by the Bank or in the case of
transfers between payroll locations of the Bank or between the Bank, its
Parent, its Subsidiary or its successor.
(e) "Effective Date," as to Employees of an Employer, means the date
the Plan is approved by the Board of Directors of the Bank, or such other
date as the Board shall designate in its resolution approving the Plan.
(f) "Employee" means an officer employed by the Employer on a
full-time basis, excluding any executive officer of the Employer who is
covered by an employment contract or a change in control severance
agreement with the Employer.
(g) "Employer" means the Bank or a Subsidiary or a Parent which has
adopted the Plan pursuant to Article VI hereof.
(h) "Expiration Date" means the date fifteen (15) years from the
Effective Date unless earlier terminated pursuant to Section 8.2 or
extended pursuant to Section 8.1.
(i) "Holding Company" means EverTrust Financial Group, Inc., the
Parent of the Bank.
(j) "Just Cause," with respect to termination of employment, means an
act or acts of personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final
cease-and-desist order. In determining incompetence, acts or omissions
shall be measured against standards generally prevailing in the savings
institution industry.
(k) "Parent" means any corporation which holds a majority of the
voting power of the outstanding shares of the Bank's common stock.
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(m) "Payment" means the payment of severance compensation as provided
in Article IV hereof.
(n) "Plan" means the Everett Mutual Bank Employee Severance
Compensation Plan.
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(o) "Subsidiary" means any corporation in which the Bank, directly or
indirectly, holds a majority of the voting power of its outstanding shares
of capital stock.
2.2 Applicable Law
To the extent not preempted by the laws of the United States as now or
hereafter in effect, the laws of the State of Washington shall be the
controlling law in all matters relating to the Plan.
The Plan neither requires nor establishes an ongoing administrative system
for its effect or operation. Payments under the Plan are precipitated by a
single event, a Change in Control, which event is the sole focus of the Plan.
Consequently, it is intended that the Plan shall not be covered by or be subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
Each Employee who has completed at least one year of Continuous Employment
as of the Effective Date and who is selected as a Participant by the Board of
Directors of the Bank shall become a Participant on the Effective Date.
Thereafter, each Employee shall become a Participant on the later of the day on
which (a) he or she completes one year of Continuous Employment or (b) is
selected as a Participant by the Board of Directors of the Bank. Notwithstanding
the foregoing, persons who are not officers of the Employer and persons who have
entered into and continue to be covered by an employment or change in control
severance agreement with the Employer shall not be entitled to participate in
the Plan.
3.2 Duration of Participation
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer or is otherwise determined
by the Board of Directors of the Bank no longer to be a Participant in the Plan,
unless such Participant is entitled to a Payment as provided in the Plan.
Furthermore, an Employee shall cease to be a Participant upon ceasing to be an
officer of the Employer or upon entering into an employment or change in control
severance agreement with
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the Employer. A Participant entitled to receipt of a Payment shall remain a
Participant in this Plan until the full amount of such Payment has been paid to
the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from his respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, total and permanent disability, or
for Just Cause.
4.2 Reasons for Termination
Following a Change in Control, a Participant shall be entitled to a Payment
if his employment with an Employer is terminated, voluntarily or involuntarily,
within one year following such Change in Control, for any one or more of the
following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control, or as
the same may have been increased thereafter.
(b) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at
a location more than fifteen miles from the location of the Participant's
job or office immediately prior to the Change in Control, provided that
such new location is not closer to Participant's home.
(c) The Employer materially reduces the benefits and perquisites,
taken as a whole, available to the Participant immediately prior to the
Change in Control; provided, however, that a material reduction on a
nondiscriminatory basis in the benefits and perquisites generally provided
to all employees of the Bank that does not reduce a Participant's Annual
Compensation shall not trigger a Payment.
(d) A successor bank or company fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(e) The Bank or any successor company breaches any other provisions of
the Plan.
5
<PAGE>
(f) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
Each Participant entitled to a Payment under the Plan shall receive from
the Bank a lump sum cash payment, in an amount determined as follows:
(a) The Participant's cash payment shall equal the product of 3.846%
of his or her Annual Compensation paid or accrued during each of his or her
years of Continuous Employment prior to the Change in Control times the
number of full or substantially completed (nine months or more) years of
Continuous Employment with the Employer, provided that no Participant shall
receive a cash payment hereunder in an aggregate amount of more than one
hundred percent (100%) of his or her Annual Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a "disqualified individual" shall be in an amount which
includes an "excess parachute payment," the payment hereunder to that
Participant shall be reduced to the maximum amount which does not include
an "excess parachute payment." The terms "disqualified individual" and
"excess parachute payment" shall have the same meaning as defined in
Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor section of similar import.
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment with an Employer.
4.4 Time of Payment
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty-five (25) business days after the termination of the
Participant's employment. If any Participant should die after termination of
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's surviving spouse, or if none, to the Participant's
named beneficiary, if living, otherwise to the personal representative on behalf
of or for the benefit of the Participant's estate.
6
<PAGE>
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of the Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent.
ARTICLE VII
SUCCESSOR TO THE BANK
The Bank shall require any successor to or assignee of, whether direct or
indirect, by purchase, merger, consolidation or otherwise, all or substantially
all the business or assets of the Bank, expressly and unconditionally to assume
and agree to perform the Bank's obligations under the Plan.
7
<PAGE>
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change in Control has not occurred, the Plan shall expire fifteen (15)
years from the Effective Date, unless sooner terminated as provided in Section
8.2, or unless extended for an additional period or periods by resolution
adopted by the Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs, the Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless (i) a Change in
Control has previously occurred, (ii) the Bank shall have in the previous year
received an offer, which was not subsequently withdrawn, from a third party to
engage in a transaction which would involve a Change in Control or (iii) a third
party shall have disclosed in a filing with the Securities and Exchange
Commission ("SEC") its intent to engage in a transaction which would result in a
Change in Control and has not subsequently indicated in another SEC filing that
it no longer had such intention. For so long as any of the events listed in
paragraphs (i), (ii) and (iii) persist, the Plan shall not be subject to
amendment, change, substitution, deletion, revocation or termination in any
respect whatsoever unless any acquiror of the Bank shall agree in writing to
provide benefits to covered employees which are at least as substantial as those
set forth herein if such employees are terminated without cause within one year
of a Change in Control of the Bank.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by the duly authorized officer or officers of the
Bank, certifying that the amendment or termination has been approved by the
Board of Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to all Participant's rights hereunder, regardless of
whether the Participants receive notice of such action. A proper termination of
the Plan automatically shall effect a termination of all Participants' rights
and benefits hereunder, regardless of whether the Participants receive notice of
such action.
8
<PAGE>
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 Subject to the notice provision in section 9.2 hereof, the Bank shall
pay all legal fees, costs of litigation, and other expenses incurred by each
Participant as a result of the Bank's refusal to make the Payment to which the
Participant becomes entitled under this Plan, or as a result of the Bank's
unsuccessfully contesting the validity, enforceability or interpretation of the
Plan.
9.2 A Participant must provide the Bank with 10 (ten) business days notice
of a complaint of entitlement under the Plan before the Bank shall be liable for
the payment of any legal fees, costs of litigation or other expenses referred to
in section 9.1 hereof.
ARTICLE X
ARBITRATION
Any dispute or controversy arising under or in connection with the Plan
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Participant within fifty (50)
miles from the location of the Bank, in accordance with rules of the American
Arbitration Association then in effect. Judgment may be entered on the award of
the arbitrator in any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of the counsel for the Participant,
shall be borne by the Bank.
9
<PAGE>
Having been adopted by its Board of Directors on ___________________, 1999,
the Plan is executed by its duly authorized officers as of the ________ day of
________________, 1999.
Attest Everett Mutual Bank
______________________________ By _____________________________________
Lorelei Christenson Michael B. Hansen
Secretary President and Chief Executive Officer
Having been adopted by its Board of Directors on ___________________, 1999,
the Plan is executed by its duly authorized officers this __________ day of
__________________, 1999.
Attest EverTrust Financial Group, Inc.
______________________________ ________________________________________
Lorelei Christenson Michael B. Hansen
Secretary President and Chief Executive Officer
10
Exhibit 21
Subsidiaries of EverTrust Financial Group, Inc.
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Parent
EverTrust Financial Group, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
Everett Mutual Bank 100% Washington
Commercial Bank of Everett 100% Washington
I-Pro, Inc. 100% Washington
Mutual Bancshares Capital, Inc. 100% Washington
Sound Financial, Inc. (1) 100% Washington
- ----------
(1) This corporation is a wholly owned subsidiary of Everett Mutual Bank.
Exhibit 23.1
Consent of Deloitte & Touche LLP
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
- --------------------------------------------------------------------------------
We consent to the use in this Registration Statement of Mutual Bancshares on
Form S-1 of our report dated June 18, 1999, appearing in the Prospectus, which
is part of this Registration Statement, and of our report dated May 14, 1999,
relating to the financial statement schedules appearing elsewhere in this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
June 18, 1999
Exhibit 23.5
Consent of RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- -------------------------------------------
Financial Services Industry Consultants
June 17, 1999
Board of Trustees
Mutual Bancshares, Inc.
2707 Colby Avenue, Suite 600
Everett, WA 98201
Members of the Board of Trustees:
We hereby consent to the use of our firm's name in the Application for
Conversion of Mutual Bancshares, Inc., and any amendments thereto, and in the
Form S-1 Registration Statement, and any amendments thereto, for Mutual
Bancshares, Inc. We also hereby consent to the inclusion of, summary of and
references to our Appraisal Report and our letter concerning subscription rights
in such filings including the Prospectus of EverTrust Financial Group, Inc.
Sincerely,
/s/ RP FINANCIAL, LC
-----------------------------
RP FINANCIAL, LC.
Exhibit 99.2
Solicitation and Marketing Materials
<PAGE>
August xx, 1999
Dear Member:
We are pleased to announce that Mutual Bancshares, a mutual holding company
that was created in connection with Everett Mutual Bank's reorganization from a
mutual savings bank to the mutual holding company form of organization in 1993,
is now undertaking a mutual to stock conversion to a stock holding company, to
be known as EverTrust Financial Group, Inc. In connection with the conversion,
EverTrust Financial Group, Inc. is offering shares of its common stock in a
subscription offering pursuant to a Plan of Conversion.
To accomplish the conversion, we need your participation in an important
vote. Enclosed is a proxy statement describing the Plan of Conversion and your
voting and subscription rights. The Plan has been approved by the Federal
Deposit Insurance Corporation and now must be approved by you. YOUR VOTE IS VERY
IMPORTANT.
Enclosed, as part of the material, is your proxy card which is located
behind the window of your mailing envelope. This proxy card needs to be signed
and returned to us prior to the Special Meeting to be held on September xx,
1999. Please take a moment to sign all of the enclosed proxy cards and return
them to us in the blue postage-paid envelope provided. FAILURE TO VOTE HAS THE
SAME EFFECT AS VOTING AGAINST THE PLAN.
The Board of Directors believes the conversion will offer a number of
advantages such as an opportunity for depositors and certain borrowers of
Everett Mutual Bank and Commercial Bank of Everett to become shareholders.
Please remember:
o Your accounts at Everett Mutual Bank and Commercial Bank of Everett
will continue to be insured up to the maximum legal limit by the
Federal Deposit Insurance Corporation ("FDIC").
o There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the conversion.
o Members have a right, but no obligation, to buy EverTrust Financial
Group, Inc. common stock and may do so without a commission or fee
before it is offered to the general public.
o Like all stock, shares of EverTrust Financial Group, Inc. common stock
issued in this offering will not be insured by the FDIC.
Enclosed is a prospectus containing a complete discussion of the stock
offering. We urge you to read this material carefully. If you are interested in
purchasing EverTrust Financial Group, Inc. common stock, your enclosed Stock
Order and Certification Form and payment for the shares must be received by
Everett Mutual Bank prior to 12:00 Noon, Pacific Time, on September xx, 1999.
If you have additional questions regarding the stock offering, please call
us toll free at (888) xxx-xxxx, Monday through Friday from x:00 a.m. to x:00
p.m., Pacific Time, or stop by the Stock Information Center located on the 7th
Floor at 2707 Colby Avenue in Everett.
Sincerely,
Michael B. Hansen
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
August xx, 1999
Dear Friend:
We are pleased to announce that Mutual Bancshares, a mutual holding company
that was created in connection with Everett Mutual Bank's reorganization from a
mutual savings bank to the mutual holding company form of organization in 1993,
is now undertaking a mutual to stock conversion to a stock holding company, to
be known as EverTrust Financial Group, Inc. In connection with the conversion,
EverTrust Financial Group, Inc. is offering shares of its common stock in a
subscription offering pursuant to a Plan of Conversion.
Because of your subscription rights as a former member of Everett Mutual
Bank, we are sending you the following materials which describe the stock
offering.
PROSPECTUS: This document provides detailed information about Mutual
Bancshares' operations and the proposed stock offering.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase EverTrust
Financial Group, Inc.'s common stock by returning it with your payment in
the enclosed business reply envelope. The deadline for ordering common
stock is 12:00 Noon, PacificTime, on September xx, 1999.
As a former depositor of Everett Mutual Bank, you have the opportunity to
buy stock directly from EverTrust Financial Group, Inc. in the conversion
without commission or fee. If you have additional questions regarding the stock
offering, please call us toll free at (888) xxx-xxxx, Monday through Friday from
x:00 a.m. to x:00 p.m., Pacific Time, or stop by the Stock Information Center
located on the 7th Floor at 2707 Colby Avenue in Everett.
Sincerely,
Michael B. Hansen
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
[LOGO] Charles Webb & Company [LOGO]
A Division of
KEEFE, BRUYETTE & WOODS, INC.
To Members and Friends of
Everett Mutual Bank and Commercial Bank of Everett
- --------------------------------------------------------------------------------
Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc., a member of
the National Association of Securities Dealers, Inc. ("NASD"), is assisting
Mutual Bancshares, a mutual holding company that was created in connection with
Everett Mutual Bank's reorganization from a mutual savings bank to the mutual
holding company form of organization in 1993, is now undertaking a mutual to
stock conversion to a stock holding company, to be known as EverTrust Financial
Group, Inc. In connection with the conversion, EverTrust Financial Group, Inc.
is offering shares of its common stock in a subscription offering pursuant to a
Plan of Conversion.
At the request of Everett Mutual Bank and Commercial Bank of Everett, we are
enclosing materials explaining this process and your options, including an
opportunity to invest in shares of EverTrust Financial Group, Inc. common stock,
which is being offered to customers through 12:00 Noon, Pacific Time, on
September xx, 1999. Please read carefully the enclosed offering materials,
including the Prospectus, for a complete discussion of the stock offering.
EverTrust Financial Group, Inc. has asked us to forward these documents to you
in accordance with certain requirements of the securities laws in your state.
Should you have any questions, please call us toll free at (888) xxx-xxxx,
Monday through Friday from x:00 am to x:00 pm, Pacific Time, or stop by the
Stock Information Center located on the 7th Floor at 2707 Colby Avenue in
Everett.
Very truly yours,
Charles Webb & Company
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
- ------------------ Investment Bankers and Financial Advisors -------------------
<PAGE>
June 17, 1999
Dear Prospective Investor:
We are pleased to announce that Mutual Bancshares, a mutual holding company
that was created in connection with Everett Mutual Bank's reorganization from a
mutual savings bank to the mutual holding company form of organization in 1993,
is now undertaking a mutual to stock conversion to a stock holding company, to
be known as EverTrust Financial Group, Inc. In connection with the conversion,
EverTrust Financial Group, Inc. is offering shares of its common stock in a
subscription offering pursuant to a Plan of Conversion.
We have enclosed the following materials that will help you learn more
about the merits of Alaska Pacific common stock as an investment. Please read
and review the materials carefully.
PROSPECTUS: This document provides detailed information about Mutual
Bancshares' operations and a complete discussion on the proposed stock
offering.
STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase EverTrust
Financial Group, Inc.'s common stock by returning it with your payment in
the enclosed business reply envelope. The deadline for ordering common
stock is 12:00 Noon, Pacific Time, on September xx, 1999.
We invite you and other local community members to become charter
shareholders of EverTrust Financial Group, Inc. Through this offering you have
the opportunity to buy stock directly from EverTrust Financial Group, Inc.
without a commission or a fee. The Board of Directors and Senior Management of
Mutual Bancshares fully support the stock offering.
If you have additional questions regarding the stock offering, please call
us toll free at (888) xxx-xxxx, Monday through Friday from x:00 a.m. to x:00
p.m., Pacific Time, or stop by the Stock Information Center located on the 7th
Floor at 2707 Colby Avenue in Everett.
Sincerely,
Michael B. Hansen
President and Chief Executive Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
================================================================================
PROXYGRAM
PLEASE VOTE TODAY
We recently sent you a proxy statement and related materials regarding a
proposal to convert Mutual Bancshares, to be known as EverTrust Financial Group,
Inc., from a mutual holding company into a stock holding company and the
simultaneous reorganization of Everett Mutual Bank from a mutual savings bank to
a stock savings bank.
Your vote on our Plan of Conversion has not yet been received.
- --------------------------------------------------------------
Failure to Vote has the Same Effect as Voting Against the Conversion.
