<PAGE>
As filed with the Securities and Exchange Commission on March 8, 2000
Registration No. 333-__________
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DUTCHFORK BANCSHARES, INC.
and
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
(Name of Small Business Issuer in its Certificate of Incorporation)
DELAWARE 6035 BEING APPLIED FOR
(State or Other Jurisdiction of (Primary Standard (IRS Employer
Incorporation or Organization) Industrial Classification Identification No.)
Code Number)
1735 Wilson Road
Newberry, South Carolina 29108
(803) 321-3200
(Address and Telephone Number of Principal Executive Offices)
1735 Wilson Road
Newberry, South
Carolina 29108
(803) 321-3200
(Address of Principal Place of Business or Intended Principal Place of Business)
J. Thomas Johnson
Chairman, President and Chief Executive Officer
DutchFork Bancshares, Inc.
1735 Wilson Road
Newberry, South Carolina 29108
(803) 321-3200
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Paul M. Aguggia, Esquire
Victor L. Cangelosi, Esquire
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of proposed sale to public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be be Registered Offering Price Aggregate Offering Registration
Registered Per Unit Price (1) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$.01 par Value 1,719,250 $10.00 $17,192,500 $4,539
- ------------------------------------------------------------------------------------------------------
Participation Interests (2) -- $ 960,878 (3)
======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) In addition, pursuant to Rule 416(c) under the Securities Act, this
registration statement also covers an indeterminate amount of interests to
be deferred or sold pursuant to the employee benefit plan described herein.
(3) The securities of DutchFork Bancshares, Inc. to be purchased by the
Newberry Federal Savings Bank Employees' Savings & Profit Sharing Plan are
included in the amount shown for Common Stock. Accordingly, no separate
fee is required for the participation interests. In accordance with Rule
457(h) of the Securities Act of 1933, as amended, the registration fee has
been calculated on the basis of the number of shares of Common Stock that
may be purchased with the current assets of such Plan.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
INTERESTS IN
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
AND
OFFERING OF 96,087 SHARES OF
DUTCHFORK BANCSHARES, INC.
COMMON STOCK ($.01 PAR VALUE)
This prospectus supplement relates to the offer and sale to participants in
the Newberry Federal Savings Bank Employees' Savings & Profit Sharing Plan and
Trust of participation interests and shares of common stock of DutchFork
Bancshares, Inc.
The Board of Directors of Newberry Federal has adopted a plan that will
convert the structure of Newberry Federal from a mutual savings institution to a
stock savings institution. As part of the conversion, DutchFork Bancshares,
Inc. has been established to acquire all of the stock of Newberry Federal and
simultaneously offer DutchFork common stock to the public under certain purchase
priorities in the plan of conversion. Savings Plan participants are now
permitted to direct the trustee of the Savings Plan to use their current account
balances to subscribe for and purchase shares of DutchFork common stock through
the DutchFork Stock Fund. Based upon the value of the Savings Plan assets at
________, the trustee of the Savings Plan could purchase up to 96,087 shares of
DutchFork common stock assuming a purchase price of $10.00 per share. This
prospectus supplement relates to the election of Savings Plan participants to
direct the trustee of the Savings Plan to invest all or a portion of their
Savings Plan accounts in DutchFork common stock.
The prospectus dated __________, 2000, of DutchFork, which we have attached
to this prospectus supplement, includes detailed information regarding the
conversion of Newberry Federal, DutchFork common stock and the financial
condition, results of operations and business of Newberry Federal. This
prospectus supplement provides information regarding the Savings Plan. You
should read this prospectus supplement together with the prospectus and keep
both for future reference.
Please refer to "Risk Factors" beginning on page __ of the prospectus.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any other state or
federal agency or any state securities commission, has approved or disapproved
these securities. Any representation to the contrary is a criminal offense.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
This prospectus supplement may be used only in connection with offers and
sales by DutchFork of interests or shares of common stock under the Savings Plan
to employees of Newberry Federal. No one may use this prospectus supplement to
reoffer or resell interests or shares of common stock acquired through the
Savings Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. DutchFork, Newberry Federal and the
Savings Plan have not authorized anyone to provide you with information that is
different.
This prospectus supplement does not constitute an offer to sell or
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is unlawful to make an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of Newberry Federal or the Savings Plan since the date of
this prospectus supplement, or that the information contained in this prospectus
supplement or incorporated by reference is correct as of any time after the date
of this prospectus supplement.
The date of this Prospectus Supplement is __________, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE OFFERING...................................................................... 1
Securities Offered............................................................ 1
Election to Purchase DutchFork Common Stock in the Conversion of
Newberry Federal.................................................... 1
Value of Participation Interests.............................................. 1
Method of Directing Transfer.................................................. 2
Time for Directing Transfer................................................... 2
Irrevocability of Transfer Direction.......................................... 2
Purchase Price of DutchFork Common Stock...................................... 2
Nature of a Participant's Interest in DutchFork Common Stock.................. 2
Voting and Tender Rights of DutchFork Common Stock............................ 2
DESCRIPTION OF THE SAVINGS PLAN................................................... 3
Introduction.................................................................. 3
Eligibility and Participation................................................. 3
Contributions Under the Savings Plan.......................................... 3
Limitations on Contributions.................................................. 4
Investment of Contributions................................................... 5
Benefits Under the Savings Plan............................................... 7
Withdrawals and Distributions From the Savings Plan........................... 7
Administration of the Savings Plan............................................ 7
Reports to Savings Plan Participants.......................................... 8
Plan Administrator............................................................ 8
Amendment and Termination..................................................... 8
Merger, Consolidation or Transfer............................................. 8
Federal Income Tax Consequences............................................... 8
Restrictions on Resale........................................................ 10
SEC Reporting and Short-Swing Profit Liability................................ 11
LEGAL OPINIONS.................................................................... 11
CHANGE OF INVESTMENT ALLOCATION FORM
</TABLE>
<PAGE>
THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement are
participation interests in the Savings Plan. Assuming a purchase price of
$10.00 per share, the trustee may acquire up to 1,495,000 shares of DutchFork
common stock for the DutchFork Stock Fund. The interests offered under this
prospectus supplement are conditioned on the completion of the conversion of
Newberry Federal. Your investment in the DutchFork Stock Fund in connection
with the conversion of Newberry Federal is also governed by the purchase
priorities contained in the plan of conversion of Newberry Federal.
This prospectus supplement contains information regarding the Savings Plan.
The attached prospectus contains information regarding the conversion of
Newberry Federal and the financial condition, results of operations and business
of Newberry Federal. The address of the principal executive office of Newberry
Federal is 1735 Wilson Road, Newberry, South Carolina 29108. The telephone
number of Newberry Federal is (803) 321-3200.
Election to Purchase DutchFork Common Stock in the Conversion of Newberry
Federal
In connection with the conversion of Newberry Federal, the Savings Plan
will permit you to direct the trustee to transfer all or part of the funds which
represent your current beneficial interest in the assets of the Savings Plan to
the DutchFork Stock Fund. The trustee of the Savings Plan will subscribe for
DutchFork common stock offered for sale in connection with the conversion of
Newberry Federal in accordance with each participant's direction. If there is
not enough Common Stock in the conversion to fill all subscriptions, the Common
Stock will be apportioned and the trustee for the Savings Plan may not be able
to purchase all of the Common Stock you requested. In such case, the trustee
will purchase shares in the open market, on your behalf, after the conversion to
fulfill your initial request. Such purchases may be at prices higher than the
initial public offering price.
All plan participants are eligible to direct a transfer of funds to the
DutchFork Stock Fund. However, such directions are subject to the purchase
priorities in the plan of conversion of Newberry Federal. Your order will be
filled based on your status as an eligible account holder or supplemental
eligible account holder in the conversion of Newberry Federal. An eligible
account holder is a depositor whose savings account(s) totalled $50.00 or more
on November 30, 1998. A supplemental eligible account holder is a depositor
whose savings account(s) totalled $50.00 or more on March 31, 2000. No eligible
account holders or supplemental eligible account holders may purchase in the
subscription offering more than $175,000 of DutchFork common stock, which equals
17,500 shares. If you fall into one of the above subscription offering
categories, you have subscription rights to purchase shares of common stock in
the subscription offering and you may use funds in the Savings Plan account to
pay for the shares of DutchFork common stock which you are eligible to purchase.
Value of Participation Interests
As of ____________, the market value of the assets of the Savings Plan
equaled approximately $_________. The plan administrator has informed each
participant of the value of his or her beneficial interest in the Savings Plan
as of ____________. The value of Savings Plan assets represents past
contributions to the Savings Plan on your behalf, plus or minus earnings or
losses on the contributions, less previous withdrawals and loans.
1
<PAGE>
Method of Directing Transfer
The last two pages of this prospectus supplement is a form for you to
direct a transfer to the DutchFork Stock Fund (the "Change of Investment
Allocation Form"). If you wish to transfer all, or part, in multiples of not
less than 1%, of your beneficial interest in the assets of the Savings Plan to
the DutchFork Stock Fund, you should complete the Change of Investment
Allocation Form. If you do not wish to make such an election at this time, you
do not need to take any action. The minimum investment in the DutchFork Stock
Fund during the initial public offering is $250.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
DutchFork Stock Fund in connection with the conversion of Newberry Federal is
__________, 2000. You should return the Change of Investment Allocation Form to
____________________________________ by ____ p.m. on __________, 2000.
Irrevocability of Transfer Direction
Your direction to transfer amounts credited to your account in the Savings
Plan to the DutchFork Stock Fund cannot be changed. You will, however, be
provided with opportunities in the future to make other investment elections
with respect to new and previously contributed amounts.
Purchase Price of DutchFork Common Stock
The trustee will use the funds transferred to the DutchFork Stock Fund to
purchase shares of DutchFork common stock in the conversion of Newberry Federal.
The trustee will pay the same price for shares of DutchFork common stock as all
other persons who purchase shares of DutchFork common stock in the conversion of
Newberry Federal. If there is not enough Common Stock in the conversion to
fill all subscriptions, the Common Stock will be apportioned and the trustee for
the Savings Plan may not be able to purchase all of the Common Stock you
requested. In such case, the trustee will purchase shares in the open market, on
your behalf, after the conversion to fulfill your initial request. Such
purchases may be at prices higher than the initial public offering price.
Nature of a Participant's Interest in DutchFork Common Stock
The trustee will hold DutchFork common stock in the name of the Savings
Plan. The trustee will allocate shares of common stock acquired at your
direction to your account under the Savings Plan. Therefore, earnings with
respect to your account should not be affected by the investment designations of
other participants in the Savings Plan.
Voting and Tender Rights of DutchFork Common Stock
The Trustee generally will exercise voting and tender rights attributable
to all DutchFork common stock held by the DutchFork Stock Fund as directed by
participants with interests in the DutchFork Stock Fund. With respect to each
matter as to which holders of DutchFork common stock have a right to vote, you
will be given voting instruction rights reflecting your proportionate interest
in the DutchFork Stock Fund. The number of shares of DutchFork common stock held
in the DutchFork Stock Fund that are voted for and against on each matter will
be proportionate to the number of voting instruction rights exercised in such
manner. If there is a tender offer for DutchFork common stock, the Savings Plan
provides that each participant will be allotted a number of tender instruction
rights reflecting such participant's proportionate interest in the DutchFork
Stock Fund. The percentage of shares of DutchFork common stock held in the
DutchFork Stock Fund that will be tendered will be the same as the percentage of
the total number of tender
2
<PAGE>
instruction rights that are exercised in favor of tendering. The remaining
shares of DutchFork common stock held in the DutchFork Stock Fund will not be
tendered. The Savings Plan makes provisions for participants to exercise their
voting instruction rights and tender instruction rights on a confidential basis.
DESCRIPTION OF THE SAVINGS PLAN
I. Introduction
Effective ___________, 2000, Newberry Federal adopted the Newberry
Federal Savings Bank Employees' Savings & Profit Sharing Plan and Trust. The
Savings Plan represents a continuance of similar programs maintained by Newberry
Federal in prior years. Newberry Federal intends for the Savings Plan to
comply, in form and in operation, with all applicable provisions of the Internal
Revenue Code of 1986, as amended, or the "Code," and the Employee Retirement
Income Security Act or "ERISA." Newberry Federal may change the Savings Plan
from time to time in the future to ensure continued compliance with these laws.
Newberry Federal may also amend the Savings Plan from time to time in the future
to add, modify, or eliminate certain features of the plan, as it sees fit. As a
plan governed by the Employee Retirement Income Security Act of 1974, as
amended, federal law provides you with various rights and protections as a plan
participant. Although the Savings Plan is governed by many of the provisions of
the Employee Retirement Income Security Act of 1974, as amended, your benefits
under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.
Reference to Full Text of Plan. The following portions of this prospectus
supplement provide an overview of the material provisions of the Savings Plan.
Newberry Federal qualifies this overview in its entirety by reference to the
full text of the Savings Plan. You may obtain copies of the full Savings Plan
document by sending a request to the Human Resources Department at Newberry
Federal. You should carefully read the full text of the Savings Plan document
to understand your rights and obligations under the plan.
II. Eligibility and Participation
Any employee of Newberry Federal may participate in the Savings Plan as of
the first day of the month following the attainment of age 21 and the completion
of one "year of service." For purposes of the Savings Plan, you generally
complete one "year of service" if you complete 1,000 hours of service with
Newberry Federal within a 12 consecutive-month period.
As of ___________, 2000, ___ of the ___ eligible employees of Newberry
Federal elected to participate in the Savings Plan.
III. Contributions Under the Savings Plan
Savings Plan Participant Contributions. The Savings Plan permits each
participant to annually defer receipt of 2% to 10% of compensation that Newberry
Federal would otherwise currently pay. For purposes of calculating deferrals,
the Savings Plan considers compensation to include your base salary, plus
overtime, bonuses and commissions. However, by law, the Savings Plan may not
consider more than $70,000 of compensation for purposes of determining deferrals
for 2000. Participants in the Savings Plan may modify the amount contributed to
the plan, effective on the first day of each calendar quarter.
Newberry Federal Contributions. Newberry Federal has discretion under the
Savings Plan about whether or not to make matching contributions. Newberry
Federal currently makes matching contributions to the Savings Plan equal to __%
of a Participant's contributions up to 3% of a participant's compensation for
purposes of the Savings Plan. Newberry Federal may also make special
contributions to the Savings Plan
3
<PAGE>
in an amount determined by Newberry Federal as of the last day of the plan year
for all employees who participated in the Savings Plan on the last day of the
plan year.
IV. Limitations on Contributions
Limitation on Employee Salary Deferral. Although the Savings Plan permits
you to defer up to 10% of your compensation, by law your total deferrals under
the Savings Plan, together with similar plans, may not exceed $10,500 for 2000.
The Internal Revenue Service will periodically increase this annual limitation.
Contributions in excess of this limitation, or excess deferrals, will be
included in an affected participant's gross income for federal income tax
purposes in the year they are made. In addition, a participant will have to pay
federal income taxes on any excess deferrals when distributed by the Savings
Plan to the participant, unless the excess deferral and any related income
allocable is distributed to the participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
participant in the taxable year in which the distribution is made.
Limitations on Annual Additions and Benefits. Under the requirements of the
Code, the Savings Plan provides that the total amount of contributions and
forfeitures (annual additions) allocated to a participant during any year may
not exceed the lesser of 25% of the participant's compensation for that year, or
$30,000. The Savings Plan will also limit annual additions to the extent
necessary to prevent the limitations contained in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by
Newberry Federal from being exceeded.
Limitation on Plan Contributions for Highly Compensated Employees. Special
provisions of the Code limit the amount of salary deferrals and matching
contributions that may be made to the Savings Plan in any year on behalf of
highly compensated employees in relation to the amount of deferrals and matching
contributions made by or on behalf of all other employees eligible to
participate in the Savings Plan. If these limitations are exceeded, the level of
deferrals by highly compensated employees must be adjusted.
In general, a highly compensated employee includes any employee who, (1)
was a five percent owner of the sponsoring employer at any time during the year
or preceding year, or (2) had compensation for the preceding year in excess of
$85,000 and, if the sponsoring employer so elects, was in the top 20% of
employees by compensation for such year. The dollar amounts in the foregoing
sentence are for 2000, but maybe adjusted annually to reflect increases in the
cost of living.
Top-Heavy Plan Requirements. If for any calendar year the Savings Plan is
a Top-Heavy Plan, then Newberry Federal may be required to make certain minimum
contributions to the Savings Plan on behalf of non-key employees. In addition,
certain additional restrictions would apply with respect to the combination of
contributions to the Savings Plan and projected annual benefits under any
defined benefit plan maintained by Newberry Federal.
In general, the Savings Plan will be treated as a "Top-Heavy Plan" for any
calendar year if, as of the last day of the preceding calendar year, the
aggregate balance of the accounts of participants who are Key Employees exceeds
60% of the aggregate balance of the accounts of all participants. Key Employees
generally include any employee who, at any time during the calendar year or any
of the four preceding years, is:
(1) an officer of Newberry Federal Savings Bank having annual compensation
in excess of $60,000 who is in an administrative or policy-making capacity,
4
<PAGE>
(2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in Newberry
Federal,
(3) a person who owns directly or indirectly more than 5% of the stock of
DutchFork, or stock possessing more than 5% of the total combined voting power
of all stock of DutchFork, or
(4) a person who owns directly or indirectly combined voting power of all
stock and more than 1% of the total stock of DutchFork and has annual
compensation in excess of $150,000.
The foregoing dollar amounts are for 2000.
V. Investment of Contributions
All amounts credited to participants' accounts under the Savings Plan are
held in trust. A trustee appointed by the Board of Directors of Newberry
Federal administers the trust.
The Savings Plan offers the following investment choices:
S&P 500 Stock Fund. This stock fund invests in the stocks of a broad array
of established U.S. companies. Its objective is long-term: to earn higher
returns by investing in the largest companies in the U.S. economy.
Stable Value Fund. This fund invests primarily in Guaranteed Investment
Contracts and Synthetic Guaranteed Investment Contracts. These contracts pay a
steady rate of interest over a certain period of time, usually between three and
five years. Its objective is short to intermediate term: to achieve a stable
return over short to intermediate periods of time while preserving the value of
your investment.
S&P MidCap Stock Fund. This stock fund invests in the stocks of mid-sized
U.S. companies, which are expected to grow faster than larger, more established
companies. Its objective is long-term: to earn higher returns which reflect the
growth potential of mid-sized companies.
Money Market Fund. This fund invests in a broad range of high-quality,
short-term instruments issued by banks, corporations and the U.S. Government and
its agencies. These instruments include certificates of deposit and U.S.
Treasury bills. Its objective is short-term: to achieve competitive, short-term
rates of return while preserving the value of your principal.
Government Bond Fund. This bond fund invests in U.S. Treasury bonds with a
maturity of 20 years or more. Its objective is long-term: to earn a higher level
of income along with the potential for capital appreciation.
International Stock Fund. This fund invests in over 1,000 foreign stocks
in 20 countries, based in Europe, Australia, and the Far East. Its objective is
long-term: to offer the potential return of investing in the stocks of
established non-U.S. companies, as well as the potential risk-reduction of broad
diversification.
Income Plus Asset Allocation Fund. This fund diversifies among a broad
range of stable value securities to reduce short-term risk and among a broad
range of large U.S. and international companies to capture growth potential.
The Fund is structured to take advantage of market opportunities with a small
flexible component. Its objective is intermediate-term: to preserve the value
of your investment over short periods of time and to offer some potential for
growth.
Growth and Income Asset Allocation Fund. This fund diversifies among U.S.
and international stocks, U.S. bonds, and stable value investments to pursue
long-term appreciation and short-term stability
5
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and takes advantage of market opportunities with a small flexible component. Its
objective is intermediate-term: to provide a balance between the pursuit of
growth and protection from risk.
Growth Asset Allocation Fund. This fund diversifies among a broad range of
domestic and international stocks and takes advantage of market opportunities
with a large flexible component. Its objective is long-term: to pursue high
growth of your investment over time.
The Savings Plan now provides the DutchFork Stock Fund as an additional
choice to these investment alternatives. The DutchFork Stock Fund invests
primarily in the common stock of DutchFork. Participants in the Savings Plan may
direct the trustee to invest all or a portion of their Savings Plan account
balance in the DutchFork Stock Fund.
The annual percentage return on the funds (net of fees) listed above for
the prior three years was:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
S&P 500 Stock Fund.......................... 27.9% 32.7%
Stable Value Fund........................... 5.9 6.2
S&P MidCap Stock Fund....................... 18.6 31.5
Money Market Fund........................... 5.5 5.5
Government Bond Fund........................ 13.8 15.4
International Stock Fund.................... 19.3 3.6
Income Plus Asset Allocation Fund........... 9.7 8.9
Growth and Income Asset Allocation Fund..... 15.5 13.6
Growth Asset Allocation Fund................ 24.3 19.0
</TABLE>
The DutchFork Stock Fund consists of investments in the common stock of
DutchFork made on the effective date of the conversion of Newberry Federal.
After the conversion of Newberry Federal, the trustee of the Savings Plan will,
to the extent practicable, use all amounts held by it in the DutchFork Stock
Fund, including cash dividends paid on the common stock held in the fund, to
purchase shares of common stock of DutchFork.
As of the date of this prospectus supplement, none of the shares of
DutchFork common stock have been issued or are outstanding and there is no
established market for the DutchFork common stock. Accordingly, there is no
record of the historical performance of the DutchFork Stock Fund. Performance
of the DutchFork Stock Fund depends on a number of factors, including the
financial condition and profitability of DutchFork and Newberry Federal and
market conditions for DutchFork common stock generally.
Investments in the DutchFork Stock Fund may involve certain special risks
in investments in the common stock of DutchFork. For a discussion of these risk
factors, see "Risk Factors" beginning on page __ of the prospectus.
VI. Benefits Under the Savings Plan
Vesting. You are always 100% vested in your elective deferrals under the
Savings Plan. You vest in regular matching contributions at a rate of 10% per
year through the first four years of employment and an additional 20% per year
through the seventh year of employment.
6
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VII. Withdrawals and Distributions From the Savings Plan
Distribution Upon Retirement or Disability. Upon retirement or disability,
you may receive a partial lump sum payment or a full lump sum payment from the
Savings Plan equal to the vested value of your accounts.
Distribution Upon Death. If you die before your benefits are paid from the
Savings Plan, your benefits will be paid to your surviving spouse or beneficiary
under one or more of the forms available under the Savings Plan.
Distribution Upon Termination for Any Other Reason. If you terminate
employment for any reason other than retirement, disability or death and your
account balance exceeds $5,000, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
does not exceed $5,000, the trustee will generally distribute your benefits to
you as soon as administratively practicable following termination of employment.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the Savings Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Savings Plan shall be void.
Applicable federal tax law requires the Savings Plan to impose substantial
restrictions on your right to withdraw amounts held under the plan before your
termination of employment with Newberry Federal. Federal law may also impose an
excise tax on withdrawals made from the Savings Plan before you attain 59 1/2
years of age regardless of whether the withdrawal occurs during your employment
with Newberry Federal or after termination of employment.
Administration of the Savings Plan
The trustee with respect to the Savings Plan is the named fiduciary of the
Savings Plan for purposes of ERISA.
Trustees. The board of trustees of Newberry Federal appoints the trustee
to serve at its pleasure. The board of trustees has appointed Bank of New York
as trustee of the DutchFork Stock Fund.
The trustee receives, holds and invests the contributions to the Savings
Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the Savings Plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust.
Reports to Savings Plan Participants
The plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
Plan Administrator
The current plan administrator of the Savings Plan is Newberry Federal.
The plan administrator is responsible for the administration of the Savings
Plan, interpretation of the provisions of the plan, prescribing procedures for
filing applications for benefits, preparation and distribution of information
7
<PAGE>
explaining the plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the Internal Revenue Service, and
for all disclosures required to be made to participants, beneficiaries and
others under Employee Retirement Income Security Act of 1974, as amended.
Amendment and Termination
Newberry Federal intends to continue the Savings Plan indefinitely.
Nevertheless, Newberry Federal may terminate the Savings Plan at any time. If
Newberry Federal terminates the Savings Plan in whole or in part, then
regardless of other provisions in the plan, all affected participants will
become fully vested in their accounts. Newberry Federal reserves the right to
make, from time to time, changes which do not cause any part of the trust to be
used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries; provided, however, that Newberry Federal
may amend the plan as it determines necessary or desirable, with or without
retroactive effect, to comply with the Employee Retirement Income Security Act
of 1974, as amended, or the Code.
Merger, Consolidation or Transfer
If the Savings Plan merges or consolidates with another plan or transfers
the trust assets to another plan, and if either the Savings Plan or the other
plan is then terminated, the Savings Plan requires that you would receive a
benefit immediately after the merger, consolidation or transfer. The benefit
would be equal to or greater than the benefit you would have been entitled to
receive immediately before the merger, consolidation or transfer if the Savings
Plan had then terminated.
Federal Income Tax Consequences
The following is only a brief summary of the material federal income tax
aspects of the Savings Plan. You should not rely on this survey as a complete or
definitive description of the material federal income tax consequences relating
to the Savings Plan. Statutory provisions change, as do their interpretations,
and their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws. You are urged to consult your tax
advisor with respect to any distribution from the Savings Plan and transactions
involving the plan.
As a "qualified retirement plan," the Code affords the Savings Plan special
tax treatment, including:
(1) The sponsoring employer is allowed an immediate tax deduction for the
amount contributed to the plan each year;
(2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the tax-free
accumulation of income and gains on investments.
Newberry Federal will administer the Savings Plan to comply in operation
with the requirements of the Code as of the applicable effective date of any
change in the law. If Newberry Federal receives an adverse determination letter
regarding its tax exempt status from the Internal Revenue Service, all
participants would generally recognize income equal to their vested interest in
the Savings Plan, the participants would not be permitted to transfer amounts
distributed from the Savings Plan to an Individual Retirement Account or to
another qualified retirement plan, and Newberry Federal may be denied certain
deductions taken with respect to the Savings Plan.
8
<PAGE>
Lump Sum Distribution. A distribution from the Savings Plan to a
participant or the beneficiary of a participant will qualify as a lump sum
distribution if it is made within one taxable year, on account of the
participant's death, disability or separation from service, or after the
participant attains age 59 1/2; and consists of the balance to the credit of the
participant under this plan and all other profit sharing plans, if any,
maintained by Newberry Federal. The portion of any lump sum distribution
required to be included in your taxable income for federal income tax purposes
consists of the entire amount of the lump sum distribution less the amount of
after-tax contributions, if any, you have made to any other profit sharing plans
maintained by Newberry Federal which is included in the distribution.
DutchFork Bancshares Common Stock Included in Lump Sum Distribution. If a
lump sum distribution includes DutchFork common stock, the distribution
generally will be taxed in the manner described above, except that the total
taxable amount will be reduced by the amount of any net unrealized appreciation
with respect to DutchFork common stock that is the excess of the value of
DutchFork common stock at the time of the distribution over its cost or other
basis of the securities to the trust. The tax basis of DutchFork common stock
for purposes of computing gain or loss on its subsequent sale equals the value
of DutchFork common stock at the time of distribution less the amount of net
unrealized appreciation. Any gain on a subsequent sale or other taxable
disposition of DutchFork common stock, to the extent of the amount of net
unrealized appreciation at the time of distribution, will constitute long-term
capital gain regardless of the holding period of DutchFork common stock. Any
gain on a subsequent sale or other taxable disposition of DutchFork common stock
in excess of the amount of net unrealized appreciation at the time of
distribution will be considered long-term capital gain regardless of the holding
period of DutchFork common stock. Any gain on a subsequent sale or other
taxable disposition of DutchFork common stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term, mid-term or long-term capital gain depending upon the length of the
holding period of DutchFork common stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of the distribution to the extent allowed by the regulations to
be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. You may roll over virtually all distributions from the Savings Plan
to another qualified plan or to an individual retirement account generally.
We have provided you with a brief description of the material federal
income tax aspects of the Savings Plan which are of general application under
the Code. It is not intended to be a complete or definitive description of the
federal income tax consequences of participating in or receiving distributions
from the Savings Plan. Accordingly, you are urged to consult a tax advisor
concerning the federal, state and local tax consequences of participating in and
receiving distributions from the Savings Plan.
Restrictions on Resale
Any person receiving a distribution of shares of common stock under the
Savings Plan who is an "affiliate" of DutchFork under Rules 144 and 405 under
the Securities Act of 1933, as amended, may reoffer or resell such shares only
under a registration statement filed under the Securities Act of 1933, as
amended, assuming the availability of a registration statement, under Rule 144
or some other exemption of the registration requirements of the Securities Act
of 1933, as amended. Directors, officers and substantial shareholders of
DutchFork are generally considered "affiliates." Any person who may be an
"affiliate" of Newberry Federal may wish to consult with counsel before
transferring any common stock they own. In addition, participants are advised
to consult with counsel as to the applicability of Section 16 of the Securities
Exchange Act of 1934, as amended, which may restrict the sale of DutchFork
common stock acquired under the Savings Plan, or other sales of DutchFork common
stock.
9
<PAGE>
Persons who are not deemed to be "affiliates" of Newberry Federal at the
time of resale will be free to resell any shares of DutchFork common stock
distributed to them under the Savings Plan, either publicly or privately,
without regard to the registration and prospectus delivery requirements of the
Securities Act or compliance with the restrictions and conditions contained in
the exemptive rules under federal law. An "affiliate" of Newberry Federal is
someone who directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control, with Newberry Federal.
Normally, a director, principal officer or major shareholder of a corporation
may be deemed to be an "affiliate" of that corporation. A person who may be
deemed an "affiliate" of Newberry Federal at the time of a proposed resale will
be permitted to make public resales of the common stock only under a "reoffer"
prospectus or in accordance with the restrictions and conditions contained in
Rule 144 under the Securities Act of 1933, as amended, or some other exemption
from registration, and will not be permitted to use this prospectus in
connection with any such resale. In general, the amount of the common stock
which any such affiliate may publicly resell under Rule 144 in any three-month
period may not exceed the greater of one percent of DutchFork common stock then
outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks before the sale. Such sales may be made only through brokers
without solicitation and only at a time when DutchFork is current in filing the
reports required of it under the Securities Exchange Act of 1934, as amended.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934, as amended, imposes
reporting and liability requirements on officers, directors and persons
beneficially owning more than ten percent of public companies such as DutchFork.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
filing of reports of beneficial ownership. Within ten days of becoming a person
required to file reports under Section 16(a), a Form 3 reporting initial
beneficial ownership must be filed with the Securities and Exchange Commission.
Certain changes in beneficial ownership, such as purchases, sales, gifts and
participation in savings and retirement plans must be reported periodically,
either on a Form 4 within ten days after the end of the month in which a change
occurs, or annually on a Form 5 within 45 days after the close of Newberry
Federal' fiscal year. Participation in the DutchFork Stock Fund of the Savings
Plan by officers, directors and persons beneficially owning more than ten
percent of common stock of DutchFork must be reported to the SEC annually on a
Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Securities Exchange Act of 1934 provides for the recovery by DutchFork of
profits realized by any officer, director or any person beneficially owning more
than ten percent of the common stock resulting from the purchase and sale or
sale and purchase of the common stock within any six-month period.
The SEC has adopted rules that exempt many transactions involving the
Savings Plan from the "short-swing" profit recovery provisions of Section 16(b).
The exemptions generally involve restrictions upon the timing of elections to
buy or sell employer securities for the accounts of any officer, director or any
person beneficially owning more than ten percent of the common stock.
Except for distributions of the common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons who are governed by Section 16(b) may, under limited
circumstances involving the purchase of common stock within six months of the
distribution, be required to hold shares of the common stock distributed from
the Savings Plan for six months following the distribution date.
10
<PAGE>
LEGAL OPINIONS
The validity of the issuance of the common stock of DutchFork will be
passed upon by Muldoon, Murphy & Faucette LLP, Washington, D.C. Muldoon, Murphy
& Faucette LLP acted as special counsel for Newberry Federal in connection with
the conversion of Newberry Federal.