The Board of Directors unanimously recommends you vote "FOR" the Conversion.
Voting for the Conversion does not obligate you to purchase stock and will not
effect your accounts or Federal Deposit Insurance Coverage.
Your vote is important to us!
Please sign the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope.
Thank you,
Michael B. Hansen
President and Chief Executive Officer
Everett Mutual Bank
Everett, Washington
- -----------------------------------------------------------------------------
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call toll free (888) xxx-xxxx.
================================================================================
<PAGE>
================================================================================
EverTrust
Financial Stock Ownership Guide and Stock Order Form Instructions
Group, Inc.
================================================================================
Stock Order Form Instructions - All subscription orders are subject to the
provisions of the Plan of Conversion.
- --------------------------------------------------------------------------------
Item 1 and 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum
purchase is 25 shares. Generally, the maximum purchase for any person is 25,000
shares. No person, together with associates, as defined in the Prospectus, and
no person acting in concert may purchase more than 50,000 shares. For additional
information, see "Mutual Bancshares' Conversion - Limitations on Purchases of
Shares" in the Prospectus.
Item 3 - Payment for shares may be made in cash (only if delivered by you in
person, although we request you to exchange the cash for a check with any of the
tellers at Everett Mutual Bank, by check, bank draft or money order payable to
EVERTRUST FINANCIAL GROUP, INC. DO NOT MAIL CASH. Your funds will earn interest
at the applicable account rate until the Conversion is completed.
Item 4 - To pay by withdrawal from a savings account or certificate at Everett
Mutual Bank or Commercial Bank of Everett, insert the account number(s) and the
amount(s) you wish to withdraw from each account. If more than one signature is
required for a withdrawal, all signatories must sign in the signature box on the
front of this form. To withdraw from an account with checking privileges, please
write a check. Everett Mutual Bank and Commercial Bank of Everett will waive any
applicable penalties for early withdrawal from certificate accounts. A hold will
be placed on the account(s) for the amount(s) you indicate to be withdrawn.
Payments will remain in account(s) until the stock offering closes.
Item 5 - Please check the appropriate box to tell us the earliest of the three
dates that applies to you.
Item 6 - Please check this box if you are a director, officer or employee of
Everett Mutual Bank or Commercial Bank of Everett, or a member of such person's
household.
Item 7 - Please check this box if you have a National Association of Securities
Dealers, Inc. ("NASD") affiliation (as defined on the reverse side of the Stock
Order and Certification Form.)
Item 8 - Please review the preprinted qualifying account information. The
accounts listed may not be all of your qualifying accounts or even your accounts
as of the earliest of the three dates if you have changed their ownership. You
should list any other qualifying accounts that you may have or had with Everett
Mutual Bank or Commercial Bank of Everett in the blue box located under the
heading "Additional Qualifying Accounts". These may appear on other stock order
forms you have received. For example, if you are ordering stock in just your
name, you should list all of your accounts as of the earliest of the three dates
that you were a depositor. This may include accounts on which you were a joint
owner, your own regular individual accounts or your IRA accounts. Similarly, if
you are ordering stock jointly with another depositor, you should list all
accounts on which either of you are owners, i.e. individual accounts, joint
accounts, etc. If you are ordering stock in your minor child's or grandchild's
name under the Uniform Transfer to Minors Act ownership, the minor must have had
an account on one of the three dates and you should list only their accounts. If
you are ordering stock corporately, you need to list just that corporation's
accounts, as your individual accounts do not qualify. Failure to list all of
your qualifying accounts may result in the loss of part or all of your
subscription rights.
Item 9 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of EverTrust
Financial Group Inc.'s common stock. Please complete this section as fully and
accurately as possible, and be certain to supply your social security or Tax
I.D. number(s) and your daytime and evening phone numbers. We will need to call
you if we cannot execute your order as given. If you have any questions
regarding the registration of your stock, please consult your legal advisor.
Subscription rights are not transferable. If you are an eligible or supplemental
eligible account holder or other member, to protect your priority over other
purchasers as described in the Prospectus, you must take ownership in at least
one of the account holder's names.
(See Reverse Side for Stock Ownership Guide)
<PAGE>
================================================================================
EverTrust
Financial Stock Ownership Guide and Stock Order Form Instructions
Group, Inc.
================================================================================
Stock Ownership Guide
- --------------------------------------------------------------------------------
Individual - The stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
Joint Tenants - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common - Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
Uniform Gift to Minors Act - For residents of Washington and 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.
Instructions: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line followed by the notation UGMA-WA or UTMA-Other State. List only the minor's
social security number.
Corporation/Partnership - Corporations/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
Individual Retirement Account - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a prearranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Please contact the Stock Information Center if you have any questions about your
IRA account and please do not delay in exploring this option.
Registration for IRA's: On Name Line 1 - list the name of the broker or trust
department followed by CUST or TRUSTEE.
On Name Line 2 - FBO (for benefit of) YOUR NAME IRA
a/c #_____________.
Address will be that of the broker/trust department to
where the stock certificate will be sent.
The Social Security/Tax I.D. number(s) will be either
yours or your trustees, as they direct.
Please list your phone numbers.
Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following the
name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker, donor
or testator or the name of the beneficiary. Following the name, indicate the
type of legal document establishing the fiduciary relationship (agreement, court
order, etc.). In the blank after "Under Agreement Dated," fill in the date of
the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
(See Reverse Side for Stock Order Form Instructions)
<PAGE>
_____________, 1999
altname1
altname2
altaddr1
altaddr2
altcity, altstate altzip
RECEIPT OF ORDER
This letter is to acknowledge receipt of your order form to purchase common
stock offered by EverTrust Financial Group, Inc. Please check the following
information carefully to ensure that we have entered your order correctly. Each
order is assigned a prioritized category described below. Acceptance of your
order and the shares of stock you actually receive will be subject to the
allocation provisions of the Plan of Conversion, as well as other conditions and
limitations described in the Prospectus.
- --------------------------------------------------------------------------------
Our records indicate the following: Stock Registration (please review
carefully)
Order Number: ordernum altname1
Batch Number: batchnum altname2
Number of Shares Ordered: shares altaddr1
Purchase Price Per Share: $10.00 altaddr2
Total Order Amount: sharesvorigin altcity, altstate altzip
Date Order Processed: purchdat Ownership: OWNERSHIP CODE
Category: CATEGORY Social Security / Tax ID # taxid
- --------------------------------------------------------------------------------
Category Description:
1. Depositors of Everett Mutual Bank with at least $50 on deposit on December
31, 1997.
2. Employee Stock Ownership Plan (ESOP).
3. Depositors of Everett Mutual Bank with a least $50 on deposit on June 30,
1999.
4. Depositors and borrowers of Everett Mutual Bank on XXX xx, 1999.
5. Depositors of Commercial Bank of Everett with at least $50 on deposit on
December 31, 1997.
6. All other people.
If this does not agree with your records, or if you have any questions, please
call our Stock Information Center at (877) ___-____.
Sincerely,
Michael B. Hansen
President and Chief Executive Officer
<PAGE>
EVERETT MUTUAL BANK REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EVERETT MUTTUAL
BANK FOR USE ONLY AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON SEPTEMBER XX,
1999 AND ANY ADJOURNMENT THEREOF.
The undersigned being a member of Everett Mutual Bank, hereby authorizes the
Board of Directors of Everett Mutual Bank 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 Everett Mutual Bank to be held
at Everett Mutual Bank's main office at 2707 Colby Avenue, Everett, Washington
on, September xx, 1999, at x:00 p.m., Pacific Time, and at any adjournment of
said meeting, to act with respect to all votes that the undersigned would be
entitled to cast, if then personally present, as set forth below:
(1) To approve a Plan of Conversion adopted by the Board of Directors,
providing for the conversion of Mutual Bancshares from a mutual holding company
to a stock holding company to be known as "EverTrust Financial Group, Inc."
FOR [ ] AGAINST [ ]
(2) To vote, in its discretion, upon such other business as may properly
come before the Special Meeting or any adjournment thereof. Management is not
aware of any other such business that may come before the Special Meeting.
FOR [ ] AGAINST [ ]
This proxy, if executed, will be voted "FOR" adoption of the Plan and for
adjournment of the Special Meeting, if necessary, if no choice is made herein.
Please date and sign this proxy on the reverse side and return it in the
enclosed envelope.
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EVERETT MUTUAL BANK REVOCABLE PROXY
Any member giving a proxy may revoke it at any time before it is voted by
delivering to the Secretary of Everett Mutual Bank either a written revocation
of the proxy, or a duly executed proxy bearing a later date, or by voting in
person at the Special Meeting.
The undersigned hereby acknowledges receipt of a Notice of Special Meeting of
Members of Everett Mutual Bank and Commercial Bank of Everett to be held on the
xx day of September, 1999 and a proxy statement for the Special Meeting prior to
the signing of this proxy.
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Signature Date
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Signature Date
NOTE: Please sign exactly as your
name appears on this Proxy. Only one
signature is required in the case of
a joint account. When signing in a
representative capacity, please give
title.
IMPORTANT: Please Detach, Sign and Return "ALL" proxies from
"ALL" packets received in the enclosed blue envelope.
FAILURE TO VOTE IS EFFECTIVELY THE SAME AS A "NO" VOTE.
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<PAGE>
EverTrust Financial Group, Inc.
2707 Colby Avenue
Everett, Washington 98201
(888) ___-____
STOCK ORDER FORM
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Deadline: The Subscription Offering ends at 12:00 Noon, Pacific Time, on
September __, 1999. Your original Stock Order and Certification Form, properly
executed and with the correct payment, must be received (not postmarked) at the
address on the top of this form, or at any Everett Mutual Bank branch office, by
the deadline, or it will be considered void. Faxes or copies of this form will
not be accepted.
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(1) Number of Shares Price Per Share (2) Total Amount Due
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X $10.00 =
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Minimum = 25 shares Maximum = Generally 25,000 shares, however, see the Stock
Order Form Instructions (blue sheet) and the Prospectus.
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Method of Payment
(3) [ ] Enclosed is a check, bank draft or money order payable to EverTrust
Financial Group, Inc. for $___________.
(4) [ ] I authorize EverTrust Financial Group, Inc. to make withdrawals from my
Everett Mutual certificate or savings account(s) shown below, and
understand that the amounts will not otherwise be available for
withdrawal:
Account Number(s) Amount(s)
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Total Withdrawal
There is NO penalty for early withdrrawal. ---------
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(5) Purchaser Information (check one)
(a) [ ] Eligible Account Holder -- Check here if you were a depositor with
$50.00 or more on deposit with Everett Mutual Bank as of December 31,
1997. Enter information in section 8 for all deposit accounts that you
had at Everett Mutual Bank on December 31, 1997.
(b) [ ] Supplemental Eligible Account Holder -- Check here if you were a
depositor with $50.00 or more on deposit with Everett Mutual Bank as of
June 30, 1999 but are not an Eligible Account Holder. Enter information
in section 8 for all deposit accounts that you had at Everett Mutual
Bank on June 30, 1999.
(c) [ ] Other Member --Check here if you were a depositor or borrower of Everett
Mutual Bank as of _____ __, 1999 but are not an Eligible Account Holder
or a Supplemental Eligible Account Holder. Enter information in section
8 for all accounts that you had at Everett Mutual on _____ __, 1999.
(d) [ ] Commercial Bank of Everett Depositor--Check here if you were a depositor
with $50.00 or more on deposit at Commercial Bank of Everett as of
December 31, 1997 and a, b, and c do not apply. Enter information in
section 8 for all deposit accounts that you had at Commercial Bank of
Everett on December 31, 1997.
(e) [ ] All Other People -- Check here if none of the above apply to you.
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(6) [ ] Check here if you are a director, officer or employee of Everett Mutual
Bank or a member of such person's immediate family (same household).
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(7) [ ] NASD Affiliation -- see description on reverse side of this form.
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<PAGE>
(8) Please review the preprinted account information listed below. The accounts
printed below may not be all of your qualifying accounts or even your
accounts as of the earliest of the three dates if you have changed names on
the accounts. You should list any other accounts that you may have or had
with Everett Mutual Bank or Commercial Bank of Everett in the box below. SEE
THE STOCK ORDER FORM INSTRUCTIONS SHEET FOR FURTHER INFORMATION (blue
sheet). All subscription orders are subject to the provisions of the Plan of
Conversion.
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Additional Qualifying Accounts
Account Title (Names on Accounts) Account Number
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Please Note: Failure to list all of you accounts may result in the
loss of part or all of your subscription rights. (additional space
on back of form)
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(9) Stock Registration -- Please Print Legibly and Fill Out Completely
(Note: The stock certificate and all correspondence related to this stock
order will be mailed to the address provided below)
[ ] Individual [ ] Corporation
[ ] Joint Tenants [ ] Partnership
[ ] Tenants in Common [ ] Individual Retirement Account
[ ] Uniform Transfer to Minors Act [ ] Fiduciary/Trust (Under
[ ] Uniform Gift to Minors Act Agreement Dated______________)
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Name Social Security or Tax I.D.
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Name Social Security or Tax I.D.
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Mailing Daytime
Address Telephone
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Zip Evening
City State Code County Telephone
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Acknowledgment By signing below, I acknowledge receipt of the Prospectus dated
____________, 1999 and understand I may not change or revoke my order once it is
received by EverTrust Financial Group, Inc. I also certify that this stock order
is for my account and there is no agreement or understanding regarding any
further sale or transfer of these shares. Applicable regulations prohibit any
persons from transferring, or entering into any agreement directly or indirectly
to transfer, the legal or beneficial ownership of subscription rights or the
underlying securities to the account of another person. EverTrust Financial
Group, Inc. will pursue any and all legal and equitable remedies in the event it
becomes aware of the transfer of subscription rights and will not honor orders
known by it to involve such transfer. Under penalties of perjury, I further
certify that: (1) the social security number or taxpayer identification number
given above is correct; and (2) I am not subject to backup withholding. You must
cross out this item, (2) above, if you have been notified by the Internal
Revenue Service that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. By signing below, I
also acknowledge that I have not waived any rights under the Securities Act of
1933 and the Securities Exchange Act of 1934, both as amended.
Signature: THIS FORM MUST BE SIGNED AND DATED BELOW AND ON THE BACK OF THIS
FORM. This order is not valid if the Stock Order Form and Certification Form are
not both signed and properly completed. Your order will be filled in accordance
with the provisions of the Plan of Conversion as described in the Prospectus. An
additional signature is required only if payment is by withdrawal from an
account that requires more than one signature to withdraw funds.
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Signature Date
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Signature Date
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Office Use Only Check # _______________ _______________
Date Rec'd ___/___/___ Ck. Amt _______________ _______________
Batch # ______________ Order # ___________ Category ___________
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<PAGE>
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Item (7) continued -- NASD Affiliation (this section only applies to those
individuals who meet the delineated criteria)
Check the box if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
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Item (8) continued; Purchaser Information
Account Title (Names on Accounts) Account Number
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<PAGE>
CERTIFICATION FORM
(This Certification Form Must Be Signed In Addition to the Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
EVERTRUST FINANCIAL GROUP, INC. ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT
FEDERALLY INSURED OR GUARANTEED BY EVERETT MUTUAL BANK, COMMERCIAL BANK OF
EVERETT 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 Federal
Deposit Insurance Corporation West Regional Director, ______________________, at
(___) ___-____.
I further certify that, before purchasing the shares of Common Stock of
EverTrust Financial Group, Inc. I received a copy of the Prospectus dated
_____________, 1999 which discloses the nature of the Common Stock being offered
and describes the following risks involved in an investment in the Common Stock
under the heading "Risk Factors" beginning on page 1 of the Prospectus:
1. Everett Mutual Bank's and Commerical Bank of Everett's Non-residential
Lending Increases Lending Risk Because of Higher Risk that the Loans Will
Not Be Repaid.
2. Implementation of Benefit Plans Will Increase Future Compensation Expense
and May Lower EverTrust Financial Group, Inc.'s Net Income.
3. Issuance of Shares for Benefit Programs May Lower Your Ownership Interest.
4. Loss of Key Personnel May Hurt Mutual Bancshares' and its Subsidiaries'
Operations.
5. Possible Voting Control by Management and Employees May Make Takeover
Attempts More Difficult to Achieve.
6. Provisions in EverTrust Financial Group, Inc.'s Articles of Incorporation
and Statutory Provisions that Could Discourage Takeover Attempts by Other
Parties.
7. Employment Agreement and Severance Plan Could Make Takeover Attempts More
Difficult to Achieve.
8. Absence of Prior Market for Common Stock.
9. Your Subscriptions Could be Held for an Extended Time Period If Completion
of the Conversion Is Delayed.
10. Rising Interest Rates Could Hurt Everett Mutual Bank's Profits.
11. Return on Equity Will Be Below Average Conversion Because of High Capital
Levels and Operating Losses of Subsidiaries.
12. Layoff Announcement by the Boeing Company May Affect Mutual Bancshares.
13. Possible Year 2000 Computer Program Problems May Disrupt Mutual Bancshares'
and its Subsidiaries' Business Operations.
14. Plans for Diversification and Expansion of Operations Includes the
Acquisition of Non-Banking Related Entities.