11
<PAGE>
NEWBERRY FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
CHANGE OF INVESTMENT ALLOCATION
- -------------------------------
1. Member Data
- --------------------------------------------------------------------------------
Print your full (Last, first, Social Security
name above middle initial) Number
- --------------------------------------------------------------------------------
Street Address City State Zip
2. Instructions
Newberry Federal Savings Bank Employees' Savings & Profit Sharing Plan and Trust
(the "Plan") is giving members a special opportunity to invest their Plan
account balances in a new investment fund - the DutchFork Stock Fund - which is
comprised primarily of common stock ("Common Stock") issued by DutchFork
Bancshares, Inc. (the "Company") in connection with the conversion of Newberry
Federal Savings Bank from mutual to stock form. The percentage of a member's
account transferred at the direction of the member into the DutchFork Stock Fund
will be used to purchase shares of Common Stock during the Subscription and
Community Offering. Please review the Prospectus (the "Prospectus") and the
Prospectus Supplement ( the "Supplement") before making any decision.
If there is not enough Common Stock in the conversion to fill all subscriptions,
the Common Stock will be apportioned and the trustee for the Plan may not be
able to purchase all of the Common Stock you requested. In such case, the
trustee will purchase shares in the open market, on your behalf, after the
conversion to fulfill your initial request. Such purchases may be at prices
higher than the initial public offering price.
Investing in Common Stock entails some risks, and we encourage you to discuss
this investment decision with your spouse and investment advisor. The Plan
trustee and the Plan administrator are not authorized to make any
representations about this investment other than what appears in the Prospectus
and Supplement, and you should not rely on any information other than what is
contained in the Prospectus and Supplement. For a discussion of certain factors
that should be considered by each member as to an investment in the Common
Stock, see "Risk Factors" beginning on page __ of the Prospectus. Any shares
purchased by the Plan pursuant to your election will be subject to the
conditions or restrictions otherwise applicable to Common Stock, as discussed in
the Prospectus and Supplement.
3. Investment Directions (Applicable to Accumulated Balances Only)
To direct a transfer of all or part of the funds credited to your accounts to
the DutchFork Stock Fund, you should complete and file this form with
______________________________ at Newberry Federal Savings Bank, no later than
__________, 2000 at ____ p.m. If you need any assistance in completing this
form, please contact Human Resources. If you do not complete and return this
form to _______________ by 12:00 noon, the funds credited to accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Plan if no investment
direction had been provided.
12
<PAGE>
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following funds, to the extent
permissible, be transferred out of the specified fund and invested (in whole
percentages) in the DutchFork Stock Fund as follows:
Fund Percentage to be transferred
---- ----------------------------
S&P 500 Stock Fund _____%
Stable Value Fund _____%
S&P MidCap Stock Fund _____%
Money Market Fund _____%
Government Bond Fund _____%
International Stock Fund _____%
Income Plus Fund _____%
Growth & Income Fund _____%
Growth Fund _____%
Note: The total amount transferred may not exceed the total value of your
accounts.
4. Investment Directions (Applicable to Future Contributions Only)
I hereby revoke any previous investment instructions and now direct that any
future contributions and/or loan repayments, if any, made by me or on my behalf
by Newberry Federal Savings Bank, including those contributions and/or
repayments received by Newberry Federal Savings Bank Employees' Savings & Profit
Sharing Plan and Trust during the same reporting period as this form, be
invested in the following whole percentages. If I elect to invest in DutchFork
Bancshares, Inc. Common Stock, such future contributions or loan repayments, if
any, will be invested in the DutchFork Stock Fund the month following the
conclusion of the Offering.
Fund Percentage
---- ----------
S&P 500 Stock Fund ____%
Stable Value Fund ____%
S&P MidCap Stock Fund ____%
Money Market Fund ____%
Government Bond Fund ____%
International Stock Fund ____%
Income Plus Fund ____%
Growth & Income Fund ____%
Growth Fund ____%
DutchFork Stock Fund ____%
Total (Important!) 100 %
Notes: No amounts invested in the Stable Value Fund may be transferred directly
to the Money Market Fund. Stable Value Fund amounts invested in the S&P
500 Stock Fund, S&P MidCap Stock Fund, Government Bond Fund,
International Stock Fund, Income Plus Fund, Growth & Income Fund, Growth
Fund and/or Employer Stock Fund, for a period of three months may be
transferred to the Money Market Fund upon the submission of a separate
Change of Investment Allocation Form.
13
<PAGE>
The percentage that can be transferred to the Money Market Fund may be
limited by any amounts previously transferred form the Stable Value Fund
that have not satisfied the equity wash requirement. Such amounts will
remain in either the S&P 500 Stock Fund, S&P MidCap Stock Fund, Government
Bond Fund, International Stock Fund, Income Plus Fund, Growth & Income
Fund, Growth Fund and/or Employer Stock Fund and a separate direction to
transfer them to the Money Market Fund will be required when they become
available.
5. Participant Signature and Acknowledgment - Required
By signing this Change Of Investment Allocation Form, I authorize and direct the
Plan administrator and trustee to carry out my instructions. I acknowledge that
I have been provided with and read a copy of the Prospectus and Supplement
relating to the issuance of Common Stock. I am aware of the risks involved in
the investment in Common Stock, and understand that the trustee and Plan
administrator are not responsible for my choice of investment.
MEMBER'S SIGNATURE
- ---------------------------------- -------------------
Signature of Member Date
Pentegra Services, Inc. is hereby authorized to make the above listed change(s)
to this member's record.
- --------------------------------------------- -------------------
Signature of Newberry Federal Savings Bank Date
Authorized Representative
Minimum Stock Purchase is $250
Maximum Stock Purchase is $175,000
PLEASE COMPLETE AND RETURN TO _______________ AT
NEWBERRY FEDERAL BY 12:00 NOON ON ____________________, 2000.
14
<PAGE>
[To be used in connection with Syndicated Community Offering only]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] DUTCHFORK BANCSHARES, INC.
(Proposed Holding Company for Newberry Federal Savings Bank)
1735 Wilson Road
Newberry, South Carolina 29108
(803) 321-3200
================================================================================
Newberry Federal Savings Bank is converting from the mutual to stock form
of organization. After the conversion, DutchFork Bancshares will own all of
Newberry Federal's stock. DutchFork Bancshares has already received
subscriptions for _________ shares. Up to ________ shares will be sold in the
conversion. The conversion will not be completed and no common stock will be
sold unless additional subscriptions are received for at least the minimum
number of shares in the offering. DutchFork Bancshares will hold all funds of
subscribers in an interest-bearing savings account at Newberry Federal until the
conversion is completed or terminated. Funds will be returned promptly with
interest if the conversion is terminated.
Trident Securities, A Division of McDonald Investments, Inc. will use its
best efforts to assist DutchFork Bancshares in selling at least the minimum
number of shares but does not guarantee that this number will be sold. Neither
Trident Securities nor any selected broker-dealer is obligated to purchase any
shares of common stock in the syndicated community offering. Trident Securities
intends to make a market in the common stock.
================================================================================
PRICE PER SHARE: $10.00
EXPECTED TRADING MARKET AND SYMBOL: Nasdaq SmallCap Market "DFBS"
This offering will expire no later than __:__ .m., Local time, on
____________, 2000, unless extended.
. Number of Shares
Minimum/Maximum
. Estimated Underwriting Commissions and Other Expenses
Minimum/Maximum
. Estimated Net Offering Proceeds to DutchFork Bancshares
Minimum/Maximum
. Estimated Net Offering Proceeds per Share to DutchFork Bancshares
Minimum/Maximum
Please refer to "Risk Factors" beginning on page __ of the attached Prospectus
dated ________ __, 2000.
These securities are not deposits or accounts and are not insured or guaranteed
by DutchFork Bancshares, Newberry Federal, the Federal Deposit Insurance
Corporation or any other government agency. The common stock is subject to
investment risk, including the possible loss of money invested.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement is truthful or complete. Any representations to the
contrary is a criminal offense.
Trident Securities, A Division of McDonald Investments, Inc.
The date of this Prospectus Supplement is _______________, 2000
<PAGE>
THE SYNDICATED COMMUNITY OFFERING
DutchFork Bancshares is offering for sale between ___________ and
__________ shares of common stock at price of $10.00 per share in a syndicated
community offering. These shares are to be sold in connection with the
conversion of Newberry Federal from a mutual savings bank to a stock savings
bank and the issuance of Newberry Federal' outstanding capital stock to
DutchFork Bancshares. The remaining __________ shares of common stock to be
sold in connection with the conversion have been subscribed for in subscription
and direct community offerings. The prospectus in the form used in the
subscription and direct community offerings is attached to this prospectus
supplement. The purchase price for all shares sold in the syndicated community
offering will be the same as the price paid by subscribers in the subscription
and direct community offerings.
Funds sent with purchase orders will earn interest at Newberry Federal's
passbook rate from the date Newberry Federal receives them until the completion
or termination of the conversion. If the syndicated community offering is not
completed by _________________, 2000, and the Office of Thrift Supervision
allows more time to complete the conversion, Newberry Federal will contact
everyone who subscribed for shares to see if they still want to purchase stock,
and subscribers will be able to confirm, modify or cancel their subscriptions.
A failure to respond will be treated as a cancellation of the purchase order.
If payment for the stock was made by check or money order, subscription funds
will be returned with accrued interest. If payment was authorized by withdrawal
of funds on deposit at Newberry Federal, that authorization would terminate. The
conversion must be completed by _______, 2002.
The minimum number of shares which may be purchased is 25 shares. Except for
the Newberry Federal employee stock ownership plan, which intends to purchase up
to 8% of the total number of shares of common stock sold in the conversion, no
person, together with related persons and persons acting together, may purchase
more than $175,000 of common stock (17,500 shares) in the syndicated community
offering. However, the maximum amount of shares of common stock that may be
subscribed for or purchased in all categories of the conversion by any person,
related persons or persons acting together is $175,000 of common stock (17,500
shares) sold in the conversion. DutchFork Bancshares reserves the right, in its
absolute discretion, to accept or reject, in whole or in part, any or all
subscriptions in the syndicated community offering. If a subscription is
rejected in part, you cannot cancel the remainder of your order.
DutchFork Bancshares and Newberry Federal have engaged Trident Securities,
A Division of McDonald Investments, Inc. as their financial advisor to assist
them in the sale of the common stock in the syndicated community offering.
Trident Securities expects to use the services of other registered broker-
dealers and that fees to Trident Securities and other selected broker-dealers
will not exceed __% of the aggregate purchase price of the shares sold in the
syndicated community offering.
Before this offering, there has not been a public market for the common
stock, and there can be no assurance that an active and liquid trading market
for the common stock will develop. The absence or discontinuance of an active
and liquid trading market may hurt the market price of the common stock. See
"Risk Factors--DutchFork Bancshares cannot assure or guarantee an active trading
market for the common stock." in the attached prospectus.
<PAGE>
PROSPECTUS [LOGO]
DUTCHFORK BANCSHARES, INC.
(Proposed Holding Company for Newberry Federal Savings Bank)
1,495,000 Shares of Common Stock
Newberry Federal Savings Bank is converting from the mutual form to the stock
form of organization. As part of the conversion, DutchFork Bancshares is
offering its shares of common stock to the public. DutchFork Bancshares will own
Newberry Federal after the conversion.
Price Per Share: $10.00
Expected Trading Market: Nasdaq SmallCap Market
Proposed Trading Symbol: "DFBS"
Minimum Subscription Requirement: 25 shares or $250
Minimum Maximum
------- -------
Number of shares: 1,105,000 1,495,000
Gross offering proceeds: $11,050,000 $14,950,000
Estimated underwriting commissions
and other offering expenses: $ 730,000 $ 810,000
Estimated net proceeds: $10,320,000 $14,140,000
Estimated net proceeds per share: $ 9.34 $ 9.46
If the appraiser increases the estimated value, DutchFork Bancshares may
increase the maximum number of shares by up to 15%, to 1,719,250 shares.
Trident Securities will use its best efforts to assist DutchFork Bancshares in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. Trident Securities is not obligated to purchase any shares
of common stock in the offering. Trident Securities intends to make a market in
the common stock.
The offering to depositors and borrowers of Newberry Federal will end at 12:00
Noon, Eastern time, on ________, 2000. An offering to the general public may
also be held and may end as early as 12:00 Noon, Eastern time, on _________ __,
2000. If the conversion is not completed by _________ __, 2000, and the Office
of Thrift Supervision allows more time to complete the conversion, all
subscribers will be able to increase, decrease or cancel their orders. DutchFork
Bancshares will hold all funds of subscribers in an interest-bearing savings
account at Newberry Federal until the conversion is completed or terminated.
Funds will be returned promptly with interest if the conversion is terminated.
_______________________________________________________________________________
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
For a discussion of risks that you should consider, see "Risk Factors" beginning
on page _.
Neither the Securities and Exchange Commission, the Office of Thrift Supervision
nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
_______________________________________________________________________________
For assistance, please contact the conversion center at (___) ___-____.
Trident Securities,
A Division of McDonald Investments, Inc.
The date of this prospectus is ________, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Summary.................................................................
Risk Factors............................................................
Selected Financial and Other Data.......................................
Use of Proceeds.........................................................
DutchFork Bancshares' Dividend Policy...................................
Market for the Common Stock.............................................
Capitalization..........................................................
Regulatory Capital Compliance...........................................
Pro Forma Data..........................................................
Newberry Federal Savings Bank Consolidated
Statements of Income..................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................
Business of DutchFork Bancshares........................................
Business of Newberry Federal Savings Bank...............................
Management of DutchFork Bancshares......................................
Management of Newberry Federal..........................................
Regulation and Supervision..............................................
Federal and State Taxation on Income....................................
Shares to Be Purchased by Management with Subscription Rights...........
The Conversion..........................................................
Restrictions on Acquisition of DutchFork
Bancshares and Newberry Federal
Description of DutchFork Bancshares Stock...............................
Description of Newberry Federal Stock...................................
Registration Requirements...............................................
Legal and Tax Opinions..................................................
Experts.................................................................
Where You Can Find More Information.....................................
Index to Consolidated Financial Statements - Newberry
Federal Savings Bank and Subsidiary...................................
</TABLE>
<PAGE>
SUMMARY
You should read this entire document carefully before you decide to invest.
For assistance, please contact the conversion center at (___) ___-____.
THE COMPANIES
DutchFork Bancshares, Inc. (page __) Newberry Federal formed DutchFork
1735 Wilson Road Bancshares to be its holding company. To
Newberry, South Carolina 29108 date, DutchFork Bancshares has only
conducted organizational activities.
After the conversion, DutchFork
Bancshares will own all of Newberry
Federal's capital stock and will direct,
plan and coordinate Newberry Federal's
business activities. After the
conversion, DutchFork Bancshares might
become an operating company or acquire
or organize other operating
subsidiaries, including other financial
institutions or financial services
companies, although it currently has no
specific plans or agreements to do so.
Newberry Federal Savings Bank Newberry Federal is a community bank
(page __) dedicated to serving the financial
1735 Wilson Road service needs of consumers within its
Newberry, South Carolina 29108 primary market area. Currently, Newberry
Federal operates out of its main office
in Newberry, South Carolina and its
three branch offices in Newberry, Chapin
and Prosperity, South Carolina.
Historically, Newberry Federal's
principal business has been taking
deposits from the general public and
using those funds to originate loans
secured by residential real estate and
to invest in securities. Residential
real estate loans accounted for 82.1% of
Newberry Federal's total loan portfolio
at December 31, 1999. Newberry Federal
also makes consumer loans, including
second mortgage loans, home equity loans
and lines of credit, and automobile
loans. Newberry Federal also maintains
significant investment and mortgage-
backed securities portfolios, which
together accounted for 60.6% of total
assets at December 31, 1999. At December
31, 1999, Newberry Federal had total
assets of $226.6 million, deposits of
$148.4 million and total retained
earnings of $16.1 million.
In addition to serving the financial
service needs of consumers within its
primary market area, Newberry Federal
has demonstrated its commitment to its
local communities through philanthropy.
Since 1990 it has made monetary gifts
and donations totaling approximately
$1.7 million to various cultural,
educational and civic organizations
operating within its primary market
area. Newberry Federal intends to
continue its tradition of local
community support after the conversion.
For a discussion of Newberry Federal's
business strategy and recent results of
operations, see "Management's Discussion
and Analysis of Financial Condition and
Results of Operations." For a discussion
of Newberry Federal's business
activities, see "Business of Newberry
Federal Savings Bank."
1
<PAGE>
THE CONVERSION
What is the Conversion (page __) The conversion is a change in Newberry
Federal's legal form of organization. As
a mutual savings bank, Newberry Federal
currently has no stock or stockholders.
Instead, Newberry Federal operates for
the mutual benefit of its depositors,
who elect directors and vote on other
important matters. Through the
conversion Newberry Federal will become
a stock savings bank and will be owned
and controlled by the holder of all its
stock, which will be DutchFork
Bancshares. Voting rights in DutchFork
Bancshares will belong to its
stockholders.
Newberry Federal is conducting the
conversion under the terms of its plan
of conversion. The Office of Thrift
Supervision has approved the plan of
conversion with the condition that
Newberry Federal's members approve the
plan of conversion. Newberry Federal has
called a special meeting of members for
May ___, 2000 to vote on the plan of
conversion.
Reasons for the Conversion By converting to the stock form of
(page __) organization, Newberry Federal will be
structured in the form used by
commercial banks, most business entities
and a large number of savings
institutions. The conversion will be
important to Newberry Federal's future
growth and performance because it will:
. provide a larger capital base
from which to operate;
. expand its ability to serve the
public;
. afford its depositors, borrowers
and local community residents the
opportunity to participate as
owners in the local financial
institution with which they do
business;
. enhance its ability to attract
and retain qualified management
through stock-based compensation
plans; and
. enhance its ability to diversify
into other financial services
related activities.
Currently, Newberry Federal does not
have any specific plans or arrangements
for diversification or expansion.
Benefits of the Conversion to DutchFork Bancshares and Newberry
Management (page __) Federal intend to adopt the following
benefit plans and employment agreements:
. Employee Stock Ownership Plan.
This plan intends to purchase 8%
of the shares issued in the
conversion. This would range from
88,400 shares, assuming 1,105,000
shares are issued in the
conversion, to 119,600 shares,
assuming 1,495,000 shares are
issued in the conversion. This
plan intends to acquire these
shares either in the offering or
in the open market after the
completion of the conversion in
compliance with applicable
regulation
2
<PAGE>
and policy of the Office of
Thrift Supervision. Newberry
Federal will allocate these
shares to employees over a period
of 12 years in proportion to
their compensation. Newberry
Federal also intends to adopt a
supplemental executive retirement
plan to provide key executives
with supplemental benefits that
cannot be allocated directly
through the employee stock
ownership plan as a result of
certain federal tax law limits.
. Stock-Based Incentive Plan. Under
this plan, which will be
implemented after the conversion
and submitted to stockholders for
their approval, DutchFork
Bancshares may award stock
options to key employees and
directors of DutchFork Bancshares
and its affiliates. The number of
options available under this plan
will be equal to 10% of the
number of shares issued in the
conversion. This would range from
110,500 shares, assuming
1,105,000 shares are issued in
the conversion, to 149,500
shares, assuming 1,495,000 shares
are issued in the conversion.
In addition, under this plan,
DutchFork Bancshares may award
shares of restricted stock to key
employees and directors at no
cost to the recipient. The number
of shares available for stock
awards will equal 4% of the
number of shares issued in the
conversion. This would range from
44,200 shares, assuming 1,105,000
shares are issued in the
conversion, to 59,800 shares,
assuming 1,495,000 shares are
issued in the conversion.
. Employment Agreements. DutchFork
Bancshares and Newberry Federal
intend to enter into employment
agreements with their two
executive officers. These
agreements will provide for
severance benefits if the
executive is terminated following
a change in control of DutchFork
Bancshares or Newberry Federal.
. Employee Severance Compensation
Plan. This plan will provide
severance benefits to eligible
employees if there is a change in
control of DutchFork Bancshares
or Newberry Federal.
The following table summarizes the total
number and dollar value of the shares of
common stock, assuming 1,495,000 shares
are issued in the conversion, which the
employee stock ownership plan expects to
acquire and the total value of all stock
awards that are expected to be available
under the stock-based incentive 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
3
<PAGE>
option only if the market price of
common stock increases above the price
at which the options are granted.
<TABLE>
<CAPTION>
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
------ ---------- -----------
<S> <C> <C> <C>
Employee stock ownership plan.......... 119,600 $1,196,000 8.0%
Restricted stock awards................ 59,800 598,000 4.0
Stock options.......................... 149,500 -- 10.0
------- ---------- ----
Total.................... 328,900 $1,794,000 22.0%
======= ========== ====
</TABLE>
The following table summarizes the
estimated value of the benefits payable
under the employment agreements and the
employee severance compensation plan
assuming a change in control of
DutchFork Bancshares or Newberry Federal
had occurred at December 31, 1999 based
on 1999 compensation data. The estimated
value of the benefits payable under the
employee severance compensation plan
assumes that all employees are
terminated.
<TABLE>
<CAPTION>
Estimated
Value of
Benefit
----------
<S> <C>
Employment agreements........................... $1,300,000
Employee severance compensation plan............ 774,000
----------
$2,074,000
==========
</TABLE>
For a discussion of risks associated
with these plans and agreements, see
"Risk Factors--Implementation of
additional benefit plans will increase
future compensation expense and may
lower Newberry Federal's net income,"
"Risk Factors--Issuance of shares for
benefit programs may lower your
ownership interest" and "Risk Factors--
Employment agreements, the employee
stock ownership plan supplemental
executive retirement plan and the
severance plan could make takeover
attempts more difficult to achieve."
THE OFFERING
Persons Who Can Order Stock in the DutchFork Bancshares is offering shares
Offering (page __) of its common stock in a subscription
offering in the following order of
priority to:
Note: Subscription rights are not 1. Persons with $50 or more on
transferable, and persons with deposit at Newberry Federal as of
subscription rights may not November 30, 1998.
subscribe for shares for the
benefit of any other person. If you 2. The Newberry Federal employee
violate this prohibition, you may stock ownership plan, which
lose your rights to purchase shares provides retirement benefits to
and may face criminal prosecution Newberry Federal's employees.
and/or other sanctions.
3. Persons with $50 or more on
deposit at Newberry Federal as of
__________, 2000.
4. Newberry Federal's depositors as
of _______, 2000 and borrowers of
Newberry Federal as of February
4
<PAGE>
10, 1987 whose loans continue to
be outstanding as of May____,
2000.
If the offering is oversubscribed,
shares will be allocated in order of the
priorities described above under a
formula outlined in the plan of
conversion.
DutchFork Bancshares may offer shares
not sold in the subscription offering to
the general public in a direct community
offering. People who are residents of
Newberry and Lexington Counties, South
Carolina will have first preference to
purchase shares in a direct community
offering. If shares are available,
DutchFork Bancshares expects to offer
them to the general public immediately
after the end of the subscription
offering, but may begin a direct
community offering at any time during
the subscription offering. Shares not
sold in the subscription offering or
direct community offering may be offered
for sale in a syndicated community
offering, which will be an offering to
the general public on a best-efforts
basis by a selling group of broker-
dealers managed by Trident Securities.
Deadline for Ordering Common Stock The subscription offering will end at
12:00 Noon, Eastern time, on _________
__, 2000. Newberry Federal expects that
the community offering will terminate at
the same time. Newberry Federal may
extend this expiration date without
notice to you until ________, 2000,
unless regulators approve a later date.
All extensions together may not go
beyond May ____, 2002.
Purchase Price The purchase price is $10.00 per share.
The boards of directors of DutchFork
Bancshares and Newberry Federal
consulted with Trident Securities in
determining this price. You will not pay
a commission to buy any shares in the
conversion.
Number of Shares to be Sold DutchFork Bancshares is offering for
sale between 1,105,000 and 1,495,000
shares of its common stock in this
offering. With regulatory approval,
DutchFork Bancshares may increase the
number of shares to be sold to 1,719,250
shares without giving you further notice
or the opportunity to change or cancel
your order.
How the Offering Range was The offering range is based on an
Determined (page __) independent appraisal of Newberry
Federal by Keller & Company, Inc., an
appraisal firm experienced in appraisals
of savings institutions. Keller &
Company has estimated that as of
February 7, 2000, Newberry Federal's
market value ranged between $11,050,000
and $14,950,000, with a midpoint of
$13,000,000. This results in an offering
of between 1,105,000 and 1,495,000
shares of stock at an offering price of
$10.00 per share. Keller & Company's
appraisal was based in part on Newberry
Federal's financial condition and
results of operations and the effect on
Newberry Federal of the additional
capital raised by the sale of common
stock in this offering. Keller &
Company's independent appraisal will be
updated before the conversion is
completed.
5
<PAGE>
In preparing its independent appraisal,
Keller & Company focused primarily on
the price/earnings and price/book
valuation methodologies, both of which
are discussed in the appraisal report.
See "Where You Can Find More
Information" for how to obtain a copy of
the appraisal report. The following
table compares Newberry Federal's pro
forma price/earnings and price/book
ratios at the minimum and maximum of the
offering range to the medians for all
publicly traded thrift institutions, all
publicly traded South Carolina thrift
institutions and a comparable group of
ten publicly traded thrift institutions
identified in the appraisal report.
Thrift institutions in the mutual
holding company structure are excluded
from each comparison group.
The price/earnings ratios for Newberry
Federal presented in the following table
are based on earnings for the trailing
12 months as required by regulatory
appraisal guidelines. Therefore, these
ratios differ from the ratios presented
in the tables under "Pro Forma Data."
<TABLE>
<CAPTION>
Price/ Price/
Earnings Book
Ratio Ratio
---------- ---------
<S> <C> <C>
Newberry Federal:
Minimum................................... 8.49 43.99
Maximum................................... 10.78 52.50
Median for all publicly traded thrifts...... 11.29 92.63
Median for all publicly traded
South Carolina thrifts.................... 11.21 102.82
Median for the comparable group............. 12.15 74.16
</TABLE>
The independent appraisal does not
indicate or predict market value. Do not
assume or expect that Newberry Federal's
valuation as shown in the above table
means that the common stock will trade
at or above the $10.00 purchase price
after the conversion. DutchFork
Bancshares cannot guarantee that anyone
who purchases shares in the conversion
will be able to sell their shares at or
above the purchase price of $10.00 per
share.
Purchase Limitations (page __) Orders for common stock will be limited
in the following ways:
. The minimum purchase is $250,
which equals 25 shares.
. The maximum purchase in the
subscription offering by any
person or group of persons
through a single deposit account
or a similarly titled deposit
account is $175,000 of common
stock, which equals 17,500
shares.
. The maximum purchase by any
person in the direct community
offering is $175,000 of common
stock, which equals 17,500
shares.
6
<PAGE>
. The maximum purchase by any
person in the syndicated
community offering is $175,000 of
common stock, which equals 17,500
shares.
. The maximum overall purchase in
the subscription offering, direct
community offering and syndicated
community offering combined by
any person, related persons or
persons acting together is
$175,000 of common stock, which
equals 17,500 shares.
How to Purchase Common Stock To subscribe for shares in the
(page __) subscription offering or place a
purchase order for shares in the direct
Note: Once DutchFork Bancshares community offering, complete an original
receives your order, you cannot stock order form and send it together
cancel or change it without DutchFork with full payment to Newberry Federal in
Bancshares' consent. If DutchFork the postage-paid envelope provided. You
Bancshares intends to sell fewer than must sign the certification that is part
1,105,000 shares or more than of the stock order form. Newberry
1,719,250 shares, all subscribers Federal must receive your stock order
will be notified and given the form with full payment before the end of
opportunity to change or cancel their the subscription offering or the end of
orders. If you do not respond to the direct community offering, as
this notice, DutchFork Bancshares appropriate.
will return your funds promptly with
interest. To ensure that Newberry Federal properly
identifies your subscription rights, you
must list all of your deposit accounts
as of the eligibility dates on the stock
order form. If you fail to do so, your
subscription may be reduced or rejected
if the offering is oversubscribed.
DutchFork Bancshares and Newberry
Federal may reject orders received in
the direct community offering either in
whole or in part. If your order is
rejected in part, you cannot cancel the
remainder of your order.
You may pay for shares in the
subscription offering or the direct
community offering in any of the
following ways:
. By cash, if delivered in person
to a full-service banking office
of Newberry Federal.
. By check or money order made
payable to DutchFork Bancshares.
. By authorizing withdrawal from an
account at Newberry Federal. To
use funds in an Individual
Retirement Account at Newberry
Federal, you must transfer your
account to an unaffiliated
institution or broker. Please
contact the conversion center at
least one week before the end of
the subscription offering or the
direct community offering, as
appropriate, for assistance.
Newberry Federal will pay interest on
your subscription funds at the rate it
pays on passbook accounts from the date
it receives your funds until the
conversion is completed or terminated.
All funds authorized for withdrawal from
deposit accounts with Newberry Federal
will earn interest at the applicable
account rate until the conversion is
completed. There will be no early
7
<PAGE>
withdrawal penalty for withdrawals from
certificates of deposit used to pay for
stock.
No prospectus will be mailed later than
five days before the end of the offering
or hand-delivered less than 48 hours
before the end of the offering.
How DutchFork Bancshares and DutchFork Bancshares will use 50% of the
Newberry Federal Will Use the net offering proceeds to buy all of the
Proceeds of this Offering (page __) common stock of Newberry Federal.
Newberry Federal will use the funds it
receives for general business purposes,
including originating loans and
purchasing securities.
DutchFork Bancshares also will loan an
amount equal to 8% of the gross proceeds
of the offering to the employee stock
ownership plan to fund its purchase of
common stock in the conversion, and will
keep the remainder of the net proceeds
for general business purposes. These
purposes may include, for example,
investment in securities, paying cash
dividends or buying back shares of
common stock.
DutchFork Bancshares and Newberry
Federal may also use the proceeds of the
offering to expand and diversify their
businesses, although they have no
specific plans to do so at this time.
Purchases by Directors and Executive Newberry Federal's directors and
Officers (page __) executive officers intend to subscribe
for 85,000 shares, which equals 5.68% of
the 1,495,000 shares that would be sold
at the maximum of the offering range. If
fewer shares are sold in the conversion,
then directors and executive officers
may own a greater percentage of
DutchFork Bancshares. Directors and
executive officers will pay the $10.00
per share price as will everyone else
who purchases shares in the conversion.
Market for DutchFork Bancshares DutchFork Bancshares has applied to have
Common Stock (page __) its common stock quoted on the Nasdaq
SmallCap Market under the symbol "DFBS."
After shares of the common stock begin
trading, you may contact a stock broker
to buy or sell shares. DutchFork
Bancshares cannot assure you that there
will be an active trading market for the
common stock.
DutchFork Bancshares' Dividend DutchFork Bancshares intends to pay cash
Policy (page __) dividends after the conversion, but has
not yet decided on the amount or range
of amounts that may be paid or when the
payments may begin.
8
<PAGE>
RISK FACTORS
Before investing in DutchFork Bancshares' common stock please carefully
consider the matters discussed below.
Rising interest rates are likely to hurt Newberry Federal's profits
Like most financial institutions, Newberry Federal's ability to make a
profit depends largely on its net interest income, which is the difference
between interest income it receives from its loans and securities and interest
it pays on deposits and borrowings. A large percentage of Newberry Federal's
interest-earning assets have longer maturities than the maturities of Newberry
Federal's interest-bearing liabilities. Therefore, if interest rates rise,
Newberry Federal anticipates that its net interest income would decline as
interest paid on its deposits and other interest-bearing liabilities would rise
more quickly than the interest earned on loans and securities. For further
discussion of how changes in interest rates could impact Newberry Federal, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk and Market Risk Analysis."
Newberry Federal invests heavily in investment securities and mortgage-backed
securities because of weak loan demand in its primary market area
Newberry Federal's primary market area for making loans is Newberry County.
According to recent published statistics, the population growth rate for
Newberry County is less than 5.0% and the county's population is the oldest in
South Carolina. Older individuals generally already own homes and they tend to
save more of their disposable income than younger individuals. The demand for
commercial real estate loans and commercial business loans is also relatively
weak because Newberry County is predominately rural. Consequently, Newberry
Federal has had to invest much of the deposit funds it receives in investment
securities and mortgage-backed securities. See "Business of Newberry Federal --
Market Area" and "Business of Newberry Federal -- Lending Activities" for
additional information.