15. Competition.
16. The Establishment of the EverTrust Foundation Will Reduce Earnings.
17. Endangered Chinook Salmon Species May Restrict Construction and Land
Development.
18. Earthquakes.
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Signature Date Signature Date
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(Note: If shares are to be held jointly, both parties must sign)
EXECUTION OF THIS CERTIFICATION FORM WILL NOT CONSTITUTE A WAIVER OF ANY RIGHTS
THAT A PURCHASER MAY HAVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
Exhibit 99.3
Appraisal Agreement with RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
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Financial Services Industry Consultants
April 7, 1999
Board of Directors
Everett Mutual Bank
2707 Colby Avenue, Suite 600
Everett, Washington 98201
Dear Members of the Board:
This letter sets forth the agreement between Everett Mutual Bank,
Everett, Washington ("Everett Mutual" or the "Bank"), a wholly-owned subsidiary
of Everett Mutual Bancshares, MHC (the "MHC"), and RP Financial, LC. ("RP
Financial") for the independent appraisal services pertaining to the stock
conversion transaction, whereby the Bank will become a wholly-owned subsidiary
of a stock holding company. The specific appraisal services to be rendered by RP
Financial are described below. These appraisal services will be rendered by a
team of two to three senior consultants on staff and will be directed by the
undersigned.
Description of Conversion Appraisal Services
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
Bank's operations, financial condition, profitability, market area, risks and
various internal and external factors which impact the pro forma value of the
Bank. RP Financial will prepare a written detailed valuation report of Everett
Mutual which will be fully consistent with applicable regulatory guidelines and
standard pro forma valuation practices, and will incorporate the pro forma
impact of assets at the MHC level. The appraisal report will include an in-depth
analysis of the Bank's financial condition and operating results, as well as an
assessment of the Bank's interest rate risk, credit risk and liquidity risk. The
appraisal report will describe the Bank's business strategies, market area,
prospects for the future and the intended use of proceeds both in the short term
and over the longer term. A peer group analysis relative to publicly-traded
savings institutions will be conducted for the purpose of determining
appropriate valuation adjustments relative to the group. We will review
pertinent sections of the applications and conversion documents to obtain
necessary data and information for the appraisal, including the impact of key
deal elements on the appraised value, such as dividend policy, use of proceeds
and reinvestment rate, tax rate, conversion expenses and characteristics of
stock plans. The appraisal report will conclude with a midpoint pro forma value
which will establish the range of value, and reflect the conversion size
determined by the Bank's Board of Directors. The appraisal report may be
periodically updated throughout the conversion process and there will be at
least one updated valuation prepared at the time of the closing of the
conversion.
<PAGE>
Board of Directors
April 7, 1999
Page 2
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Everett Mutual at the above address in conjunction with
the filing of the regulatory application. Subsequent updates will be filed
promptly as certain events occur which would warrant the preparation and filing
of such valuation updates. Further, RP Financial agrees to perform such other
services as are necessary or required in connection with the regulatory review
of the appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Fee Structure and Payment Schedule
Everett Mutual agrees to pay RP Financial a fixed fee of $35,000 for
these appraisal services, plus reimbursable expenses. Payment of these fees
shall be made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $25,000 upon delivery of the completed original appraisal report;
and
o $5,000 upon completion of the conversion to cover all subsequent
valuation updates that may be required, provided that the
transaction is not delayed for reasons described below.
The Bank will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses in
connection with this engagement and in connection with the preparation of a
regulatory business plan as described in the accompanying letter, subject to
written authorization from the Bank to exceed such level.
In the event Everett Mutual shall, for any reason, discontinue the
proposed conversion prior to delivery of the completed documents set forth above
and payment of the respective progress payment fees, Everett Mutual agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research associates to $250 per hour for managing directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by Everett Mutual and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to appraisals,
major changes in
<PAGE>
Board of Directors
April 7, 1999
Page 3
management or procedures, operating policies or philosophies, and excessive
delays or suspension of processing of conversion applications by the regulators
such that completion of the transaction requires the preparation by RP Financial
of a new appraisal or financial projections.
Representations and Warranties
Everett Mutual and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such
information with respect to its business and financial condition as RP Financial
may reasonably request in order to provide the aforesaid valuation. Such
information heretofore or hereafter supplied or made available to RP Financial
shall include: annual financial statements, periodic regulatory filings and
material agreements, debt instruments, off balance sheet assets or liabilities,
commitments and contingencies, unrealized gains or losses and corporate books
and records. All information provided by the Bank to RP Financial shall remain
strictly confidential (unless such information is otherwise made available to
the public), and if the conversion are not consummated or the services of RP
Financial are terminated hereunder, RP Financial shall upon request promptly
return to the Bank the original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or fail to state a material fact necessary
to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by the Bank to RP Financial, either orally or in
writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by the Bank to RP Financial; or (iii) any action or omission to act by the Bank,
or the Bank's respective officers, Directors, employees or agents which action
or omission is willful or negligent. The Bank will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial was
negligent or acted in bad faith with respect to any actions or omissions of RP
Financial related to a matter for which indemnification is sought hereunder. Any
time devoted by employees of RP Financial to situations for which
indemnification is provided hereunder, shall be an indemnifiable cost payable by
the Bank at the normal hourly professional rate chargeable by such employee.
<PAGE>
Board of Directors
April 7, 1999
Page 4
(b) RP Financial shall give written notice to the Bank of such claim
or facts within thirty days of the assertion of any claim or discovery of
material facts upon which RP Financial intends to base a claim for
indemnification hereunder. In the event the Bank elects, within ten
business days of the receipt of the original notice thereof, to contest
such claim by written notice to RP Financial, RP Financial will be entitled
to be paid any amounts payable by the Bank hereunder within five days after
the final determination of such contest either by written acknowledgement
of the Bank or a final judgment (including all appeals therefrom) of a
court of competent jurisdiction. If the Bank does not so elect, RP
Financial shall be paid promptly and in any event within thirty days after
receipt by the Bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such
request if RP Financial furnishes the Bank: (1) a written statement of RP
Financial's good faith belief that it is entitled to indemnification
hereunder; and (2) a written undertaking to repay the advance if it
ultimately is determined in a final adjudication of such proceeding that it
or he is not entitled to such indemnification. The Bank may assume the
defense of any claim (as to which notice is given in accordance with 3(b))
with counsel reasonably satisfactory to RP Financial, and after notice from
the Bank to RP Financial of its election to assume the defense thereof, the
Bank will not be liable to RP Financial for any legal or other expenses
subsequently incurred by RP Financial (other than reasonable costs of
investigation and assistance in discovery and document production matters).
Notwithstanding the foregoing, RP Financial shall have the right to employ
their own counsel in any action or proceeding if RP Financial shall have
concluded that a conflict of interest exists between the Bank and RP
Financial which would materially impact the effective representation of RP
Financial. In the event that RP Financial concludes that a conflict of
interest exists, RP Financial shall have the right to select counsel
reasonably satisfactory to the Bank which will represent RP Financial in
any such action or proceeding and the Bank shall reimburse RP Financial for
the reasonable legal fees and expenses of such counsel and other expenses
reasonably incurred by RP Financial. In no event shall the Bank be liable
for the fees and expenses of more than one counsel, separate from its own
counsel, for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising
out of the same allegations or circumstances. The Bank will not be liable
under the foregoing indemnification provision in respect of any compromise
or settlement of any action or proceeding made without its consent, which
consent shall not be unreasonably withheld.
(d) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in
equity to enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the Bank
in one or more additional capacities, and that the terms of the original
engagement may be incorporated by reference in one or more separate agreements.
The provisions of Paragraph 3 herein shall apply to the original engagement, any
such additional engagement, any modification of the original engagement or such
additional engagement and shall remain in full force and effect following the
completion or termination of
<PAGE>
Board of Directors
April 7, 1999
Page 5
RP Financial's engagement(s). This agreement constitutes the entire
understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may not
be modified, supplemented or amended except by written agreement executed by
both parties.
Everett Mutual and RP Financial are not affiliated, and neither Everett
Mutual nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Sincerely,
/s/ Ronald S. Riggins
-----------------------------------
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: Michael B. Hansen /s/ Michael B. Hansen
------------------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Everett Mutual Bank
Everett, Washington
Date Executed: April 12, 1999
<PAGE>
RP FINANCIAL, LC.
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Financial Services Industry Consultants
April 7, 1999
Board of Directors
Everett Mutual Bank
2707 Colby Avenue, Suite 600
Everett, Washington 66603-3809
Dear Members of the Board:
This letter sets forth the agreement between Everett Mutual Bank,
Everett, Washington ("Everett Mutual" or the "Bank"), a wholly-owned subsidiary
of Everett Mutual Bancshares, MHC (the "MHC"), and RP Financial, LC. ("RP
Financial"), whereby the Bank has engaged RP Financial to prepare the regulatory
business plan and financial projections to be adopted by the Bank's Board of
Directors in conjunction with the stock conversion transaction, whereby the Bank
will become a wholly-owned subsidiary of a stock holding company. These services
are described in greater detail below.
Description of Proposed Services
RP Financial's business planning services will include the following
areas: (1) evaluating Everett Mutual's current financial and operating
condition, business strategies and anticipated strategies in the future; (2)
analyzing and quantifying the impact of business strategies, incorporating the
use of net conversion proceeds both in the short and long term; (3) preparing
detailed financial projections on a quarterly basis for a period of at least
three fiscal years to reflect the impact of Board approved business strategies
and use of proceeds; (4) preparing the written business plan document which
conforms with applicable regulatory guidelines including a description of the
use of proceeds and how the convenience and needs of the community will be
addressed; and (5) preparing the detailed schedules of the capitalization of the
Bank and holding company and related cash flows and the integration of the MHC
assets as a result of the conversation transaction.
Contents of the business plan will include: Philosophy/Goals; Economic
Environment and Background; Lending, Leasing and Investment Activities; Deposit,
Savings and Borrowing Activity; Asset and Liability Management; Operations;
Records, Systems and Controls; Growth, Profitability and Capital; Responsibility
for Monitoring this Plan.
RP Financial agrees to prepare the business plan and accompanying
financial projections in writing such that the business plan can be filed with
the appropriate regulatory agencies prior to filing the appropriate
applications.
<PAGE>
Board of Directors
April 7, 1999
Page 2
Fee Structure and Payment Schedule
The Bank agrees to compensate RP Financial for preparation of the
business plan on a fixed fee basis of $10,000. Payment of the professional fees
shall be made upon delivery of the completed business plan.
The Bank also agrees to reimburse RP Financial for those direct
out-of-pocket expenses necessary and incidental to providing the business
planning services. Reimbursable expenses will likely include shipping,
telephone/facsimile printing, computer and data services, and shall be paid to
RP Financial as incurred and billed. RP Financial will agree to limit
reimbursable expenses in conjunction with the appraisal engagement, subject to
written authorization from the Bank to exceed such level.
In the event the Bank shall, for any reason, discontinue this planning
engagement prior to delivery of the completed business plan and payment of the
progress payment fee, the Bank agrees to compensate RP Financial according to RP
Financial's standard billing rates for consulting services based on accumulated
and verifiable time expenses, not to exceed the fixed fee described above, plus
reimbursable expenses incurred.
If during the course of the planning engagement, unforeseen events
occur so as to materially change the nature or the work content of the business
planning services described in this contract, the terms of said contract shall
be subject to renegotiation by the Bank and RP Financial. Such unforeseen events
may include changes in regulatory requirements as it specifically relates to
Everett Mutual or potential transactions which will dramatically impact the Bank
such as a pending acquisition or branch transaction.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter.
Sincerely,
/s/ Ronald S. Riggins
-----------------------------------
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: Michael B. Hansen /s/ Michael B. Hansen
-----------------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: Everett Mutual Bank
Everett, Washington
Date Executed: April 12, 1999
Exhibit 99.5
Proxy Statement for Special Meeting of Members of Mutual Bancshares
<PAGE>
MUTUAL BANCSHARES
2707 Colby Avenue, Suite 600
Everett, Washington 98201
(425) 259-0805
NOTICE OF SPECIAL MEETING OF MEMBERS
To be Held on ________ __, 1999
Notice is hereby given that a special meeting of members ("Special
Meeting") of Mutual Bancshares will be held at Mutual Bancshares' office at 2707
Colby Avenue, Everett, Washington, on ________, __________ __, 1999, at _:00
p.m., Pacific Time. Business to be taken up at the Special Meeting shall be:
(1) To consider and vote upon an Amended Plan of Conversion of Mutual
Bancshares and Agreement and Plan of Reorganization ("Plan of Conversion")
between Mutual Bancshares and Everett Mutual Bank, pursuant to which (i) Mutual
Bancshares will convert from a Washington-chartered mutual holding company to a
Washington- chartered capital stock holding company and be known as EverTrust
Financial Group, Inc., and (ii) EverTrust Financial Group, Inc. will offer for
sale shares of its common stock in a subscription offering and, if necessary, in
a community offering and, if necessary, in a syndicated community offering, all
as more specifically set forth in the Plan of Conversion; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice of Special Meeting of
Members, the Board of Directors is not aware of any other
matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting and any
adjournments thereof shall be those members of the Savings Bank as of the close
of business on __________ __, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
LORELEI CHRISTENSON
SECRETARY
Everett, Washington
_________ __, 1999
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY
WRITTEN INSTRUMENT DELIVERED TO LORELEI CHRISTENSON, SECRETARY, MUTUAL
BANCSHARES, AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING.
<PAGE>
CAPSULE SUMMARY
The information set forth below should be read in conjunction with and
is qualified in its entirety by the more detailed information and consolidated
financial statements, including the notes thereto, presented elsewhere in this
proxy statement and in the prospectus. All capitalized terms not defined
hereinafter shall have the meanings ascribed to them in the prospectus.
The Companies
EverTrust Financial Group, Inc. In 1993 Everett Mutual Bank formed
2707 Colby Avenue, Suite 600 Mutual Bancshares to be its holding
Everett, Washington, 98201 company and to own all of the stock of
(425) 258-3645 Everett Mutual Bank. Mutual Bancshares
is a bank holding company that is
regulated by the Federal Reserve Board.
In connection with its conversion to
stock, Mutual Bancshares changed its
name to EverTrust Financial Group, Inc.
For purposes of presentation in this
prospectus, references to Mutual
Bancshares are to the entity in its
mutual form of ownership. References to
EverTrust Financial Group, Inc. are to
the entity, which is offering the common
stock for sale, and which will be the
resulting stock company in the mutual to
stock conversion of Mutual Bancshares.
Mutual Bancshares owns four subsidiaries
- Everett Mutual Bank, a Washington
state chartered savings bank; Commercial
Bank of Everett, a Washington state
chartered commercial bank; I-Pro, Inc.,
a Washington corporation, which is an
item processing company; and Mutual
Bancshares Capital Inc., a Washington
corporation, which is a venture capital
firm. After the conversion, EverTrust
Financial Group, Inc. intends to acquire
or organize other operating
subsidiaries, although it currently has
no specific plans or agreements to do
so. At March 31, 1999, Mutual Bancshares
had total consolidated assets of $452.1
million, deposits of $375.9 million and
retained earnings of $52.1 million.
Everett Mutual Bank Everett Mutual Bank's business strategy
2707 Colby Avenue, Suite 600 is to continue operating as a
Everett, Washington, 98201 community-oriented bank dedicated to
(425) 258-3645 financing residential properties and
providing quality customer service.
Everett Mutual Bank operates out of 11
full service offices located throughout
Snohomish County, Washington. Everett
Mutual Bank considers the communities in
Snohomish County, Washington as its
primary market area for making loans and
attracting deposits. Everett Mutual Bank
also makes loans in King and Pierce
Counties and to a much lesser extent,
other counties in Western Washington.
(i)
<PAGE>
Everett Mutual Bank's principal business
is attracting deposits from the general
public and using those funds to
originate residential mortgage loans as
well as multi-family, commercial real
estate and construction loans. As of the
year ended March 31, 1999, Everett
Mutual Bank had $426.5 million in assets
and $41.5 million in equity. For the
year ended March 31, 1999, Everett
Mutual Bank had net income of $4.5
million.
For a discussion of Everett Mutual
Bank's business strategy and recent
results of operations, see "Management's
Discussion and Analysis of Financial
Condition and Results of Operations" in
the prospectus. For a discussion of
Everett Mutual Bank's business
activities, see "Business of Mutual
Bancshares" in the prospectus.
Commercial Bank of Everett Commercial Bank of Everett was formed in
2707 Colby Avenue, Suite 715 1996 in order to offer business loans
Everett, Washington, 98201 and deposit services to individuals and
(424) 258-0388 local businesses through its office
located in Everett, Washington. As of
the year ended March 31, 1999,
Commercial Bank of Everett had $19.8
million in assets and $2.8 million in
equity. For the year ended March 31,
1999, Commercial Bank of Everett had a
I-Pro, Inc. I-Pro, Inc., is an item processing
6838 South 220th Street company designed to provide backroom
Kent, Washington 98032 banking services for Everett Mutual Bank
(253) 872-7976 and Commercial Bank of Everett, as well
as other financial institutions and
nonbanking businesses in the future. As
of the year ended March 31, 1999, I-Pro,
Inc. had $628,000 in assets and $47,000
in equity. For the year ended March 31,
1999, I- Pro, Inc. had a loss of
$340,000.