Newberry Federal's capital levels can fluctuate greatly with changes in market
interest rates because of its large investment securities and mortgage-backed
securities portfolios classified as available-for-sale
At December 31, 1999, the aggregate carrying value of Newberry Federal's
investment and mortgage-backed securities portfolios that were classified as
available-for-sale was $139.5 million, or 61.6% of total assets. Financial
accounting rules require Newberry Federal to adjust its retained earnings for
any unrealized gains or losses, net of taxes, attributable to its investment
securities and mortgage-backed securities classified as available-for-sale. Net
unrealized gains are added to retained earnings, which increases Newberry
Federal's capital, while net unrealized losses are subtracted from retained
earnings, which decreases Newberry Federal's capital. During times of rising
market interest rates, similar to the present, Newberry Federal can expect to
record net unrealized losses on its investment and mortgage-backed securities
classified as available-for-sale, particularly its long-term zero coupon bonds,
which would lower capital levels. During times of falling market interest rates,
the opposite result can be expected. See "Business of Newberry Federal --
Investment Activities" for further information.
Newberry Federal's return on equity will continue to be below average after
conversion because of high capital levels
Return on equity, which equals net income divided by average equity, is a
ratio used by many investors to compare the performance of a particular company
with other companies. In recent years, Newberry Federal's return on average
equity has been below the average return on equity for publicly-traded savings
associations and banks of comparable size. As a result of the additional capital
that will be raised in this offering, DutchFork Bancshares expects that its
return on equity will continue to be below that average after the offering. In
addition, compensation expense will increase as a result of the new benefit
plans. Over time, DutchFork Bancshares intends to use the net proceeds from this
offering to increase earnings per share and book value per share, without
9
<PAGE>
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 DutchFork Bancshares cannot assure you that this goal
can be attained. Consequently, you should not expect a competitive return on
equity in the near future. See "Pro Forma Data" for an illustration of the
financial effects of this stock offering.
Competition has hurt Newberry Federal's net interest income
Newberry Federal faces intense competition both in making loans and
attracting deposits. This competition has made it more difficult for Newberry
Federal to make new loans and has forced it to offer higher deposit rates in its
market area. This competition for loans and deposits has contributed to a
narrowing of its interest rate spread, which has hurt net interest income. The
competition for deposits, particularly from mutual funds and other stock market
investment vehicles, also has contributed to slower growth in Newberry Federal's
deposit base in recent years. Newberry Federal expects that the competition for
loans and deposits will continue to be intense and may increase in the future.
For more information about Newberry Federal's market area and the competition it
faces, see "Business of Newberry Federal Savings Bank--Market Area" and
"Business of Newberry Federal Savings Bank--Competition."
Implementation of additional benefit plans will increase future compensation
expense and may lower Newberry Federal's net income
Newberry Federal will recognize additional material employee compensation
and benefit expenses stemming from the shares purchased or granted to employees
and executives under new benefit plans. Newberry Federal cannot predict the
actual amount of these new expenses because applicable accounting practices
require that they be based on the fair market value of the shares of common
stock at specific points in the future. Newberry Federal would recognize
expenses for its employee stock ownership plan when shares are committed to be
released to participants' accounts and would recognize expenses for restricted
stock awards over the vesting period of awards made to recipients. These
expenses have been estimated 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. For further discussion of
these plans, see "Management of Newberry Federal--Benefits."
Management will have substantial discretion over investment of the offering
proceeds and may make investments with which you may disagree
The net offering proceeds to Newberry Federal are estimated to range from
$5.2 million to $8.2 million. The net offering proceeds to DutchFork Bancshares
are estimated to range from $4.3 million to $6.8 million after it loans a
portion of the proceeds to Newberry Federal's employee stock ownership plan to
purchase shares of common stock. DutchFork Bancshares and Newberry Federal
intend to use these funds for general business purposes, giving management
substantial discretion over their investment. You may disagree with investments
that management makes. See "Use of Proceeds" for further discussion.
Issuance of shares for benefit programs may reduce your ownership interest
If stockholders approve the new stock-based incentive plan, DutchFork
Bancshares intends to issue shares to its officers and directors through these
plans. If the restricted stock awards under the stock-based incentive plan are
funded from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the options under the stock-based
incentive plan are granted from authorized but unissued stock, your ownership
interest could be reduced by up to approximately 9.09%. See "Pro Forma Data" and
"Management of Newberry Federal--Benefits."
10
<PAGE>
Expected voting control by management and employees could discourage unwanted
takeover attempts
The shares of common stock that Newberry Federal's directors and executive
officers intend to purchase in the conversion, when combined with the shares
that may be awarded to participants under Newberry Federal's employee stock
ownership plan and DutchFork Bancshares' stock-based incentive plan, could
result in management and employees controlling a significant percentage of
DutchFork Bancshares' common stock. If these individuals were to act together,
they could have significant influence over the outcome of any stockholder vote.
This voting power may discourage takeover attempts you might like to see happen.
In addition, the total voting power of management and employees could reach in
excess of 20% of DutchFork Bancshares' outstanding stock. 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 "Management of Newberry Federal--Executive Compensation," "Shares to Be
Purchased by Management with Subscription Rights" and "Restrictions on
Acquisition of DutchFork Bancshares and Newberry Federal."
Anti-takeover provisions and statutory provisions could discourage unwanted
takeover attempts
Provisions in DutchFork Bancshares' Certificate of Incorporation and
Bylaws, the corporate law of the State of Delaware, 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 you might
like to see happen. These provisions will also make the removal of the current
board of directors or management of DutchFork Bancshares, or the appointment of
new directors, more difficult. These provisions include: limitations on voting
rights of beneficial owners of more than 10% of DutchFork Bancshares' common
stock; supermajority voting requirements for certain business combinations; the
election of directors to staggered terms of three years; the elimination of
cumulative voting for directors; and director residency requirements and other
qualifications for directors. The Certificate of Incorporation of DutchFork
Bancshares also contains provisions regarding the timing and content of
stockholder proposals and nominations and limiting the calling of special
meetings by stockholders. For further information about these provisions, see
"Restrictions on Acquisition of DutchFork Bancshares and Newberry Federal."
Employment agreements and the severance plan could discourage unwanted takeover
attempts
The employment agreements to be entered into with officers of DutchFork
Bancshares and Newberry Federal provide for cash severance payments and/or the
continuation of health, life and disability benefits if the officers are
terminated following a change in control of DutchFork Bancshares or Newberry
Federal. If a change in control had occurred at December 31, 1999, the aggregate
value of the severance benefits available to these officers under the agreements
would have been approximately $1.3 million based on 1999 compensation data. In
addition, if a change in control had occurred at December 31, 1999 and all
eligible employees had been terminated, the aggregate payment due under the
employee severance compensation plan would have been approximately $774,000
based on 1999 compensation data. These estimates do not take into account future
salary adjustments or bonus payments or the value of the continuation of other
employee benefits. All of these arrangements may have the effect of increasing
the costs of acquiring DutchFork Bancshares, thereby discouraging future
attempts to take over DutchFork Bancshares or Newberry Federal. For information
about the proposed employment and severance agreements and severance plan, see
"Management of Newberry Federal--Executive Compensation."
DutchFork Bancshares cannot assure or guarantee an active trading market for the
common stock
Because DutchFork Bancshares has never issued stock, there is no current
trading market for the common stock. Consequently, DutchFork Bancshares intends
to list its common stock on the Nasdaq SmallCap Market. DutchFork Bancshares,
however, cannot assure or guarantee that an active trading market for the common
stock will develop or that an active trading market, if developed, will
continue. An active and orderly trading market will depend on the existence and
individual decisions of willing buyers and sellers at any given time over which
neither DutchFork Bancshares nor any market maker will have any control. If an
active trading market does not develop or is sporadic, this may hurt the market
value of the common stock. Furthermore, DutchFork Bancshares
11
<PAGE>
cannot assure or guarantee that purchasers of common stock in the offering will
be able to sell their shares after the conversion at or above the $10.00 per
share purchase price. For further information, see "Market for Common Stock."
Banking reform legislation restricts the activities in which DutchFork
Bancshares may engage compared to existing unitary holding companies
The Financial Services Modernization Act of 1999, which is intended to
modernize the financial services industry, allows greater affiliations by
commercial bank holding companies with financial companies such as securities
and insurance companies. Under this recent federal legislation, newly formed
unitary savings and loan holding companies, such as DutchFork Bancshares, do not
have the broad powers formerly available to unitary savings and loan holding
companies. Certain unitary savings and loan holding companies are grandfathered
under the legislation, but DutchFork Bancshares is not one. Consequently,
DutchFork Bancshares is restricted in the activities in which it may engage more
than a grandfathered unitary savings and loan holding company. For example,
DutchFork Bancshares generally does not have the authority to engage in
nonfinancial activities whereas a grandfathered unitary holding company has that
authority.
12
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following tables contain certain information concerning the financial
position and results of operations of Newberry Federal. You should read this
information in conjunction with the consolidated financial statements included
in this prospectus.
<TABLE>
<CAPTION>
At At September 30,
December 31, -----------------------------------------------------------
1999 1999 1998 1997 1996
--------------- -------------- -------------- ------------- ---------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Consolidated Financial Data:
Total assets............................... $226,600 $211,151 $182,775 $175,575 $162,009
Cash and cash equivalents.................. 6,123 3,256 4,964 8,867 4,208
Loans, net................................. 74,788 75,324 71,249 65,997 62,037
Securities held-to-maturity:
Mortgage-backed securities, net......... 4,332 4,466 6,819 6,826 7,804
Investment securities, net.............. 1,141 1,141 1,346 4,461 --
Securities available-for-sale:
Mortgage-backed securities, net......... 109,888 96,885 85,152 75,504 75,531
Investment securities, net........... 22,001 22,068 6,542 7,916 4,366
Deposit accounts........................... 148,437 137,537 141,702 128,721 118,240
Federal Home Loan Bank advances............ 35,740 39,240 20,600 27,600 26,000
Federal funds borrowed..................... 5,325 7,370 -- -- --
Total retained earnings.................... 16,128 16,701 18,771 17,425 14,922
Repossessed assets......................... 22 14 19 4 833
Non-performing assets and
troubled debt restructurings............. 259 243 384 242 949
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Year Ended September 30,
-------------------------- -----------------------------------------------------------
1999 1998 1999 1998 1997 1996
----------- ------------- -------------- ------------ ------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Consolidated
Operating Data:
Total interest income................ $3,774 $2,980 $12,490 $12,299 $11,829 $10,320
Total interest expense............... 2,143 1,921 7,490 7,555 7,287 6,436
------ ------ ------- ------- ------- -------
Net interest income............... 1,631 1,059 5,000 4,744 4,542 3,884
Provision for loan losses............ 160 10 142 85 70 --
------ ------ ------- ------- ------- -------
Net interest income after
provision for loan losses........ 1,471 1,049 4,858 4,659 4,472 3,884
Non-interest income.................. 241 279 1,155 1,536 1,464 1,106
Non-interest expense................. 1,215 941 4,228 4,109 4,082 4,929
------ ------ ------- ------- ------- -------
Income before income taxes........... 497 387 1,785 2,086 1,854 61
Provision for income taxes........... 199 154 771 834 728 22
------ ------ ------- ------- ------- -------
Net income........................ $ 298 $ 233 $ 1,014 $ 1,252 $ 1,126 $ 39
====== ====== ======= ======= ======= =======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
At or For the
Three Months Ended
December 31, At or For the Year Ended September 30,
------------------------- -----------------------------------------------
1999 1998 1999 1998 1997 1996
---------- ------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Selected Consolidated Operating Ratios
and Other Data (1):
Performance Ratios:
Average yield on interest-earning assets.... 7.36% 6.80% 6.94% 7.12% 7.21% 7.08%
Average rate paid on interest-bearing
liabilities................................. 4.55 4.73 4.50 4.73 4.72 4.59
Average interest rate spread (2)............ 2.81 2.07 2.44 2.40 2.49 2.39
Net interest margin (3)..................... 3.18 2.42 2.78 2.75 2.77 2.67
Ratio of interest-earning assets to
interest-bearing liabilities.............. 108.85 107.85 108.16 108.02 106.36 107.85
Net interest income after provision for
loan losses to noninterest expense.......... 121.06 111.49 114.91 113.38 109.56 78.82
Non-interest expense as a percent of
average assets............................ 2.25 2.06 2.26 2.28 2.36 3.16
Return on average assets.................... 0.55 0.51 0.54 0.69 0.65 0.03
Return on average equity.................... 7.11 4.91 5.43 6.79 6.82 0.25
Ratio of average equity to average assets... 7.76 10.39 9.97 10.23 9.56 10.19
Regulatory Capital Ratios:
Tangible capital ratio...................... 8.72 10.34 9.24 10.28 9.96 9.13
Core capital ratio.......................... 8.73 10.34 9.24 10.28 9.96 10.03
Risk-based capital ratio.................... 18.86 22.49 17.39 24.89 21.29 24.46
Asset Quality Ratios:
Non-performing loans and troubled
debt restructurings as a percent
of total loans (4)....................... 0.31 0.30 0.51 0.35 0.18 0.30
Non-performing assets and troubled
debt restructurings as a percent
of total assets (5)...................... 0.12 0.17 0.12 0.21 0.14 0.59
Allowance for loan losses as a percent
of total loans............................ 0.44 0.22 0.24 0.25 0.28 0.36
Allowance for loan losses as a percent of
non-performing loans and troubled
debt restructurings (4)................... 140.51 72.49 80.79 49.59 80.25 195.69
Net loans charged-off to average
interest-earning loans.................... 0.02 0.04 0.18 0.14 0.17 0.06
Number at end of period:
Full service offices...................... 4 4 4 4 4 4
Mortgage loans............................ 1,965 3,834 2,476 2,328 2,167 1,993
Deposit accounts.......................... 10,571 15,880 9,957 14,762 15,728 16,266
</TABLE>
_________________________________
(1) Asset quality ratios and regulatory capital ratios are end of period
ratios. All ratios are based on average monthly balances during the
indicated periods.
(2) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(3) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(4) Nonperforming loans consist solely of all nonaccrual loans.
(5) Nonperforming assets consist of nonperforming loans, trouble debt
restructurings, other repossessed assets and real estate owned.
14
<PAGE>
USE OF PROCEEDS
The following table shows how DutchFork Bancshares intends to distribute
the net proceeds of the offering. The actual net proceeds will depend on the
number of shares of common stock sold in the offering and the expenses of the
offering. See "Pro Forma Data" for the assumptions used to arrive at these
amounts.
<TABLE>
<CAPTION>
1,105,000 1,495,000 1,719,250
Shares at Shares at Shares at
$10.00 $10.00 $10.00
Per Share Per Share Per Share
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Offering proceeds............................................ $ 11,050 $ 14,950 $ 17,193
Less: estimated underwriting commissions and
other offering expenses............................... 730 810 850
----------- ---------- -----------
Net offering proceeds........................................ 10,320 14,140 16,343
Less:
Proceeds to be contributed to Newberry Federal............ 5,160 7,070 8,172
Proceeds used for loan to employee stock ownership plan... 884 1,196 1,375
----------- ---------- -----------
Proceeds remaining for DutchFork Bancshares.................. $ 4,276 $ 5,874 $ 6,797
=========== ========== ===========
</TABLE>
DutchFork Bancshares may use the proceeds it retains from the offering:
. to invest in securities;
. to repurchase shares of its common stock;
. to pay dividends to stockholders depending on DutchFork Bancshares'
operating performance, market conditions and other factors;
. to finance the possible acquisition of financial institutions or other
businesses that are related to banking; and
. for general corporate purposes.
Newberry Federal may use the proceeds that it receives from the offering:
. to invest in securities;
. to fund new loans;
. to finance the possible expansion of its business activities; and
. for general corporate purposes.
DutchFork Bancshares and Newberry Federal may need regulatory approvals to
engage in some of the activities listed above. See "Regulation and Supervision."
Neither DutchFork Bancshares nor Newberry Federal currently has any specific
plans or agreements regarding any expansion activities or acquisitions.
15
<PAGE>
Except as described above, neither DutchFork Bancshares nor Newberry
Federal has specific plans for the investment of the proceeds of this offering.
Although Newberry Federal's capital currently exceeds regulatory requirements,
it is converting to stock form primarily 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 "The Conversion--Reasons for the Conversion."
DUTCHFORK BANCSHARES' DIVIDEND POLICY
DutchFork Bancshares' board of directors intends to pay cash dividends
after the conversion, but has not decided the amount or range of amounts that
may be paid or when the payments may begin. In addition, the board of directors
may declare and pay periodic special cash dividends in addition to, or in lieu
of, regular cash dividends. In determining whether to declare or pay any
dividends, whether regular or special, the board of directors will take into
account the amount of the net proceeds retained by DutchFork Bancshares,
DutchFork Bancshares' financial condition, results of operations, tax
considerations, capital requirements, industry standards, and economic
conditions. The regulatory restrictions that affect the payment of dividends by
Newberry Federal to DutchFork Bancshares discussed below will also be
considered. DutchFork Bancshares cannot guarantee that it will pay dividends or
that, if paid, that DutchFork Bancshares will not reduce or eliminate dividends
in the future.
DutchFork Bancshares is subject to Delaware law, which generally
limits dividends to an amount equal to the difference between the amount by
which total assets exceed total liabilities and the amount equal to the
aggregate par value of the outstanding shares of capital stock. If there is no
difference between these amounts, dividends are limited to net income for the
current and/or immediately preceding fiscal year.
Dividends from DutchFork Bancshares may depend, in part, upon receipt
of dividends from Newberry Federal because DutchFork Bancshares initially will
have no source of income other than dividends from Newberry Federal and earnings
from the investment of the net proceeds from the offering retained by DutchFork
Bancshares. Office of Thrift Supervision regulations limit distributions from
Newberry Federal to DutchFork Bancshares. In addition, Newberry Federal may not
declare or pay a cash dividend on its capital stock if its effect would be to
reduce the regulatory capital of Newberry Federal below the amount required for
the liquidation account to be established as required by Newberry Federal's plan
of conversion. See "Regulation and Supervision--Federal Savings Institution
Regulation--Limitations on Capital Distributions," "The Conversion--Effects of
Conversion to Stock Form on Depositors and Borrowers of Newberry
Federal--Liquidation Account" and Note 16 of the Notes to Consolidated Financial
Statements included in the back of this prospectus.
Any payment of dividends by Newberry Federal to DutchFork Bancshares
that would be deemed to be drawn out of Newberry Federal's bad debt reserves
would require the payment of federal income taxes by Newberry Federal at the
then current income tax rate on the amount deemed distributed. See "Federal and
State Taxation of Income--Federal Income Taxation" and Note 9 of the Notes to
Consolidated Financial Statements included in this prospectus. DutchFork
Bancshares does not contemplate any distribution by Newberry Federal that would
result in this type of tax liability.
Additionally, DutchFork Bancshares and Newberry Federal have committed
to the Office of Thrift Supervision that during the one-year period following
the conversion, DutchFork Bancshares will not take any action to declare an
extraordinary dividend to stockholders that would be treated by recipients as a
tax-free return of capital for federal income tax purposes.
16
<PAGE>
MARKET FOR THE COMMON STOCK
DutchFork Bancshares has not previously issued common stock and there
is currently no established market for the common stock. DutchFork Bancshares
has applied to have its common stock quoted on the Nasdaq SmallCap Market under
the symbol "DFBS" after the conversion.
One of the requirements for initial quotation of the common stock on
the Nasdaq SmallCap Market is that there be at least three market makers for the
common stock. Trident Securities has advised DutchFork Bancshares that it
intends to make a market in the common stock following the conversion, but is
under no obligation to do so. DutchFork Bancshares will seek to encourage and
assist at least two additional market makers to make a market in the common
stock. Other requirements for initial listing on the Nasdaq SmallCap Market
include a public float of one million shares and 300 round lot shareholders. If
DutchFork Bancshares qualifies for listing on The Nasdaq National Market after
the conversion, it intends apply for such listing. Making a market involves
maintaining bid and asked quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices. Various securities
laws and other regulatory requirements apply to these activities. While
DutchFork Bancshares believes that there will be other broker-dealers to act as
market makers for the common stock, DutchFork Bancshares cannot guarantee that
there will be three or more market makers for 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
DutchFork Bancshares' control or under the control of any market maker. The
number of active buyers and sellers of the common stock at any particular time
may be limited. Under such circumstances, you could have difficulty selling your
shares on short notice and therefore you should not view the common stock as a
short-term investment. DutchFork Bancshares cannot assure you that an active and
liquid trading market for the common stock will develop or that, if it develops,
it will continue, nor can DutchFork Bancshares assure you that if you purchase
shares you will be able to sell them at or above $10.00 per share or that
quotations will be available on the Nasdaq SmallCap Market as contemplated.
17
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Newberry
Federal at December 31, 1999, and the pro forma capitalization of DutchFork
Bancshares after giving effect to the assumptions listed under "Pro Forma Data,"
based on the sale of the number of shares of common stock indicated in the
table. DutchFork Bancshares pro forma capitalization does not reflect the
issuance of additional shares under the proposed stock-based incentive plan. A
change in the number of shares to be issued in the conversion may materially
affect pro forma capitalization.
<TABLE>
<CAPTION>
DutchFork Bancshares Pro Forma
Capitalization Based Upon the Sale of
-------------------------------------
Newberry Federal 1,105,000 1,495,000 1,719,250
Capitalization Shares at Shares at Shares at
as of $10.00 $10.00 $10.00
December 31, 1999 Per Share Per Share Per Share
----------------- ---------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Deposits (1).......................................... $148,437 $148,437 $148,437 $148,437
Advances from Federal Home Loan Bank.................. 35,740 35,740 35,740 35,740
Other borrowings...................................... 5,325 5,325 5,325 5,325
-------- -------- -------- --------
Total deposits and borrowed funds..................... $189,502 $189,502 $189,502 $189,502
======== ======== ======== ========
Stockholders' equity:
Preferred stock:
500,000 shares, $.01 par value per share,
authorized; none issued or outstanding....... $ -- $ -- $ -- $ --
Common stock:
4,000,000 shares, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding......... -- 11 15 17
Additional paid-in capital............................ -- 10,309 14,125 16,326
Retained earnings (2)................................. 20,850 20,850 20,850 20,850
Net unrealized loss on available-for-sale securities.. (4,722) (4,722) (4,722) (4,722)
Less:
Common stock acquired by employee
stock ownership plan (3)........................ -- 884 1,196 1,375
Common stock to be acquired by stock-based
incentive plan (4).............................. -- 442 598 688
-------- -------- -------- --------
Total stockholders' equity............................ $ 16,128 $25,122 $28,474 $30,408
======== ======= ======= =======
</TABLE>
_______________________________
(1) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Withdrawals to purchase common stock will
reduce pro forma deposits by the amounts of the withdrawals.
(2) Retained earnings are restricted by applicable regulatory capital
requirements. Additionally, Newberry Federal will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of
Newberry Federal's eligible depositors as of November 30, 1998 and
March 31, 2000 at the time of the conversion and decreased subsequently as
these account holders reduce their balances or cease to be depositors. See
"The Conversion--Effects of Conversion to Stock Form--Liquidation Account."
(3) Assumes that 8% of the common stock issued in the conversion will be
acquired by the employee stock ownership plan in the conversion with funds
borrowed from DutchFork Bancshares. 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
DutchFork Bancshares, the borrowing will be eliminated in consolidation and
no liability or interest expense will be reflected in the consolidated
financial statements of DutchFork Bancshares. See "Management of Newberry
Federal--Benefits--Employee Stock Ownership Plan."
(4) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock issued in the conversion. 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 Newberry
Federal--Benefits--Stock-Based Incentive Plan." The stock-based incentive
plan will be submitted to stockholders for approval at a meeting following
the conversion.
18
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At December 31, 1999, Newberry Federal exceeded all regulatory capital
requirements. The following table presents Newberry Federal's capital position
relative to its regulatory capital requirements at December 31, 1999, on a
historical and pro forma basis. The table reflects receipt by Newberry Federal
of 50% of the net proceeds of the offering. For purposes of the table, the
amount expected to be borrowed by the employee stock ownership plan and the cost
of the shares expected to be awarded under the stock-based incentive plan as
restricted stock are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the Office of Thrift Supervision. For a discussion of the
capital standards applicable to Newberry Federal, see "Regulation and
Supervision--Federal Regulations--Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at December 31, 1999
-----------------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Offering Range Offering Range Offering Range
------------------- ------------------- -------------------
1,719,250 Shares
Historical at 1,105,000 Shares 1,495,000 Shares at $10.00 Per
December 31, 1999, at $10.00 Per Share at $10.00 Per Share Share
------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent
of of of of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets(1) Amount Assets Amount Assets Amount Assets
------- ----------- -------- ---------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted accounting
principles capital.............. $16,128 7.1% $19,962 8.7% $21,404 9.2% $22,236 9.6%
======= ======= ======= ======= ======= ======= ======= =======
Tangible Capital:
Capital level (2)............... $20,850 9.0% $24,684 10.5% $26,126 11.1% $26,958 11.4%
Requirement..................... 3,458 1.5 3,516 1.5 3,537 1.5 3,550 1.5
------- ------- ------- ------- ------- ------- ------- -------
Excess.......................... $17,392 7.5% $21,168 9.0% $22,589 9.6% $23,408 9.9%
======= ======= ======= ======= ======= ======= ======= =======
Core Capital:
Capital level (2)............... $20,096 8.7% $23,930 10.2% $25,372 10.8% $26,204 11.1%
Requirement..................... 9,222 4.0 9,375 4.0 9,433 4.0 9,466 4.0
------- ------- ------- ------- ------- ------- ------- -------
Excess.......................... $10,874 4.7% $14,555 6.2% $15,939 6.8% $16,738 7.1%
======= ======= ======= ======= ======= ======= ======= =======
Total Risk-Based Capital:
Total risk-based capital (3).... $20,415 18.9% $24,249 22.2% $25,691 23.5% $26,523 24.2%
Requirement..................... 8,659 8.0 8,720 8.0 8,743 8.0 8,757 8.0
------- ------- ------- ------- ------- ------- ------- -------
Excess.......................... $11,756 10.9% $15,529 14.2% $16,948 15.5% $17,766 16.2%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
______________________________
(1) Tangible capital and core capital levels are shown as a percentage of
adjusted total assets of $230.6 million. Risk-based capital levels are
shown as a percentage of risk-weighted assets of $108.2 million.
(2) A portion of the net unrealized gains on available-for-sale investment
securities accounts for the difference between generally accepted
accounting principles capital and leverage capital.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
19
<PAGE>
PRO FORMA DATA
The following tables show information about the net income and
stockholders' equity of DutchFork Bancshares reflecting the conversion (referred
to as "pro forma" information). The information provided illustrates the pro
forma net income and stockholders' equity of DutchFork Bancshares based on the
sale of common stock at the minimum of the offering range, the maximum of the
offering range and 15% above the maximum of the offering range. The actual net
proceeds from the sale of the common stock cannot be determined until the
conversion is completed. However, net proceeds indicated in the following tables
are based upon the following assumptions:
. In addition to a management fee of $10,000, Trident Securities
will receive a fee equal to 2.0% of the aggregate purchase price
of the shares sold in the conversion, except that no fee will be
paid with respect to shares purchased by the employee plans,
officers, employees, directors of Newberry Federal or DutchFork
Bancshares and their associates. See "The Conversion--Plan of
Distribution for the Subscription, Direct Community and
Syndicated Community Offerings." Trident Securities' fees would
increase if a syndicated community offering or underwritten
public offering is used to sell shares not sold in the
subscription offering and direct community offering.
. Conversion expenses, excluding the fees paid to Trident
Securities, will total approximately $550,000 regardless of the
number of shares sold in the conversion.
Actual expenses may vary from this estimate, and the fees paid will
depend upon whether a syndicate of broker-dealers or other means is necessary to
sell the shares, and other factors.
Pro forma net income for the three months ended December 31, 1999 has
been calculated as if the conversion was completed on October 1, 1999, and the
net proceeds had been invested at 6.19% beginning on that date, which represents
the one-year U.S. Treasury Bill yield as of December 31, 1999. Pro forma net
income for the year ended September 30, 1999 has been calculated as if the
conversion was completed on October 1, 1998, and the net proceeds had been
invested at 5.71% beginning on that date, which represents the one-year U.S.
Treasury Bill yield as of September 30, 1999.
A pro forma after-tax return of 3.83% is used for both DutchFork
Bancshares and Newberry Federal for the year ended December 31, 1999, after
giving effect to a combined federal and state income tax rate of 38.0%.
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 table.
When reviewing the following tables you should consider the following:
. The final column gives effect to the sale of an additional
224,250 shares in the conversion, which may be issued without any
further notice if Keller & Company increases its appraisal to
reflect the results of this offering or changes in the financial
condition or results of operations of Newberry Federal or changes
in market conditions after the offering begins. See "The
Conversion--Stock Pricing and Number of Shares to be Issued."
. Since funds on deposit at Newberry Federal may be withdrawn to
purchase shares of common stock, the amount of funds available
for investment will be reduced by the amount of withdrawals for
stock purchases. The pro forma tables do not reflect withdrawals
from deposit accounts.
. 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 covered by the table.
However, neither historical nor pro forma stockholders' equity
has been adjusted to reflect the
20
<PAGE>
investment of the estimated net proceeds from the sale of the
shares in the conversion, the additional employee stock ownership
plan expense or the proposed stock-based incentive plan.
. Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of Newberry Federal's
assets and liabilities. The amounts shown do not reflect the
liquidation account, which will be established for the benefit of
eligible depositors as of November 30, 1998 and March 31, 2000,
or the federal income tax consequences of the restoration to
income of Newberry Federal's special bad debt reserves for income
tax purposes, which would be required in the unlikely event of
liquidation. See "Federal and State Taxation of Income" and "The
Conversion--Effects of Conversion to Stock Form." The amounts
shown for book value do not represent fair market values or
amounts available for distribution to stockholders in the
unlikely event of liquidation.
. The amounts shown as pro forma stockholders' equity per share do
not represent possible future price appreciation of DutchFork
Bancshares' common stock.
. The amounts shown do not account for the shares to be reserved
for issuance under the stock-based incentive plan, which requires
stockholder approval at a meeting following the conversion.
The following pro forma data, which are based on Newberry Federal's
equity at December 31, 1999, and net income for the three months ended December
31, 1999, and on its equity at September 30, 1999, and net income for the year
ended September 30, 1999, may not represent the actual financial effects of the
conversion or the operating results of DutchFork Bancshares after the
conversion. The pro forma data rely exclusively on the assumptions outlined
above. The pro forma data do not represent the fair market value of DutchFork
Bancshares' common stock, the current fair market value of Newberry Federal's or
DutchFork Bancshares' assets or liabilities, or the amount of money that would
be available for distribution to stockholders if DutchFork Bancshares is
liquidated after the conversion.
21
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months Ended December 31,
1999
------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
----------------- ------------- -------------
1,105,000 1,495,000 1,719,250
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------- ----------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds..................................................... $ 11,050 $ 14,950 $ 17,193
Less offering expenses............................................. (730) (810) (850)
---------- ---------- -----------
Estimated net proceeds........................................... 10,320 14,140 16,343
Less: common stock acquired by employee stock ownership plan....... (884) (1,196) (1,375)
Less: common stock to be acquired by stock-based incentive plan.... (442) (598) (688)
---------- ----------- -----------
Net investable proceeds.......................................... $ 8,994 $ 12,346 $ 14,280
========== ========== ===========
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share.. $1,016,442 1,377,892 1,584,622
Pro forma net income:
Historical....................................................... $ 298 $ 298 $ 298
Pro forma income on net investable proceeds...................... 86 118 137
Less: pro forma employee stock ownership plan adjustments (1).... (11) (15) (18)
Less: pro forma stock-based incentive plan adjustments (2)....... (14) (19) (21)
---------- ---------- -----------
Pro forma net income....................................... $ 359 $ 382 $ 396
========== ========== ===========
Pro forma net income per share:
Historical...................................................... $ 0.29 $ 0.22 $ 0.19
Pro forma adjustments:
Pro forma income on net investable proceeds................... 0.08 0.09 0.09
Less: pro forma employee stock ownership plan adjustments(1).. (0.01) (0.01) (0.01)
Less: pro forma stock-based incentive plan adjustments(2)..... (0.01) (0.01) (0.01)
---------- ---------- -----------
Pro forma net income....................................... $ 0.35 $ 0.29 $ 0.26
========== ========== ===========
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders'
equity per share................................................. 1,016,442 1,377,892 1,584,622
Pro forma stockholders' equity (book value):
Historical....................................................... $ 16,128 $ 16,128 $ 16,128
Estimated net proceeds........................................... 10,320 14,140 16,343
Less: common stock acquired by employee stock ownership plan..... (884) (1,196) (1,375)
Less: common stock to be acquired by stock-based incentive
plan (2)................................................... (442) (598) (688)
---------- ---------- -----------
Pro forma stockholders' equity............................... $ 25,122 $ 28,474 $ 30,408
========== ========== ===========
Pro forma stockholders' equity per share:
Historical....................................................... $ 14.60 $ 10.79 $ 9.38
Estimated net proceeds........................................... 9.34 9.46 9.51
Less: common stock acquired by employee stock ownership plan..... (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive
plan (2)................................................... (0.40) (0.40) (0.40)
---------- ----------- -----------
Pro forma stockholders' equity per share................... $ 22.74 $ 19.05 $ 17.69
========== =========== ===========
Purchase price as a percentage of pro forma stockholders'
equity per share................................................. 43.98% 52.49% 56.53%
Purchase price as a multiple of pro forma
net income per share (annualized)................................ 7.14x 8.62x 9.62x
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1999
-----------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
---------------- ------------- -------------
1,105,000 1,495,000 1,719,250
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
---------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds........................................................... $ 11,050 $ 14,950 $ 17,193
Less offering expenses................................................... (730) (810) (850)
---------- ----------- -----------
Estimated net proceeds.............................................. 10,320 14,140 16,343
Less: common stock acquired by employee stock ownership plan............. (884) (1,196) (1,375)
Less: common stock to be acquired by stock-based incentive plan.......... (442) (598) (688)
---------- ----------- -----------
Net investable proceeds................................................ $ 8,994 $ 12,346 $ 14,280
========== =========== ===========
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share........ 1,023,967 1,385,367 1,593,218
Pro forma net income:
Historical............................................................. $ 1,014 $ 1,014 $ 1,014
Pro forma income on net investable proceeds............................ 318 437 506
Less: pro forma employee stock ownership plan adjustments (1).......... (46) (62) (71)
Less: pro forma stock-based incentive plan adjustments (2)............. (55) (74) (85)
---------- ----------- -----------
Pro forma net income................................................ $ 1,231 $ 1,315 $ 1,364
========== =========== ===========
Pro forma net income per share:
Historical............................................................. $ 0.99 $ 0.73 $ 0.64
Pro forma adjustments:
Pro forma income on net investable proceeds......................... 0.31 0.32 0.32
Less: pro forma employee stock ownership plan adjustments(1)........ (0.04) (0.04) (0.04)
Less: pro forma stock-based incentive plan adjustments(2).......... (0.05) (0.05) (0.05)
---------- ----------- -----------
Pro forma net income............................................... $ 1.21 $ 0.96 $ 0.87
========== =========== ===========
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders'
equity per share....................................................... 1,023,967 1,385,367 1,593,218
Pro forma stockholders' equity (book value):
Historical............................................................. $ 16,701 $ 16,701 $ 16,701
Estimated net proceeds................................................. 10,320 14,140 16,343
Less: common stock acquired by employee stock ownership plan.......... (884) (1,196) (1,375)
Less: common stock to be acquired by stock-based incentive plan (2).... (442) (598) (688)
---------- ----------- -----------
Pro forma stockholders' equity..................................... $ 25,695 $ 29,047 $ 30,981
========== =========== ===========
Pro forma stockholders' equity per share:
Historical............................................................. $ 15.11 $ 11.17 $ 9.71
Estimated net proceeds................................................. 9.34 9.46 9.51
Less: common stock acquired by employee stock ownership plan........... (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive plan (2).... (0.40) (0.40) (0.40)
---------- ----------- -----------
Pro forma stockholders' equity per share........................... $ 23.25 $ 19.43 $ 18.02
========== =========== ===========
Purchase price as a percentage of pro forma stockholders' equity
per share.............................................................. 43.01% 51.47% 55.49%
Purchase price as a multiple of pro forma
net income per share................................................... 8.26x 10.42x 11.49x
</TABLE>
23
<PAGE>
___________________
(1) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock offered in the conversion.
The employee stock ownership plan will borrow the funds used to acquire
these shares from the net proceeds from the conversion retained by
DutchFork Bancshares. The amount of this borrowing, which will have an
interest rate equal to the prime rate as published in The Wall Street
Journal, which is currently 8.75%, has been reflected as a reduction from
gross proceeds to determine estimated net investable proceeds. Newberry
Federal intends to make contributions to the employee stock ownership plan
in amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
Newberry Federal's payment of the employee stock ownership plan debt is
based upon equal installments of principal over a 12-year period, assuming
a combined federal and state income tax rate of 38.0%. Interest income
earned by DutchFork Bancshares on the loan to the employee stock ownership
plan offsets the interest paid on the loan by Newberry Federal. No
reinvestment is assumed on proceeds contributed to fund the employee stock
ownership plan. Applicable accounting principles 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 Newberry
Federal--Benefits--Employee Stock Ownership Plan."
(2) In calculating the pro forma effect of the stock-based incentive plan, it
is assumed that the required stockholder approval has been received, that
the shares were acquired by the stock-based incentive plan at the beginning
of the respective period in open market purchases at the $10.00 per share
purchase price, that 20% of the amount contributed was an amortized expense
during the period, and that the combined federal and state income tax rate
is 38.0%. 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%.
For purposes of this table, shares issued under the stock-based incentive
plan vest at the rate of 20% per year and compensation expense is
recognized on a straight-line basis over each vesting period. If the fair
market value per share is greater than $10.00 per share on the date shares
are awarded under the stock-based incentive plan, total stock-based
incentive plan expense would be greater. The total estimated stock-based
incentive plan expense was multiplied by 20%, which is the total percent of
shares for which expense is recognized in the first year.
The following table shows the estimated pro forma net income and
stockholders' equity per share if shares for the stock-based incentive plan
were authorized but unissued shares instead of repurchased shares. The
table also shows the estimated pre-tax stock-based incentive plan expense.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
-------------- -------------- ----------------
<S> <C> <C> <C>
Pro forma net income per share:
Three months ended December 31, 1999.................. $ 0.34 $ 0.27 $ 0.24
Year ended September 30, 1999......................... $ 1.17 $ 0.92 $ 0.84
Pro forma stockholders' equity per share:
At December 31, 1999.................................. $ 21.86 $ 18.31 $ 17.01
At September 30, 1999................................. $ 22.74 $ 19.07 $ 17.71
Pre-tax stock-based incentive plan expense:
Three months ended December 31, 1999.................. 13,000 18,000 21,000
Year ended September 30, 1999......................... 53,000 72,000 83,000
</TABLE>
24
<PAGE>
NEWBERRY FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for each of the years
in the two year period ended September 30, 1999 have been audited by Clifton D.
Bodiford, certified public accountant, whose report on these Consolidated
Statements of Income appears on page F-2 of this prospectus. The results of
operations for the three months ended December 31, 1999 and 1998, which are
unaudited, includes all adjustments which, in the opinion of management, are of
a normal recurring nature and are necessary for a fair presentation of these
interim periods. The results of operations for the three months ended December
31, 1999 are not necessarily indicative of the results that may be expected for
the year ending September 30, 2000. These statements should be read in
conjunction with the Consolidated Financial Statements and related Notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
December 31, September 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------- -------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable (Notes 1 and 3).................. $1,478,184 $1,452,462 $ 5,780,396 $ 5,729,183
Investments (Notes 1 and 2)....................... 596,012 126,255 5,874,925 4,445,304
Mortgage-backed and related securities
(Notes 1 and 2)................................. 1,632,430 1,300,694 465,361 1,539,770
Other interest-earning assets..................... 67,543 100,709 368,890 585,088
---------- ---------- ----------- -----------
Total interest income.......................... 3,774,169 2,980,120 12,489,572 12,299,345
---------- ---------- ----------- -----------
Interest expense:
Interest expense on deposit accounts (Note 5)..... 1,622,930 1,598,975 5,989,748 6,252,185
Federal Home Loan Bank advances (Note 6).......... 494,115 315,750 1,438,133 1,290,250
Other borrowings purchased........................ 25,791 6,603 61,823 12,744
---------- ---------- ----------- -----------
Total interest expense..................... 2,142,836 1,921,328 7,489,704 7,555,179
---------- ---------- ----------- -----------
Net interest income:................................ 1,631,333 1,058,792 4,999,868 4,744,166
Provision for loan losses (Notes 1 and 3)......... 160,000 10,000 142,000 85,000
---------- ---------- ----------- -----------
Net interest income after provision
for loan losses............................... 1,471,333 1,048,792 4,857,868 4,659,166
---------- ---------- ----------- -----------
Non-interest income:
Gain (loss) on sales of securities, net........... -- 10,366 194,170 605,752
Loan origination and commitment fees (Note 1)..... 15,083 56,500 138,449 149,536
Profit on sale of loans........................... 303 -- -- 19,865
Loan servicing fees (Note 1)...................... 16,841 21,816 76,304 92,754
Bank service charges.............................. 172,662 147,960 585,229 499,239
Loan late charges................................. 12,650 13,061 50,669 52,014
Other............................................. 23,640 28,843 110,245 116,630
---------- ---------- ----------- -----------
Total non-interest income...................... 241,179 278,546 1,155,066 1,535,790
---------- ---------- ----------- -----------
Non-interest expense:
Compensation and benefits........................ 552,792 440,767 2,036,812 2,081,383
Occupancy and equipment.......................... 78,456 67,939 295,511 304,312
SAIF deposit insurance premium................... 20,594 19,755 82,298 81,575
Foreclosed real estate expenses.................. 294 2,622 7,651 166
Furniture and equipment.......................... 100,614 96,470 378,450 295,428
Professional fees................................ 76,896 34,692 177,696 109,784
Telephone and postage............................ 38,002 43,039 156,575 146,468
Insurance........................................ 10,738 10,267 41,076 42,603
Marketing........................................ 48,225 42,420 153,569 136,984
Data processing.................................. 79,708 50,864 300,301 197,782
Supplies and printing............................ 15,964 17,505 72,451 67,014
OTS assessments.................................. 11,704 13,146 48,328 51,819
Meetings......................................... 5,135 10,476 68,858 46,829
Bank service charges............................. 8,620 9,166 33,666 42,359
Loan expenses.................................... 9,856 23,842 77,211 73,553
Transaction account charges...................... 12,781 9,402 43,816 46,697
Automated teller system.......................... 6,183 4,347 23,473 17,497
Contributions.................................... 103,889 17,471 111,578 247,939
Other............................................ 34,877 26,510 118,268 119,004
---------- ---------- ----------- -----------
Total non-interest expense................. 1,215,328 940,700 4,227,588 4,109,196
---------- ---------- ----------- -----------
Income before income taxes........................ 497,184 386,638 1,785,346 2,085,760
Provision for income taxes (Notes 1 and 7).......... 198,770 154,235 771,016 834,304
---------- ---------- ----------- -----------
Net income.......................................... $ 298,414 $ 232,403 $ 1,014,330 $ 1,251,456
========== ========== =========== ===========
</TABLE>
See accompanying notes.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Consolidated Financial Information" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this prospectus.
General
Newberry Federal's results of operations depend primarily on net
interest income, which is the difference between the interest income earned on
Newberry Federal's interest-earning assets, such as loans and securities, and
the interest expense on its interest-bearing liabilities, such as deposits and
borrowings. Newberry Federal also earns non-interest income primarily from gains
from the sale of securities and service charges and other fees earned on deposit
accounts and loans. Newberry Federal's non-interest expenses primarily consist
of employee compensation and benefits, occupancy expense, advertising and other
operating expenses. Newberry Federal's results of operations are also affected
by general economic and competitive conditions, notably changes in market
interest rates, government policies and regulations. Newberry Federal exceeded
all of its regulatory capital requirements at December 31, 1999. In addition to
serving the financial service needs of consumers within its primary market area,
Newberry Federal has demonstrated its commitment to its local communities
through philanthropy. Since 1990, it has made monetary gifts and donations
totalling $1.7 million to various cultural, educational and civic organizations
operating within its primary market area. Newberry Federal intends to continue
its tradition of local community support after the conversion.
Forward Looking Statements
This prospectus contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of Newberry
Federal and DutchFork Bancshares. These forward-looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. Newberry Federal's and DutchFork
Bancshares' ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on the operations of Newberry Federal and DutchFork Bancshares and their
subsidiaries 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 and composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in Newberry Federal's and DutchFork Bancshares' market area
and accounting principles. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Newberry Federal and DutchFork Bancshares do not undertake -
and specifically disclaim any obligation - to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of the statements or to reflect the occurrence
of anticipated or unanticipated events.
Operating Strategy
Newberry Federal is an independent, community-oriented savings bank,
delivering quality customer service and offering a wide range of deposit and
loan products to its customers. Because of weak loan demand in Newberry
Federal's primary market area, management has maintained a substantial
investment in investment securities and mortgage-backed securities classified as
available-for-sale. Management's objective in managing the securities portfolio
is to maintain a portfolio of high quality, highly liquid investments with
competitive returns in order to maximize current income without compromising
credit quality.
Going forward, one of management's objectives is to reduce Newberry
Federal's above average exposure to rising interest rates. Rising market
interest rates would likely reduce Newberry Federal's net interest income
because its interest-bearing liabilities, which are primarily short-term
borrowings and short-term deposits, would reprice faster than its
interest-earning assets, which include a large portion of fixed-rate loans.
Subject to market
26
<PAGE>
conditions, Newberry Federal intends to use the offering proceeds raised in the
conversion to increase its investment in adjustable-rate mortgage loans and
shorter term commercial and consumer loans, including modular home loans that
Newberry Federal would originate directly.
Comparison of Financial Condition at December 31, 1999 and September 30, 1999
Total assets increased by $15.4 million from September 30, 1999, to
$226.6 million at December 31, 1999. Loans receivable decreased by $536,000 as
loan repayments exceeded originations, reflecting the weak demand for loans in
Newberry Federal's market area. Investment securities available-for-sale
decreased $66,000, primarily due to the purchase of adjustable rate securities
as a hedge against the fixed-rate loans in the loan portfolio. Mortgage-backed
securities held-for-investment decreased $134,000 due to maturities and
prepayments. Mortgage-backed securities available-for-sale increased $13.0
million as a result of purchases exceeding prepayments and maturities. Deposit
accounts increased $10.9 million from September 30, 1999 to December 31, 1999.
Management attributes this growth to competitive pricing and the closing of
branches of other banks in its primary market area. The funds generated from
loan repayments, securities prepayments and maturities and increased deposit
accounts were partially used to reduce Federal Home Loan Bank advances and other
borrowings, with the remaining funds invested in cash and cash equivalents. Cash
and cash equivalent balances were also higher at December 31, 1999 in
anticipation of Year 2000 needs.
At December 31, 1999, Newberry Federal had a $14.9 million accounts
payable for securities purchases that settled after that date. At September 30,
1999, Newberry Federal had a $4.1 million accounts payable for securities
purchases that settled after that date.
At December 31, 1999, total equity was $16.1 million which consisted
of retained earnings of $20.8 million reduced by a $4.7 million unrealized loss,
net of taxes, on the investment securities and mortgage-backed securities
portfolios classified as available-for-sale. Because Newberry Federal has a
substantial portfolio of investment securities and mortgage-backed securities
available-for-sale, the market values of these securities will fluctuate
significantly as a result of changes in market interest rates. See "Risk
Factors--Newberry Federal's capital level can fluctuate greatly as a result of
changes in market interest rates because of its large securities and mortgage-
backed securities portfolios classified as available for sale."
Comparison of Operating Results for the Three Months Ended December 31, 1999 and
1998
Net Income. Net income increased from $232,000 for the three months
ended December 31, 1998 to $298,000 for the same period in 1999 primarily as a
result of an increase in net interest income partially offset by an increase in
the provision for loan losses, a decrease in non-interest income and an increase
in non-interest expenses.
Net Interest Income. Net interest income increased from $1.1 million
for the three months ended December 31, 1998 to $1.6 million for the same period
in 1999 due to an increase in the average rate received on investments and
mortgage-backed securities, along with an increase of $22.8 million in the
average balance of these securities. Interest expense increased by $222,000 due
to an increase of $6.9 million in deposits and an increase of $23.6 million in
Federal Home Loan Bank advances and other borrowings while the average rate paid
on interest-bearing liabilities declined by 0.18%. During the three months ended
December 31, 1999, Newberry Federal borrowed $2.1 million from the Federal Home
Loan Bank to purchase adjustable rate mortgage-backed securities indexed to the
London InterBank Offered Rate and collateralized mortgage obligations in an
arbitrage to realize the spread between the rate earned on the securities and
the rate paid on the borrowings. Newberry Federal also borrowed funds to
increase cash reserves by $2.5 million in anticipation of Year 2000 needs.
Provision for Loan Losses. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level that
management considers adequate to provide for estimated losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specified impaired loans, and economic conditions. The provision for
loan losses increased from $10,000 for the three months ended December 31, 1998
to $160,000 for
27
<PAGE>
the three months ended December 31, 1999. Management deemed the increase in the
provision for loan losses warranted based on its evaluation of current economic
conditions and its belief that rising market interest rates could lead to
increased losses in the adjustable rate loan portfolio. Management deemed the
allowance for loan losses of $332,000 at December 31, 1999 as adequate at that
date. Although management uses the best information available, future
adjustments to the allowance may be necessary due to changes in economic,
operating, regulatory and other conditions that may be beyond Newberry Federal's
control. While Newberry Federal maintains its allowance for loan losses at a
level which it considers adequate to provide for estimated losses, there can be
no assurance that further additions will not be made to the allowance for loan
losses and that actual losses will not exceed the estimated amounts. See
"Business of Newberry Federal--Lending Activities--Allowance for Loan Losses"
for further information.
Non-Interest Income. Non-interest income decreased from $279,000 for
the three months ended December 31, 1998 to $241,000 for the same period in 1999
primarily as a result of a decrease in loan origination and commitment fees
caused by the decline in loan origination volume. Offsetting this decrease was
an increase in bank service charges due to restructuring of fee schedules.
Non-Interest Expense. Non-interest expense increased from $941,000 for
the three months ended December 31, 1998 to $1.2 million for the three months
ended December 31, 1999 primarily as a result of increases in compensation and
benefits, data processing expense, professional fees and other expenses.
Compensation and benefits increased due to general salary and benefit increases
as well as increased accruals for incentive compensation based on earnings
performance. Data processing expense and professional fees increased as a result
of Year 2000-related expenditures. Other expense increased primarily due to an
$86,000 increase in charitable contributions.
Provision for Income Taxes. The provision for income taxes increased
for the three months ended December 31, 1999 compared to the same quarter in the
prior year as a result of increased income before income taxes.
Comparison of Financial Condition at September 30, 1999 and 1998
Total assets increased from $182.8 million at September 30, 1998 to
$211.2 million at September 30, 1999 primarily as a result of an increases in
investment securities available-for-sale and mortgage-backed securities
available-for-sale. These securities purchases were funded with Federal Home
Loan Bank advances and other borrowed funds. Because of low loan demand,
Newberry Federal has maintained a significant investment in high quality, highly
liquid investment and mortgage-backed securities that offer competitive returns.
Loans receivable increased by $4.1 million due to general loan growth. Deposit
accounts decreased $4.2 million. Management attributes this decrease to
customers withdrawing funds for investment in non-deposit alternative
investments.
At September 30, 1999, total equity was $16.7 compared to $18.8
million at September 30, 1998. This decline was caused by an increase in the
unrealized loss, net of taxes, on securities available for sale from an
unrealized loss of $766,000 at September 30, 1998 to an unrealized loss of $3.9
million at September 30, 1999 due to an increase in market interest rates. See
"Risk Factors--Newberry Federal's capital level can fluctuate greatly as a
result of changes in market interest rates because of its large securities and
mortgage-backed securities portfolios classified as available for sale."
Comparison of Operating Results for the Years Ended September 30, 1999 and 1998
Net Income. Net income decreased from $1.3 million in 1998 to $1.0
million in 1999 primarily as a result of an increase in the provision for loan
losses, a decrease in non-interest income and an increase in non-interest
expenses.
28
<PAGE>
Net Interest Income. Net interest income increased from $4.7 million
in 1998 to $5.0 million in 1999 primarily as a result of an increase in the
ratio of interest-earning assets to interest-bearing liabilities and a slight
increase in the interest rate spread.
Provision for Loan Losses. The provision for loan losses increased
from $85,000 in 1998 to $142,000 in 1999 primarily as a result of an increase in
consumer loan charge-offs from $122,000 in 1998 to $167,000 in 1999. See
"Business of Newberry Federal--Lending Activities--Allowance for Loan Losses"
for further information.
Non-Interest Income. Non-interest income decreased from $1.5 million
in 1998 to $1.2 million in 1999. Gains on sales of securities, net, decreased
from $606,000 in 1998 to $194,000 in 1999. In 1998 management sold securities to
restructure the portfolio to decrease the weighted average term and increase the
weighted average yield of the portfolio. In 1999 market interest rates rose,
decreasing imbedded gains in the securities portfolio. Loan servicing fees
decreased from $93,000 in 1998 to $76,000 in 1999 as a result of a decline in
the servicing portfolio due to prepayments, maturities and refinancings.
Offsetting these decreases was an increase in service charges due to the
restructuring of fee schedules.
Non-Interest Expense. Non-interest expense increased from $4.1 million
in 1998 to $4.2 million in 1999 primarily as a result of increases in data
processing expense and professional fees as a result of Year 2000-related
expenditures. In addition, furniture and equipment expense increased due to
remodeling and improvements at the Chapin branch office and repairs at the
Prosperity branch office.
Provision for Income Taxes. The provision for income taxes decreased
between 1998 and 1999 as a result of lower income before income taxes, offset by
a slightly higher state tax rate in 1999 because of the absence in 1999 of
income from state tax exempt securities.
29
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table presents certain information for the periods
indicated 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 and the resulting
average yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances were
derived from monthly balances.
<TABLE>
<CAPTION>
Three Months Ended December 31,
---------------------------------------------------------------
At December 31, 1999 1999 1998
-------------------- ------------------------------ -------------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate
--------- -------- -------- ---------- ---------- -------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable (1)................ $ 74,788 7.91% $ 74,946 $1,478 7.89% $ 71,824 $1,452 8.09%
Mortgage-backed securities (2)...... 114,220 5.72 104,976 1,632 6.22 94,631 1,411 5.96
Investment securities (3)........... 23,005 7.76 22,967 595 7.77 3,573 59 6.61
Interest-bearing deposits........... 1,368 3.30 2,052 68 3.31 2,869 29 4.04
Federal funds sold.................. -- -- -- -- -- 2,387 28 4.69
Other............................... 137 2.92 133 1 3.01 73 1 5.48
-------- -------- ------ -------- ------
Total interest-earning assets... 213,518 7.07 205,074 3,774 7.36 175,357 2,980 6.80
Noninterest-earning assets.......... 13,082 11,009 7,305
-------- -------- --------
Total assets.................... $226,600 $216,083 $182,662
======== ======== ========
Interest-bearing liabilities:
Deposits:
Passbook accounts.................. $ 17,381 2.83 $ 17,490 $ 123 2.81 $ 17,538 $ 123 2.81
Money market and
NOW accounts.................... 27,619 2.32 28,192 160 2.27 26,111 141 2.16
Certificates of deposit............ 103,437 5.18 103,229 1,339 5.19 97,784 1,335 5.46
-------- -------- ------ -------- ------
Total deposits................. 148,437 4.37 148,911 1,622 4.36 141,433 1,599 4.52
Federal Home Loan Bank advances..... 35,740 5.53 35,073 494 5.63 20,600 316 6.14
Other borrowings.................... 5,325 2.03 4,417 27 2.45 554 6 4.33
-------- -------- ------ -------- ------
Total interest-bearing
liabilities.................... 189,502 4.52% 188,401 2,143 4.55% 162,587 1,921 4.73%
Non-interest-bearing liabilities.... 20,970 10,911 1,104
-------- -------- --------
Total liabilities............... 210,472 199,312 163,691
Total retained earnings............. 16,128 16,771 18,971
-------- -------- --------
Total liabilities and retained
earnings...................... $226,600 $216,083 $182,662
======== ======== ========
Net interest-earning assets......... $ 24,016 $ 16,673 $ 12,770
Net interest income/interest rate
spread (4)......................... 2.55% $1,631 2.81% $1,059 2.07%
Net interest margin as a percentage
of interest-earning assets (5)..... 3.06% 3.18% 2.42%
Ratio of interest-earning assets to
interest-bearing liabilities....... 112.67% 108.85% 107.85%
</TABLE>
______________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include non-accrual loans.
(2) Includes mortgage-backed securities available-for-sale and held-to-
maturity.
(3) Includes investment securities available-for-sale and held-to-maturity,
stock in the Federal Home Loan Bank of Atlanta and mutual funds.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
30
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------
1999 1998
------------------------------------ -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- --------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable (1)....................... $ 73,561 $ 5,780 7.86% $ 69,493 $ 5,729 8.24%
Mortgage-backed securities(2).............. 90,625 5,708 6.30 82,342 4,892 5.94
Investment securities (3).................. 11,884 800 6.73 15,968 1,258 7.88
Interest-bearing deposits.................. 1,878 95 5.06 2,253 154 6.84
Federal funds sold......................... 2,059 101 4.91 2,553 265 10.38
Other...................................... 92 6 6.52 43 1 2.33
-------- ------- -------- -------
Total interest-earning assets........... 180,099 12,490 6.94 172,652 12,299 7.12
Noninterest-earning assets................. 7,081 7,388
-------- --------
Total assets............................ $187,180 $180,040
======== ========
Interest-bearing liabilities:
Deposits:
Passbook accounts......................... $ 17,588 493 2.80 $ 17,780 508 2.86
Money market and
NOW accounts............................ 26,632 548 2.06 23,886 471 1.97
Certificates of deposit................... 95,220 4,949 5.20 94,330 5,273 5.59
-------- ------- -------- -------
Total deposits......................... 139,440 5,990 4.30 135,996 6,252 4.60
Federal Home Loan Bank advances............ 24,944 1,438 5.76 23,100 1,290 5.58
Other borrowings........................... 2,121 62 2.92 737 13 1.76
-------- ------- -------- -------
Total interest-bearing liabilities..... 166,505 7,490 4.50 159,833 7,555 4.73
-------- ------- ------ -------- ------- ------
Non-interest-bearing liabilities........... 2,013 1,795
------- --------
Total liabilities...................... 168,518 161,628
Total retained earnings.................... 18,662 18,412
-------- --------
Total liabilities and retained
earnings.............................. $187,180 $180,040
======== ========
Net interest-earning assets................ $ 13,594 $ 12,819
Net interest income/interest rate
spread (4)................................ $ 5,000 2.44% $ 4,744 2.40%
Net interest margin as a percentage
of interest-earning assets (5)............ 2.78% 2.75%
Ratio of interest-earning assets to
interest-bearing liabilities............. 108.16% 108.02%
</TABLE>
_____________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include non-accrual loans.
(2) Includes mortgage-backed securities available-for-sale and held-to-
maturity.
(3) Includes investment securities available-for-sale and held-to-maturity,
stock in the Federal Home Loan Bank of Atlanta and mutual funds.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
31
<PAGE>
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes
on the interest income and interest expense of Newberry Federal. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to changes in both rate and volume, which cannot be segregated, have been
allocated proportionately based on the absolute value of the change due to rate
and the change due to volume.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999
Compared to Year Ended September 30, 1999
Three Months Ended Compared to
December 31, 1998 Year Ended September 30, 1998
----------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------- -------------------
Rate Volume Net Rate Volume Net
------- -------- ----- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................................... $ (39) $ 65 $ 26 $(411) $ 462 $ 51
Mortgage-backed securities (1).......................... 65 156 221 313 503 816
Investment securities (1)............................... 190 392 582 (152) (306) (458)
Interest-earning deposits with banks.................... 1 (8) (7) (38) (21) (59)
Other borrowings........................................ -- (28) (28) (135) (29) (164)
Other................................................... -- -- -- 3 2 5
------- ------- ---- ----- ----- -----
Total interest-earning assets........................ 217 577 794 (420) 611 191
Interest-bearing liabilities:
Deposits:
Passbook accounts...................................... -- -- -- (10) (5) (15)
Money market and NOW accounts......................... 8 11 19 22 55 77
Certificates of deposit................................ (971) 975 4 (370) 46 (324)
Federal Home Loan Bank advances........................ (1,336) 1,514 178 44 104 148
Federal funds borrowed................................. (6) 27 21 19 30 49
Total interest-bearing liabilities................... (2,305) 2,527 222 295 (230) (65)
------- ------- ---- ----- ----- -----
Increase(decrease) in net interest income................. $ 2,522 $(1,950) $572 $(125) $ 381 $ 256
======= ======= ==== ===== ===== =====
</TABLE>
________________________
(1) Includes securities available-for-sale and held-to-maturity on a tax
equivalent basis.
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Newberry Federal maintains a
trading account for certain classes of collateralized mortgage obligations.
Newberry Federal does not have any foreign currency exchange rate risk or
commodity price risk. Newberry Federal does invest in mortgage derivative
securities, primarily collateralized mortgage obligations, whose market values
decrease in a rising interest rate environment. At December 31, 1999, Newberry
Federal engaged in an interest rate swap agreement. At December 31, 1999, this
swap agreement covered approximately 20% of the floating rate collateralized
mortgage obligations owned by Newberry Federal with an 8% interest rate cap. For
information regarding the sensitivity to interest rate risk of Newberry
Federal's interest-earning assets and interest-bearing liabilities, see the
tables under "Business of Newberry Federal--Lending Activities--Maturity of Loan
Portfolio," "--Investment Activities" and "--Deposit Activities and Other
Sources of Funds--Deposit Accounts--Time Deposits by Maturities."
Quantitative Aspects of Market Risk. Newberry Federal has sought to
reduce the exposure of its earnings to changes in market interest rates by
attempting to manage the mismatch between asset and liability maturities and
interest rates. Newberry Federal seeks to achieve this objective by increasing
the interest rate sensitivity of its interest-earning assets by originating, for
its portfolio, adjustable rate mortgage loans and shorter term commercial and
consumer loans, as well as decrease the average lives of its investment
securities and mortgage-backed
32
<PAGE>
securities portfolios. Newberry Federal relies on retail deposits as its primary
source of funds. Newberry Federal also seeks to sell conforming fixed-rate
mortgage loans with maturities of more than 15 years. Management believes retail
deposits, compared to brokered deposits, reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds.
Newberry Federal also intends to decrease the interest rate sensitivity of its
interest-bearing liabilities by attempting to increase the maturity of its
borrowings and deposit accounts.
In managing its asset/liability mix and in an effort to enhance net
interest income, Newberry Federal, depending on the relationship between long-
and short-term interest rates, market conditions and consumer preference, often
places more emphasis on managing short-term net interest margin than on better
matching the interest rate sensitivity of its assets and liabilities. Management
believes that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates.
In order to encourage institutions to reduce their interest rate risk,
the Office of Thrift Supervision adopted a rule incorporating an interest rate
risk component into the risk-based capital rules. Using data compiled by the
Office of Thrift Supervision, Newberry Federal receives a report which measures
interest rate risk by modeling the change in net portfolio value over a variety
of interest rate scenarios. This procedure for measuring interest rate risk was
developed by the Office of Thrift Supervision to replace the "gap" analysis,
which is the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period. Net portfolio
value is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in net portfolio value that will occur upon an immediate change in
interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under Office of Thrift Supervision regulations, an institution with a greater
than "normal" level of interest rate risk take a deduction from total capital
for purposes of calculating its risk-based capital. The Office of Thrift
Supervision, however, has delayed the implementation of this regulation. An
institution with a "normal" level of interest rate risk is defined as one whose
"measured interest rate risk" is less than 2.0%. Institutions with assets of
less than $300 million and a risk-based capital ratio of more than 12.0% are
exempt. Newberry Federal is exempt because of its asset size. Based on Newberry
Federal's regulatory capital levels at December 31, 1999, Newberry Federal
believes that, if the proposed regulation was implemented at that date, Newberry
Federal's level of interest rate risk would have caused it to be treated as an
institution with "greater than normal" interest rate risk.