Mutual Bancshares Capital, Inc. Mutual Bancshares Capital, Inc. is a
22020 17th Avenue, S.E., Suite 200 start-up venture capital company which
Bothell, Washington 98021 will provide equity to regionally-based
(425) 424-0058 high- technology and medical
instrumentation companies at the
beginning or early stages of development
through a series of limited
partnerships. At March 31, 1999, Mutual
Bancshares Capital, Inc. had $3.2
million in assets and $3.2 million in
equity. For the year ended March 31,
1999, Mutual Bancshares Capital, Inc.
had a loss of $64,000.
(ii)
<PAGE>
The Conversion
What is the Conversion The conversion is a change in the legal
form of organization. As a mutual
holding company, Mutual Bancshares
currently has no stockholders. Instead,
Mutual Bancshares operates as the bank
holding company of Everett Mutual Bank
and Commercial Bank of Everett for the
mutual benefit of its depositors and
borrowers. In connection with the
conversion, Mutual Bancshares changed
its name to EverTrust Financial Group,
Inc. and will become a stock holding
company and will be owned and controlled
by public shareholders. Voting rights in
EverTrust Financial Group, Inc. will
belong to its stockholders.
Mutual Bancshares is conducting the
conversion under the terms of the plan
of conversion. The Washington Department
of Financial Institutions, Division of
Banks has approved the conversion and
the Federal Deposit Insurance
Corporation has provided its
non-objection, with the condition that
Mutual Bancshares' members approve the
conversion. Mutual Bancshares has called
a special meeting of its members for
_________, 1999 to vote on the
conversion.
Mutual Bancshares' Reasons for By converting to the stock form of
Conversion organization, EverTrust Financial Group,
Inc. will be structured in the form used
by commercial banks and their holding
companies, most business entities and a
large number of savings institutions.
The conversion will be important to
EverTrust Financial Group, Inc.'s future
growth and performance by:
o providing EverTrust Financial
Group, Inc. flexibility to
continue to diversify its
operations,
o providing a larger capital
base which will permit Everett
Mutual Bank and Commercial
Bank of Everett to increase
the number and amount of loans
they can make to the people
and businesses in its market
area,
o providing Everett Mutual Bank
and Commercial Bank of Everett
the ability to expand their
financial services through the
addition of new branch
offices,
o enhancing their ability to
attract and retain qualified
management through stock-based
compensation plans,
o providing Everett Mutual
Bank's and Commercial Bank of
Everett's customers and
communities the ability to own
stock in their local,
community-oriented financial
institution, and
(iii)
<PAGE>
o enhancing their ability to
expand its financial services,
especially non-banking
services, for all of its
customers.
Presently, EverTrust Financial Group,
Inc. does not have any specific plans or
arrangements for diversification or
expansion.
Benefits of the Conversion to EverTrust Financial Group, Inc. intends
Management of EverTrust Financial to adopt the following benefit plans and
Group, Inc. and its Subsidiaries executive officer employment agreements:
o Employee Stock Ownership Plan.
This plan intends to purchase
2% of the shares issued in the
conversion, including shares
issued to The EverTrust
Foundation. This would range
from 117,130 shares, assuming
5,856,500 shares are issued in
the conversion, to 157,300
shares, assuming 7,865,000
shares are issued in the
conversion. EverTrust
Financial Group, Inc. will
allocate these shares to
employees over a period of
years in proportion to their
compensation.
o Stock Option Plan. Under this
plan, EverTrust Financial
Group, Inc. may award stock
options to key employees and
directors. The number of
options available under this
plan will be equal to 10% of
the number of shares sold in
the conversion, including
shares issued to The EverTrust
Foundation. This would range
from 585,650 shares, assuming
5,856,500 shares are issued in
the conversion, to 786,500
shares, assuming 7,865,000
shares are issued in the
conversion. This plan will
require shareholder approval.
o Management Recognition and
Development Plan. Under this
plan, EverTrust Financial
Group, Inc. may award shares
of restricted stock to key
employees and directors at no
cost to the recipient. The
number of shares available
under this plan will equal 4%
of the number of shares sold
in the conversion, including
shares issued to The EverTrust
Foundation. This would range
from 234,260 shares, assuming
5,856,500 shares are issued in
the conversion, to 314,600
shares, assuming 7,865,000
shares are issued in the
conversion. This plan will
require shareholder approval.
(iv)
<PAGE>
o Employment Agreements with
Michael B. Hansen, President
and Chief Executive Officer of
Everett Mutual Bank and
EverTrust Financial Group,
Inc; Michael R. Deller,
Executive Vice President of
Everett Mutual Bank; Jeffrey
R. Mitchell, Senior Vice
President and Chief Financial
Officer of Everett Mutual Bank
and EverTrust Financial Group,
Inc.; Lorelei Christenson,
Senior Vice President, Chief
Information Officer and
Corporate Secretary of Everett
Mutual Bank and EverTrust
Financial Group, Inc.; and
Terry L. Cullom, Vice
President and Credit
Administrator of Everett
Mutual Bank. The employment
agreements will provide for
severance benefits if the
executive officer is
terminated following a change
in control of EverTrust
Financial Group, Inc. or
Everett Mutual Bank. Assuming
that a change in control had
occurred at March 31, 1999,
Messrs. Hansen, Deller and
Mitchell, Ms. Christenson and
Mr. Cullom would each be
entitled to a lump sum cash
payment of approximately
$486,265, $144,592, $220,949,
$199,410 and $207,446,
respectively.
o Employee Severance
Compensation Plan. This plan
will provide severance
benefits to eligible employees
if there is a change in
control of EverTrust Financial
Group, Inc. or Everett Mutual
Bank. In the event the
provisions of the severance
plan are triggered, the total
amount of payments due would
be approximately $793,977.
The following table summarizes the total
number and dollar value of the shares of
common stock, assuming 6,500,000 shares
are sold in the conversion and 390,000
shares are issued to The EverTrust
Foundation, which the employee stock
ownership plan would acquire and the
total value of all shares available for
award under the stock option plan and
the management recognition and
development plan. The table assumes the
value of the shares is $10.00 per share.
The table does not include a value for
the options because their value would be
equal to the fair market value of the
common stock on the day that the options
are granted. As a result, financial
gains can be realized on an option only
if the market price of common stock
increases.
(v)
<PAGE>
<TABLE>
<CAPTION>
Percentage
Number Estimated of Shares
of Value of Issued in the
Shares Shares Conversion
------ ------ ----------
<S> <C> <C> <C>
Employee stock
ownership plan............. 137,800 $1,378,000 2.0%
Management recognition
and development plan
awards..................... 275,600 2,756,000 4.0
Stock options............... 689,000 -- 10.0
--------- ---------- ----
Total....................... 1,102,400 $4,134,000 16.0%
========= ========== =====
</TABLE>
For a discussion of certain risks
associated with these plans and
agreements, see "Risk Factors --
Implementation of Benefit Plans Will
Increase Future Compensation Expense and
May Lower EverTrust Financial Group,
Inc.'s Net Income" and "-- Employment
Agreements and Severance Plan Could Make
Takeover Attempts More Difficult to
Achieve" in the prospectus.
The Offering
Subscription Offering Mutual Bancshares has granted
subscription rights in the following
order of priority to:
1. Persons with $50 or more on
deposit at Everett Mutual Bank
as of December 31, 1997.
2. The EverTrust Financial Group,
Inc. employee stock ownership
plan.
3. Persons with $50 or more on
deposit at Everett Mutual Bank
as of June 30, 1999.
4. Everett Mutual Bank's
depositors and borrowers as of
_________ __, 1999.
5. Persons with $50 or more on
deposit at Commercial Bank of
Everett as of December 31,
1997.
To ensure that EverTrust Financial
Group, Inc. properly identifies your
subscription rights, you must list all
of your deposit accounts and loans as of
the eligibility dates on the stock order
form. If you fail to do so, your
subscription may be reduced or rejected.
The subscription offering will end at
12:00 Noon, Pacific Time, on ________,
1999. If the offering is oversubscribed,
EverTrust Financial Group, Inc. will
allocate shares in order of the
priorities described above under a
formula contained in the plan of
conversion.
(vi)
<PAGE>
Subscription Rights Are Not Subscription rights are not
Transferable transferable, and persons with
subscription rights may not subscribe
for shares for the benefit of any other
person. If you violate this prohibition,
you may lose your right to purchase
shares and may face criminal prosecution
and other sanctions.
Community Offering EverTrust Financial Group, Inc. may
offer shares not sold in the
subscription offering to the general
public in a community offering. If
shares are available, EverTrust
Financial Group, Inc. expects to offer
them to the general public immediately
after the end of the subscription
offering, but may begin a community
offering at any time during the
subscription offering.
EverTrust Financial Group, Inc. may
reject orders received in the community
offering either in whole or in part. If
your order is rejected in part, you
cannot cancel the remainder of your
order.
Purchase Price of the Common Stock The independent appraisal by RP
Financial, LC., dated as June 11, 1999,
established the offering range of
$55,250,000 to $74, 750,000, with a mid
point of $65, 000,000, which is the
estimated market value of the shares to
be sold in the offering. This appraisal
was based on Mutual Bancshares' and its
subsidiaries' financial condition and
operations and the effect of the
additional capital raised in the
offering. The purchase price is $10.00
per share, which was determined by the
Boards of Directors of Mutual Bancshares
and Everett Mutual Bank in consultation
with Charles Webb. You will not pay a
commission to buy any shares in the
conversion.
After completion of the conversion and
the offering, each share of EverTrust
Financial Group, Inc. common stock will
have a book value of $15.42, at the
maximum of the offering range. This
means the price paid for each share sold
in this offering will be 64.85% of the
book value. In addition, the price to
earnings ratio at the maximum of the
offering range will be 26.32. These
ratios are important factors used by RP
Financial in determining the appraised
value of Mutual Bancshares and its
subsidiaries.
Number of Shares to be Issued in the EverTrust Financial Group, Inc. will
Conversion sell between 5,525,000 and 7,475,000
shares of its common stock in this
offering. With regulatory approval,
EverTrust Financial Group, Inc. may
increase the number of shares to
8,596,250 without giving you further
notice.
(vii)
<PAGE>
The amount of common stock that
EverTrust Financial Group, Inc. will
offer in the conversion is based on an
independent appraisal of the estimated
market value of EverTrust Financial
Group, Inc. as if the conversion had
occurred as of the date of the
appraisal.
RP Financial, L.C., the independent
appraiser, has estimated that, in its
opinion, as of June 11, 1999, the
estimated market value ranged between
$55,250,000 and $74,750,000, with a
midpoint of $65,000,000. The appraisal
was based in part on Mutual Bancshares'
financial condition and operations and
the effect on Mutual Bancshares of the
additional capital raised by the sale of
common stock in this offering. The
independent appraisal will be updated
before the conversion is completed.
Limitations on the Purchase of The minimum purchase is 25 shares.
Common Stock in the Conversion
The maximum purchase in the subscription
offering by any person or group of
persons through a single deposit account
is $250,000 of common stock, which
equals 25,000 shares. The maximum
purchase by any person in the community
offering is $250,000 of common stock,
which equals 25,000 shares.
The maximum purchase in the subscription
offering and community offering combined
by any person, related persons or
persons acting together is $500,000 of
common stock, which equals 50,000
shares.
How to Purchase Common Stock If you want to subscribe for shares, you
must complete an original stock order
form and send it together with full
payment to Everett Mutual Bank in the
postage-paid envelope provided. You must
sign the certification that is part of
the stock order form. Everett Mutual
Bank must receive your stock order form
before the end of the subscription
offering.
You may pay for shares in any of the
following ways:
o In Cash if delivered in
person.
o By Check or Money Order made
payable to EverTrust Financial
Group, Inc.
(viii)
<PAGE>
o By Withdrawal from an account
at Everett Mutual Bank or
Commercial Bank of Everett. To
use funds in an IRA at Everett
Mutual Bank or Commercial Bank
of Everett you must transfer
your account to an
unaffiliated institution or
broker. Please contact the
stock information center at
least one week before the end
of the subscription offering
for assistance.
Everett Mutual Bank will pay interest on
your subscription funds at the rate it
pays on savings accounts from the date
it receives your funds until the
conversion is completed or terminated.
All funds authorized for withdrawal from
deposit accounts with Everett Mutual
Bank will earn interest at the
applicable account rate until the
conversion is completed. There will be
no early withdrawal penalty for
subscriptions paid for by withdrawal
from certificates of deposit.
After Everett Mutual Bank receives your
order, you cannot cancel or change it
without Everett Mutual Bank's consent.
If EverTrust Financial Group, Inc. sells
fewer than 5,525,000 shares or more than
8,596,250 shares, all subscribers will
be notified and given the opportunity to
change or cancel their orders.
EverTrust Financial Group, Inc.'s and EverTrust Financial Group, Inc. will
Everett Mutual Bank's Use of invest 50% of the net conversion
Proceeds From the Sale of Common proceeds in Everett Mutual Bank. In
Stock in the Conversion addition, EverTrust Financial Group,
Inc. will use these funds as follows:
o funding loans consistent with
prior lending practices;
o for general corporate
purposes, which may include,
for example, buying back
shares of its common stock;
o to loan an amount equal to 2%
of the gross proceeds of the
offering to the employee stock
ownership plan to fund its
purchase of common stock; and
o to expand operations through
acquiring or establishing
additional non-banking
entities, although it has no
specific plans, arrangements,
agreements or understandings,
written or oral, regarding
these activities.
Pending such use, the net proceeds will
be invested in investment securities
with short and intermediate terms or in
a deposit account at Everett Mutual
Bank.
(ix)
<PAGE>
Everett Mutual Bank will use the net
proceeds received from the offering to
invest in short term and intermediate
term U.S. Government and agency
obligations.
Purchases of Common Stock by Mutual Bancshares' directors and
Mutual Bancshares' and its executive officers intend to subscribe
Subsidiaries' Officers and Directors for 183,000 shares regardless of the
number of shares issued in the
conversion. This number equals 2.32% of
the 7,865,000 shares that would be
issued at the maximum of the offering
range, including shares issued to The
EverTrust Foundation. If fewer shares
are issued in the conversion, then
officers and directors may own a greater
percentage of EverTrust Financial Group,
Inc. Directors and executive officers
will pay the same $10.00 per share price
as everyone else who purchases shares in
the conversion.
Plans to List the Common Stock On EverTrust Financial Group, Inc. intends
the Nasdaq National Market System to list the common stock on the Nasdaq
National Market System. Keefe Bruyette &
Woods, Inc. intends to be a market maker
in the common stock. After shares of the
common stock begin trading, you may
contact a stock broker to buy or sell
shares.
EverTrust Financial Group, Inc. Does Dividends, if any, will be affected by a
Not Currently Plan to Pay Dividends number of factors, including the
(page 11) prevailing economic, interest rate and
stock market conditions, as well as
profitability, financial condition,
expected growth, compliance with capital
requirements, dividend payout ratio and
peer group analyses. The establishment,
timing and amount of any dividend
payments will be determined by the Board
of Directors of EverTrust Financial
Group, Inc., based on the factors noted
above. No determination has been made
with respect to a dividend policy.
Plans to Contribute a Maximum of Mutual Bancshares currently maintains a
390,000 shares of EverTrust Financial charitable foundation, the Everett
Group, Inc. Common Stock and a Mutual Foundation. During the year ended
maximum of $1.3 million in cash to March 31, 1999, Mutual Bancshares
The EverTrust Foundation contributed $3.4 million to the Everett
Mutual Foundation.
In connection with the conversion,
EverTrust Financial Group, Inc. intends
to establish an additional charitable
foundation, EverTrust Foundation, as
part of the conversion in order to
further Mutual Bancshares' commitment to
the local community. EverTrust Financial
Group, Inc. will fund the foundation
with cash and stock equal to 8% of the
shares issued in the offering at the
minimum of the estimated valuation range
with a maximum contribution equal to 8%
of the shares issued in the offering at
the midpoint of the estimated valuation
range. A maximum of 390,000 shares or
75% of the contribution will be made to
the foundation in stock and $1.3 million
or 25% of the total contribution to the
foundation will be made in cash. If the
foundation is established, then
EverTrust Financial Group, Inc. will
sell fewer shares of common stock than
if the conversion were completed without
the foundation.
(x)
<PAGE>
MUTUAL BANCSHARES
2707 Colby Avenue, Suite 600
Everett, Washington 98201
(425) 258-3645
PROXY STATEMENT
_________ __, 1999
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF
DIRECTORS OF MUTUAL BANCSHARES FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE
HELD ON ________, __________ __, 1999, AND ANY ADJOURNMENT OF THAT MEETING, FOR
THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members of Mutual Bancshares will be held at its
main office at 2707 Colby Avenue, Suite 600, Everett, Washington, on ________,
__________ __, 1999, at _:00 p.m., Pacific Time, for the purpose of considering
and voting upon an Amended Plan of Conversion of Mutual Bancshares and Agreement
and Plan of Reorganization between Mutual Bancshares and Everett Mutual Bank,
which provides for the conversion of Mutual Bancshares from a
Washington-chartered mutual holding company to a Washington-chartered capital
stock holding company to be known as EverTrust Financial Group, Inc., and the
offer for sale shares of EverTrust Financial Group Inc.'s common stock in a
subscription offering and, if necessary, in a community offering and, if
necessary, in a syndicated community offering (the conversion of Mutual
Bancshares and the offering of its shares of common stock is collectively
referred to as the "conversion").