The Office of Thrift Supervision provides Newberry Federal with the
information presented in the following table. It presents the change in Newberry
Federal's net portfolio value at December 31, 1999, that would occur upon an
immediate change in interest rates based on Office of Thrift Supervision
assumptions, but without effect to any steps that management might take to
counteract that change.
33
<PAGE>
<TABLE>
<CAPTION>
NPV as % of Portfolio
Change in Value of Assets
Interest Rates --------------------------
In Basis Points Net Portfolio Value NPV Change
--------------------------------------------
(Rate Shock) Amount Change % Change Ratio (1)
- --------------- -------- ---------- ----------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
300 $(9,607) $(26,464) (157)% (4.92)% $(1,238)
200 (746) (17,603) (104) (0.36) (738)
100 8,381 (8,477) (50) 3.88 (358)
Static 16,858 7.46
(100) 24,728 7,871 47 10.52 306
(200) 27,504 10,647 63 11.50 404
(300) 27,219 10,361 61 11.33 387
</TABLE>
____________________________________
(1) Expressed in basis points.
The Office of Thrift Supervision uses certain assumptions in assessing
the interest rate risk of savings associations. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable rate mortgage loans, have
features which restrict changes in interest rates on a short-term basis and over
the life of the asset. Further, if interest rates change, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
Liquidity and Capital Resources
Newberry Federal's most stable and traditional source of funding has
been the attraction and retention of deposit accounts, the success of which it
believes is based primarily on the strength and reputation of Newberry Federal,
effective marketing and rates paid on deposit accounts. Newberry Federal has a
significant market share of deposits in Newberry County. By continuing to
promote innovative new products, pricing competitively and encouraging the
highest level of quality in customer service, Newberry Federal continues to
successfully meet challenges from competitors, many of which are non-banking
entities offering investment products. Due to the migration of traditional
savings balances to non-deposit investment products, including the equity
markets, annuities and mutual funds, the pool of retail deposit funds held in
financial institutions has contracted over time, resulting in more reliance by
Newberry Federal on other sources of funds.
Newberry Federal's primary sources of funds are deposits and proceeds
from principal and interest payments on loans and mortgage-backed securities.
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
Newberry Federal generally manages the pricing of its deposits to be competitive
and to increase core deposit relationships. Other primary sources of funds
include borrowings from the Federal Home Loan bank of Atlanta, principal
repayments on loans and mortgage backed securities, reverse repurchase
agreements and sales of loans.
Federal regulations require Newberry Federal to maintain minimum levels
of liquid assets. The required percentage has varied from time to time based
upon economic conditions and savings flows and is currently 4.0% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the
34
<PAGE>
preceding calendar month. Liquid assets for purposes of this ratio include cash,
certain time deposits, U.S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. Newberry Federal has historically maintained its liquidity
ratio for regulatory purposes at levels in excess of those required. At December
31, 1999, Newberry Federal's liquidity ratio for regulatory purposes was 15.3%.
Newberry Federal's most liquid assets are cash and short-term
investments. The levels of these assets depend on Newberry Federal's operating,
financing, lending and investing activities during any given period. At December
31, 1999, cash and short-term investments totaled $7.2 million. Newberry Federal
has other sources of liquidity if a need for additional funds arises, including
securities maturing within one year and the repayment of loans. Newberry Federal
may also sell securities available-for-sale, federal funds purchased, and
Federal Home Loan Bank of Atlanta advances as a source of funds. At December 31,
1999, Newberry Federal had the ability to borrow a total of approximately $52.4
million from the Federal Home Loan Bank of Atlanta. On that date, Newberry
Federal had outstanding advances of $35.7 million.
At December 31, 1999, Newberry Federal had outstanding commitments to
originate loans of $1.1 million, $838,000 of which had fixed interest rates.
These loans are to be secured by properties located in its market area. Newberry
Federal anticipates that it will have sufficient funds available to meet its
current loan commitments. Loan commitments have, in recent periods, been funded
through liquidity or through Federal Home Loan Bank borrowings. Certificates of
deposit which are scheduled to mature in one year or less from December 31, 1999
totaled $90.2 million. Management believes, based on past experience, that a
significant portion of such deposits will remain with Newberry Federal. Based on
the foregoing, in addition to Newberry Federal's high level of core deposits and
capital, Newberry Federal considers its liquidity and capital resources
sufficient to meet its outstanding short-term and long-term needs.
Liquidity management is both a daily and long-term responsibility of
management. Newberry Federal adjusts its investments in liquid assets based upon
management's assessment of expected loan demand, expected deposit flows, yields
available on interest-earning deposits and investment securities, and the
objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. Government and agency obligations and mortgage-backed
securities. If Newberry Federal requires funds beyond its ability to generate
them internally, it has additional borrowing capacity with the Federal Home Loan
Bank of Atlanta. It is anticipated that immediately upon completion of the
conversion, DutchFork Bancshares' and Newberry Federal's liquid assets will be
increased. See "Use of Proceeds."
The desired level of liquidity for Newberry Federal is determined by
management in conjunction with the Asset/Liability Committees of Newberry
Federal. The level of liquidity is based on management's strategic direction for
Newberry Federal's commitments to make loans and the Committees' assessment of
Newberry Federal's ability to generate funds. Historically, sources of liquidity
have included net deposits to savings accounts, amortizations and prepayments of
loans, Federal Home Loan Bank advances, reverse repurchase agreements and sales
of securities and loans held for sale.
Newberry Federal is subject to various regulatory capital requirements
imposed by the Office of Thrift Supervision. At December 31, 1999, Newberry
Federal was in compliance with all applicable capital requirements. See
"Regulation--Regulatory Capital Requirements" and "Pro Forma Regulatory
Capital Analysis" and Note 12 of the Notes to Consolidated Financial Statements.
Year 2000
Before January 1, 2000, Newberry Federal had implemented and
satisfactorily tested a comprehensive plan to address the effect of the Year
2000 date change on its mission critical computer systems. While there can be no
assurances that Newberry Federal's Year 2000 plan has effectively addressed the
Year 2000 issue, Newberry Federal has not been notified, and it is unaware of,
any vendor or service provider problems related to Year 2000,
35
<PAGE>
and all of its systems have performed properly since January 1, 2000. Likewise,
Newberry Federal is unaware of any Year 2000 issues that have materially
impaired the ability of its borrowers to repay their debts.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in
this prospectus have been prepared in conformity with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and liabilities of
Newberry Federal are monetary in nature. As a result, interest rates have a more
significant impact on Newberry Federal's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily move
in the same direction or in the same magnitude as inflation.
Impact of New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities. Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," addresses the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. As recently amended by Statement of Financial
Standards No. 137, the statement is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. On that date, hedging relationships
shall be designed in accordance with the statement. Earlier application is
encouraged but is permitted only at the beginning of any fiscal quarter that
begins after issuance of the statement. Earlier application of selected
provisions of the statement is not permitted. The statement shall not be applied
retroactively to financial statements of prior periods. The statement is not
expected to have a material adverse impact on the consolidated financial
position or results of operations of Newberry Federal.
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 allows entities with mortgage banking operations which convert
pools of mortgages into securities to classify these securities as
available-for-sale, trading, or held-to-maturity, instead of the current
requirement to classify these pools as trading. Newberry Federal adopted this
standard on October 1, 1999, however, the impact was not material to the
consolidated financial statements.
BUSINESS OF DUTCHFORK BANCSHARES
General
DutchFork Bancshares was organized as a Delaware business corporation
at the direction of Newberry Federal in February 2000 to become the holding
company for Newberry Federal upon completion of the conversion. As a result of
the conversion, Newberry Federal will be a wholly owned subsidiary of DutchFork
Bancshares and all of the issued and outstanding capital stock of Newberry
Federal will be owned by DutchFork Bancshares.
Business
Before the completion of the conversion, DutchFork Bancshares will not
engage in any significant activities other than of an organizational nature.
Upon completion of the conversion, DutchFork Bancshares' business activity will
be the ownership of the outstanding capital stock of Newberry Federal and
management of the investment of proceeds retained from the conversion. In the
future, DutchFork Bancshares may acquire or
36
<PAGE>
organize other operating subsidiaries. There are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, DutchFork Bancshares will neither own nor lease any property
but will instead use the premises, equipment and furniture of Newberry Federal
with the payment of appropriate rental fees, as required by applicable law and
regulations.
Since DutchFork Bancshares will hold the outstanding capital stock of
Newberry Federal after the conversion, the competitive conditions applicable to
DutchFork Bancshares will be the same as those confronting Newberry Federal. See
"Business of Newberry Federal Savings Bank--Competition."
BUSINESS OF NEWBERRY FEDERAL SAVINGS BANK
General
Newberry Federal was founded in 1930 as a South Carolina-chartered
mutual savings association. Newberry Federal is regulated by the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation. Newberry
Federal's deposits are insured to the maximum allowable amount by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation.
Newberry Federal is a member of the Federal Home Loan Bank System.
Newberry Federal is a traditional savings bank, specializing in the
acceptance of retail deposits from the general public in the areas surrounding
its four full-service banking offices and using those funds, together with funds
generated from operations and borrowings, to originate residential mortgage
loans and consumer loans, and to a lesser extent, construction, land and
commercial business loans. Newberry Federal originates loans primarily for
investment. However, Newberry Federal also sells loans, primarily conforming
fixed-rate mortgage loans with maturities of more than 15 years, in the
secondary market, while generally retaining the servicing rights. See "--Lending
Activities." Newberry Federal also invests in mortgage-backed securities, debt
and equity securities and other permissible investments. Newberry Federal's
revenues are derived principally from interest and fees on loans originated and,
to a lesser extent, interest and dividends on investment and mortgage-backed
securities. Newberry Federal's primary sources of funds are deposits, principal
and interest payments on loans and investments and mortgage-backed securities
and advances from the Federal Home Loan Bank of Atlanta.
In addition to serving the financial service needs of consumers within
its primary market area, Newberry Federal has demonstrated its commitment to its
local communities through philanthropy. Since 1990 it has made monetary gifts
and donations totaling approximately $1.7 million to various cultural,
educational and civic organizations operating within its primary market area.
Beneficiaries include the Newberry Opera House, Newberry College, Piedmont
Technical College and the Newberry YMCA, among others. Newberry Federal intends
to continue its tradition of local community support after the conversion.
Market Area
Newberry Federal is headquartered in Newberry, South Carolina. Newberry
Federal's primary deposit gathering and lending area is concentrated in the
communities surrounding its three banking offices located in Newberry County and
one banking office located in northwest Lexington County, although Newberry
Federal also originates loans to borrowers and accepts deposits from individuals
residing in the bordering areas of contiguous counties. Newberry and Lexington
Counties are located in central South Carolina, approximately 35 miles northwest
of Columbia, the state capital.
Newberry Federal's primary area for gathering deposits and lending is
Newberry County and the northwestern portion of Lexington County serviced by the
Chapin branch office. To lesser extent, Newberry Federal originates loans to and
accepts deposits from persons residing in the bordering areas of contiguous
counties.
37
<PAGE>
Newberry and Lexington Counties are located northwest of Columbia on
Interstate 26 in central South Carolina. Lexington County exhibits stronger
demographics than Newberry County because of its closer proximity to Columbia,
the state capital. On average, the demographics of Newberry County are weaker
than South Carolina and the U.S. as a whole, while the opposite is true for
Lexington County. According to published statistics, Newberry County's 1999
population was approximately 35,000 and consisted of approximately 13,000
households. Lexington County's 1999 population was approximately 210,000 and
consisted of approximately 80,000 households. Between 1990 and 1999 Lexington
County's population increased approximately 25% while Newberry County's
population increased only 4.5%. For 1999 Newberry County's per capita income
($15,000) was less than both South Carolina ($17,700) and the U.S. ($20,600).
Lexington County's 1999 per capital income was $22,500. Likewise, for 1999
Newberry County's median household income ($32,000) was less than both South
Carolina ($35,900) and the U.S. ($39,800). Lexington County's 1999 median
household income was $46,600.
Competition
Newberry Federal faces intense competition for the attraction of
deposits and origination of loans in its primary market area. Its most direct
competition for deposits has historically come from the several commercial and
savings banks operating in Newberry Federal's primary market area and, to a
lesser extent, from other financial institutions, such as brokerage firms,
credit unions and insurance companies. While those entities still provide a
source of competition for deposits, Newberry Federal currently faces significant
competition for deposits from the mutual fund industry as customers seek
alternative sources of investment for their funds. Newberry Federal also faces
significant competition for investors' funds from their direct purchase of
short-term money market securities and other corporate and government
securities. While Newberry Federal's faces competition for loans from the
significant number of financial institutions, primarily savings banks and
commercial banks in its market area, its most significant competition comes from
other financial service providers, such as the mortgage companies and mortgage
brokers operating in its primary market area. Additionally, competition may
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions and due to the increasing trend for non-depository
financial service companies entering the financial services market, such as
insurance companies, securities companies and specialty financial companies.
Competition for deposits and the origination of loans may limit Newberry
Federal's growth in the future. See "Risk Factors--Competition could hurt
Newberry Federal's net interest income."
Lending Activities
General. The types of loans that Newberry Federal may originate are
limited by federal laws and regulations. Interest rates that Newberry Federal
charges on loans are affected principally by its current asset/liability
strategy, the demand for the type of loans being originated, the supply of money
available for lending purposes and the rates offered by competitors. All of
these factors are affected by general and economic conditions, monetary policies
of the federal government, including the Federal Reserve Board, legislative tax
policies and governmental budgetary matters.
38
<PAGE>
Loan Portfolio Analysis. The following table presents the composition of
Newberry Federal's loan portfolio at the dates indicated. Newberry Federal had
no concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
At September 30,
At December 31, ------------------------------------------------------------
1999 1999 1998 1997
------------------- ------------------ ------------------- --------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family............... $49,997 65.56% $48,984 63.79% $44,543 61.78% $42,173 62.54%
Commercial real estate (1)........ 10,169 13.33 9,794 12.75 9,119 12.65 8,174 12.13
Construction...................... 1,136 1.49 1,695 2.21 1,173 1.63 969 1.44
Land.............................. 1,340 1.76 1,432 1.86 1,510 2.09 1,172 1.74
-------- -------- --------- -------- --------- ------- --------- --------
Total real estate loans.......... 62,642 82.14 61,905 80.61 56,345 78.15 52,488 77.85
-------- -------- --------- -------- --------- ------- --------- --------
Consumer loans:
Second mortgage loans,
home equity loans and
lines of credit.................. 3,628 4.76 4,318 5.62 4,236 5.88 2,953 4.38
Automobile........................ 4,332 5.68 4,398 5.73 4,192 5.81 4,819 7.15
Other............................. 3,776 4.95 4,278 5.57 4,709 6.54 5,116 7.59
-------- -------- --------- -------- --------- ------- --------- --------
Total consumer loans............. 11,736 15.39 12,994 16.92 13,137 18.23 12,888 19.12
Commercial loans..................... 1,883 2.47 1,892 2.47 2,614 3.63 2,041 3.03
-------- -------- --------- -------- --------- ------- --------- --------
Total loans...................... 76,261 100.00% 76,791 100.00% 72,096 100.00% 67,417 100.00%
======== ======== ======= ========
Less:
Deferred loan origination
fees and discounts............... (107) (108) (113) (118)
Loans in process.................. (1,033) (1,175) (553) (1,110)
Allowance for loan losses......... (333) (184) (181) (192)
-------- --------- --------- ---------
Total loans, net................. $74,788 $75,324 $71,249 $65,997
======== ========= ========= =========
<CAPTION>
----------------------------------------
1996 1995
----------------------------------------
Percent Percent
Amount of Total Amount of Total
-------- -------- -------- ---------
Real estate loans:
<S> <C> <C> <C> <C>
One- to four-family............... $41,138 64.60% $42,805 69.39%
Commercial real estate (1)........ 7,060 11.10 6,456 10.47
Construction...................... 2,520 3.96 432 0.70
Land.............................. 901 1.42 862 1.40
-------- -------- -------- ---------
Total real estate loans.......... 51,619 81.08 50,555 81.96
-------- -------- -------- ---------
Consumer loans:
Second mortgage loans,
home equity loans and
lines of credit.................. 1,656 2.60 2,881 4.67
Automobile........................ 4,439 6.98 4,394 7.12
Other............................. 4,540 7.13 2,776 4.50
Total consumer loans............. -------- -------- -------- ---------
10,635 16.71 10,051 16.29
Commercial loans..................... 1,408 2.21 1,080 1.75
-------- -------- -------- ---------
63,662 100.00% 61,686 100.00%
Total loans...................... ======== =========
Less:
Deferred loan origination
fees and discounts............... (122) (126)
Loans in process.................. (1,277) (324)
Allowance for loan losses......... (226) (265)
-------- --------
$62,037 $60,971
Total loans, net................. ======== ========
</TABLE>
_______________________________
(1) Also includes an immaterial amount of multi-family loans.
39
<PAGE>
One-to Four-Family Real Estate Loans. Newberry Federal's primary
lending activity is the origination of loans secured by one- to four-family
residences located in its primary market area. Newberry Federal offers several
fixed- and adjustable-rate mortgage loan products. The loan fees charged,
interest rates and other provisions of Newberry Federal's mortgage loans are
determined by Newberry Federal on the basis of its own pricing criteria and
market conditions. Although Newberry Federal originates all loans on loan
documents approved for use by Fannie Mae and Freddie Mac, the loans are
generally not eligible for sale in the secondary market because of various
factors, including credit standards, that do not conform to secondary market
guidelines.
Newberry Federal's fixed-rate loans typically have maturities of 15 to
30 years, although 15 to 20 year terms constitute the largest percentage of
current originations. Generally, all conforming fixed-rate loans with maturities
over 15 years are sold in the secondary market with Newberry Federal retaining
the servicing rights.
Newberry Federal's adjustable-rate mortgage loans are typically based
on a 15-year or 30-year amortization schedule with interest rates that adjust
annually based on the one-year U.S. Treasury Bill rate. Occasionally, Newberry
Federal offers adjustable-rate mortgage loans with initial rates below
prevailing rates, although loans are generally underwritten based on the fully
indexed interest rate. The maximum amount by which the interest rate may be
increased or decreased in a given period on adjustable-rate mortgage loans is
generally 1% per year and the lifetime interest rate cap is generally 5% over
the initial interest rate of the loan. Newberry Federal qualifies the borrower
based on the borrower's ability to repay the adjustable-rate mortgage loan based
on the maximum interest rate at the first adjustment. Newberry Federal does not
originate negative amortization loans. The terms and conditions of the
adjustable-rate mortgage loans offered by Newberry Federal, including the index
for interest rates, may vary from time to time. Newberry Federal believes that
the annual adjustment feature of its adjustable-rate mortgage loans also
provides flexibility to meet competitive conditions as to initial rate
concessions while preserving Newberry Federal's return on equity objectives by
limiting the duration of the initial rate concession.
Adjustable-rate mortgage loans help reduce Newberry Federal's exposure
to changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. 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 payments required by the borrower. In addition,
although adjustable-rate mortgage loans allow Newberry Federal to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits. Because of these considerations Newberry Federal can give no
assurance that yields on adjustable-rate mortgage loans will be sufficient to
offset increases in Newberry Federal's cost of funds during periods of rising
interest rates. Newberry Federal believes these risks, which have not had a
material adverse effect on Newberry Federal to date, generally are less than the
risks associated with holding fixed-rate loans in its portfolio in a rising
interest rate environment.
Newberry Federal's residential mortgage loans typically do not exceed
80% of the appraised value of the property. Newberry Federal's lending policies
permit Newberry Federal to lend up to 95% of the appraised value of the
property; however, Newberry Federal generally requires private mortgage
insurance on the portion of the principal amount that exceeds 80% of the
appraised value of the property.
Newberry Federal also requires fire, casualty, title, hazard insurance
and, if appropriate, flood insurance be maintained on all properties securing
real estate loans made by Newberry Federal. An independent state-certified
appraiser generally appraises all properties.
In an effort to provide financing for first-time home buyers, Newberry
Federal offers a first-time home buyers program to qualified individuals. Under
this program Newberry Federal offers single family residential mortgage loans
that are originated using Newberry Federal's standard underwriting guidelines,
but with reduced downpayment requirements. Newberry Federal does not require
private mortgage insurance on these loans unless the loan balance exceeds 90% of
the lower of the appraised value or selling price of the property securing the
loan.
40
<PAGE>
Commercial Real Estate Loans. Newberry Federal originates mortgage
loans for the acquisition and refinancing of commercial real estate properties.
Commercial real estate loans are fully amortizing loans that are generally
originated with variable rates with rates tied to the prime lending rate. The
maximum loan-to-value ratio for a commercial loan is generally 75% of appraised
value. Newberry Federal's commercial real estate loans are generally secured by
office, retail and owner occupied properties and churches, all of which are
located in Newberry Federal's primary market area. Loans to churches are fixed-
and adjustable-rate mortgage loans with a maximum loan-to-value ratio of 80%.
Church loans are originated with fixed interest rates tied to the U.S. Treasury
Bill rate and with variable rates tied to the prime lending rate. At December
31, 1999, church loans totaled $1.4 million.
Commercial real estate lending affords Newberry Federal an opportunity
to receive interest at rates higher than those generally available from one- to
four-family residential lending. However, loans secured by these properties
usually are greater in amount and are 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 income
producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Newberry Federal
seeks to minimize these risks by generally limiting the maximum loan-to-value
ratio to up to 75% for multi-family and commercial real estate loans and by
strictly scrutinizing the financial condition of the borrower, the cash flow of
the project, the quality of the collateral and the management of the property
securing the loan. Newberry Federal also generally obtains loan guarantees from
financially capable parties based on a review of personal financial statements.
Residential Construction Loans. Newberry Federal originates
construction loans to individuals and home builders located within Newberry
Federal's primary market area for the construction and acquisition of personal
residences. Newberry Federal does not originate commercial construction loans or
speculative construction loans to builders.
Construction loans generally provide for the payment of interest only
during the construction phase, which is usually four to six months. At the end
of the construction phase, the loan converts automatically to a permanent
mortgage loan without a new loan closing. Construction loans are made with a
maximum loan to value ratio of 90%, provided that the borrower obtains private
mortgage insurance on the loan if the loan balance exceeds 80% of the appraised
value or sales price, whichever is less, of the secured property.
Before making a commitment to fund a construction loan, Newberry
Federal requires an appraisal of the property by an independent state-certified
appraiser. Newberry Federal also reviews and inspects each property before
disbursement of funds during the term of the construction loan. Loan proceeds
are disbursed after inspection based on the percentage of completion method.
Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, Newberry Federal may
be required to advance funds beyond the amount originally committed to protect
the value of the property. If the estimate of value upon completion proves to be
inaccurate, Newberry Federal may be confronted with a property whose value is
insufficient to assure full repayment. Newberry Federal has attempted to
minimize the foregoing risks by, among other things, limiting its construction
lending to residential properties, not making loans to builders and by having
all construction loans convert to permanent mortgage loans at the end of the
construction phase.
Land Loans. Newberry Federal occasionally originates loans secured by
unimproved land. These loans have terms of up to 15 years and generally have
fixed interest rates and loan-to-value ratios of up to 90% of appraised value.
41
<PAGE>
Consumer Loans. Newberry Federal's consumer loans consist primarily of
second mortgage loans, home equity lines of credit and fully amortized home
equity loans, all of which are secured by owner-occupied one- to four-family
residences, as well as automobile loans.
The underwriting standards employed by Newberry Federal for second
mortgage loans, home equity loans and lines of credit include a determination of
the applicant's credit history, an assessment of the applicant's ability to meet
existing obligations and payments on the proposed loan and the value of the
collateral securing the loan. Home equity lines of credit have adjustable rates
of interest which are indexed to the prime rate as reported in The Wall Street
Journal. Interest rate adjustments on home equity lines of credit are limited to
no more than 5% over the life of the loan. Generally, the maximum loan-to-value
ratio on home equity lines of credit is 80%. A home equity line of credit may be
drawn down by the borrower for a period of ten years from the date of the loan
agreement. During this period, the borrower has the option of paying, on a
monthly basis, either principal and interest or only the interest. The borrower
is required to pay back the amount of principal outstanding under the line of
credit at the end of the ten year period.
Newberry Federal also offers fixed-rate second mortgage loans and home
equity loans with terms up to 10 years. The loan-to-value ratios of fixed-rate
second mortgage loans and home equity loans are generally limited to 80%, taking
into consideration the outstanding balance of the first mortgage loan.
Newberry Federal originates consumer loans secured by automobiles and,
occasionally, boats and other recreational vehicles. Newberry Federal offers
fixed-rate automobile loans with terms of up to 60 months and loan-to-value
ratios of up to 90% for new cars. For used cars, the maximum loan-to-value ratio
is 80% of the lesser of the retail value shown in the NADA Used Car Guide or the
purchase price, and the maximum terms for used automobile loans range from up to
48 to 54 months depending on the age and condition of the automobile.
Newberry Federal also offers various other consumer loans, including
loans secured by various personal property and share loans generally secured by
a passbook account, a certificate of deposit or marketable securities. Subject
to market conditions and its underwriting standards, Newberry Federal intends to
increase its consumer loan portfolio in the future, particularly emphasizing
modular home loans given the demand for such housing in its primary market area.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as autos. In these cases, any repossessed collateral
for a defaulted consumer loan may not provide an adequate source of repayment of
the outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy.
Commercial Business Loans. Newberry Federal makes commercial business
loans primarily in its market area to a variety of professionals, sole
proprietorships and small businesses. Newberry Federal offers a variety of
commercial lending products, including term loans for fixed assets and working
capital, revolving lines of credit, and Small Business Administration guaranteed
loans. Commercial business loans are generally offered with fixed interest rates
and with terms of up to five years. Business lines of credit have adjustable
rates of interest and are payable on demand, subject to annual review and
renewal. Business loans with variable rates of interest adjust on a daily basis
and are generally indexed to the prime rate as published in The Wall Street
Journal.
In making commercial business loans, Newberry Federal considers the
financial statements of the borrower, Newberry Federal's lending history with
the borrower, the debt service capabilities of the borrower, the projected cash
flows of the business and the value of the collateral. Commercial business loans
are generally secured by a variety of collateral, primarily equipment, assets
and accounts receivable, and are generally supported by personal guarantees.
Depending on the collateral used to secure the loans, commercial business loans
are made in amounts of up to 50% of the adjusted value of the collateral
securing the loan although Newberry Federal's
42
<PAGE>
policy permits a loan-to-value ratio of 65%. Newberry Federal generally does not
make unsecured commercial loans.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value.
Maturity of Loan Portfolio. The following table presents certain
information at December 31, 1999 regarding the dollar amount of loans maturing
in Newberry Federal's portfolio based on their contractual terms to maturity or
scheduled amortization, but does not include potential prepayments. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. Loan balances do not
include undisbursed loan proceeds, net deferred loan origination costs and
allowance for loan losses.
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------------------------------------------ -----------
Multi-
One- to Family and
Four- Commercial Total
Family Real Estate Construction Land Consumer Commercial Loans
------- ----------- ------------ -------- ---------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less.......................... $ 4,974 $ 1,140 $1,136 $ 295 $ 5,782 $ 286 $13,613
After one year............................ 250 53 -- 85 1,301 323 2,012
More than one year to three years......... 506 337 -- 51 2,121 237 3,252
More than three years to four years....... 667 624 -- 54 1,260 636 3,241
More than four years to five years........ 892 632 -- 255 971 247 2,997
More than five years to 10 years.......... 9,422 2,675 -- 469 301 154 13,021
More than 10 years to 15 years............ 15,655 2,072 -- 131 -- -- 17,858
More than 15 years........................ 17,631 2,636 -- -- -- -- 20,267
------- ------- ------ ------ ------- ------ -------
Total amount due....................... $49,997 $10,169 $1,136 $1,340 $11,736 $1,883 $76,261
======= ======= ====== ====== ======= ====== =======
</TABLE>
The following table presents at December 31, 1999, the dollar amount of
all loans due after December 31, 2000, which have fixed interest rates and
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 2000
--------------------------------------------------
Fixed Adjustable Total
--------------- -------------- ---------------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family.................................... $22,537 $22,487 $45,024
Multi-family........................................... -- 146 146
Commercial............................................. 4,056 4,827 8,883
Construction........................................... -- -- --
Land................................................... 280 765 1,045
------- ------- -------
Total real estate loans............................. 26,873 28,225 55,098
Consumer loans............................................ 5,684 269 5,953
Commercial loans.......................................... 1,597 -- 1,597
------- ------- -------
Total loans......................................... $34,154 $28,494 $62,648
======= ======= =======
</TABLE>
43
<PAGE>
Loans to One Borrower. The maximum amount that Newberry Federal may
lend to one borrower is limited by regulation. At December 31, 1999, Newberry
Federal's regulatory limit on loans to one borrower was $3.1 million, which
equaled 15% of its Tier 1 capital at that date. At that date, Newberry Federal's
largest credit exposure to one borrower, including the borrower's related
interests, totalled approximately $2.2 million and consisted of commercial real
estate loans and equity lines of credit. These loans were performing according
to their original terms at December 31, 1999 and had an outstanding balance of
$1.6 million at that date.
Loan Approval Procedures and Authority. Newberry Federal's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by Newberry Federal's board of directors and
management.
Newberry Federal's policies and loan approval limits are established by
the Chief Executive Officer and the chief lending officer and are approved by
the board of directors. For mortgage loans, loan officers, other than the chief
lending officer may approve a loan up to $50,000. The chief lending officer and
any two members of the loan officers' loan committee may approve loans up to
$200,000. In addition, loans exceeding $200,000 require review and approval by
the loan officers' loan committee and at least one member of the executive loan
committee, which currently consists of J. Thomas Johnson, Steve P. Sligh, Robert
W. Owen and James E. Wiseman. Loans exceeding $250,000 must be approved by the
executive loan committee. All loans over $500,000 require the prior approval of
the board of directors.
Loan Originations, Purchases and Sales. Newberry Federal's primary loan
origination sources are walk-in customers and referrals. Newberry Federal does
not have any commissioned loan personnel and does not use loan correspondents or
other third-party originators. Newberry Federal is not an active purchaser of
loans.
All loans originated by Newberry Federal are underwritten by Newberry
Federal according to policies and procedures adopted by its board of directors.
Newberry Federal originates both adjustable-rate and fixed-rate mortgage loans.
Newberry Federal's ability to originate fixed- or adjustable-rate loans depends
upon the relative customer demand for such loans, which is affected by the
current and expected future level of interest rates.
In an effort to manage its interest rate risk position, Newberry
Federal generally sells the conforming fixed-rate mortgage loans with terms in
excess of 15 years that it originates. The sale of loans in the secondary
mortgage market reduces Newberry Federal's risk that the interest rates paid to
depositors will increase while Newberry Federal holds long-term, fixed-rate
loans in its portfolio. It also allows Newberry Federal to continue to fund
loans when savings flows decline or funds are not otherwise available.
When Newberry Federal sells loans, it generally retains the servicing
rights. Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure procedures. At December 31, 1999, Newberry Federal was servicing
$21.8 million of loans for others. Gains, net of origination expense, from the
sale of such loans are recorded at the time of sale. Generally a loan is
committed to be sold and a price for the loan is fixed after the loan is
approved and the interest rate is accepted by the customer. This eliminates the
risk to Newberry Federal that a rise in market interest rates will reduce the
value of a mortgage before it can be sold.
44
<PAGE>
The following table presents total loans originated, sold and repaid
during the periods indicated. Newberry Federal did not purchase any loans during
the periods indicated.
<TABLE>
<CAPTION>
For the
Three Months Ended For the Year Ended
December 31, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Loans at beginning of period................... $ 76,791 $ 72,096 $ 72,096 $ 67,417
Originations:
Real estate:
One- to four-family................... 960 5,653 13,007 11,926
Multi-family.......................... -- -- -- --
Commercial............................ 552 103 1,142 1,990
Construction.......................... 643 260 1,373 1,831
Land.................................. 92 50 309 292
---------- ---------- ---------- ----------
Total real estate loans............ 2,247 6,066 15,831 16,039
Consumer:
Second mortgage loans, home
equity loans and lines of credit..... 377 757 2,571 2,798
Automobile............................ 657 875 2,510 1,633
Education............................. -- -- 14 20
Other................................. 1,072 760 4,255 3,387
---------- ---------- ---------- ----------
Total consumer loans............... 2,106 2,392 9,350 7,838
Commercial............................... 244 582 1,798 1,893
---------- ---------- ---------- ----------
Total loans originated............. 4,597 9,040 26,979 25,770
---------- ---------- ---------- ----------
Loans purchased
Deduct:
Principal loan repayments
and prepayments.............. 4,596 6,463 22,284 17,922
Loan sales............................... 531 -- -- 3,169
Transfers to real estate owned........... -- -- -- --
---------- ---------- ---------- ----------
Sub-total.......................... 5,127 6,463 22,284 21,091
---------- ---------- ---------- ----------
Net loan activity.............................. (530) 2,577 4,695 4,679
---------- ---------- ---------- ----------
Loans at end of period................... $ 76,261 $ 74,673 $ 76,791 $ 72,096
========== ========== ========== ==========
</TABLE>
Loan Commitments. Newberry Federal issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 30 days from approval. At December 31, 1999, Newberry Federal
had loan commitments and unadvanced loans and lines of credit totaling $7.5
million. See Note 10 of the Notes to Consolidated Financial Statements included
in this prospectus.
Loan Fees. In addition to interest earned on loans, Newberry Federal
receives income from fees on loan originations, loan modifications, late
payments and for miscellaneous services related to its loans. Income from these
activities varies from period to period depending upon the volume and type of
loans made and competitive conditions.
Newberry Federal charges loan origination fees for mortgage loans which
are calculated as a percentage of the amount borrowed. As required by applicable
accounting principles, loan origination fees, discount points and certain loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. At December 31, 1999,
Newberry Federal had $107,000 of net deferred loan costs. Newberry
45
<PAGE>
Federal amortized $15,000 and $138,000 of net deferred loan costs during the
three months ended December 31, 1999 and the year ended September 30, 1999,
respectively.
Nonperforming Assets and Delinquencies. All loan payments are due on
the first day of each month. When a borrower fails to make a required loan
payment by the 16/th/ day of the month, Newberry Federal attempts to cure the
deficiency by contacting the borrower and seeking the payment. In most cases,
deficiencies are cured promptly. If a delinquency continues beyond the 30/th/
day of the month, a late notice is mailed and beyond the 60/th/ day of the
month, a demand letter is sent out. While Newberry Federal generally prefers to
work with borrowers to resolve problems, Newberry Federal will refer the loan to
an attorney and will institute foreclosure or other proceedings after the 90/th/
day of a delinquency, as necessary, to minimize any potential loss.
Management informs the board of directors monthly of the amount of
loans delinquent more than 30 days, all loans in foreclosure, and all foreclosed
and repossessed property that Newberry Federal owns.
Newberry Federal ceases accruing interest on mortgage loans when
principal or interest payments are delinquent 90 days or more. Once the accrual
of interest on a loan is discontinued, all interest previously accrued is
reversed against current period interest income once management determines that
interest is uncollectible. No additional interest is accrued to loan balance
until the collection of both principal and interest becomes reasonably certain.
The following table presents information with respect to Newberry
Federal's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At December 31, --------------------------------------------------------
1999 1999 1998 1997 1996 1995
---------------- ---------- ----------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family real estate........ $ 63 $ 149 $ 207 $ 100 $ 56 $ 112
Multi-family........................... -- -- -- -- -- --
Commercial real estate................. -- -- -- -- -- --
Construction........................... -- -- -- -- -- --
Land................................... -- -- -- -- -- --
Consumer............................... 89 14 62 65 30 39
----- ----- ----- ----- ----- ------
Total............................... 152 163 269 165 86 151
Real estate owned(1)...................... -- -- 1 1 833 947
Other repossessed assets.................. 22 14 18 3 -- --
----- ----- ----- ----- ----- ------
Total nonperforming assets(2)....... 174 177 288 169 919 1,098
Troubled debt restructurings.............. 85 66 96 73 30 32
----- ----- ----- ----- ----- ------
Troubled debt restructurings and total
nonperforming assets.................... $ 259 $ 243 $ 384 $ 242 $ 949 $1,130
===== ===== ==== ===== ====== ======
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans............... 0.31% 0.30% 0.51% 0.35% 0.18% 0.30%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets.............. 0.12% 0.12% 0.21% 0.14% 0.59% 0.77%
</TABLE>
____________________________
(1) Real estate owned balances are shown net of related loss allowances.
(2) Nonperforming assets consist of nonperforming loans, impaired loans,
other repossessed assets and real estate owned.
Interest income that would have been recorded for the three months
ended December 31, 1999 and the year ended September 30, 1999, had nonaccruing
loans been current according to their original terms amounted to approximately
$3,000 and $3,200, respectively. Newberry Federal included income on such loans
of $9,000 and $10,000 in total interest income for the three months ended
December 31, 1999 and the year ended September 30, 1999, respectively.
46
<PAGE>
The following tables set forth the delinquencies in Newberry Federal's
loan portfolio as of the dates indicated.
At December 31, 1999
-------------------------------------------
60-89 Days 90 Days or More
--------------------- ---------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
--------- ----------- ---------- ----------
(Dollars in thousands)
Real Estate Loans:
One- to four-family....... 12 $449 5 $ 63
Multi-family.............. -- -- -- --
Commercial................ -- -- -- --
Construction.............. -- -- -- --
Land...................... -- -- -- --
Consumer Loans:
Second mortgage loans,
home equity loans and
lines of credit......... -- -- -- --
Automobile................ 3 39 5 74
Other..................... 1 15 1 2
Commercial loans............. 1 4 2 13
---- ---- ---- ----
Total.................. 17 $507 13 $152
==== ==== ==== ====
Delinquent loans to
total loans............... 0.66% 0.20%
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
--------------------- -------------------- --------------------- --------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
-------- ---------- -------- --------- --------- --------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family......... 21 $ 620 8 $ 149 23 $ 611 25 $ 207
Multi-family................ -- -- -- -- -- -- -- --
Commercial.................. 4 174 -- -- 3 112 -- --
Construction................ -- -- -- -- -- -- -- --
Land........................ -- -- -- -- -- -- -- --
Consumer Loans:
Second mortgage loans,
home equity loans and
lines of credit........... 5 44 -- -- 7 65 18 62
Automobile.................. 5 47 -- -- 2 25 -- --
Other....................... 5 17 4 14 10 111 -- --
Commercial loans............... 4 68 -- -- -- -- -- --
--- ----- ---- ----- --- ----- --- -----
Total.................... 44 $ 970 12 $ 163 45 $ 924 43 $ 269
=== ===== ==== ===== === ===== === =====
Delinquent loans to
total loans................. 1.26% 0.20% 1.28% 0.37%
</TABLE>
47
<PAGE>
Real Estate Owned and Other Repossessed Assets. Real estate that Newberry
Federal acquires through foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned until sold. When property is acquired it is
recorded at fair market value at the date of foreclosure, establishing a new
cost basis. Holding costs and declines in fair value result in changes to
expense after acquisition are expensed. At December 31, 1999, Newberry Federal
had no real estate owned and $22,000 of repossessed personal property.
Asset Classification. Regulators have adopted various regulations and
practices regarding problem assets of savings institutions. Under such
regulations, federal and state examiners have authority to identify problem
assets during examinations 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. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Newberry Federal does not perform an internal
analysis of its loan portfolio and assets to classify such loans and assets
similar to the manner in which such loans and assets are classified by the
federal banking regulations. Newberry Federal does, however, regularly analyze
the losses inherent in its loan portfolio and its non-performing loans in
determining the appropriate level of the allowance for loan losses.
The following table sets forth classified assets at December 31, 1999.
<TABLE>
<CAPTION>
Loss Doubtful Substandard Special Mention
------------------------ ------------------------ ------------------------ ------------------------
Principal Number of Principal Number of Principal Number of Principal Number of
Balance Loans Balance Loans Balance Loans Balance Loans
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.......... $ -- -- $ -- -- $ 166 10 $ -- --
Multi-family................. -- -- -- -- -- -- -- --
Commercial................... -- -- -- -- -- -- -- --
Construction................. -- -- -- -- -- -- -- --
Land......................... -- -- -- -- -- -- -- --
Consumer Loans:
Second mortgage loans,
home equity loans and
lines of credit............. -- -- -- -- -- -- -- --
Automobile................... -- -- -- -- 27 3 -- --
Other........................ -- -- 1 2 40 9 -- --
Commercial loans.............. -- -- -- -- 114 3 -- --
------ ------ ------- ------ ----- ------ ------ -----
Total..................... $ -- -- $ 1 2 $ 347 25 $ -- --
====== ====== ======= ====== ===== ====== ====== =====
Delinquent loans to
total loans................ -- 0.001% 0.46% --
</TABLE>
48
<PAGE>
Allowance for Loan Losses. In originating loans, Newberry Federal
recognizes that losses will be experienced on loans and that the risk of loss
will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. Newberry Federal maintains an allowance for loan losses to absorb
losses inherent in the loan portfolio. The allowance for loan losses represents
management's estimate of probable losses based on information available as of
the date of the financial statements. The allowance for loan losses is based on
management's evaluation of the collectibility of the loan portfolio, including
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current economic conditions.
The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review Newberry Federal's allowance for loan
losses and may require Newberry Federal to make additional provisions for
estimated losses based upon judgments different from those of management.
In assessing the allowance for loan losses, Newberry Federal applies loss
factors to various pools of outstanding loans and certain unused commitments.
Newberry Federal segregates the loan portfolio according to risk characteristics
(i.e., mortgage loans, home equity, consumer). Loss factors are derived using
Newberry Federal's historical loss experience and may be adjusted for
significant factors that, in management's judgment, affect the collectibility of
the portfolio as of the evaluation date.
In addition, management assesses the allowance using factors that cannot be
associated with specific credit or loan categories. These factors include
management's subjective evaluation of local and national economic and business
conditions, portfolio concentration and changes in the character and size of the
loan portfolio. The allowance methodology reflects management's objective that
the overall allowance appropriately reflects a margin for the imprecision
necessarily inherent in estimates of expected credit losses.
Although management believes that it uses the best information available to
establish the allowance for loan losses, future adjustments to the allowance for
loan losses may be necessary and results of operations could be adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations. Furthermore, while Newberry Federal believes it has
established its existing allowance for loan losses in conformity with generally
accepted accounting principles, there can be no assurance that regulators, in
reviewing Newberry Federal's loan portfolio, will not request Newberry Federal
to increase 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
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 Newberry Federal's financial condition and
results of operations.
49
<PAGE>
The following table presents an analysis of Newberry Federal's
allowance for loan losses.
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Year Ended September 30,
---------------------- --------------------------------------------
1999 1998 1999 1998 1997 1996
----------- ---------- ---------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses,
beginning of year........................ $185 $181 $181 $191 $227 $265
Charged-off loans:
One- to four-family real estate.......... -- 5 5 16 4 1
Multi-family............................. -- -- -- -- -- --
Commercial real estate................... -- -- -- -- -- --
Construction............................. -- -- -- -- -- --
Land..................................... -- 1 1 -- -- --
Commercial............................... -- -- -- -- -- --
Consumer................................. 16 23 161 106 144 59
---- ---- ---- ---- ---- ----
Total charged-off loans............... 16 29 167 122 148 60
Recoveries on loans previously
charged off:
One- to four-family real estate.......... -- -- 1 -- 18 --
Multi-family............................. -- -- -- -- -- --
Commercial real estate................... -- -- -- -- -- --
Construction............................. -- -- -- -- -- --
Land..................................... -- -- -- -- -- --
Commercial............................... -- -- -- -- -- --
Consumer................................. 4 4 28 27 24 22
---- ---- ---- ---- ---- ----
Total recoveries...................... 4 4 29 27 42 22
Net loans charged-off....................... 12 25 138 95 106 38
Provision for loan losses................... 160 10 142 85 70 --
---- ---- ---- ---- ---- ----
Allowance for loan losses,
end of period............................ $333 $166 $185 $181 $191 $227
==== ==== ==== ==== ==== ====
Net loans charged-off to average
interest-earning loans................... 0.02% 0.04% 0.18% 0.14% 0.17% 0.06%
Allowance for loan losses to total
loans.................................... 0.44% 0.22% 0.24% 0.25% 0.28% 0.36%
Allowance for loan losses to
nonperforming loans and
troubled debt restructurings............. 140.51% 72.49% 80.79% 49.59% 80.25% 195.69%
Net loans charged-off to allowance
for loan losses.......................... 3.60% 15.06% 74.59% 52.49% 55.50% 16.74%
Recoveries to charge-offs................... 25.00% 13.79% 17.37% 22.13% 28.38% 36.67%
</TABLE>
____________________________
(1) Real estate owned balances are shown net of related loss allowances.
(2) Nonperforming assets consist of nonperforming loans, impaired loans, other
repossessed assets and real estate owned.
For additional discussion regarding the provision for loan losses in recent
periods, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Operating Results for the Three months
Ended December 31, 1999 and 1998--Provisions for Loan Losses."
50
<PAGE>
The following table presents the approximate allocation of the allowance for
loan losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not indicative of future losses
and does not restrict the use of any of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------------------- ---------------------------------------------------------------
1999 1999 1998
------------------------------ ------------------------------ ------------------------------
% of Percent % of Percent % of Percent
Allowance of Loans Allowance of Loans Allowance of Loans
in each in Each in each in Each in each in Each
Category Category Category Category Category Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
-------- --------- -------- -------- --------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate............ $167 50.15% 82.14% $ 85 45.95% 80.61% $118 65.19% 78.15%
Consumer............... 166 49.85 15.39 100 54.05 16.92 63 34.81 18.23
Commercial............. -- -- -- -- -- -- -- -- --
---- ------ ---- ------ ---- ------
Total allowance
for loan losses...... $333 100.00% $185 100.00% $181 100.00%
==== ====== ==== ====== ==== ======
<CAPTION>
At September 30,
------------------------------
1997
------------------------------
% of Percent
Allowance of Loans
in each in Each
Category Category
to Total to Total
Amount Allowance Loans
-------- --------- --------
<S> <C> <C> <C>
Real estate............ $164 85.86% 77.85%
Consumer............... 27 14.14 19.12
Commercial............. -- -- --
---- -------
Total allowance
for loan losses...... $191 100.00%
==== ======
</TABLE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------
1996
-------------------------------
% of Percent
Allowance of Loans
in each in Each
Category Category
to Total to Total
Amount Allowance Loans
-------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate............ $209 92.07 81.08%
Consumer............... 18 7.93 16.71
Commercial............. -- -- --
---- ------
Total allowance
for loan losses...... $227 100.00%
==== ======
</TABLE>
51
<PAGE>
Investment Activities
Newberry Federal is permitted under federal law to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Atlanta, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Newberry Federal may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like
Newberry Federal are also required to maintain an investment in Federal Home
Loan Bank stock. Newberry Federal is required under federal regulations to
maintain a minimum amount of liquid assets. See "Regulation" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Because of low loan demand in its primary market area, Newberry Federal has
maintained a significant investment in investment securities and mortgage-backed
securities classified as available for sale. Newberry Federal's investment
securities consist primarily of U.S. Government and agency obligations of short
duration. Newberry Federal's mortgage-backed securities consist of U.S.
Government agency issues as well as investment grade private issues. Newberry
Federal's investment and mortgage-backed securities generally have average
maturities of less than 15 years. However, at December 31, 1999, Newberry
Federal had an investment in long-term zero coupon bonds with an amortized cost
of $13.6 million and a market value of $11.2 million. These zero coupon bonds
are highly sensitive to changes in market interest rates and their market values
can decline sharply during times of rising market interest rates. See "Risk
Factors--Newberry Federal's capital levels can fluctuate greatly with changes
in market interest rates because of its large investment securities and
mortgage-backed securities portfolios classified as available for sale."
Newberry Federal's investment policy permits Newberry Federal to be a party
to financial instruments with off-balance sheet risk in the normal course of
business in order to manage interest rate risk, including interest rate swap
agreements. At December 31, 1999, Newberry Federal was a party to an interest
rate swap agreement with a notional principal amount of $10.0 million. Newberry
Federal borrowed funds from the Federal Home Loan Bank of Atlanta to purchase
floating rate collateralized mortgage obligations with interest rates capped at
8%. At December 31, 1999, this swap agreement covers approximately 20.0% of the
floating rate collateralized mortgage obligations with an 8% interest rate cap.
Under the terms of the swap agreement, if the London Interbank Offered Rate
exceeds 8%, Newberry Federal receives quarterly cash payments. At December 31,
1999, no cash payments were due to Newberry Federal.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Debt and equity securities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale." These securities
are reported at fair value, and unrealized gains and losses on the securities
are excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.
Newberry Federal maintains a trading account for certain classes of
collateralized mortgage obligations. At December 31, 1999, Newberry Federal had
no securities classified as "trading securities."
All of Newberry Federal's investment and mortgage-backed securities carry
market risk insofar as increases in market rates of interest may cause a
decrease in their market value, which would lower Newberry Federal's capital
position. They also carry prepayment risk insofar as they may be called or
repaid before maturity in times of low market interest rates, so that Newberry
Federal may have to invest the funds at a lower interest rate.
52
<PAGE>
At December 31, 1999, Newberry Federal's investment in mortgage-backed
securities had an aggregate book value in excess of 10% of Newberry Federal's
retained earnings at that date, with an aggregate book value of $118.0 million
or 569.70% of retained earnings.
The following table presents the amortized cost and fair value of
Newberry Federal's securities, by type of security, at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At December 31, -------------------------------------------------
1999 1999 1998
---------------------- ------------------------ ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------- ---------- ------------ ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Debt securities held-to-maturity:
Obligations of U.S. government agencies..... $ -- $ -- $ -- $ -- $ 1,346 $ 1,347
Other securities............................ 1,091 1,091 1,091 1,091 -- --
-------- -------- -------- -------- -------- -------
Total................................. 1,091 1,091 1,091 1,091 1,346 1,347
Debt securities available-for-sale:
Obligations of U.S. Treasury and U.S.
government agencies....................... 22,140 19,217 21,487 19,111 3,976 3,974
Other securities............................ -- -- -- -- -- --
-------- -------- -------- -------- -------- -------
Total................................. 22,140 19,217 21,487 19,111 3,976 3,974
Equity securities available-for-sale:
Federal Home Loan Bank stock................ 1,787 1,787 1,962 1,962 1,530 1,530
Mutual funds................................ 1,058 909 1,057 914 1,053 966
Other securities............................ 80 87 72 80 72 72
-------- -------- -------- -------- -------- -------
Total..................................... 2,925 2,783 3,091 2,956 2,655 2,568
Equity securities held-to-maturity:
Other securities............................ 50 50 50 50 -- --
Total debt and equity securities...... 26,206 23,141 25,719 23,208 7,977 7,889
-------- -------- -------- -------- -------- -------
Mortgage-backed securities:
Mortgage-backed securities held-to-
maturity:
FHLMC....................................... 2,898 2,885 2,977 2,858 4,679 4,698
FNMA........................................ 1,435 1,481 1,489 1,482 2,140 2,135
-------- -------- -------- -------- -------- -------
Total mortgage-backed securities
held-to-maturity...................... 4,333 4,366 4,466 4,340 6,819 6,833
-------- -------- -------- -------- -------- -------
Mortgage-backed securities available-for-
sale:
FHLMC....................................... 34,590 33,579 34,445 33,899 42,567 42,243
FNMA........................................ 35,818 33,464 30,509 28,863 20,742 19,718
GNMA........................................ 16,665 16,622 11,839 11,589 7,824 7,914
Private issues.............................. 27,367 26,223 23,786 22,534 15,164 15,277
-------- -------- -------- -------- -------- -------
Total mortgage-backed securities
available-for-sale....................... 114,440 109,888 100,579 96,885 86,297 85,152
-------- -------- -------- -------- -------- -------
Net unrealized (losses) gains on
available-for-sale securities........... (7,608) -- (6,204) -- (1,234) --
-------- -------- -------- -------- -------- -------
Total securities...................... $137,371 $137,395 $124,560 $124,433 $ 99,859 $99,874
======== ======== ======== ======== ======== =======
</TABLE>
53
<PAGE>
The following presents the activity in the investment securities and
mortgage-backed securities portfolios for the periods indicated.
<TABLE>
<CAPTION>
For the Three
Months Ended For the Year Ended
December 31, September 30,
------------------------------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities:
Mortgage-backed securities, beginning of period(1)................ $ 101,351 $ 91,971 $ 91,971 $ 82,330
Purchases:
Mortgage-backed securities - held-to-maturity................... -- -- -- 1,085
Mortgage-backed securities - available-for-sale................. 23,114 20,927 102,695 148,795
Sales:
Mortgage-backed securities - available-for-sale................. (5,024) (10,728) (55,720) (116,814)
Repayments and prepayments:
Mortgage-backed securities...................................... (4,466) (6,205) (35,230) (23,477)
Increase (decrease) in net premium................................ 105 413 183 (145)
Increase (decrease) in unrealized gain............................ (860) (367) (2,548) 197
--------- -------- -------- ---------
Net increase (decrease) in mortgage-backed securities.......... 12,869 4,040 9,380 9,641
--------- -------- -------- ---------
Mortgage-backed securities, end of period....................... $ 114,220 $ 96,011 $101,351 $ 91,971
========= ======== ======== =========
Investment securities:
Investment securities, beginning of period(2)................... $ 23,209 $ 7,888 $ 7,888 $ 12,378
Purchases:
Investment securities - held-to-maturity...................... -- 1,141 1,141 1,250
Investment securities - available-for-sale.................... 465 1 22,562 16,178
Sales:
Investment securities - available-for-sale.................... (175) (3,988) (4,892) (17,951)
Calls:
Investment securities - held-to-maturity...................... -- (1,352) (1,352) (4,832)
Investment securities - available-for-sale.................... -- -- -- --
Maturities:
Investment securities - held-to-maturity...................... -- -- -- --
Investment securities - available-for-sale.................... -- -- -- --
Increase (decrease) in net premium.............................. 196 18 283 911
Increase (decrease) in unrealized gain.......................... (553) (14) (2,421) (46)
--------- -------- -------- ---------
Net increase (decrease) in investment securities............. (67) (4,194) 15,321 (4,490)
--------- -------- -------- ---------
Investment securities, end of period............................ $ 23,142 $ 3,694 $ 23,209 $ 7,888
========= ======== ======== =========
</TABLE>
_______________________________
(1) Includes mortgage-backed securities available-for-sale.
(2) Includes investment securities available-for-sale.
54
<PAGE>
The following table presents certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of
Newberry Federal's debt securities at December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------------------------
More than More than
One Year One Year to Five Years to
or Less Five Years Ten Years
------------------- ------------------- -------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity securities:
Investment securities:
Municipal securities (1).................. $ 1,091 6.60% $ -- --% $ -- --%
Obligations of U.S. --
Government agencies...................... -- -- -- -- -- --
-------- -------- --------
Mortgage-backed securities................ -- -- -- -- -- --
-------- -------- --------
Total securities at
amortized cost.......................... $ 1,091 6.60% $ -- --% $ -- --%
======== ======== ========
Available-for-sale securities:
Investment securities:
Obligations of U.S. Treasury.............. $ -- --% $ -- --% $ -- --%
Obligations of U.S.
Government agencies...................... -- -- -- -- -- --
Equity securities......................... -- -- -- -- -- --
Mutual funds.............................. -- -- -- -- -- --
Mortgage-backed securities.................. 9,661 6.75 -- -- 968 6.90
-------- -------- -------
Total securities at fair value........... $ 10,752 6.73% $ -- --% $ 968 6.90%
======== ======== =======
<CAPTION>
At December 31, 1999
--------------------------------------------
More than
Ten Years Totals
------------------- ---------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yeild
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Held-to-maturity securities:
Investment securities:
Municipal securities (1).................................. $ -- --% $ 1,091 6.60%
Obligations of U.S.
Government agencies...................................... 50 -- 50 --
-------- --------
Mortgage-backed securities................................ 4,332 6.54 4,332 6.54
-------- --------
Total securities at
amortized cost.......................................... $ 4,382 6.54% $ 5,473 6.55%
======== ========
Available-for-sale securities:
Investment securities:
Obligations of U.S. Treasury.............................. $ -- --% $ -- --%
Obligations of U.S.
Government agencies...................................... 19,217 8.43 19,217 8.43
Equity securities......................................... 1,874 5.57 1,874 5.57
Mutual funds.............................................. 910 5.74 910 5.74
Mortgage-backed securities.................................. 99,259 7.60 109,888 7.52
-------- --------
Total securities at fair value........................... $125,642 7.65% $137,362 7.57%
======== ========
</TABLE>
________________
(1) Weighted average yield data for municipal securities is presented on a tax
equivalent basis assuming a combined federal and state tax rate of 38%.
55
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Newberry
Federal's lending and other investment activities. In addition, Newberry Federal
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. 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. Newberry Federal may use borrowings from the Federal Home Loan Bank
of Atlanta to compensate for reductions in the availability of funds from other
sources.
Deposit Accounts. Nearly all of Newberry Federal's depositors reside
in South Carolina. Newberry Federal offers a wide variety of deposit accounts
with a range of interest rates and terms. Newberry Federal's deposit accounts
consist of interest-bearing checking, non-interest-bearing checking, various
savings accounts, money market savings and certificates of deposit. The
maturities of Newberry Federal's certificate of deposit accounts range from
three months to five years. In addition, Newberry Federal offers retirement
accounts, including IRAs, Keogh accounts and simplified employee pension plan
accounts. Deposit account terms vary with the principal differences being the
minimum balance deposit, early withdrawal penalties, limits on the number of
transactions and the interest rate. Newberry Federal reviews its deposit mix and
pricing weekly.
Newberry Federal believes it is competitive in the interest rates it
offers on its deposit products. Newberry Federal determines the rates paid based
on a number of factors, including rates paid by competitors, Newberry Federal's
need for funds and cost of funds, borrowing costs and movements of market
interest rates. Newberry Federal does not use brokers to obtain deposits and at
December 31, 1999 had no brokered deposits.
In the unlikely event Newberry Federal is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to DutchFork Bancshares as the sole
stockholder of Newberry Federal.
The following table presents the deposit activity of Newberry Federal
for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months
Ended For the Year Ended
December 31, September 30,
---------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Beginning balance............................................. $ 137,537 $ 141,702 $ 141,702 $ 128,721
Increase (decrease) before interest credited.................. 9,277 (1,432) (10,155) 6,729
Interest credited............................................. 1,623 1,599 5,990 6,252
--------- --------- --------- ---------
Net increase (decrease)....................................... 10,900 167 (4,165) 12,981
--------- --------- --------- ---------
Ending balance................................................ $ 148,437 $ 141,869 $ 137,537 $ 141,702
========= ========= ========= =========
</TABLE>
56
<PAGE>
The following table indicates the amount of Newberry Federal's jumbo
certificates of deposits by time remaining until maturity as of December 31,
1999. Jumbo certificates of deposits have principal balances of $100,000 or
more.
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Rate
----------------------------------------------- -------------- ----------------
(Dollars In thousands)
<S> <C> <C>
Three months or less........................... $ 4,572 5.23%
Over 3 through 6 months........................ 4,654 5.33
Over 6 through 12 months....................... 16,422 5.65
Over 12 months................................. 6,095 5.28
---------
Total................................. $ 31,743 5.66%
=========
</TABLE>
57
<PAGE>
The following table presents information concerning average balances and rates
paid on Newberry Federal's deposit accounts for the periods indicated.
<TABLE>
<CAPTION>
For the Three Months Ended
At December 31, December 31,
-------------------------------------------------------------
1999 1999 1998
----------------------------- ------------------------------ -----------------------------
Percent Percent Percent
of Weighted of Weighted of Weighted
Total Average Total Average Total Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- -------- -------- ------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts............... $ 17,381 11.71% 2.77% $ 17,490 11.75% 2.75% $ 17,538 12.40% 2.42%
NOW and money market
accounts..................... 27,619 18.61 1.74 28,192 18.93 1.71 26,111 18.46 1.62
Certificates of deposit (1)..... 103,437 69.68 3.89 103,229 69.32 3.89 97,784 69.14 4.09
------- ------ -------- ------ -------- ------
Total average deposits....... $148,437 100.00% $148,911 100.00% $141,433 100.00%
======== ====== ======== ====== ======== ======
<CAPTION>
For the Year Ended September 30,
--------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
Percent
Percent of
of Weighted Total Weighted
Total Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts............... $ 17,588 12.61% 2.80% $ 17,780 13.07% 2.86%
NOW and money market
accounts...................... 26,632 19.10 2.06 23,886 17.56 1.97
Certificates of deposit (1)..... 95,220 68.29 5.20 94,330 69.37 5.59
-------- ------ -------- ------
Total average deposits...... $139,440 100.00% $135,996 100.00%
======== ====== ======== ======
</TABLE>
_____________________________
(1) Based on remaining maturity of certificates of deposit.
58
<PAGE>
Certificates of Deposit by Rates and Maturities. The following table
presents the amount of certificates of deposits in Newberry Federal categorized
by rates and maturities at the dates indicated.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1999
----------------------------------------------------------------
Less One Two Over
than One to Two to Three Three
Year Years Years Years Total
-------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
0 to 2.00%.................. $ 162 $ -- $ -- $ -- $ 162
2.01 to 4.00%............... 1,091 -- -- -- 1,091
4.01 to 5.00%............... 34,333 1,229 716 131 36,409
5.01 to 6.00%............... 47,803 7,595 661 108 56,167
6.01 to 7.00%............... 6,755 545 60 64 7,424
7.01 to 8.00%............... 100 -- -- -- 100
8.01 to 9.00%............... -- 2,084 -- -- 2,084
Over 9.00%.................. -- -- -- -- --
------- ------- ------ ---- --------
Total certificates of
deposit................... $90,244 $11,453 $1,437 $303 $103,437
======= ======= ====== ==== ========
</TABLE>
Borrowings. Newberry Federal may borrow from the Federal Home Loan Bank
of Atlanta to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The Federal Home Loan Bank of Atlanta functions as a
central reserve bank, providing credit for savings banks and certain other
member financial institutions. As a member of the Federal Home Loan Bank of
Atlanta, Newberry Federal is required to own capital stock in the Federal Home
Loan Bank of Atlanta and may borrow on the security of the capital stock and
certain of its mortgage loans and other assets, principally securities that are
obligations of, or guaranteed by, the U.S. Government or its agencies, provided
certain creditworthiness standards have been met. Advances are made under
several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At December 31, 1999,
Newberry Federal had the ability to borrow up to approximately $52.4 million
from the Federal Home Loan Bank of Atlanta. At December 31, 1999, Newberry
Federal had outstanding advances of $35.7 million.
At December 31, 1999, Newberry Federal also maintained an $8.0 million
unsecured credit facility with a third party financial institution. At December
31, 1999, Newberry Federal had an outstanding balance of $5.3 million under this
credit facility.
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<PAGE>
The following tables presents certain information regarding Newberry
Federal's use of Federal Home Loan Bank of Atlanta advances and other borrowings
during the periods and at the dates indicated.