Members entitled to vote on the plan of conversion are members of
Mutual Bancshares as of __________ __, 1999. The conversion requires the
approval of not less than a majority of the total votes eligible to be cast at
the special meeting. A copy of the plan of conversion is attached to this proxy
statement as an exhibit.
The plan of conversion provides in part that, after receiving final
authorization from the Washington Department of Financial Institutions, Division
of Banks and the non-objection of the Federal Deposit Insurance Corporation,
EverTrust Financial Group, Inc. will offer for sale shares of its common stock,
through the issuance of nontransferable subscription rights, first to persons
with $50 or more on deposit at Everett Mutual Bank as of December 31, 1997; then
to EverTrust Financial Group, Inc.'s employee stock ownership plan, a
tax-qualified employee benefit plan; then to persons with $50 or more on deposit
at Everett Mutual Bank as of June 30, 1999; then to Everett Mutual Bank's
depositors and borrowers as of _________ __, 1999; then to persons with $50 or
more on deposit at Commercial Bank of Everett as of December 31, 1997; and then
to all other people, in a subscription offering, and concurrently, but subject
to the prior rights of holders of subscription rights, to certain members of the
general public in a direct community offering. The subscription and direct
community offerings are referred to herein as the "subscription and direct
community offering." It is anticipated that shares of common stock not
subscribed for in the subscription and direct community offering will be offered
to the general public with the assistance of Charles Webb & Company, a division
of Keefe, Bruyette & Woods, Inc. and, if necessary, a selling group of
broker-dealers managed by Webb in a syndicated community offering. The
subscription, direct community and syndicated community offerings are referred
to herein as the "offerings."
The common stock is being offered by EverTrust Financial Group at a
fixed price of $10.00 per share . The purchase price was established by Mutual
Bancshares and Everett Mutual Bank's respective Board of Directors based on an
independent appraisal prepared by RP Financial LP. as of June 11, 1999, which
states that the estimated aggregate pro forma market value of Mutual Bancshares
and its subsidiaries, ranged from $55.3 million to $74.8
1
<PAGE>
million, or 5,525,000 and 7,475,000 shares of common stock, with a midpoint of
$65.0 million, or 6,500,000 shares of common stock. See "MUTUAL BANCSHARES'
CONVERSION -- Stock Pricing and Number of Shares to be Issued" in the
prospectus.
BENEFITS OF CONVERSION TO MANAGEMENT
Management of Mutual Bancshares and Everett Mutual have a personal
interest in the conversion because they will receive certain benefits as a
result of the conversion pursuant to the employee stock ownership plan, the
EverTrust Financial Group, Inc. stock option plan and the EverTrust Financial
Group, Inc. management recognition and development plan.
Employee Stock Ownership Plan
EverTrust Financial Group, Inc. intends to adopt the employee stock
ownership plan, a tax-qualified employee benefit plan, for eligible employees of
EverTrust Financial Group, Inc. and its wholly owned subsidiaries. It is
intended that the employee stock ownership plan will purchase 2% of the shares
of common stock issued in the conversion (157,300 shares based on the issuance
of the maximum of the estimated valuation range, or 7,865,000 shares, including
shares contributed to The EverTrust Foundation). See "MANAGEMENT OF EVERETT
MUTUAL BANK -- Benefits -- Employee Stock Ownership Plan" in the prospectus.
1999 Stock Option Plan
EverTrust Financial Group, Inc. intends to seek stockholder approval of
the stock option plan at a meeting of stockholders occurring no earlier than six
months following consummation of the conversion. If stockholder approval of the
stock option plan is obtained, it is expected that options to acquire up to 10%
of the number of shares of common stock issued in the conversion (786,500 shares
based on the issuance of the maximum of the estimated valuation range, including
shares contributed to The EverTrust Foundation) will be reserved under the stock
option plan and will be awarded to key employees and directors of EverTrust
Financial Group, Inc. and its wholly owned subsidiaries, subject to certain
restrictions, including required vesting periods. Options are valuable only to
the extent they are exercisable and to the extent the market price for the
underlying shares of capital stock exceed the exercise price of the option. An
option effectively eliminates the market risk of holding the underlying security
since no consideration is paid for the option until it is exercised and,
therefore, the recipient may, within the limits of the term of the option, wait
to exercise the option until the market price exceeds the exercise price. See
"MANAGEMENT OF EVERETT MUTUAL BANK -- Benefits -- 1999 Stock Option Plan" in the
prospectus.
Management Recognition Plan
EverTrust Financial Group, Inc. intends to seek approval of the
management recognition and development plan at a meeting of stockholders
occurring no earlier than six months following consummation of the conversion.
The management recognition and development plan will be funded with a number of
shares of common stock equal to 4% of the number of shares issued in the
conversion (314,600 shares based on the issuance of the maximum of the estimated
valuation range, including shares contributed to The EverTrust Foundation) for
the benefit of senior officers and non-employee directors of the EverTrust
Financial Group, Inc. and Everett Mutual Bank. If stockholder approval of the
management recognition and development plan is obtained, it is expected that
shares of common stock will be awarded thereunder to senior officers and
non-employee directors of the EverTrust Financial Group, Inc. and Everett Mutual
Bank, subject to certain restrictions, including required vesting periods.
Awards under the management recognition and development plan will be granted at
no cost to recipients. See "MANAGEMENT OF EVERETT MUTUAL BANK -- Benefits --
Management Recognition and Development Plan" in the prospectus.
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MUTUAL BANCSHARES
Mutual Bancshares is a bank holding company which owned four
subsidiaries at March 31, 1999: Everett Mutual Bank, Commercial Bank of Everett,
I-Pro, Inc. and Mutual Bancshares Capital, Inc. The business of Mutual
Bancshares is conducted primarily by Everett Mutual Bank, whose operations are
enhanced by the activities and operations of Mutual Bancshares' other three
subsidiaries. Mutual Bancshares' business activities generally are limited to
passive investment activities and oversight of its investment in Everett Mutual
Bank. Accordingly, the information regarding Mutual Bancshares' business,
including consolidated financial statements and related data, relates primarily
to Everett Mutual Bank.
Reference to Mutual Bancshares in this proxy statement and in the
prospectus refers to the holding company on a historical basis. Reference to
EverTrust Financial Group, Inc. in this proxy statement and the prospectus
refers to the holding company in the future, following the conversion.
General
Mutual Bancshares. Mutual Bancshares is a bank holding company which
was formed in 1993 in connection with the mutual holding company reorganization
of Everett Mutual Bank. Mutual Bancshares owns four subsidiaries - Everett
Mutual Bank, a Washington state chartered savings bank; Commercial Bank of
Everett, a Washington state chartered commercial bank; I-Pro, Inc., a Washington
corporation, which is an item processing company; and Mutual Bancshares Capital,
Inc., a Washington corporation, which is a venture capital firm.
Everett Mutual Bank. Everett Mutual Bank was formed in 1916 and is
regulated by the Washington Division of Banks and the Federal Deposit Insurance
Corporation. The Federal Deposit Insurance Corporation under the Bank Insurance
Fund currently insures Everett Mutual Bank's deposits, which have been federally
insured since 1934.
Commercial Bank of Everett. Commercial Bank of Everett was formed by
Mutual Bancshares in 1996 in order to offer commercial banking services to
small- and medium-sized businesses and professional practices in Snohomish
County. Commercial Bank of Everett operates through a single leased office
facility in Everett. Commercial Bank of Everett is regulated by the Washington
Division of Banks and the Federal Deposit Insurance Corporation. The Federal
Deposit Insurance Corporation under the Bank Insurance Fund currently insures
Commercial Bank of Everett's deposits, which have been federally insured since
1996.
I-Pro, Inc. I-Pro, Inc. was organized in 1997 to provide backroom
banking services for Everett Mutual Bank and Commercial Bank of Everett, as well
as other financial institutions and nonbanking businesses. Currently, Everett
Mutual Bank and Commercial Bank of Everett are I-Pro's only clients. However,
I-Pro intend to expand its third-party relationships with other regional banking
and nonbanking companies during the next year.
Mutual Bancshares Capital, Inc. Mutual Bancshares Capital, Inc. was
formed in late 1998 and through its subsidiary, Bancshares Capital Management,
LLC, is the general partner to Bancshares Capital, L.P., an early stage venture
fund, which provides early stage equity to regionally-based high-technology and
medical instrumentation companies. Mutual Bancshares Capital, Inc. expects to
make initial investments in these companies in late 1999 and is reviewing
business plans and conducting due diligence of potential investment
opportunities. The investment in any single company is expected to be in the
range of $50,000 to $600,000 and Bancshares Capital, L.P. may co-invest with
other entrepreneurs or venture funds.
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VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Under Washington law, mutual holding companies do not have any members
and no voting rights are accorded to depositors. However, current Federal
Deposit Insurance Corporation regulations require that the conversion be
approved by depositors. Accordingly, pursuant to the plan of conversion, voting
rights and requirements have been established as if the conversion involved the
conversion of Mutual Bancshares under regulations of the Office of Thrift
Supervision from the mutual form of organization to the stock form of
organization. Therefore, persons and entities entitled to vote at Mutual
Bancshares' special meeting are the depositors and borrowers of Everett Mutual
Bank as of the voting record date who continue to be depositors or borrowers on
the date of the special meeting or any adjournment thereof. Such persons are
referred to herein as "members."
The Boards of Directors of Mutual Bancshares and Everett Mutual Bank
have fixed the close of business on __________ __, 1999, as the record date for
the determination of members entitled to notice of and to vote at the special
meeting. All members of record as of the close of business on the voting record
date will be entitled to notice of and to vote at the special meeting or any
adjournment thereof.
Each eligible depositor member will be entitled at the special meeting
to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of his or her savings accounts in Everett Mutual Bank or Commercial
Bank of Everett as of the voting record date. Borrowers with loans outstanding
as of the voting record date will be entitled to cast one vote in addition to
the number of votes he or she may be entitled to as a depositor. No member is
entitled to cast more than 1,000 votes. Any number of members present in person
or by proxy at the special meeting will constitute a quorum for the transaction
of business.
Approval of the plan of conversion will require the affirmative vote of
a majority of the total outstanding votes of Mutual Bancshares' members eligible
to be cast at the special meeting. As of the voting record date for the special
meeting, there were approximately _______ votes eligible to be cast, of which
________ votes constitutes a majority.
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 member to vote
on the plan of conversion. All properly executed proxies received by management
will be voted in accordance with the instructions indicated thereon by the
members giving such proxies. If no instructions are given, such proxies will be
voted in favor of the plan of conversion. If any other matters are properly
presented at the special meeting and may properly be voted on, all proxies will
be voted on such matters in accordance with the best judgment of the proxy
holders named therein. If the enclosed proxy is returned, it may be revoked at
any time before it is voted by written notice to the Secretary of Mutual
Bancshares, 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 Everett Mutual Bank
and Commercial Bank of Everett will vote in favor of the plan of conversion,
unless the beneficial owner executes and returns the enclosed proxy for the
special meeting or attends the special meeting and votes in person.
To the extent necessary to permit approval of the plan of conversion,
proxies may be solicited by officers, directors or regular employees of Mutual
Bancshares and Everett Mutual Bank, in person, by telephone or through other
forms of communication and, if necessary, the special meeting may be adjourned
to an alternative date. Such persons will be reimbursed by Mutual Bancshares and
Everett Mutual Bank for their reasonable out-of-pocket expenses incurred in
connection with such solicitation.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF MUTUAL BANCSHARES UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION
WILL NOT OBLIGATE ANY VOTER TO PURCHASE ANY STOCK. VOTING AGAINST THE PLAN OF
CONVERSION DOES NOT PRECLUDE ANY VOTER FROM PURCHASING STOCK.
THE CONVERSION
The Washington Division of Banks has approved the plan of conversion
with the condition that it is approved by the members of Mutual Bancshares
entitled to vote and to the satisfaction of certain other conditions imposed by
the Washington Division of Banks in its approval. The Washington Division of
Banks' approval is not a recommendation or endorsement of the plan of
conversion.
General
On March 20, 1999, the Board of Directors of Everett Mutual Bank and
Mutual Bancshares, respectively, unanimously adopted, and on May 24, 1999,
subsequently amended, the plan of conversion, under which Mutual Bancshares will
become a stock bank holding company. In connection with the conversion, Mutual
Bancshares has changed its name to EverTrust Financial Group, Inc.
References to Mutual Bancshares are to the entity in its mutual form of
ownership. References to EverTrust Financial Group, Inc. are to the entity,
which is offering the common stock for sale, and which will be the resulting
stock company in the mutual to stock conversion of Mutual Bancshares.
The following discussion of the plan of conversion contains all
material terms about the conversion. Nevertheless, readers are urged to read
carefully the plan of conversion, which is attached as Exhibit A to Mutual
Bancshares' Proxy Statement and is available to members of Mutual Bancshares
upon request. The plan of conversion is also filed as an exhibit to the
Registration Statement. See "Where You Can Find More Information." A special
meeting of Mutual Bancshares' members entitled to vote on the conversion has
been called for that purpose to be held on ________, 1999.
The plan of conversion provides generally that:
1. Mutual Bancshares will convert from mutual to stock form;
2. the common stock will be offered by EverTrust Financial Group,
Inc. in the subscription offering to persons having
subscription rights and in a direct community offering to
certain members of the general public, with preference given
to natural persons residing in Snohomish County;
3. if necessary, shares of common stock not subscribed for in the
subscription and direct community offering will be offered to
certain members of the general public in a syndicated
community offering through a syndicate of registered
broker-dealers under selected dealers agreements; and
4. the conversion will be completed only upon the sale of at
least $55,250,000 of common stock to be issued pursuant to the
plan of conversion.
As part of the conversion, EverTrust Financial Group, Inc. is making a
subscription offering of its common stock to holders of subscription rights in
the following order of priority:
o Persons with $50 or more on deposit at Everett Mutual Bank as
of December 31, 1997;
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o EverTrust Financial Group, Inc.'s employee stock ownership
plan;
o Persons with $50 or more on deposit at Everett Mutual Bank as
of June 30, 1999;
o Everett Mutual Bank's depositors and borrowers as of _________
__, 1999;
o Persons with $50 or more on deposit at Commercial Bank of
Everett as of December 31, 1997; and
o All other people.
Shares of common stock not subscribed for in the subscription and
direct community offering may be offered for sale in the syndicated community
offering. Regulations require that the syndicated community offering be
completed within 45 days after completion of the fully extended subscription
offering unless extended by Everett Mutual Bank or EverTrust Financial Group,
Inc. with the approval of the regulatory authorities. If the syndicated
community offering is determined not to be feasible, the Boards of Directors of
Everett Mutual Bank and EverTrust Financial Group, Inc. will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock. The plan of conversion provides
that the conversion must be completed within 24 months after the date of the
approval of the plan of conversion by the members of Mutual Bancshares.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Mutual Bancshares.
The completion of the offerings, however, depends on market conditions
and other factors beyond Mutual Bancshares and Everett Mutual Bank's control. No
assurance can be given as to the length of time after approval of the plan of
conversion at the special meeting that will be required to complete the direct
community or syndicated community offerings or other sale of the common stock.
If delays are experienced, significant changes may occur in the estimated pro
forma market value of Mutual Bancshares and its subsidiaries, together with
corresponding changes in the net proceeds realized by EverTrust Financial Group,
Inc. from the sale of the common stock. In the event the conversion is
terminated, Mutual Bancshares would be required to charge all conversion
expenses against current income.
Orders for shares of common stock will not be filled until at least
5,525,000 shares of common stock have been subscribed for or sold and the
Washington Division of Banks approves the final valuation and the conversion
closes. If the conversion is not completed within 45 days after the last day of
the fully extended subscription offering and the Washington Division of Banks
consents to an extension of time to complete the conversion, subscribers will be
given the right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Everett Mutual Bank's savings account rate, from the date
payment is received until the funds are returned to the subscriber. If such
period is not extended, or, in any event, if the conversion is not completed,
all withdrawal authorizations will be terminated and all funds held will be
promptly returned together with accrued interest at Everett Mutual Bank's
savings account rate from the date payment is received until the conversion is
terminated.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in
the best interests of Mutual Bancshares, its members and the communities it
serves. By converting to the stock form of organization, Mutual Bancshares will
be structured in the form used by holding companies of commercial banks and by a
growing number of savings institutions. Management of Mutual Bancshares believes
that the conversion offers a number of advantages which will be important to the
future growth and performance of Mutual Bancshares and Everett Mutual Bank. The
capital raised in the conversion is intended to support Everett Mutual Bank's
current lending and investment activities
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by permitting the origination of larger loan amounts and may also support
possible future expansion and diversification of operations, although there are
no current specific plans, arrangements or understandings, written or oral,
regarding any such expansion or diversification. The conversion is also expected
to afford Mutual Bancshares' management, members and others the opportunity to
become stockholders of EverTrust Financial Group, Inc. and participate more
directly in, and contribute to, any future growth of EverTrust Financial Group,
Inc. and Everett Mutual Bank. The conversion will also enable EverTrust
Financial Group, Inc. and Everett Mutual Bank to raise additional capital in the
public equity or debt markets should the need arise, although there are no
current specific plans, arrangements or understandings, written or oral,
regarding any such financing activities.
Effects of Conversion to Stock Form on Depositors and Borrowers of Everett
Mutual Bank
Voting Rights. Savings members and borrowers who are not shareholders
will have no voting rights in EverTrust Financial Group, Inc. and therefore will
not be able to elect directors of EverTrust Financial Group, Inc. or to control
its affairs. After the conversion, voting rights will be vested exclusively in
EverTrust Financial Group, Inc. with respect to Everett Mutual Bank and the
other subsidiaries and the holders of the common stock as to matters pertaining
to EverTrust Financial Group, Inc. Each holder of common stock shall be entitled
to vote on any matter to be considered by the stockholders of EverTrust
Financial Group, Inc. A stockholder will be entitled to one vote for each share
of common stock owned.
Deposit Accounts and Loans. Everett Mutual Bank's deposit accounts,
account balances and existing Federal Deposit Insurance Corporation insurance
coverage of deposit accounts will not be affected by the conversion.
Furthermore, the conversion will not affect the loan accounts, loan balances or
obligations of borrowers under their individual contractual arrangements with
Everett Mutual Bank.
Tax Effects. EverTrust Financial Group, Inc. and Everett Mutual Bank
have received an opinion from Breyer & Associates PC, Washington, D.C., that the
conversion will constitute a nontaxable reorganization under Section
368(a)(1)(F) of the Internal Revenue Code. Among other things, the opinion
states that:
1. no gain or loss will be recognized to Mutual Bancshares in its
mutual or stock form by reason of the conversion;
2. no gain or loss will be recognized to its account holders upon
the issuance to them of accounts in Everett Mutual Bank
immediately after the conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at
Everett Mutual Bank in its mutual form plus interest in the
liquidation account;
3. the tax basis of account holders' accounts in Everett Mutual
Bank immediately after the conversion will be the same as the
tax basis of their accounts immediately prior to conversion;
4. the tax basis of each account holder's interest in the
liquidation account will be equal to the value, if any, of
that interest;
5. the tax basis of the common stock purchased in the conversion
will be the amount paid and the holding period for the stock
will begin at the date of purchase; and
6. no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion,
except to the extent subscription rights are deemed to have
value as discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service,
an opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached therein.
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If there is a disagreement, no assurance can be given that the conclusions
reached in an opinion of counsel would be sustained by a court if contested by
the Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the
opinion provides that the receipt of subscription rights by certain persons
under the plan of conversion will be taxable to the extent, if any, that the
subscription rights are deemed to have a fair market value. RP Financial, a
financial consulting firm retained by Mutual Bancshares and Everett Mutual Bank,
whose findings are not binding on the Internal Revenue Service, has issued a
letter indicating that the subscription rights do not have any value, based on
the fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the common stock at a price equal to its estimated fair
market value, which will be the same price paid by purchasers in the direct
community offering for unsubscribed shares of common stock. If the subscription
rights are deemed to have a fair market value, the receipt of the rights may
only be taxable to those persons who exercise their subscription rights. Mutual
Bancshares and Everett Mutual Bank could also recognize a gain on the
distribution of such subscription rights. Holders of subscription rights are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the subscription rights are deemed to have a fair market value.
EverTrust Financial Group, Inc. and Everett Mutual Bank has also
received an opinion from Deloitte & Touche LLP, Seattle, Washington, that,
assuming the conversion does not result in any federal income tax liability to
Everett Mutual Bank, its account holders, or EverTrust Financial Group, Inc.,
implementation of the plan of conversion will not result in any Washington
income tax liability to such entities or persons.
The opinions of Breyer & Associates PC and Deloitte & Touche LLP and
the letter from RP Financial are filed as exhibits to the Registration
Statement. See "Where You Can Find More Information."
Prospective Investors Are Urged to Consult With Their Own Tax Advisors
Regarding The Tax Consequences of The Conversion Particular to Them.
Liquidation Account. In the unlikely event of a complete liquidation of
Everett Mutual Bank in its present mutual form, each depositor in Everett Mutual
Bank would receive a pro rata share of any assets of Everett Mutual Bank
remaining after payment of claims of all creditors, including the claims of all
depositors up to the withdrawal value of their accounts. Each depositor's pro
rata share of such remaining assets would be in the same proportion as the value
of his deposit account to the total value of all deposit accounts in Everett
Mutual Bank at the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in Everett
Mutual Bank, including certificates of deposit, shall not be entitled to share
in any residual assets in the event of liquidation of Everett Mutual Bank.
However, under the Washington Division of Banks' regulations, Everett Mutual
Bank shall, at the time of the conversion, establish a liquidation account in an
amount equal to its total equity as of the date of the latest statement of
financial condition contained in the final prospectus relating to the
conversion.
The liquidation account shall be maintained by Everett Mutual Bank
subsequent to the conversion for the benefit of eligible account holders and
supplemental eligible account holders who retain their savings accounts in
Everett Mutual Bank. Each eligible account holder and supplemental eligible
account holder shall, with respect to each savings account held, have a related
inchoate interest in a subaccount portion of the liquidation account balance.
The initial subaccount balance for a savings account held by an
eligible account holder or a supplemental eligible account holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the savings account and the denominator is the total amount of the
"qualifying deposits" of all eligible account holders. The initial subaccount
balance shall not be increased, and it shall be decreased as provided below.
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If the deposit balance in any savings account of an eligible account
holder or supplemental eligible account holder at the close of business on any
annual closing day of Everett Mutual Bank subsequent to December 31, 1997 or
June 30, 1999 is less than the lesser of the deposit balance in a savings
account at the close of business on any other annual closing date subsequent to
December 31, 1997 or June 30, 1999, or the amount of the "qualifying deposit" in
a savings account on December 31, 1997 or June 30, 1999, then the subaccount
balance for a savings account shall be adjusted by reducing the subaccount
balance in an amount proportionate to the reduction in the deposit balance. Once
reduced, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related savings
account. If any savings account is closed, the related subaccount balance shall
be reduced to zero.
Only upon a complete liquidation of Everett Mutual Bank, each eligible
account holder and supplemental eligible account holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance(s) for savings account(s) then held
by the holder before any liquidation distribution may be made to stockholders.
No merger, consolidation, bulk purchase of assets with assumptions of savings
accounts and other liabilities or similar transactions with another federally
insured institution in which Everett Mutual Bank is not the surviving
institution shall be considered to be a complete liquidation. In any of these
transactions the liquidation account shall be assumed by the surviving
institution.
In the unlikely event Everett Mutual Bank is liquidated, depositors
will be entitled to full payment of their deposit accounts before any payment is
made to EverTrust Financial Group, Inc. as the sole stockholder of Everett
Mutual Bank.
ADDITIONAL INFORMATION
EverTrust Financial Group, Inc. has filed with the Securities and
Exchange Commission a Registration Statement on Form S-1 (File No. 333-_____)
under the Securities Act with respect to the common stock offered in the
conversion. Such information may be inspected at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Room
1100, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Registration Statement is also available
through the Securities and Exchange Commission's World Wide Web site on the
Internet (www.sec.gov).
Mutual Bancshares and Everett Mutual Bank have filed with the Division
an Application for Approval of Conversion. The Application, which contains a
copy of RP Financial's appraisal report, may be inspected at the office of the
Division, Department of Financial Institutions, General Administration Building,
3rd Floor, Room 300, 210 11th Avenue, Olympia, Washington 98504. Mutual
Bancshares and Everett Mutual Bank have also filed a copy of such Application
with the Federal Deposit Insurance Corporation. Copies of the plan of conversion
and copies of EverTrust Financial Group, Inc.'s Articles of Incorporation and
Bylaws are available for inspection at any of Mutual Bancshares or Everett
Mutual Bank's offices and may be obtained by writing to Mutual Bancshares at
2707 Colby Avenue, Suite 600, Everett, Washington 98201; Attention: Michael B.
Hansen, President and Chief Executive Officer, or by telephoning Mutual
Bancshares at (425) 258-3645. A copy of RP Financial's independent appraisal
report is also available for inspection at any of Mutual Bancshares' offices.
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All persons eligible to vote at the special meeting should review both
this Proxy Statement and the accompanying prospectus carefully. However, no
person is obligated to purchase any common stock. For additional information,
you may call the stock information center toll free at (888) ___-____. If you
are out of the area, please call collect.
BY ORDER OF THE BOARD OF DIRECTORS
LORELEI CHRISTENSON
SECRETARY
Everett, Washington
_________ __, 1999
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT 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 MUTUAL BANCSHARES 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 IS MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS WHERE IT IS LAWFUL TO MAKE SUCH OFFER.
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EXHIBIT A
MUTUAL BANCSHARES
EVERETT, WASHINGTON
AMENDED PLAN OF CONVERSION
INTRODUCTION
I. General
On September 30, 1993, Everett Mutual Bank ("Everett Mutual" or the
"Savings Bank"), a Washington- chartered, mutual savings bank, reorganized into
the mutual holding company form of organization. That transaction was
accomplished as follows: (1) Everett Mutual established the mutual holding
company, Mutual Bancshares ("Mutual Holding Company"), under Washington law; (2)
the Mutual Holding Company chartered an interim stock savings bank as a wholly
owned subsidiary ("ISB"); and (3) ISB merged with Everett Mutual under the name
"Everett Mutual Bank" and under the stock charter of the Interim ("Merger").
Pursuant to the Merger, all the issued and outstanding shares of common stock of
ISB automatically were converted by operation of law on a one-for-one basis into
an equal number of issued and outstanding shares of common stock of the new
stock savings bank, Everett Mutual Bank ("Savings Bank"), which is wholly owned
by the Mutual Holding Company. As of the date hereof, the Mutual Holding Company
currently owns 100.00% of the outstanding Savings Bank Common Stock.
The Board of Directors of Everett Mutual Bank ("Savings Bank") desires
to attract new capital to the Savings Bank to facilitate a diversification of
financial services beyond standard bank products and to fund further expansion
through possible acquisitions. Given the estimated $20 trillion expected to be
passed between generations over the next two decades and the unusual demographic
concentration in the "baby boom" generation with the growing wealth and life
expectancy, the proposed Holding Company also desires additional capital to
acquire and implement substantial financial services technologies through the
acquisition of additional highly-skilled technology management and employees and
business as permitted by Federal Reserve Regulation Y. Both the Savings Bank and
the Holding Company wish to diversify towards the needs of higher net worth
individuals and away from mass market concentrations, especially minimum
balance, high-fee accounts, in more direct competition with the very large
nationwide banks and financial service companies entering the Snohomish County
market.
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to the Plan, shares of Conversion Stock will be offered as
part of the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to Eligible
Account Holders, second to Tax-Qualified Employee Stock Benefit Plans, third to
Supplemental Eligible Account Holders, fourth to Other Members, and then to
depositors of Commercial Bank of Everett as of the Eligibility Record Date
("Commercial Bank Eligible Account Holders"). Concurrently with the Subscription
Offering, shares not subscribed for in the Subscription Offering will be offered
as part of the Conversion to the general public in a Direct Community Offering.
Shares remaining may then be offered to the general public in a Syndicated
Community Offering, an underwritten public offering or otherwise. The aggregate
Purchase Price of the Conversion Stock will be based upon an independent
appraisal of the Savings Bank and will reflect the estimated pro forma market
value of the Savings Bank as a subsidiary of the Holding Company. Members as of
specified dates will be granted non-transferable subscription rights to purchase
Conversion Stock, and a liquidation account will be established for the benefit
of depositors as of specified dates.
The Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Savings Bank on March 20, 1999, and subsequently amended on May
24, 1999. Consummation of the Conversion is subject to the approval of this Plan
and the Conversion by the Division and must be adopted by a majority of the
total number of votes
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eligible to be cast at a special meeting of the Members of the Mutual Holding
Company to be called to consider the Conversion. In addition, in order to
consummate the Conversion, this Plan must be filed with and receive the non-
objection of the FDIC in accordance with applicable FDIC regulations.
After the Conversion, the Savings Bank will continue to be regulated by
the Division, as its chartering authority, and by the FDIC, which insures the
Savings Bank's deposits. After Conversion, the Holding Company will be regulated
by the Federal Reserve Board. In addition, all insured savings deposits will
continue to be insured by the FDIC up to the maximum provided by law.
No change will be made in the Board of Directors or management of the
Savings Bank as a result of the Conversion.
II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (1) Knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (2) 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 who acts in concert with another Person
("other party") shall also be deemed to be acting in concert with any Person who
is also acting in concert with that other party, except that any Tax-Qualified
Employee Stock Benefit Plan will not be deemed to be acting in concert with its
trustee or a Person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the
Tax-Qualified Employee Benefit Plan will be aggregated.
B. Application: The application submitted to the Division and the FDIC
for approval of the Conversion.
C. Associate: When used to indicate a relationship with any Person,
means (i) any corporation or organization (other than the Savings Bank or a
majority-owned subsidiary of the Savings Bank, or the Mutual Holding Company) of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except a Tax-Qualified Employee Stock Benefit Plan and (iii) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person or who is a director or officer of the Savings Bank,
any of its subsidiaries, or the Mutual Holding Company.
D. Capital Stock: Any and all authorized capital stock in the Savings
Bank.
E. Common Stock: Any and all authorized common stock in the Holding
Company subsequent to the Conversion.
F. Conversion: (i) The conversion of the Mutual Holding Company from
mutual to stock form, and (ii) the issuance of Conversion Stock as provided
herein.
G. Conversion Stock: Holding Company Common Stock to be issued and sold
by the Holding Company pursuant to the Plan.
H. Converted Savings Bank: Everett Mutual Bank, in its form as a state
chartered capital stock savings bank after the Conversion.
I. Direct Community Offering: The offering for sale of Conversion Stock
to the public.
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J. Division: The Washington Department of Financial Institutions,
Division of Banks.
K. Eligibility Record Date: Close of business on December 31, 1997.
L. Eligible Account Holder: Holder of a Qualifying Deposit in the
Savings Bank on the Eligibility Record Date.
M. FDIC: Federal Deposit Insurance Corporation.
N. Federal Reserve: The Board of Governors of the Federal Reserve
System.
O. FR Y-3 Application: The application submitted to the Federal Reserve
on FR Y-3, if necessary, for approval of the Holding Company's acquisition of
all of the Capital Stock of the Converted Savings Bank.
P. Holding Company: The Mutual Holding Company as converted to stock
form.
Q. Holding Company Stock: Any and all authorized capital stock of the
Holding Company.
R. Local Community: Snohomish County of the State of Washington, the
county in which the Savings Bank maintains an office(s).
S. Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
T. Members: All Persons or entities who would qualify as members of the
Mutual Holding Company assuming the Mutual Holding Company was chartered by the
Office of Thrift Supervision.
U. Mutual Holding Company: Mutual Bancshares.
V. Notice: The Notice of Intent to Convert to Stock Form, including
amendments thereto, as filed by the Savings Bank with the FDIC pursuant to 12
C.F.R. Part 303.
W. Officer: An executive officer of the Savings Bank, which includes
the President, Executive Vice President, Senior Vice Presidents, Vice Presidents
in charge of principal business functions, the Secretary and the Treasurer as
well as any other person performing similar functions.
X. Order Forms: Forms to be used to order Conversion Stock sent to
Eligible Account Holders and other parties eligible to purchase Conversion Stock
in the Subscription Offering or Community Offering pursuant to the Plan.
Y. Other Member: Holder of a Savings Account (other than Eligible
Account Holders or Supplemental Eligible Account Holders) and borrowers from the
Savings Bank as of the Record Date.
Z. Person: 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.
AA. Plan or Plan of Conversion: This Plan of Conversion as adopted by
the Boards of Directors of the Mutual Holding Company and the Savings Bank and
any amendment hereto approved as provided herein.
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BB. Primary Parties: The Mutual Holding Company, the Savings Bank and
the Holding Company.
CC. Qualifying Deposit: The balance in any Savings Account as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a balance of less
than $50 shall constitute a Qualifying Deposit.
DD. RCW: Revised Code of Washington, as amended.
EE. Record Date: Date which determines which Members are entitled to
vote at the Special Meeting.
FF. Registration Statement: The registration statement on Form S-1 or
other applicable forms filed by the Holding Company with the SEC for the purpose
of registering the Conversion Stock under the Securities Act of 1933, as
amended.
GG. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
including certificates of deposit, demand deposit accounts and
non-interest-bearing deposit accounts.
HH. Savings Bank: Everett Mutual Bank.
II. SEC: Securities and Exchange Commission.
JJ. Special Meeting: The special meeting of Members called for the
purpose of considering the Plan for approval.
KK. Subscription Offering: The offering of Conversion Stock to Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders, Other Members, and Commercial Bank Eligible Account
Holders under the Plan.