<TABLE>
<CAPTION>
At or For the
Three Months
Ended At or For the Year Ended
December 31, September 30,
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Bank advances:
Average balance outstanding............................ $35,073 $20,600 $24,944 $23,100
Maximum amount outstanding at any month-end
during the period................................... 35,740 20,600 39,240 30,600
Balance outstanding at end of period................... 35,740 20,600 39,240 20,600
Weighted average interest rate during the period....... 5.45% 5.65% 5.58% 5.66%
Weighted average interest rate at end of period........ 5.44% 5.65% 5.65% 5.65%
Other borrowings:
Average balance outstanding............................ $ 4,417 $ 553 $ 2,120 $ 737
Maximum amount outstanding at any month-end
during the period................................... 5,325 1,660 7,370 5,875
Balance outstanding at end of period................... 5,325 1,660 7,370 --
Weighted average interest rate during the period....... 5.35% 5.25% 4.95% 5.25%
Weighted average interest rate at end of period........ 5.10% 4.88% 5.50% --%
</TABLE>
Subsidiary Activities
Newberry Federal has one wholly owned subsidiary, Inter-Community
Service Corporation, which operates as an insurance agency and also owns
approximately 30 acres of residential land for development. At December 31,
1999, Inter-Community Service Corporation's assets totaled approximately
$770,000.
Properties
Newberry Federal currently conducts its business through its main
office located in Newberry, South Carolina, and five other full-service banking
offices. DutchFork Bancshares believes that these facilities are adequate to
meet the present and immediately foreseeable needs of the Newberry Federal and
DutchFork Bancshares.
<TABLE>
<CAPTION>
Leased, Net Book Value
Licensed Original of Property
or Year at December
Location Owned Acquired 31, 1999
- ------------------------------------------------ ------------ ---------- --------------
Main/Executive Office: (In thousands)
<S> <C> <C> <C>
1735 Wilson Road Owned 1993 $2,594
Newberry, South Carolina 29108
Branch Offices:
1323 College Street Owned 1993 250
Newberry, South Carolina 29108
127 Amicks Ferry Road Owned 1987 102
Chapin, South Carolina 29036
101 N. Wheeler Street Owned 1989 121
Prosperity, South Carolina 29127
</TABLE>
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<PAGE>
Personnel
As of December 31, 1999, Newberry Federal had 44 full-time employees
and four part-time employees, none of whom is represented by a collective
bargaining unit. Newberry Federal believes its relationship with its employees
is good.
Legal Proceedings
Periodically, Newberry Federal is involved in various claims and
lawsuits, such as claims to enforce liens, condemnation proceedings on
properties in which it holds security interests, claims involving the making and
servicing of real property loans and other issues incident to its business.
Newberry Federal is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of Newberry Federal.
MANAGEMENT OF DUTCHFORK BANCSHARES
Directors shall be elected by the stockholders of DutchFork Bancshares
for staggered three-year terms, or until their successors are elected and
qualified. DutchFork Bancshares' board of directors consists of six persons
divided into three classes, each of which contains approximately one-third of
the Board. One class, consisting of Keitt Purcell and James E. Wiseman, has a
term of office expiring at the first annual meeting of stockholders; a second
class, consisting of Robert E. Livingston, III and Steve P. Sligh, has a term of
office expiring at the second annual meeting of stockholders; and a third class,
consisting of J. Thomas Johnson and Robert W. Owen, has a term of office
expiring at the third annual meeting of stockholders. DutchFork Bancshares
anticipates that its first annual meeting of stockholders will be held in
January 2001.
The executive officers of DutchFork Bancshares are elected annually and
serve at the Board's discretion. The executive officers of DutchFork Bancshares
are:
<TABLE>
<CAPTION>
Name Position
----- ---------
<S> <C>
J. Thomas Johnson Chairman of the Board, President and Chief
Executive Officer
Steve P. Sligh Executive Vice President, Treasurer and Chief
Financial Officer
Robert E. Livingston, III Corporate Secretary
</TABLE>
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<PAGE>
MANAGEMENT OF NEWBERRY FEDERAL
Directors and Executive Officers
The board of directors of Newberry Federal is presently composed of six
members who are elected for terms of three years, approximately one third of
whom are elected annually as required by the Bylaws of Newberry Federal. Four
directors are independent and two directors are members of management. The
executive officers of Newberry Federal are elected annually by the board of
directors and serve at the Board's discretion. The following table presents
information regarding the directors and executive officers of Newberry Federal.
Directors and Executive Officers
<TABLE>
<CAPTION>
Position Held With Newberry Director Term
Name Age (1) Federal Since Expires
- ------ ------- ---------------------------------- -------- -------
<S> <C> <C> <C> <C>
J. Thomas Johnson 53 Chairman of the Board and 1980 2003
Chief Executive Officer
Steve P. Sligh 50 President, Treasurer and Director 1993 2002
Robert E. Livingston, III 58 Corporate Secretary and Director 1993 2002
James E. Wiseman 66 Director 1993 2001
Robert W. Owen 73 Director 1968 2003
Keitt Purcell 76 Director 1974 2002
</TABLE>
________________________________
(1) As of December 31, 1999
Biographical Information
Below is certain information regarding the directors and executive
officers of Newberry Federal. Unless otherwise stated, each director and
executive officer has held his current occupation for the last five years. There
are no family relationships among or between the directors or executive
officers.
J. Thomas Johnson has worked in the banking industry for over 30 years.
He joined Newberry Federal in September 1977 and served as President of Newberry
Federal from 1984 until January 2000.
Steve P. Sligh has worked in the banking industry for over 29 years. He
joined Newberry Federal in July 1977. He served as Executive Vice President from
1989 until succeeding Mr. Johnson as President of Newberry Federal in January
2000.
Dr. Robert W. Owen, Vice Chairman of the board, is a retired pharmacist
and business owner. Dr. Owen has served as a school board member and on the
South Carolina Board of Education.
Mr. Keith Purcell is an active employee of Purcell's, an insurance and
finance business which has served Newberry County since 1929. Mr. Purcell is
past president of the Newberry County Chamber of Commerce/Development Board.
Dr. Robert E. Livingston III is a board certified Ophthalmologist
having practiced 29 years in Newberry. He currently serves as a member of the
Conservation Education and Communication Advisory Committee, SC Department of
Natural Resources.
Dr. James E. Wiseman, Jr. is a retired dentist and serves as a member
of the City Council. He is very active in the economic department and the arts
in Newberry County.
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<PAGE>
Meetings and Committees of the Board of Directors of Newberry Federal and
DutchFork Bancshares
Newberry Federal conducts its business through meetings and activities of
the board of directors and its committees. During the year ended September 30,
1999, the board of directors held 12 regular meetings and one special meeting.
No director of Newberry Federal attended fewer than 75% of the total meetings of
the board of directors and committees on which he served. The board of directors
of Newberry Federal has established the following committees:
Executive Committee
Members: J. Thomas Johnson, Keitt Purcell and Steve P.
Sligh
Function: Authority to act on all matters except
as reserved by law to the full board of
directors
Meetings in fiscal 1999: 2
Audit Committee
Members: Robert E. Livingston, III, Keitt Purcell and
Robert W. Owen
Function: Oversees internal audit function, engages
external auditor and meets with external
auditor to discuss and review annual
financial audit
Meetings in fiscal 1999: 3
Loan Committee
Members: Steve P. Sligh, Robert W. Owen, J. Thomas
Johnson and James E. Wiseman
Function: Reviews and approves loans within limits
established by Newberry Federal's Lending
Policy
Meetings in fiscal 1999: 12
Asset/Liability Committee
Members: J. Thomas Johnson, Robert E. Livingston, III
and Steve P. Sligh
Function: Oversees interest rate risk management and
investment portfolio
Meetings in fiscal 1999: 15
Budget and Personnel Committee
Members: Keitt Purcell, Robert W. Owen, J. Thomas
Johnson and James E. Wiseman
Function: Creates, reviews and approves annual budget
and establishes compensation for all
employees
Meetings in fiscal 1999: 2
Insurance Committee
Members: Keitt Purcell, J. Thomas Johnson and Steve P.
Sligh
Function: Reviews and procures all insurance coverages
for Newberry Federal
Meetings in fiscal 1999: 2
DutchFork Bancshares was formed in February 2000 and held one meeting
relating to its organization. The board of directors of DutchFork Bancshares has
established the following committees: Compensation Committee (Keitt Purcell,
Robert W. Owen, J. Thomas Johnson and James E. Wiseman), Audit Committee (Robert
63
<PAGE>
E. Livingston, III, Keitt Purcell and Robert W. Owen), Nominating Committee
(entire board of directors), Executive Committee (J. Thomas Johnson, Steve P.
Sligh and Keitt Purcell), and Pricing Committee (entire board of directors).
Directors' Compensation
Each director of Newberry Federal receives a monthly fee of $1,600. In
addition, each director who is not an employee of Newberry Federal receives $50
for each committee meeting attended on which he serves. Initially after the
conversion, DutchFork Bancshares does not expect to pay any fees to directors
for service on its board of directors.
Executive Compensation
Summary Compensation Table. The following information is furnished for
the Chief Executive Officer and the other executive officer of Newberry Federal
who received a salary and bonus of $100,000 or more during the year ended
September 30, 1999.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------
Other Annual All Other
Name and Position Year(1) Salary Bonus Compensation (2) Compensation (3)
- -------------------- --------- -------- ---------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
J. Thomas Johnson 1999 $156,633 $72,007 $32,519 $4,654
Chairman and Chief Executive Officer
Steve P. Sligh 1999 130,280 72,007 25,796 3,870
President and Treasurer
</TABLE>
____________________
(1) Compensation information for the years ended September 30, 1998 and 1997
has been omitted as Newberry Federal was neither a public company nor a
subsidiary of a public company at that time.
(2) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary
and bonus reported.
(3) Represents matching and discretionary contributions made under Newberry
Federal's 401(k) Plan.
Employment Agreements. Upon the completion of the conversion, Newberry
Federal and DutchFork Bancshares each intend to enter into employment agreements
with Messrs. Johnson and Sligh. The employment agreements are intended to ensure
that Newberry Federal and DutchFork Bancshares will be able to maintain a stable
and competent management base after the conversion. The continued success of
Newberry Federal and DutchFork Bancshares depends to a significant degree on the
skills and competence of these individuals.
The employment agreements will provide for a three-year term. The term
of the DutchFork Bancshares employment agreements will be extended on a daily
basis unless written notice of non-renewal is given by the board of directors
and the term of Newberry Federal employment agreements will be renewable
annually. The employment agreements provide that Messrs. Johnson's and Sligh's
base salaries will be reviewed annually. The initial base salaries for Messrs.
Johnson and Sligh will be $166,000, and $138,200 respectively. In addition to
the base salary, the employment agreements provide for, among other things,
participation in stock benefits plans and other fringe benefits applicable to
executive personnel. The employment agreements provide for termination by
Newberry Federal or DutchFork Bancshares for cause, as defined in the employment
agreements, at any time. If Newberry Federal or DutchFork Bancshares chooses to
terminate Mr. Johnson's or Mr. Sligh's employment for reasons other than for
cause, or if Mr. Johnson or Mr. Sligh resigns from Newberry Federal or DutchFork
Bancshares after a: (1) failure to re-elect the officer to his current offices;
(2) material change in the officer's functions, duties or responsibilities; (3)
relocation of the officer's principal place of employment by more than 35 miles;
(4) reduction in the benefits and perquisites being provided to the officer in
the employment agreement; (5) liquidation or dissolution of Newberry Federal or
DutchFork Bancshares; or (6) breach of the employment agreement by Newberry
Federal or DutchFork Bancshares. Messrs. Johnson and Sligh, or if they die,
their
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<PAGE>
beneficiaries, would be entitled to receive an amount equal to the remaining
base salary and bonus payments due to Mr. Johnson or Sligh for the remaining
term of the employment agreement and the contributions that would have been made
on Mr. Johnson's or Mr. Sligh's behalf to any employee benefit plans of Newberry
Federal and DutchFork Bancshares during the remaining term of the employment
agreement. Newberry Federal and DutchFork Bancshares would also continue and/or
pay for Mr. Johnson's or Mr. Sligh's life, health, dental and disability
coverage for the remaining term of the employment agreement. Upon termination of
Mr. Johnson or Mr. Sligh for reasons other than in connection with a change in
control, each officer will be subject to a one year non-competition agreement.
Under the employment agreements, if voluntary or involuntary
termination follows a change in control of Newberry Federal or DutchFork
Bancshares, Messrs. Johnson and Sligh or, if they die, their beneficiaries,
would be entitled to a severance payment equal to the greater of: (1) the
payments due for the remaining terms of the agreement; or (2) three times the
average of the five preceding taxable years' annual compensation. Newberry
Federal and DutchFork Bancshares would also continue Mr. Johnson's and Mr.
Sligh's life, health, and disability coverage for thirty-six months. Even though
both the Newberry Federal and DutchFork Bancshares employment agreements provide
for a severance payment if a change in control occurs, Mr. Johnson and Mr. Sligh
would only be entitled to receive a severance payment under one agreement. Each
officer would also be entitled to receive an additional tax indemnification
payment if payments under the employment agreements or otherwise triggered
liability under the Internal Revenue Code for the excise tax applicable to
"excess parachute payments." Under applicable law, the excise tax is triggered
by change in control-related payments which equal or exceed three times Mr.
Johnson's or Mr. Sligh's average annual compensation over the five years
preceding the change in control. The excise tax equals 20% of the amount of the
payment in excess of one times Mr. Johnson's or Mr. Sligh's average compensation
over the preceding five-year period. If a change in control of Newberry Federal
and DutchFork Bancshares occurred, the total amount of payments due under the
agreements, based solely on Mr. Johnson's and Mr. Sligh's 1999 cash compensation
and without regard to future base salary adjustments or bonuses and excluding
any benefits under any employee benefit plan which may be payable, would be
approximately $1.3 million.
Payments to Mr. Johnson and Mr. Sligh under Newberry Federal's
employment agreement will be guaranteed by DutchFork Bancshares if payments or
benefits are not paid or provided by Newberry Federal. Payment under DutchFork
Bancshares's employment agreement would be made by DutchFork Bancshares. All
reasonable costs and legal fees paid or incurred by Mr. Johnson and Mr. Sligh
under any dispute or question of interpretation relating to the employment
agreements shall be paid by Newberry Federal or DutchFork Bancshares,
respectively, if Mr. Johnson and Mr. Sligh is successful on the merits in a
legal judgment, arbitration or settlement. The employment agreements also
provide that Newberry Federal and DutchFork Bancshares shall indemnify Mr.
Johnson and Mr. Sligh to the fullest extent legally allowable.
Executive Life Insurance Program. In 1995, Newberry Federal entered
into split dollar life insurance agreements with Messrs. Johnson and Sligh to
provide them with additional life insurance protection. In connection with the
agreements, Newberry Federal has acquired life insurance which provides a death
benefit of $1.0 million for each officer. Each officer pays the share of the
annual premium attributable to the cost of the life insurance coverage they
receive under the policies in an amount determined under federal tax law rules.
Upon the termination of employment of Mr. Johnson or Mr. Sligh, Newberry Federal
will receive a refund of premiums paid with respect to the policies, and the
officer will have the option of continuing the policies at their expense. As of
December 31, 1999, Newberry Federal has paid all required premiums of $633,000
with respect to the policies.
Pension Plan. Newberry Federal maintains a non-contributory pension
plan for the benefit of eligible employees. Generally, employees of Newberry
Federal begin participation in the pension plan once they reach age 21 and
complete one year of service. A participant in the pension plan becomes vested
in his accrued benefit under the pension plan in installments over a seven-year
period. Participants also become 100% vested in their accrued benefit upon
attainment of age 65, upon their death or in the event of a disability.
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<PAGE>
The normal retirement benefit under the plan is payable at age 65 in
the form of a life annuity. Participants may also elect to receive benefits in
the form of a lump sum distribution, a joint-and-survivor annuity or a life
annuity with guaranteed for either 10 or 20 years. The normal retirement benefit
under the plan is equal to 60 percent of a participant's highest average annual
compensation over a five consecutive years of employment reduced by one
thirty-fifth for each year of service less than 35 years. The benefit is also
reduced to reflect the participant's social security benefits. A participant who
attains age 55 and has at least 10 years of service may elect early retirement
and receive a reduced benefit which is the actuarial equivalent of the benefit
they would otherwise have been eligible to receive at age 65.
At December 31, 1999, which is the date of the most recent pension plan
statement, the pension plan's assets exceeded the benefit obligation by
approximately $176,000.
401(k) Plan. Newberry Federal maintains the Employees' Savings and
Profit Sharing Plan for employees of Newberry Federal, a tax-qualified profit
sharing plan with a qualified cash or deferred arrangement under Section 401(k)
of the Internal Revenue Code for the benefit of its eligible employees. The
Savings Plan currently provides participants with savings and retirement
benefits based on employee deferrals of compensation, as well as matching and
other discretionary contributions made by Newberry Federal. Eligible employees
may begin participating in the Savings Plan upon the completion of one year of
service (as defined in the Savings Plan) and attainment of age twenty-one.
Participants currently may make annual salary reduction contributions to the
Savings Plan in amounts from 2% to 10% of their base compensation, within a
legally permissible limit ($10,500 for 2000). Newberry Federal makes a matching
contribution on a discretionary basis but not in excess of 3% of a participant's
base compensation. A participant is always 100% vested in his or her elective
deferrals of compensation under the Savings Plan. Participants vest in the
matching contributions over a seven-year period in installments.
Currently, participants may only invest their accounts under the
Savings Plan in certificates of deposit at Newberry Federal. Newberry Federal
intends to add, as an investment option, an employer stock fund in which
participants may invest a portion of their account balances primarily in
DutchFork Bancshares common stock, within the limitations set forth in the plan
document. In addition, participants will have the opportunity to invest in a
series of other investment alternatives, including domestic and international
equity funds. In the conversion, a participant's ability to invest in the
employer stock fund is based on his or her status as an eligible account holder
or supplemental eligible account holder in the conversion. Regardless of the
source of fund, no eligible account holders or supplemental eligible account
holders may elect to invest in excess of $175,000 in common stock.
Generally, distributions from the Savings Plan may commence upon a
participant's separation from service for any reason. However, participants may
request in-service distributions from the Savings Plan in the form of hardship
withdrawals, withdrawals of rollover contributions and the withdrawal of
unmatched after-tax contributions. Distributions from the Savings Plan generally
must comply with federal and state income taxes and distributions made before a
participant attains age 59 1/2 also must comply with a federal excise tax.
Employee Stock Ownership Plan. Newberry Federal's board of directors
has authorized the adoption of an employee stock ownership plan for employees of
Newberry Federal to be effective upon the completion of the conversion.
Employees who are employed by Newberry Federal on the conversion effective date
will be eligible to participate in the plan immediately. Thereafter, new
employees of DutchFork Bancshares and Newberry Federal who have been credited
with at least 1,000 hours of service during a 12-month period and who have
attained age 21 will be eligible to participate in the employee stock ownership
plan.
The employee stock ownership plan intends to purchase 8% of the shares
issued in the conversion through the offering. If the employee stock ownership
plan is unable to purchase such shares in the offering, it intends to purchase
the shares in the open market after the completion of the conversion subject to
applicable regulation and policy of the Office of Thrift Supervision. In total,
the employee stock ownership plan expects to acquire 8% of the shares issued in
the conversion or between 88,400 shares, assuming 1,105,000 shares are issued in
the conversion, and 119,600 shares assuming 1,495,000 shares are issued in the
conversion. It is anticipated that the employee
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<PAGE>
stock ownership plan will borrow funds from DutchFork Bancshares to purchase its
stock. The loan will equal 100% of the aggregate purchase price of the common
stock. The loan to the employee stock ownership plan will be repaid from
Newberry Federal's contributions to the employee stock ownership plan and, to a
lesser extent, from dividends payable on DutchFork Bancshares common stock held
by the employee stock ownership plan over the anticipated 12-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." If the employee stock ownership plan is
unable to acquire 8% of the common stock issued in the conversion through the
offering, it is anticipated that these additional shares will also be acquired
following the conversion through open market purchases.
In any plan year, Newberry Federal may make additional discretionary
contributions to the employee stock ownership plan for the benefit of plan
participants in either cash or shares of DutchFork Bancshares common stock,
which may be acquired through the purchase of outstanding shares in the market
or from individual stockholders or which constitute authorized but unissued
shares or shares held in treasury by DutchFork Bancshares. The timing, amount,
and manner of discretionary contributions will be affected by several factors,
including applicable regulatory policies, the requirements of applicable laws
and regulations, and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds
of the loan will be held in a suspense account and released on a pro rata basis
as the loan is repaid. Discretionary contributions to the employee stock
ownership plan and shares released from the suspense account will be allocated
among participants on the basis of each participant's proportional share of
total compensation. Any forfeitures will be reallocated among the remaining plan
participants.
Participants will vest in their employee stock ownership plan benefits
in installments over a 12-year period. All years of employment will be counted
for vesting purposes. A participant is fully vested at retirement, upon death or
disability or upon termination of the employee stock ownership plan. Benefits
are distributable upon a participant's retirement, early retirement, death,
disability, or termination of employment. Newberry Federal's contributions to
the employee stock ownership plan are not fixed, so benefits payable under the
employee stock ownership plan cannot be estimated.
It is anticipated that the board of directors of Newberry Federal will
appoint an independent trustee for the employee stock ownership plan. The
trustee votes all allocated shares held in the employee stock ownership plan as
instructed by the plan participants and unallocated shares and allocated shares
for which no instructions are received are voted in the same ratio on any matter
as those shares for which instructions are given.
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 must meet the requirements of the
Employee Retirement Income Security Act of 1974 and the regulations of the
Internal Revenue Service and the Department of Labor. Newberry Federal intends
to request a determination letter from the Internal Revenue Service regarding
the tax-qualified status of the employee stock ownership plan. Newberry Federal
expects to receive a favorable determination letter, but cannot guarantee it.
Employee Severance Compensation Plan. Newberry Federal's board of
directors intends to adopt the Newberry Federal Savings Bank Employee Severance
Compensation Plan to provide benefits to eligible employees upon a change in
control of DutchFork Bancshares or Newberry Federal. Eligible employees are
those with a minimum of one year of service with Newberry Federal. Generally,
all eligible employees, other than officers who will enter into separate
employment agreements with DutchFork Bancshares and Newberry Federal, will be
eligible to participate in the severance plan. Under the severance plan, if a
change in control of DutchFork Bancshares or Newberry Federal occurs, eligible
employees who are terminated or who terminate employment, but only upon the
67
<PAGE>
occurrence of events specified in the severance plan, within 12 months of the
effective date of a change in control, will be entitled to a payment based on
years of service with Newberry Federal with a maximum payment equal to 12 months
of compensation, which would be earned after 12 years of service. Assuming that
a change in control had occurred at December 31, 1999, and resulted in the
termination of all eligible employees, the maximum aggregate payment due under
the severance plan would be approximately $774,000.
Supplemental Executive Retirement Plan. Upon the completion of the
conversion, Newberry Federal intends to implement a new plan to provide for
supplemental benefits with respect to the employee stock ownership plan benefits
otherwise limited by other provisions of the Internal Revenue Code.
Specifically, the new plan will provide benefits to eligible individuals
designated by the board of directors of Newberry Federal or its affiliates that
cannot be provided under the employee stock ownership plan as a result of the
limitations imposed by the Internal Revenue Code, but that would have been
provided under the employee stock ownership plan but for such limitations. An
individual's benefits under the supplemental executive retirement plan will
generally become payable at the same time benefits become payable under the
employment stock ownership plan.
In addition to providing for benefits lost under tax-qualified plans as
a result of limitations imposed by the Code, the supplemental executive
retirement plan will also make up lost employee stock ownership plan benefits to
designated individuals in connection with the participant's retirement or upon a
change in control prior to the complete scheduled repayment of the employee
stock ownership plan loan. Generally, upon a participant's retirement or a
change in control of Newberry Federal or DutchFork Bancshares prior to complete
repayment of the employee stock ownership plan loan, this provision of the
supplemental executive retirement plan provides the covered individual with a
benefit equal to what the individual would have received under the employee
stock ownership plan and the supplemental executive retirement loan had he
remained employed throughout the schedule term of the employee stock ownership
plan loan less the benefits actually provided under the employee stock ownership
plan on behalf of such individual. An individual's benefits under the
supplemental executive retirement plan will generally become payable upon the
participant's retirement (in accordance with the standard retirement policies of
Newberry Federal) or upon the change in control of Newberry Federal or DutchFork
Bancshares.
Newberry Federal may establish a grantor trust in connection with the
new supplemental executive retirement plan to satisfy its obligations with
respect to the supplemental executive retirement plan. The assets of the grantor
trust would remain subject to the claims of Newberry Federal's general creditors
in the event of Newberry Federal's insolvency until paid to the individual under
the terms of the supplemental executive retirement plan.
Stock-Based Incentive Plan. Following the conversion, the board of
directors of DutchFork Bancshares intends to adopt a stock-based incentive plan
(the "Stock-Based Incentive Plan") which will provide for the granting of
options to purchase common stock ("Stock Options") and restricted stock ("Stock
Awards"), to eligible officers, employees, and directors of DutchFork Bancshares
and Newberry Federal. If the Stock-Based Incentive Plan is implemented within
one year after conversion, applicable regulations require such plan to be
approved by a majority of DutchFork Bancshares' stockholders at a meeting of
stockholders to be held no earlier than six months after the completion of the
conversion.
Under the Stock-Based Incentive Plan, DutchFork Bancshares intends to
grant Stock Options in an amount equal to 10% of the shares of common stock
issued in the conversion. The amount granted would range from 110,500 shares,
assuming 1,105,000 shares are issued in the conversion to 149,500 shares,
assuming 1,495,000 shares are issued in the conversion. Additionally, DutchFork
Bancshares intends to grant Stock Awards in an amount equal to 4% of the shares
of common stock issued in the conversion. The amount granted would range from
44,200 shares, assuming 1,105,000 shares are issued in the conversion to 59,800
shares, assuming 1,495,000 shares are issued in the conversion. Any common stock
awarded under the Stock-Based Incentive Plan will be awarded at no cost to the
recipients. The plan may be funded through the purchase of common stock by a
trust established as part of the Stock-Based Incentive Plan or from authorized
but unissued shares. DutchFork Bancshares intends to appoint an independent
fiduciary to serve as trustee of a trust to be established as part of the
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Stock-Based Incentive Plan. If additional authorized but unissued shares are
acquired by the Stock-Based Incentive Plan after the Conversion, the interests
of existing shareholders would be diluted. See "Pro Forma Data."
The grants of Stock Options and Stock Awards will be designed to
attract and retain qualified personnel in key positions, provide officers and
key employees with a proprietary interest in DutchFork Bancshares as an
incentive to contribute to the success of DutchFork Bancshares and reward key
employees for outstanding performance. All employees of DutchFork Bancshares and
its subsidiaries, including Newberry Federal, will be eligible to participate in
the Stock-Based Incentive Plan. It is expected that the committee administering
the plan will determine the terms of awards granted to officers and employees.
The committee will also determine whether Stock Options will be Incentive or
Non-Statutory Stock Options, as defined below, the number of shares available
for each Stock Option and Stock Award, the exercise price of each Non-Statutory
Stock Option, whether Stock Options may be exercised by delivering other shares
of common stock, and when Stock Options become exercisable or Stock Awards vest.
Only employees may receive grants of Incentive Stock Options. Therefore, under
the Stock-Based Incentive Plan, directors may receive only grants of
Non-Statutory Stock Options. If such plan is implemented within one year after
conversion, applicable regulations provide that no individual officer or
employee of Newberry Federal may receive more than 25% of the stock options
available under the Stock-Based Incentive Plan (or any separate plan for
officers and employees) and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the stock options available under the
Stock-Based Incentive Plan (or any separate plan for directors). Federal
regulations also provide that no individual officer or employee of Newberry
Federal may receive more than 25% of the restricted stock awards available under
the Stock-Based Incentive Plan (or any separate plan for officers and employees)
and non-employee directors may not receive more than 5% individually, or 30% in
the aggregate, of the restricted stock awards available under the Stock-Based
Incentive Plan (or any separate plan for directors).
The Stock-Based Incentive Plan will provide for the grant of: (1) Stock
Options intended to qualify as incentive Stock Options under Section 422 of the
Internal Revenue Code ("Incentive Stock Options"); and (2) Stock Options that do
not so qualify ("Non-Statutory Stock Options"). It is anticipated that all Stock
Options granted contemporaneously with stockholder approval of the Stock-Based
Incentive Plan will qualify as Incentive Stock Options to the extent permitted
under Section 422 of the Internal Revenue Code. Unless sooner terminated, the
Stock-Based Incentive Plan will be in effect for a period of ten years from the
earlier of adoption by the DutchFork Bancshares board of directors or approval
by DutchFork Bancshares stockholders. If the stockholders approve the Plan,
DutchFork Bancshares intends to grant Stock Options under the plan at an
exercise price equal to at least the fair market value of the underlying common
stock on the date of grant.
An individual will not be deemed to have received taxable income upon
the grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received through the stock
option exercise and two years after the date of grant of the stock option (a
"disqualifying disposition"). No compensation deduction will be available to
DutchFork Bancshares as a result of the grant or exercise of Incentive Stock
Options unless there has been a disqualifying disposition. In the case of a
Non-Statutory Stock Option and in the case of a disqualifying disposition of an
Incentive Stock Option, an individual will realize ordinary income upon exercise
of the stock option (or upon the disqualifying disposition) in an amount equal
to the amount by which the exercise price exceeds the fair market value of the
common stock purchased by exercising the stock option on the date of exercise.
The amount of any ordinary income realized by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option will be a deductible expense to DutchFork Bancshares for income tax
purposes.
The Stock-Based Incentive Plan will provide for the granting of Stock
Awards. Grants of Stock Awards to officers and employees may be made in the form
of base grants and/or performance grants, the vesting of which would be
contingent upon performance goals established by the committee administering the
plan. In establishing any performance goals, the committee may utilize the
annual financial results of Newberry Federal, actual performance of Newberry
Federal as compared to targeted goals such as the ratio of Newberry Federal's
net worth
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to total assets, Newberry Federal's return on average assets, or such other
performance standards as determined by the committee with the approval of the
DutchFork Bancshares board of directors.
When a participant becomes vested with respect to Stock Awards, the
participant will realize ordinary income equal to the fair market value of the
common stock at the time of vesting, unless the participant made an election
under Section 83(b) of the Internal Revenue Code. The amount of income
recognized by the participants will be a deductible expense for tax purposes for
DutchFork Bancshares. When restricted Stock Awards become vested and shares of
common stock are actually distributed to participants, the participants would
receive amounts equal to any accrued dividends with respect those shares. Before
vesting, recipients of Stock Awards may direct the voting of the shares awarded
to them. Shares not subject to grants and shares allocated subject to the
achievement of performance goals will be voted by the trustee in proportion to
the directions provided with respect to shares subject to grants. Vested shares
will be distributed to recipients as soon as practicable following the day on
which they vest.
The vesting periods for awards under the Stock-Based Incentive Plan
will be determined by the committee administering the plan. If the Stock-Based
Incentive Plan is implemented within one year after conversion, awards would
become vested and exercisable within the limits of applicable regulations, which
such regulations require that any awards begin vesting no earlier than one year
from the date of shareholder approval of the plan and, thereafter, vest at a
rate of no more than 20% per year and may not be accelerated except in the case
of death or disability. Stock Options could be exercisable for three months
following the date on which the employee or director ceases to perform services
for Newberry Federal or DutchFork Bancshares, except that if an employee or
director dies or becomes disabled, Stock Options accelerate and become fully
vested and could be exercisable for up to one year thereafter or such longer
period as determined by DutchFork Bancshares. In the case of death or
disability, Stock Options may be exercised for a period of 12 months. However,
any Incentive Stock Options exercised more than three months following the date
the employee ceases to perform services as an employee would be treated as a
Non-Statutory Stock Option. If the optionee continues to perform services as a
director or consultant on behalf of Newberry Federal, DutchFork Bancshares or an
affiliate after retirement, unvested Stock Options would continue to vest in
accordance with their original vesting schedule until the optionee ceases to
serve as a consultant or director. If a participant dies, is disabled or
retires, DutchFork Bancshares, if requested by the optionee, or the optionee's
beneficiary, could elect, in exchange for vested options, to pay the optionee,
or the optionee's beneficiary if the optionee dies, the amount by which the fair
market value of the common stock exceeds the exercise price of the Stock Options
on the date of the employee's termination of employment.