LL. Subscription Rights: Non-transferable, non-negotiable, personal
rights of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members, and Commercial Bank
Eligible Account Holders to purchase Conversion Stock.
MM. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Plan by the Division.
NN. Supplemental Eligible Account Holder: Holder of a Qualifying
Deposit in the Savings Bank (other than an Officer or director or their
Associates) on the Supplemental Eligibility Record Date.
OO. Syndicated Community Offering: The offering for sale by a syndicate
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
PP. Tax Qualified Employee Stock Benefit Plan: Any defined benefit plan
or defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust meets the requirements to be "qualified" under
section 401of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. General Procedure For Conversion.
A. An Application for Conversion, including the Plan, will be
submitted, together with all requisite material, to the Division for approval
and the FDIC for its non-objection. The Mutual Holding Company and the
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Savings Bank also will cause notice of the adoption of the Plan by the Boards of
Directors of the Mutual Holding Company and the Savings Bank to be given by
publication in a newspaper having general circulation in each community in which
an office of the Savings Bank is located; and will make available copies of the
Plan at each office of the Mutual Holding Company and the Savings Bank for
inspection by Members. After receipt of notice from the Division to do so, the
Mutual Holding Company and the Savings Bank will post the notice of the filing
of the Application for Conversion in each of its offices and will again publish,
in accordance with the requirements of applicable regulations of the Division, a
notice of the filing with the Division of an application to convert the Mutual
Holding Company from mutual to stock form.
B. Promptly following approval of the Application for Conversion by the
Division and receipt of notice of non-objection from the FDIC, this Plan will be
submitted to the Members for their consideration and approval at the Special
Meeting. The Mutual Holding Company may, at its option, mail to all Members as
of the Record Date, at their last known address appearing on the records of the
Savings 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.
The Holding Company shall also mail to Eligible Account Holders, Tax Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders, Other
Members, and Commercial Bank Eligible Account Holders either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them or
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions of Section IX hereof. In
addition, Eligible Account Holders, Tax Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, Other Members, and Commercial Bank
Eligible Account Holders, will receive, or be given the opportunity to request
by either returning a postage prepaid card which will be distributed with the
proxy statement or letter or sending another written communication, a copy of
the articles of incorporation and bylaws of the Holding Company. The Plan must
be approved by the affirmative vote of at least a majority of the total number
of votes eligible to be cast by Members at the Special Meeting.
C. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders, Other
Members, and Commercial Bank Eligible Account Holders as set forth in Section IX
hereof.
D. The Plan must be approved by the holders of at least a majority of
the outstanding Savings Bank Common Stock.
E. If necessary, the Holding Company shall submit the Application Y-3
for approval of the acquisition of the Savings Bank. All notices required to be
published in connection with such application shall be published at the times
required.
F. The Holding Company shall file a Registration Statement with the SEC
to register the Conversion Stock under the Securities Act of 1933, as amended,
and shall further register the Conversion Stock under any applicable state
securities laws. 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 any, Other Members, and
Commercial Bank Eligible Account Holders. It is anticipated that any shares of
Conversion Stock remaining unsold after the Subscription Offering will be sold
through a Direct 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 IX hereof. The Holding Company shall
contribute to the Savings Bank 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 Savings Bank and as shall be
approved by the Division and the FDIC.
G. The effective date of the Conversion shall be the date set forth in
Section VIII hereof. Upon the effective date, the following transactions shall
occur:
(i) The Mutual Holding Company shall convert from mutual
to stock form;
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(ii) Certain depositors of the Mutual Holding Company will
be granted interests in the liquidation account to be
established by the Savings Bank pursuant to Section
XIV hereof; and
(iii) The Holding Company shall sell an amount of
Conversion Stock determined in accordance with
Section IX hereof.
H. The home office and branch offices of the Savings Bank shall be
unaffected by the Conversion.
I. The Charter of the Savings Bank shall be amended upon consummation
of the Conversion to reflect the establishment of a liquidation account in
accordance with Section XIII hereof. The Bylaws of the Savings Bank shall be
unaffected by the Conversion.
J. The Primary Parties 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, Direct Community Offering and/or any Syndicated Community Offering,
the payment of fees to brokers and investment bankers for assisting Persons in
completing and/or submitting Order Forms.
IV. Meeting of Members
Upon receipt of approval of the Application by the Division and (i)
receipt from the FDIC of a conditional intention to issue a notice of
non-objection or (ii) expiration of the time period for FDIC review and
objection without receipt of an objection by the FDIC, the Special Meeting shall
be scheduled in accordance with the Mutual Holding Company's Bylaws. Promptly
after receipt of approval from the Division and at least 20 days but not more
than 45 days prior to the Special Meeting, the Mutual Holding Company shall
distribute proxy solicitation materials to all Members and beneficial owners of
accounts held in fiduciary capacities where the beneficial owners possess voting
rights, as of the Record Date. The proxy solicitation materials shall include a
copy of the proxy statement to be used in connection with such solicitation
("Proxy Statement") and other documents authorized for use by the regulatory
authorities and may also include a copy of the Plan and/or a prospectus
("Prospectus") as provided in Paragraph VI below. The Mutual Holding Company
shall also advise each Eligible Account Holder and Supplemental Eligible Account
Holder not entitled to vote at the Special Meeting of the proposed Conversion
and the scheduled Special Meeting, and provide a postage prepaid card on which
to indicate whether he wishes to receive the Prospectus, if the Subscription
Offering is not held concurrently with the proxy solicitation.
At the Special Meeting, an affirmative vote of not less than a majority
of the total outstanding votes of the Members is required for approval of the
Plan. For purposes of voting at the Special Meeting, Members who are depositors
of the Savings Bank shall be entitled to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawable value of all of the depositor's
Savings Accounts as of the Record Date, Members who are borrowers shall be
entitled to cast one vote, in addition to any votes they may also be entitled to
cast as depositors, and no Member shall be entitled to cast more than 1,000
votes. Voting may be in person or by proxy. The Division shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
The Proxy Statement furnished to Members may be in summary form,
provided that a statement is made in bold-face type that a more detailed
description of the proposed transaction may be obtained by returning an enclosed
postage prepaid card or other written communication requesting supplemental
information. Without prior approval of the Division, the Special Meeting shall
not be held less than 20 days after the last day on which the supplemental
information statement is mailed to requesting Members. The supplemental
information statement may be combined with the Prospectus if the Subscription
Offering is commenced concurrently with or during the proxy solicitation of
Members for the Special Meeting.
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VI. Offering Documents
The Holding Company may commence the Subscription Offering and,
provided that the Subscription Offering has commenced, may commence the Direct
Community Offering concurrently with or during the proxy solicitation of
Members. The Holding Company may close the Subscription Offering before the
Special Meeting, provided that the offer and sale of the Conversion Stock shall
be conditioned upon approval of the Plan by the Members at the Special Meeting.
The Mutual Holding Company's proxy solicitation materials may require Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members to
return to the Savings Bank by a reasonable certain date a postage prepaid card
or other written communication requesting receipt of a Prospectus with respect
to the Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and other
eligible subscribers who had been furnished with proxy solicitation materials a
notice which shall state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date certain a postage
prepaid card or other written communication requesting the receipt of the
Prospectus.
Prior to commencement of the Subscription Offering, the Direct
Community Offering and the Syndicated Community Offering, the Holding Company
shall file the Registration Statement. The Holding Company shall not distribute
the final Prospectus until the Registration Statement containing same has been
declared effective by the SEC and the Prospectus has been declared effective by
the Division.
VII. Combined Subscription and Direct Community Offering
Instead of a separate Subscription Offering, all Subscription Rights
may be exercised by delivery of properly completed and executed Order Forms to
the Savings Bank or selling group utilized in connection with the Direct
Community Offering and the Syndicated Community Offering. If a separate
Subscription Offering is not held, orders for Conversion Stock in the Direct
Community Offering shall first be filled pursuant to the priorities and
limitations stated in Paragraph IX.C., below.
VIII. Effective Date
The effective date of the Conversion shall be the date upon which all
requisite regulatory approvals have been obtained and sufficient subscriptions
and orders for the Conversion Stock have been received. The closing of the sale
of all shares of Conversion Stock sold in the Subscription Offering, Direct
Community Offering and/or Syndicated Community Offering shall occur
simultaneously on the effective date of the Conversion.
IX. Stock Offering
A. Number of Shares
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Boards of Directors of the Primary
Parties in conjunction with the determination of the Purchase Price (as that
term is defined in Paragraph IX.B. below). The number of shares to be offered
may be subsequently adjusted by the Boards of Directors of the Primary Parties
prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Boards of Directors of the Primary Parties immediately prior
to the simultaneous completion of
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all such sales contemplated by this Plan on the basis of the estimated pro forma
market value of the Primary Parties, as converted, at such time. The estimated
pro forma market value of the Primary Parties shall be determined for such
purpose by an independent appraiser on the basis of such appropriate factors not
inconsistent with the regulations of the Division. Immediately prior to the
Subscription Offering, a subscription price range shall be established which
shall vary from 15% above to 15% below the average of the minimum and maximum of
the estimated price range. The maximum subscription price (i.e., the per share
amount to be remitted when subscribing for shares of Conversion Stock) shall
then be determined within the subscription price range by the Boards of
Directors of the Primary Parties. The subscription price range and the number of
shares to be offered may be revised after the completion of the Subscription
Offering with Division approval without a resolicitation of proxies or Order
Forms or both.
C. Method of Offering Shares
Subscription Rights shall be issued at no cost to Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members pursuant to priorities established by this
Plan and the regulations of the Division. In order to effect the Conversion, all
shares of Conversion Stock proposed to be issued in connection with the
Conversion must be sold and, to the extent that shares are available, no
subscriber shall be allowed to purchase less than 25 shares; provided, however,
that if the purchase price is greater than $20 per share, the minimum number of
shares which must be subscribed for shall be adjusted so that the aggregate
actual purchase price required to be paid for such minimum number of shares does
not exceed $500. The priorities established for the purchase of shares are as
follows:
1. Category 1: Eligible Account Holders
a. Each Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to
the greater of the maximum purchase limitation established for the
Direct Community Offering, one-tenth of one percent of the total
offering or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Qualifying Deposit of the Eligible Account Holder and
the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders. If the allocation made in this paragraph
results in an oversubscription, shares of Conversion Stock shall be
allocated among subscribing Eligible Account Holders so as to permit
each such account holder, to the extent possible, to purchase a number
of shares of Conversion Stock sufficient to make his total allocation
equal to 100 shares of Conversion Stock or the total amount of his
subscription, whichever is less. Any shares of Conversion Stock not so
allocated shall be allo cated among the subscribing Eligible Account
Holders on an equitable basis, related to the amounts of their
respective Qualifying Deposits as compared to the total Qualifying
Deposits of all Eligible Account Holders.
b. Subscription Rights received by Officers and directors of
the Savings Bank and their Associates, as Eligible Account Holders,
based on their increased deposits in the Savings Bank in the one-year
period preceding the Eligibility Record Date shall be subordinated to
all other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
a. Tax-Qualified Employee Stock Benefit Plans of the Savings
Bank shall receive, without payment, non-transferable Subscription
Rights to purchase in the aggregate up to 8% of the Conversion Stock.
The Subscription Rights granted to Tax-Qualified Stock Benefit Plans of
the Savings Bank shall be subject to the availability of shares of
Conversion Stock after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders. Because the Subscription
Rights granted to Tax-Qualified Employee Stock Benefit Plans of the
Savings Bank are
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subordinate to the Subscription Rights granted to Eligible Account
Holders, it is possible that the subscription order of Tax-Qualified
Employee Stock Benefit Plans of the Savings Bank will not be filled as
a result of an oversubscription by Eligible Account Holders. To the
extent that Tax- Qualified Employee Stock Benefit Plans of the Savings
Bank are unable to purchase in the aggregate up to 8% of the shares of
Conversion Stock issued in the Conversion as a result of such an
oversubscription, Tax-Qualified Employee Stock Benefit Plans of the
Savings Bank may purchase shares in the open market following the
consummation of the Conversion. Tax-Qualified Employee Stock Benefit
Plans may use funds contributed or borrowed by the Holding Company or
the Savings Bank and/or borrowed from an independent financial
institution to exercise such Subscription Rights, and the Holding
Company and the Savings Bank may make scheduled discretionary
contributions thereto, provided that such contributions do not cause
the Holding Company or the Savings Bank to fail to meet any applicable
capital requirements.
3. Category 3: Supplemental Eligible Account Holders
a. In the event that the Eligibility Record Date is more than
15 months prior to the date of the latest amendment to the Application
filed prior to the Division's approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one percent
of the total offering or 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Qualifying Deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account Holders.
b. Subscription Rights received pursuant to this category
shall be subordinated to Subscription Rights granted to Eligible
Account Holders and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion
Stock received by an Eligible Account Holder in accordance with
Category Number 1 shall reduce to the extent thereof the Subscription
Rights to be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of Conversion Stock
shall be allocated among the subscribing Supplemental Eligible Account
Holders as follows:
(1) Shares of Conversion Stock shall be allocated so
as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his total allocation
(including the number of shares of Conversion Stock, if any,
allocated in accordance with Category Number 1) equal to 100
shares of Conversion Stock or the total amount of his
subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated
among the subscribing Supplemental Eligible Account Holders on
an equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying
Deposits of all Supplemental Eligible Account Holders.
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4. Category 4: Other Members
a. Other Members shall receive Subscription Rights to purchase
shares of Conversion Stock, after satisfying the subscriptions of
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders pursuant to Category Nos. l,
2 and 3 above, subject to the following conditions:
(1) Each such Other Member shall be entitled to
subscribe for the greater of the maximum purchase limitation
established for the Direct Community Offering or one-tenth of
one percent of the total offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of
Conversion Stock available shall be allocated among the
subscribing Other Members pro rata on the basis of the amounts
of their respective subscriptions.
5. Category 6: Commercial Bank Eligible Account Holders.
a. Commercial Bank Eligible Account Holders shall receive
Subscription Rights to purchase shares of Conversion Stock, after
satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders,
and Other Members pursuant to Category Nos. l, 2, 3 and 4 above,
subject to the following conditions:
(1) Each Commercial Bank Eligible Account Holder
shall be entitled to subscribe for up to the maximum purchase
limitation established for the Direct Community Offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 5, the shares of
Conversion Stock available shall be allocated among the
subscribing Commercial Bank Eligible Account Holders pro rata
on the basis of the amounts of their respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
1. Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights set forth in Category Nos. 1 through 5 above may be sold by
the Primary Parties to Persons under such terms and conditions as may be
established by the Primary Parties' Boards of Directors with the concurrence of
the Division. The Direct Community Offering may commence concurrently with or as
soon as possible after the completion of the Subscription Offering and must be
completed within 45 days after completion of the Subscription Offering, unless
extended with the approval of the Division. No Person may purchase in the Direct
Community Offering shares of Conversion Stock with an aggregate purchase price
that exceeds $250,000. The right to purchase shares of Conversion Stock under
this Category is subject to the right of the Primary Parties to accept or reject
such subscriptions in whole or in part. In the event of an oversubscription for
shares in this Category, the shares available shall be allocated among
prospective purchasers pro rata on the basis of the amounts of their respective
orders. The offering price for which such shares are sold to the general public
in the Direct Community Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
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3. The Conversion Stock offered in the Direct Community Offering shall
be offered and sold in a manner that will achieve the widest distribution
thereof. Preference shall be given in the Direct Community Offering to natural
Persons residing in the Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Primary Parties, all shares of Conversion Stock not subscribed
for in the Subscription Offering or ordered in the Direct Community Offering may
be sold by a syndicate of broker-dealers to the general public in a Syndicated
Community Offering. Each order for Conversion Stock in the Syndicated Community
Offering shall be subject to the absolute right of the Primary Parties to accept
or reject any such order in whole or in part either at the time of receipt of an
order or as soon as practicable after completion of the Syndicated Community
Offering. No Person may purchase in the Syndicated Community Offering shares of
Conversion Stock with an aggregate purchase price that exceeds $250,000. The
Primary Parties may commence the Syndicated Community Offering concurrently
with, at any time during, or as soon as practicable after the end of the
Subscription Offering and/or Direct Community Offering, provided that the
Syndicated Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Primary Parties
with the approval of the Division.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Direct
Community Offering or Syndicated Community Offering, the Primary Parties 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 Division.
6. In the event a Direct Community Offering or Syndicated Community
Offering appears not feasible, the Primary Parties will immediately consult with
the Division to determine the most viable alternative available to effect the
completion of the Conversion. Should no viable alternative exist, the Primary
Parties may terminate the Conversion with the concurrence of the Division.
E. Limitations Upon Purchases
The following additional limitations and exceptions shall be imposed
upon purchases of shares of Conversion Stock:
1. Purchases of shares of Conversion Stock in the Conversion,
including purchases in the Direct Community Offering by any Person, and
Associates thereof, or a group of Persons Acting in Concert, shall not
exceed an aggregate purchase price of $500,000, except that
Tax-Qualified Employee Stock Benefit Plans may purchase up to 8% of the
total Conversion Stock issued and shares held or to be held by the Tax-
Qualified Employee Stock Benefit Plans and attributable to a Person
shall not be aggregated with other shares purchased directly by or
otherwise attributable to such Person.
2. Officers and directors and Associates thereof may not
purchase in the aggregate more than 27% of the shares issued in the
Conversion.
3. The members of the Boards of Directors will not be deemed
to be Associates or a group of Persons Acting in Concert with other
directors solely as a result of membership on the Board of Directors.
4. The Primary Parties' Boards of Directors, with the approval
of the Division and without further approval of Members, may, as a
result of market conditions and other factors, increase or decrease the
purchase limitation in paragraphs 1 and 4 above or the number of shares
of Conversion Stock to be sold in the Conversion. If the Primary
Parties increase the maximum purchase limitations or the number of
shares of Conversion Stock to be sold in the Conversion, the Primary
Parties are only required to resolicit Persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the Primary
Parties,
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resolicit certain other large subscribers. If the Primary Parties
decrease the maximum purchase limitations or the number of shares of
Conversion Stock to be sold in the Conversion, the orders of any Person
who subscribed for the maximum purchase amount shall be decreased by
the minimum amount necessary so that such Person shall be in compliance
with the then maximum number of shares permitted to be subscribed for
by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation. In
the event that such purchase limitations are violated by any Person (including
any Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Primary Parties shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Persons. This right of the Primary Parties to
purchase such excess shares shall be assignable by the Primary Parties.
F. Restrictions On and Other Characteristics of the Conversion Stock
1. Transferability. Conversion Stock purchased by Officers and
directors of the Savings Bank and officers and directors of the Holding Company
shall not be sold or otherwise disposed of for value for a period of one year
from the date of Conversion, except for any disposition (i) following the death
of the origi nal purchaser or (ii) resulting from an exchange of securities in a
merger or acquisition approved by the regulatory authorities having
jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers and
directors shall bear a legend giving appropriate notice of the one-year holding
period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this
certificate pursuant to the laws of the State of Washington.
These shares may not be transferred prior thereto without a
legal opinion of counsel that said transfer is permissible
under the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions to
the transfer agent of the Holding Company Stock with respect to the foregoing
restrictions. Any shares of Holding Company Stock subsequently issued as a stock
dividend, stock split or otherwise, with respect to any such restricted stock,
shall be subject to the same holding period restrictions for such Persons as may
be then applicable to such restricted stock.
2. Subsequent Purchases by Officers and Directors. Without prior
approval of the Division, if applicable, Officers and directors of the converted
Savings Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following completion
of the Conversion from purchasing outstanding shares of Holding Company Stock,
except from a broker or dealer registered with the SEC and/or the Secretary of
State of the State of Washington. Notwithstanding this restriction, purchases
involving more than 1% of the total outstanding shares of Holding Company Stock
and purchases made and shares held by a Tax-Qualified or non-Tax-Qualified
Employee Stock Benefit Plan which may be attributable to such directors and
officers may be made in negotiated transactions without the Division's
permission or the use of a broker or dealer.
3. Repurchase and Dividend Rights. The Holding Company may repurchase
Holding Company Stock subject to applicable laws and regulations.
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The Converted Savings Bank may not declare or pay a cash dividend on
the Capital Stock if the result thereof would be to reduce the regulatory
capital of the Converted Savings Bank below (i) the amount required for the
Liquidation Account or (ii) the amount required by the Division.
Any dividend declared or paid on, or repurchase of, the Capital Stock
shall be in compliance with the rules and regulations of the Division, or other
applicable regulations. The above limitations shall not preclude payment of
dividends on, or repurchases of, Capital Stock in the event applicable
regulatory limitations are liberalized subsequent to the Conversion.
4. Voting Rights. After the Conversion, exclusive voting rights with
respect to the Holding Company shall be vested in the holders of Holding Company
Stock and the Holding Company will have exclusive voting rights with respect to
the Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After (i) approval of the Plan by the Division, (ii) the receipt of a
notice of non-objection from the FDIC with respect to the Notice or expiration
of the time period for FDIC review and objection without receipt of an objection
from the FDIC and (iii) the declaration of the effectiveness of the Prospectus,
the Holding Company shall distribute Prospectuses and Order Forms for the
purchase of shares of Conversion Stock in accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days
nor more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Primary Parties. Self-
addressed, postage prepaid, return envelopes shall accompany all Order Forms
when they are mailed. Failure of any eligible subscriber to return a properly
completed and executed Order Form within the prescribed time limits shall be
deemed a waiver and a release by such eligible subscriber of any rights to
purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Primary Parties with
the approval of the Division.
H. Method of Payment
Payment for all shares of Conversion Stock may be made in cash, by
check or by money order, or if a subscriber has a Savings Account in the Savings
Bank such subscriber may authorize the Savings Bank to charge the subscriber's
Savings Account. The Holding Company shall pay interest at not less than the
passbook rate on all amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account, the funds shall remain in the subscriber's Savings Account and
shall continue to earn interest, but may not be used by such subscriber until
the Conversion is completed or terminated, whichever is earlier. The withdrawal
shall be given effect only concurrently with the sale of all shares of
Conversion Stock proposed to be sold in the Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Savings Bank shall allow subscribers to purchase shares of Conversion Stock
by withdrawing funds from certificate accounts held with the Savings Bank
without the assessment of early withdrawal penalties, subject to the approval,
if necessary, of the applicable regulatory authorities. In the case of early
withdrawal of only a portion of such account, the certificate evidencing such
account shall be canceled if the remaining balance of the account is less than
the applicable minimum balance requirement. In that event, the remaining balance
shall earn interest at the passbook rate. This waiver of the
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early withdrawal penalty is applicable only to withdrawals made in connection
with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
If an Order Form (i) is not delivered and is returned to the Primary
Parties by the United States Postal Service (or the Primary Parties is unable to
locate the addressee); (ii) is not returned to the Primary Parties, or is
returned to the Primary Parties after expiration of the date specified thereon;
(iii) is defectively completed or executed; or (iv) is not accompanied by the
total required payment for the shares of Conversion Stock subscribed for
(including cases in which the subscribers' Savings Accounts are insufficient to
cover the authorized withdrawal for the required payment), the Subscription
Rights of the Person to whom such rights have been granted shall not be honored
and shall be treated as though such Person failed to return the completed Order
Form within the time period specified therein. Alterna tively, the Primary
Parties may, but shall not be required to, waive any irregularity relating to
any Order Form or require the submission of a corrected Order Form or the
remittance of full payment for the shares of Conversion Stock subscribed for by
such date as the Primary Parties may specify. Subscription orders, once
tendered, shall not be revocable. The Primary Parties' interpretation of the
terms and conditions of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all states of the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person shall be offered or receive any such shares under the Plan who
resides in a foreign country or who resides in a state of the United States with
respect to which any of the following apply: (a) a small number of Persons
otherwise eligible to subscribe for shares of Conversion Stock reside in such
state; (b) the granting of Subscription Rights or offer or sale of shares of
Conversion Stock to such Persons would require the Holding Company to register,
under the securities laws of such state, as a broker or dealer or to register or
otherwise qualify its securities for sale in such state; or (c) such
registration or qualification would be impractical for reasons of cost or
otherwise.
X. Establishment and Funding of Charitable Foundation
As part of the Conversion, the Holding Company and the Savings Bank
intend to establish a charitable foundation that will qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code (the
"Foundation") and to donate to the Foundation cash or stock from authorized, but
unissued, shares of Common Stock of the Holding Company not to exceed 8% of the
number of shares of Common Stock sold in the Conversion. The Foundation is being
formed in connection with the Conversion in order to complement the Savings
Bank's existing community reinvestment activities and to share with the Savings
Bank's local community a part of the Savings Bank's financial success as a
locally headquartered, community minded, financial services institution. The
funding of the Foundation with Common Stock of the Holding Company accomplishes
this goal as it enables the community to share in the growth and profitability
of the Holding Company and the Savings Bank over the long-term. The Foundation
will be dedicated to the promotion of charitable purposes including community
development, grants or donations to support housing assistance, not-for-profit
community groups and other types of organizations or civic minded projects. The
Foundation will annually distribute total grants to assist charitable
organizations or to fund projects within its local community of not less than 5%
of the average fair value of Foundation assets each year. In order to serve the
purposes for which it was formed and maintain its 501(c)(3) qualification, the
Foundation may sell, on an annual basis, a limited portion of the Common Stock
contributed to it by the Holding Company. A majority of the board of directors
of the Foundation will be comprised of individuals who are officers and/or
directors of the Savings Bank and the remaining board members will be comprised
of civic and community leaders within the Savings Bank's local community. The
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board of directors of the Foundation will be responsible for establishing the
polices 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 is subject to the approval of the Division
and, if applicable, the FDIC.
XI. Post Conversion Filing and Market Making
In connection with the Conversion, the Holding Company shall register
the Conversion Stock with the SEC pursuant to the Securities Exchange Act of
1934, as amended, and shall undertake not to deregister such Conversion Stock
for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account or accounts after the
Conversion, equal in amount to the withdrawable value of such holder's Savings
Account or accounts prior to Conver sion. All Savings Accounts will continue to
be insured by the Bank Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans shall retain the same status after the Conversion
as they had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
After the Conversion, holders of Savings Accounts shall not be entitled
to share in any residual assets in the event of liquidation of the Converted
Savings Bank. However, the Savings Bank shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Savings Bank.
The liquidation account shall be maintained by the Converted Savings
Bank subsequent to the Conversion for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Converted Savings Bank. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to each Savings Account held, have a
related inchoate interest in a portion of the liquidation account balance
("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's Qualifying
Deposit in the Savings Account and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders. Such initial subaccount balance shall not be increased, and it
shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such
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subaccount balance shall not be subsequently increased, notwithstanding any
increase in the deposit balance of the related Savings Account. If any such
Savings Account is closed, the related subaccount balance shall be reduced to
zero.
In the event of a complete liquidation of the Converted Savings Bank,
each Eligible Account Holder and Sup plemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution in which the Converted Savings Bank
is not the surviving institution shall be considered to be a complete
liquidation. In any such transaction, the liquidation account shall be assumed
by the surviving institution.
XIV. Restrictions on Acquisition of Stock of the Holding Company
A. As soon as practicable following Conversion, the Converted Savings
Bank shall enter into an agreement with the Division which will provide that for
a period of three years following the date of Conversion, any company
significantly engaged in an unrelated business activity (either directly or
through an affiliate thereof) shall not be permitted to acquire control of the
Converted Savings Bank. Any acquisition of the Converted Savings Bank shall also
comply with RCW 32.32.228.
B. Definitions (for purposes of this section only):
1. The term "affiliate" means any person or company which
controls, is controlled by, or is under common control with, a
specified company.
2. A person or company shall be deemed to have "control" of:
(i) A savings bank if the person directly or
indirectly or acting in concert with one or more other persons
or through one or more subsidiaries, owns, controls, or holds
with power to vote, or holds proxies representing, more than
twenty-five percent of the voting shares of the savings bank,
or controls in any manner the election of a majority of the
directors of the bank;
(ii) Any other company if the person directly or
indirectly or acting in concert with one or more other
persons, or through one or more subsidiaries, owns, controls,
or holds with power to vote, or holds proxies representing,
more than twenty-five percent of the voting shares or rights
of the other company, or controls in any manner the election
or appointment of a majority of the directors of the other
company, or is a general partner in or has contributed more
than twenty-five percent of the capital of the other company;
(iii) A trust if the person is a trustee thereof; or
(iv) A savings bank or any other company if the
Division determines, after reasonable notice and opportunity
for hearing, that the person directly or indirectly exercise a
controlling influence over the management or policies of the
savings bank or other company.
3. A company shall be deemed to be "significantly engaged" in
an unrelated business activity if its unrelated business activity
represents on either an actual or a pro forma basis more than fifteen
percent of its consolidated net worth at the close of its preceding
fiscal year or of its consolidated net earnings for such fiscal year.
4. The term "unrelated business activity" means any business
activity not authorized for a savings bank or any subsidiary thereof.
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C. In addition, for a period of three years following completion of the
Conversion, no Person may make directly, or indirectly, any offer to acquire or
actually acquire Capital Stock of the Converted Savings Bank if, after
consummation of such acquisition, such person would be the beneficial owner of
more than ten percent of the Converted Savings Bank's Capital Stock, without the
prior approval of the Division. However, approval is not required for purchases
directly from the Savings Bank or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding one
percent per annum of the shares outstanding. Civil penalties may be imposed by
the Division for willful violation or assistance of any violation.
D. The Holding Company may provide in its articles of incorporation a
provision that, for a specified period of up to five years following the date of
the completion of the Conversion, no Person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of any
class of equity security of the Holding Company. Such provisions would not apply
to acquisition of securities by Tax-Qualified Employee Stock Benefit Plans
provided that such plans do not have beneficial ownership of more than 25% of
any class of equity security of the Holding Company. The Holding Company may
provide in its articles of incorporation for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Savings Bank
The Conversion is not intended to result in any change in the directors
or Officers. Each Person serving as a trustee of the Savings Bank at the time of
Conversion shall continue to serve as a member of the Converted Savings Bank's
Board of Directors, subject to the Converted Savings Bank's charter and bylaws.
The Persons serving as Officers immediately prior to the Conversion will
continue to serve at the discretion of the Board of Directors in their
respective capacities as Officers of the Converted Savings Bank. In connection
with the Conversion, the Savings Bank and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Savings Bank and the Holding
Company.
XVI. Executive Compensation
The Savings Bank and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
XVII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Savings Bank's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the Division. The
Plan may be terminated by a two-thirds vote of the Board of Directors at any
time prior to the Special Meeting, and at any time following such Special
Meeting with the concurrence of the Division. In its discretion, the Board of
Directors may modify or terminate the Plan upon the order of the regulatory
authorities without a resolicitation of proxies or another meeting of the
Members.
In the event that mandatory new regulations pertaining to conversions
are adopted by the Division prior to the completion of the Conversion, the Plan
shall be amended to conform to the new mandatory regulations without a
resolicitation of proxies or another meeting of Members. In the event that new
conversion regulations adopted by the Division prior to completion of the
Conversion contain optional provisions, the Plan may be amended to utilize such
optional provisions at the discretion of the Board of Directors without a
resolicitation of proxies or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors
to amend and/or terminate the Plan under the circumstances set forth above.
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XVIII. Expenses of the Conversion
The Primary Parties shall use their best efforts to assure that
expenses incurred in connection with the Conversion shall be reasonable.
XIX. Contributions to Tax-Qualified Plans
The Holding Company and/or the Converted Savings Bank may make
discretionary contributions to the Tax- Qualified Employee Stock Benefit Plans,
provided such contributions do not cause the Converted Savings Bank to fail to
meet its regulatory capital requirements.
* * * * *
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REVOCABLE PROXY
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF
MUTUAL BANCSHARES
FOR THE SPECIAL MEETING OF MEMBERS
TO BE HELD ON ________ __, 1999
The undersigned member of Mutual Bancshares hereby appoints the Board of
Directors, with full powers of substitution, as attorneys-in-fact and agents for
and in the name of the undersigned, to vote such shares as the undersigned may
be entitled to cast at the Special Meeting of Members ("Meeting") of the Mutual
Bancshares to be held at its main office, 2707 Colby Avenue, Everett,
Washington, on the date and time indicated on the Notice of Special Meeting of
Members, and at any adjournments thereof. They are authorized to cast all votes
to which the undersigned is entitled, as follows:
<TABLE>
<CAPTION>
FOR AGAINST
<S> <C> <C>
(1) To approve an Amended Plan of Conversion of Mutual Bancshares and
Agreement and Plan of Reorganization Between Mutual Bancshares and
Everett Mutual Bank, pursuant to which (i) Mutual Bancshares will
convert from a Washington-chartered mutual holding company to a
Washington-chartered capital stock holding company and be known as
EverTrust Financial Group, Inc., and (ii) EverTrust Financial Group,
Inc. will offer for sale shares of its common stock in a subscription
offering and, if necessary, in a community offering and, if necessary,
in a syndicated community offering, all as more specifically set forth
in the Plan of Conversion [ ] [ ]
</TABLE>
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
IMPORTANT: PLEASE SIGN DATE AND RETURN THIS PROXY IN THE PRE-ADDRESSED ENVELOPE
PROVIDED. VOTING FOR THE PLAN OF CONVERSION IN NO WAY OBLIGATES YOU TO BUY ANY
STOCK.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITION
STATED IF NO CHOICE IS MADE HEREIN
Should the undersigned be present and elect to vote at said Meeting or
at any adjournment thereof and, after notification to the Secretary of Mutual
Bancshares at said Meeting of the member's decision to terminate this Proxy,
then the power of said attorney-in-fact or agents shall be deemed terminated and
of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members of Mutual Bancshares called on the date and time indicated on such
Notice of Special Meeting of Members, and a Proxy Statement relating to said
Meeting from Mutual Bancshares, prior to the execution of this Proxy.
- -------------------------
Date
- -------------------------
Signature
- -------------------------
Signature
Note: Only one signature is required in the case of a joint account, but all
account holders should sign if possible. When signing as an attorney,
administrator, agent, corporate officer, executor, trustee, guardian or
other fiduciary capacity, indicate your full title.