Within the limits of any applicable regulatory requirements, the
Stock-Based Incentive Plan may be amended after the one-year period ends to
provide for accelerated vesting of previously granted Stock Options or Stock
Awards if a change in control of DutchFork Bancshares or Newberry Federal
occurs. A change in control would generally be considered to occur when a person
or group of persons acting in concert acquires beneficial ownership of 20% or
more of any class of equity security of DutchFork Bancshares or Newberry Federal
or if a tender or exchange offer, merger or other form of business combination,
sale of all or substantially all of the assets of DutchFork Bancshares or
Newberry Federal or a contested election of directors which resulted in the
replacement of a majority of the DutchFork Bancshares board of directors by
persons not nominated by the directors in office before the contested election
occurs.
Transactions with Newberry Federal
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. Newberry Federal's policy is not to make any new
loans or extensions of credit to Newberry Federal's executive officers and
directors at different rates or terms than those offered to the general public.
In addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to the person
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and his or her related interests, are in excess of the greater of $25,000 or 5%
of Newberry Federal's capital and surplus, up to a maximum of $500,000, must be
approved in advance by a majority of the disinterested members of the board of
directors. See "Regulation and Supervision--Federal Regulations--Transactions
with Affiliates." The aggregate amount of loans by Newberry Federal to its
executive officers and directors was approximately $567,000 at December 31,
1999. These loans were performing according to their original terms at December
31, 1999.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, DutchFork Bancshares will be
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. Newberry Federal is
regulated, examined and supervised extensively by the Office of Thrift
Supervision, as its primary federal regulator, and the Federal Deposit Insurance
Corporation, as the deposit insurer. Newberry Federal is a member of the Federal
Home Loan Bank System and its deposit accounts are insured up to applicable
limits by the Savings Association Insurance Fund managed by the Federal Deposit
Insurance Corporation. Newberry Federal must file reports with the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining certain approvals
before entering into certain transactions such as mergers with, or acquisitions
of, other savings institutions. The Office of Thrift Supervision and the Federal
Deposit Insurance Corporation examine Newberry Federal periodically to test
Newberry Federal's safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework for Newberry Federal's activities and is intended primarily to protect
the insurance fund and Newberry Federal's depositors.
The regulatory structure also gives regulatory authorities extensive
discretion in their supervisory and enforcement activities and examination
policies, including policies regarding asset classification and the
establishment of adequate loan loss reserves for regulatory purposes. Any change
in regulatory requirements and policies, whether by the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation or the Congress, could
have a material adverse impact on DutchFork Bancshares, Newberry Federal and
their operations. The description of statutory provisions and regulations that
apply to DutchFork Bancshares and Newberry Federal discussed below and elsewhere
in this prospectus is not a complete description of them and their effects on
Newberry Federal and DutchFork Bancshares.
Holding Company Regulation
DutchFork Bancshares will be a unitary savings and loan holding company
under federal law because Newberry Federal will be its only insured subsidiary
immediately after the conversion. Formerly, a unitary savings and loan holding
company was not restricted as to the types of business activities in which it
could engage, provided that its subsidiary savings association continued to be a
qualified thrift lender. See "--Federal Savings Institution Regulation
- --Qualified Thrift Lender Test." Recent legislation, however, restricts unitary
savings and loan holding companies not existing or applied for before May 4,
1999 to activities permissible for a financial holding company as defined under
the legislation, including insurance and securities activities, and those
permitted for a multiple savings and loan holding company as described below.
DutchFork Bancshares will not qualify for the grandfather and will be limited to
such activities. If DutchFork Bancshares acquires another savings institution or
savings bank that is not a problem institution, that meets the qualified thrift
lender test and that the Office of Thrift Supervision considers to be a savings
institution, DutchFork Bancshares would become a multiple savings and loan
holding company if the acquired institution is held as a separate subsidiary and
not merged into Newberry Federal. As a multiple savings and loan holding
company, DutchFork Bancshares would generally be limited to activities
permissible for bank holding companies under federal law so long as the Office
of Thrift Supervision first approves of these activities, and to certain other
activities authorized by Office of Thrift Supervision regulation.
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A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company and from acquiring or retaining
control of a depository institution that is not insured by the Federal Deposit
Insurance Corporation, unless it first receives the approval of the Office of
Thrift Supervision. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision considers the financial
and managerial resources and future prospects of the holding company and the
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.
The Office of Thrift Supervision may not approve any acquisition that
results in a multiple savings and loan holding company controlling savings
institutions in more than one state. However, there are two exceptions to this
general rule. First, the approval of interstate supervisory acquisitions by
savings and loan holding companies. Second, the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit the acquisition. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.
Although savings and loan holding companies do not have specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations place these restrictions on
subsidiary savings institutions as described below. Newberry Federal must notify
the Office of Thrift Supervision 30 days before declaring any dividend to
DutchFork Bancshares. In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision, which has authority to order the stoppage of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association
are limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The Office of Thrift Supervision capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 3% leverage ratio and an 8%
risk-based capital ratio. Effective April 1, 1999, however, the minimum leverage
ratio increased to 4% for all institutions except those with the highest rating
on the CAMELS financial institution rating system. In addition, the prompt
corrective action standards discussed below also establish, in effect, a minimum
2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving
the highest rating on the CAMELS financial institution rating system) and,
together with the risk-based capital standard itself, a 4% Tier 1 risk-based
capital standard. The Office of Thrift Supervision regulations also require
that, in meeting the tangible, leverage and risk-based capital standards,
institutions must generally deduct investments in and loans to subsidiaries
engaged in activities as principal that are not permissible for a national bank.
The risk-based capital standard requires an institution to maintain
Tier 1 or core capital to risk-weighted assets of at least 4% and total capital
to risk-weighted assets of at least 8%. Total capital is defined as core capital
and supplementary capital. In determining the amount of risk-weighted assets,
all assets, including certain off-balance sheet assets, are multiplied by a
risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision
capital regulation based on the risks believed inherent in the type of asset.
Core or Tier 1 capital is defined as common stockholders' equity and retained
earnings, certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries, less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital include cumulative
preferred stock, long-term perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock, and the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of supplementary capital included as
part of total capital cannot exceed 100% of core capital.
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The capital regulations also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. Presently, the Office of Thrift Supervision has
deferred implementation of the interest rate risk component. At December 31,
1999, Newberry Federal met each of its capital requirements. See "Historical and
Pro Forma Regulatory Capital Compliance" for information regarding Newberry
Federal's compliance with the Office of Thrift Supervision's regulatory capital
requirements.
Prompt Corrective Regulatory Action. The Office of Thrift Supervision
is required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 or core
capital to risk-weighted assets of less than 4%, or a ratio of core capital to
total assets of less than 4%, or 3% or less for institutions with the highest
examination rating, is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Although there is a narrow exception, the Office
of Thrift Supervision is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized" if the institution is
critically undercapitalized on average during the calendar quarter 270 days
after becoming critically undercapitalized. The regulation also provides that an
institution must file a capital restoration plan with the Office of Thrift
Supervision within 45 days of the date that the Office of Thrift Supervision
notifies it that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
immediately apply to an undercapitalized institution, including, but not limited
to, increased monitoring by regulators and restrictions on growth, capital
distributions and expansion. The Office of Thrift Supervision could also take
any one of a number of discretionary supervisory actions, including issuing a
capital directive and replacing senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of Newberry Federal are
presently insured by the Savings Association Insurance Fund. The Federal Deposit
Insurance Corporation maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon the
categories to which it is assigned. Assessment rates for Savings Association
Insurance Fund member institutions are determined semiannually by the Federal
Deposit Insurance Corporation and currently range from zero basis points for the
healthiest institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to pay on bonds issued in the late 1980s by the Financing Corporation
to recapitalize the predecessor to the Savings Association Insurance Fund.
During 1998, Financing Corporation payments for Savings Association Insurance
Fund members approximated 6.10 basis points, while Bank Insurance Fund members
paid 1.22 basis points. By law, there will be equal sharing of Financing
Corporation payments between the members of both insurance funds on the earlier
of January 1, 2000 or the date the two insurance funds are merged.
Newberry Federal's assessment rate for fiscal 1999 ranged from 0 to 10
basis points and the premium paid for this period was $82,000. Payments toward
the Financing Corporation bonds amounted to $80,755. The Federal Deposit
Insurance Corporation has authority to increase insurance assessments. A
significant increase in Savings Association Insurance Fund insurance premiums
would likely have an adverse effect on the operating expenses and results of
operations of Newberry Federal. Management cannot predict what insurance
assessment rates will be in the future.
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The Federal Deposit Insurance Corporation may terminate an
institution's deposit insurance if it finds that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of Newberry Federal does not know of any
practice, condition or violation that might lead to termination of its deposit
insurance.
Thrift Rechartering Legislation. Legislation enacted in 1996 provided
that the Bank Insurance Fund and the Savings Association Insurance Fund were to
have merged on January 1, 1999 if there were no more savings associations as of
that date. Various proposals to eliminate the federal savings association
charter, create a uniform financial institutions charter, abolish the Office of
Thrift Supervision and restrict savings and loan holding company activities have
been introduced in Congress. Recent legislation has limited the powers in which
unitary savings and loan holding companies may engage. See "Risk
Factors--Banking reform legislation affects the activities in which DutchFork
Bancshares may engage." DutchFork Bancshares is unable to predict whether any
other legislation will be enacted or the extent to which it may affect its
powers or operations.
Loans to One Borrower. Federal law provides that savings institutions
must generally follow the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. See
"Business of Newberry Federal--Lending Activities--Loans to One Borrower" for
further information.
Qualified Thrift Lender Test. Federal law requires savings institutions
to meet a qualified thrift lender test. Under the test, a savings association is
required to either qualify as a "domestic building and loan association" under
the Internal Revenue Code or maintain at least 65% of its "portfolio assets" in
certain "qualified thrift investments" in at least 9 months out of each 12 month
period. "Portfolio assets" equals total assets less specified liquid assets up
to 20% of total assets, intangibles, including goodwill, and the value of
property used to conduct business. "Qualified thrift investments" are primarily
residential mortgages and related investments, including certain mortgage-backed
securities.
A savings institution that fails the qualified thrift lender test faces
certain operating restrictions and may be required to convert to a commercial
bank charter. As of December 31, 1999, Newberry Federal complied with the
qualified thrift lender test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered "qualified thrift investments."
Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. The rule
effective through the first quarter of 1999 established three tiers of
institutions based primarily on an institution's capital level. A Tier I
institution exceeded all capital requirements before and after a proposed
capital distribution and has not been advised by the Office of Thrift
Supervision that it needs more than normal supervision. A Tier I institution
could, after first giving notice to but without obtaining approval of the Office
of Thrift Supervision, make capital distributions during the calendar year equal
to the greater of 100% of its net earnings to date during the calendar year plus
the amount that would have reduced by one-half the excess capital over its
capital requirements at the beginning of the calendar year, or 75% of its net
income for the previous four quarters. Any additional capital distributions
required prior regulatory approval.
Effective April 1, 1999, the Office of Thrift Supervision's capital
distribution regulation changed. Under the new regulation, an application to and
the prior approval of the Office of Thrift Supervision is required before any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under Office of Thrift Supervision
regulations (generally, compliance with all capital requirements and examination
ratings in one of two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with
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Office of Thrift Supervision. If an application is not required, the institution
must still give advance notice to Office of Thrift Supervision of the capital
distribution. If Newberry Federal's capital fell below its regulatory
requirements or if the Office of Thrift Supervision notified it that it was in
need of more than normal supervision, Newberry Federal's ability to make capital
distributions could be restricted. In addition, the Office of Thrift Supervision
could prohibit a proposed capital distribution, which would otherwise be
permitted by the regulation if the Office of Thrift Supervision determines that
the distribution would be an unsafe or unsound practice.
Liquidity. Newberry Federal is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the Office of Thrift Supervision to any amount within the range
of 4% to 10%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. Newberry Federal met these requirements at December 31,
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" for further information.
Assessments. Savings institutions are required to pay assessments to
the Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Newberry Federal's latest quarterly thrift financial report. Newberry Federal's
assessments for the fiscal year ended September 30, 1999 totaled $47,000.
Branching. Office of Thrift Supervision regulations permit federally
chartered savings associations to branch nationwide under certain conditions.
Generally, federal savings associations may establish interstate networks and
geographically diversify their loan portfolios and lines of business. The Office
of Thrift Supervision authority preempts any state law purporting to regulate
branching by federal savings associations.
Transactions with Related Parties. Newberry Federal's authority to
engage in transactions with "affiliates" is limited by federal law. Generally,
an affiliate is any company that controls or is under common control with an
institution, including DutchFork Bancshares. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered transactions
with all affiliates is limited to 20% of the savings institution's capital and
surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in federal law. The purchase of
low quality assets from affiliates is generally prohibited. The transactions
with affiliates must be on terms and under circumstances, that are at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.
Newberry Federal's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities within the control of these
persons, is also governed by federal law. These persons are often referred to as
"insiders" of a company. Loans to insiders are required to be made on terms
substantially the same as those offered to unaffiliated individuals and may not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans Newberry Federal may make to insiders based, in
part, on Newberry Federal's capital position and requires certain board approval
procedures to be followed.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order, to removal of officers and/or
directors, to institution of a receivership or conservatorship, or to
termination of deposit insurance. Civil penalties cover a wide range of
violations and can amount to $25,000 per day, or even $1 million per day in
especially serious cases. The
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Federal Deposit Insurance Corporation has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action to be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
Federal Home Loan Bank System
Newberry Federal is a member of the Federal Home Loan Bank System,
which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan
Bank provides a central credit facility primarily for member institutions.
Newberry Federal, as a member of the Federal Home Loan Bank, is required to
acquire and hold shares of capital stock in that Federal Home Loan Bank in an
amount at least equal to 1.0% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank,
whichever is greater. Newberry Federal was in compliance with this requirement
with an investment in Federal Home Loan Bank stock at December 31, 1999, of $1.8
million. Federal Home Loan Bank advances must be secured by specified types of
collateral.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, Newberry Federal's net interest
income would likely also be reduced. Recent legislation has changed the
structure of the Federal Home Loan Banks funding obligations for insolvent
thrifts, revised the capital structure of the Federal Home Loan Banks and
implemented entirely voluntary membership for Federal Home Loan Banks.
Management cannot predict the effect that these changes may have with respect to
its Federal Home Loan Bank membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts,
primarily NOW and regular checking accounts. The regulations generally require
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less, subject to adjustment by the
Federal Reserve Board the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10%, subject to adjustment by the Federal Reserve Board between 8%
and 14%, against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances, as adjusted by
the Federal Reserve Board, are exempted from the reserve requirements. Newberry
Federal complies with the foregoing requirements.
Community Reinvestment Act
Under the Community Reinvestment Act, as implemented by Office of
Thrift Supervision regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act requires the Office
of Thrift Supervision, in connection with its examination of an institution, to
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assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of applications by such
institution. The Community Reinvestment Act requires public disclosure of an
institution's Community Reinvestment Act rating. Newberry Federal's latest
Community Reinvestment Act rating, received from the Office of Thrift
Supervision was "Satisfactory."
Federal Securities Laws
DutchFork Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. Upon completion
of the conversion, DutchFork Bancshares's common stock will be registered with
the Securities and Exchange Commission under the Exchange Act. DutchFork
Bancshares will then have to observe the information, proxy solicitation,
insider trading restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of shares 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 DutchFork
Bancshares may be resold without registration. The resale restrictions of Rule
144 under the Securities Act govern shares purchased by an affiliate of
DutchFork Bancshares. If DutchFork Bancshares meets the current public
information requirements of Rule 144 under the Securities Act, each affiliate of
DutchFork Bancshares who complies with the other conditions of Rule 144
(including those that require the affiliate's sale to be aggregated with those
of 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) 1% of the outstanding shares of DutchFork Bancshares or (2) the
average weekly volume of trading in such shares during the preceding four
calendar weeks. Provision may be made in the future by DutchFork Bancshares to
permit affiliates to have their shares registered for sale under the Securities
Act under specific circumstances.
FEDERAL AND STATE TAXATION ON INCOME
Federal Income Taxation
General. DutchFork Bancshares and Newberry Federal intend to report
their income on a calendar year basis using the accrual method of accounting.
The federal income tax laws apply to DutchFork Bancshares and Newberry Federal
in the same manner as to other corporations with some exceptions, including
particularly Newberry Federal'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
Newberry Federal or DutchFork Bancshares. Newberry Federal's federal income tax
returns have been either audited or closed under the statute of limitations
through tax year 1994. For its 1999 tax year, Newberry Federal's maximum federal
income tax rate was 34%.
Bad Debt Reserves. For fiscal years beginning before February 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for nonqualifying
loans was computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $4.8 million of Newberry Federal accumulated bad debt reserves
would not be recaptured into taxable income unless Newberry Federal makes a
"non-dividend distribution" to DutchFork Bancshares as described below.
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Distributions. If Newberry Federal makes "non-dividend distributions"
to DutchFork Bancshares, they will be considered to have been made from Newberry
Federal's unrecaptured tax bad debt reserves, including the balance of its
reserves as of February 31, 1987, to the extent of the "non-dividend
distributions," and then from Newberry Federal's supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
Newberry Federal's taxable income. Non-dividend distributions include
distributions in excess of Newberry Federal's current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of Newberry Federal's current or accumulated earnings and
profits will not be so included in Newberry Federal's taxable income.
The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Therefore, if Newberry Federal makes a
non-dividend distribution to DutchFork Bancshares, approximately one and
one-half times the amount of the distribution not in excess of the amount of the
reserves would be includable in income for federal income tax purposes, assuming
a 35% federal corporate income tax rate. Newberry Federal does not intend to pay
dividends that would result in a recapture of any portion of its bad debt
reserves.
State Taxation
South Carolina Taxation. South Carolina has adopted the Internal
Revenue Code, with certain modifications, as it relates to savings and loan
associations, effective for taxable years beginning after December 31, 1984.
Newberry Federal is subject to South Carolina income tax at the rate of 6%. This
rate of tax is imposed on savings and loan associations and savings banks in
lieu of the general state business corporation income tax. Newberry Federal's
state income tax returns have not been audited within the last five years.
Delaware. As a Delaware holding company not earning income in Delaware,
DutchFork Bancshares is exempt from Delaware corporate income tax, but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table presents certain information as to the approximate
purchases of common stock by each director and executive officer of Newberry
Federal, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 31% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Anticipated Anticipated Percent of
Number of Dollar Shares at Percent of
Shares to Amount to Minimum Shares at
be be of Estimated Maximum
Purchased Purchased Valuation of Estimated
Name (1) (1) Range Valuation Range
- ------- ------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C>
J. Thomas Johnson..................................... 17,500 $175,000 1.58% 1.17%
Steve P. Sligh........................................ 17,500 175,000 1.58 1.17
Robert E. Livingston, III............................. 17,500 175,000 1.58 1.17
James E. Wiseman...................................... 17,500 175,000 1.58 1.17
Robert W. Owen........................................ 10,000 100,000 0.90 0.67
Keitt Purcell......................................... 5,000 50,000 0.45 0.33
------ -------- ---- ----
All Directors and Executive Officers
as a Group (6 persons)............................. 85,000 $850,000 7.67% 5.68%
====== ======== ==== ====
</TABLE>
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- -----------------------------
(1) Does not include shares to be awarded under the employee stock ownership
plan and stock-based incentive plan or options to acquire shares under
the stock-based incentive plan.
THE CONVERSION
The Office of Thrift Supervision has approved the plan of conversion,
provided that it is approved by the members of Newberry Federal and that
DutchFork Bancshares and Newberry Federal satisfy certain other conditions
imposed by the Office of Thrift Supervision in its approval. Office of Thrift
Supervision approval is not a recommendation or endorsement of the plan of
conversion.
General
On January 18, 2000, the board of directors of Newberry Federal
unanimously adopted the plan of conversion, under which Newberry Federal will be
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank to be held as a wholly owned subsidiary of
DutchFork Bancshares, a newly formed Delaware corporation. The following
discussion of the plan of conversion contains all material terms about the
conversion. Nevertheless, you should read carefully the plan of conversion,
which accompanies Newberry Federal's proxy statement and is available to members
of Newberry Federal upon request. The plan of conversion is also filed as an
exhibit to the registration statement that DutchFork Bancshares has filed with
the Securities and Exchange Commission. See "Where You Can Find More
Information." The Office of Thrift Supervision has approved the plan of
conversion with the condition that it be approved by the members of Newberry
Federal entitled to vote on the matter at a special meeting on May ___, 2000 and
conditioned on the satisfaction of certain other conditions imposed by the
Office of Thrift Supervision in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by Newberry
Federal. As part of the conversion, Newberry Federal will issue all of its newly
issued capital stock, or 1,000 shares of common stock, to DutchFork Bancshares
in exchange for 50% of the net proceeds from the sale of common stock by
DutchFork Bancshares.
The plan of conversion provides generally that:
. Newberry Federal will convert from a federally chartered
mutual savings bank to a federally chartered stock savings
bank;
. DutchFork Bancshares will offer its common stock in the
subscription offering to persons having subscription rights;
. if necessary, shares of common stock not subscribed for in the
subscription offering will be offered in a direct community
offering to certain members of the general public, with
preference given to natural persons residing in Newberry and
Lexington Counties, South Carolina, and then to certain
members of the general public in a syndicated community
offering through a syndicate of registered broker-dealers
under selected dealers agreements; and
. DutchFork Bancshares will purchase all of the capital stock of
Newberry Federal to be issued in the conversion.
As part of the conversion, DutchFork Bancshares is making a
subscription offering of its common stock to holders of subscription rights in
the following order of priority. First, depositors of Newberry Federal with
$50.00 or more on deposit as of November 30, 1998. Second, Newberry Federal's
employee stock ownership plan. Third, depositors of Newberry Federal with $50.00
or more on deposit as of ____________, 2000. Finally, depositors of
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Newberry Federal as of _____________, 2000 and borrowers of Newberry Federal
with loans outstanding as of February 10, 1987 which continue to be outstanding
as of _____________, 2000.
Shares of common stock not subscribed for in the subscription offering
may be offered for sale in the direct community offering. The direct community
offering, if one is held, may begin at any time during the subscription
offering. Shares of common stock not sold in the subscription and direct
community offerings may be offered in the syndicated community offering.
Regulations require that the direct community and syndicated community offerings
be completed within 45 days after completion of the fully extended subscription
offering unless extended by Newberry Federal or DutchFork Bancshares with the
approval of the regulatory authorities. If the syndicated community offering is
not feasible, the board of directors of Newberry Federal will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock. The plan of conversion provides
that the conversion must be completed within 24 months after the date of the
approval of the plan of conversion by the members of Newberry Federal.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Newberry Federal.
The completion of the offering, however, depends on market conditions
and other factors beyond Newberry Federal's control. No assurance can be given
as to the length of time after approval of the plan of conversion at the special
meeting that will be required to complete the direct community or syndicated
community offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of DutchFork Bancshares and Newberry Federal as converted, together with
corresponding changes in the net proceeds realized by DutchFork Bancshares from
the sale of the common stock. If the conversion is terminated, Newberry Federal
would be required to charge all conversion expenses against current income.
Orders for shares of common stock will not be filled until at least
1,105,000 shares of common stock have been subscribed for or sold and the Office
of Thrift Supervision approves the final valuation and the conversion closes. If
the conversion is not completed within 45 days after the last day of the fully
extended subscription offering and the Office of Thrift Supervision consents to
an extension of time to complete the conversion, subscribers will be given the
right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Newberry Federal's passbook rate from the date payment is
received until the funds are returned to the subscriber. If the 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 Newberry Federal's passbook rate from the date
payment is received until the conversion is terminated.
Reasons for the Conversion
The board of directors and management believe that the conversion is in
the best interests of Newberry Federal, its customers, employees and the
communities it serves. Newberry Federal's board of directors has formed
DutchFork Bancshares to serve as a holding company, with Newberry Federal as its
subsidiary, after the conversion. By converting to the stock form of
organization, DutchFork Bancshares and Newberry Federal will be structured in
the form used by holding companies of commercial banks, most business entities
and by a growing number of savings institutions. Management of Newberry Federal
believes that the conversion offers a number of advantages which will be
important to the future growth and performance of Newberry Federal. The capital
raised in the conversion is intended to support Newberry Federal's future
lending and operational growth and may also support possible future branching
activities or the acquisition of other financial institutions or financial
service companies or their assets and to increase its ability to render services
to the communities it serves, although there are no current specific plans,
arrangements or understandings, written or oral, regarding these activities. The
conversion is also expected to afford Newberry Federal's management, members and
others the opportunity to
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become stockholders of DutchFork Bancshares and participate more directly in,
and contribute to, any future growth of DutchFork Bancshares and Newberry
Federal. The conversion will also enable DutchFork Bancshares and Newberry
Federal to raise additional capital in the public equity or debt markets should
the need arise, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any financing activities. Newberry
Federal, as a mutual savings bank, does not have the authority to issue capital
stock or debt instruments, other than by accepting deposits.
Effects of Conversion to Stock Form
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized if the institution is liquidated. However, this ownership
interest is tied to the depositor's account and has no value separate from such
deposit account. Any depositor who opens a deposit account obtains a pro rata
ownership interest in the net worth of the institution without any additional
payment beyond the amount of the deposit. A depositor who reduces or closes his
account receives a portion or all of the balance in the account but nothing for
his ownership interest in the net worth of the institution, which is lost to the
extent that the balance in the account is reduced.
Consequently, mutual savings bank depositors normally realize the value
of their ownership interest only in the unlikely event that the mutual savings
bank is liquidated. In such event, the depositors of record at that time, as
owners, would be able to share in any residual surplus and reserves after other
claims, including claims of depositors to the amounts of their deposits, are
paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except the right to claim a
pro rata share of funds representing the liquidation account established as part
of the conversion. Additionally, permanent nonwithdrawable capital stock is
created and offered to depositors which represents the ownership of the
institution's net worth. The common stock is separate and apart from deposit
accounts and cannot be and is not insured by the Federal Deposit Insurance
Corporation or any other governmental agency. Certificates are issued to
evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any deposit account the seller may hold in the
institution.
No assets of DutchFork Bancshares or Newberry Federal will be
distributed in the conversion other than the payment of those expenses incurred
in the conversion.
Continuity. While the conversion is being accomplished, the normal
business of Newberry Federal will continue without interruption, including being
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. After conversion, Newberry Federal will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The directors of Newberry Federal at the time of conversion will serve
as directors of Newberry Federal after the conversion. The directors of
DutchFork Bancshares will be solely composed of individuals who served on the
board of directors of Newberry Federal. All officers of Newberry Federal at the
time of conversion will retain their positions after the conversion.
Savings Accounts and Loans. Newberry Federal's savings accounts,
account balances and existing Federal Deposit Insurance Corporation insurance
coverage of savings 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
Newberry Federal.
Effect on Voting Rights. Upon the completion of the conversion,
Newberry Federal's depositors and borrowers will no longer be entitled to vote
at meetings of Newberry Federal. Instead, DutchFork Bancshares, as the sole
stockholder of Newberry Federal, will possess all voting rights in Newberry
Federal. The holders of the
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common stock of DutchFork Bancshares will possess all voting rights in DutchFork
Bancshares. Depositors and borrowers of Newberry Federal will not have voting
rights after the conversion except to the extent that they become stockholders
of DutchFork Bancshares by purchasing common stock.
Tax Effects. Newberry Federal has received an opinion from Muldoon,
Murphy & Faucette LLP, Washington, D.C., that addresses all the material federal
income tax consequences of the conversion. The opinion, which relies upon
factual representations given by Newberry Federal, concludes 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:
. no gain or loss will be recognized to Newberry Federal in its
mutual or stock form by reason of the conversion;
. no gain or loss will be recognized to its account holders upon
the issuance to them of accounts in Newberry Federal
immediately after the conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at
Newberry Federal in its mutual form plus interest in the
liquidation account;
. the tax basis of account holders' accounts in Newberry Federal
immediately after the conversion will be the same as the tax
basis of their accounts immediately before conversion;
. the tax basis of each account holder's interest in the
liquidation account will be equal to the value, if any, of
that interest;
. 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 on the date of purchase; and
. no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion,
except if 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 in the
opinion. 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 eligible account
holders, supplemental eligible account holders and other individuals under the
plan of conversion will be taxable if the subscription rights are deemed to have
a fair market value. Keller & Company, 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 the 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. Newberry Federal could also recognize a gain on the
distribution of subscription rights. Holders of subscription rights are
encouraged to consult with their own tax advisors as to the tax consequences if
the subscription rights are deemed to have a fair market value.
Newberry Federal has also received an opinion from Clifton D. Bodiford,
CPA, Columbia, South Carolina, that, assuming the conversion does not result in
any federal income tax liability to Newberry Federal, its account holders, or
DutchFork Bancshares, implementation of the plan of conversion will not result
in any South Carolina income tax liability to those entities or persons.
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The opinions of Muldoon, Murphy & Faucette LLP and Clifton D. Bodiford,
CPA, and the letter from Keller & Company are filed as exhibits to the
registration statement that DutchFork Bancshares has filed with the Securities
and Exchange Commission. See "Where You Can Find More Information."
You should consult with your own tax advisor regarding the tax
consequences of the conversion particular to you.
Liquidation Account. In the unlikely event of a complete liquidation of
Newberry Federal before the conversion, each depositor in Newberry Federal would
receive a pro rata share of any assets of Newberry Federal remaining after
payment of claims of all creditors, including the claims of all depositors up to
the withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in Newberry Federal
at the time of liquidation.
After the completion of the conversion, holders of withdrawals
deposit(s) in Newberry Federal, including certificates of deposit, will not be
entitled to share in any residual assets upon liquidation of Newberry Federal.
However, under Office of Thrift Supervision regulations, Newberry Federal will,
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. Newberry
Federal will maintain the liquidation account for the benefit of eligible
account holders and supplemental eligible account holders who retain their
savings accounts in Newberry Federal. Each eligible account holder and
supplemental eligible account holder will, with respect to each deposit account
held, have a related inchoate interest in a sub-account 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 will be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the holder's "qualifying
deposit" in the deposit account and the denominator is the total amount of the
"qualifying deposits" of all eligible or supplemental eligible account holders.
The initial subaccount balance will not be increased, and it will be decreased
as provided below.
If the deposit balance in any deposit account of an eligible account
holder or supplemental eligible account holder at the close of business on any
annual closing day of Newberry Federal after November 30, 1998, or March 31,
2000 is less than the lesser of the deposit balance in a deposit account at the
close of business on any other annual closing date after November 30, 1998 or
March 31, 2000, or the amount of the "qualifying deposit" in a savings account
on November 30, 1998 or March 31, 2000, then the subaccount balance for a
deposit account will be adjusted by reducing the subaccount balance in an amount
proportionate to the reduction in the savings balance. Once reduced, the
subaccount balance will not be subsequently increased, notwithstanding any
increase in the savings balance of the related deposit account. If any deposit
account is closed, the related subaccount balance will be reduced to zero.
Only upon the unlikely event of a complete liquidation of Newberry
Federal, each eligible account holder and supplemental eligible account holder
will be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balance(s) for
deposit account(s) 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 Newberry Federal is not the
surviving institution will be considered to be a complete liquidation. In any of
these transactions, the liquidation account will be assumed by the surviving
institution.
In the unlikely event Newberry Federal is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to DutchFork Bancshares as the sole
stockholder of Newberry Federal.
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The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase DutchFork Bancshares 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 that these parties may
purchase will depend on the availability of the common stock for purchase under
the categories described in the plan of conversion. Subscription priorities have
been established for the allocation of stock that may be available. These
priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at Newberry Federal, including all withdrawals deposits at
Newberry Federal and non-interest bearing deposits, as of November 30, 1998 has
the right to subscribe for up to the greater of $175,000 of common stock, which
equals 17,500 shares, 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 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,
if 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. After that, unallocated shares will be allocated
proportionately, based on the amount of the eligible accountholder's 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 any increased deposits in Newberry Federal in the one year
period preceding November 30, 1998 are subordinated to the subscription rights
of other eligible account holders.
Category 2: Employee Stock Ownership Plan. Newberry Federal's employee
stock ownership plan has the right to purchase up to 8% of the shares of common
stock issued in the conversion. The plan intends to purchase 8% of the shares of
common stock issued in the conversion. If the number of shares offered in the
conversion is increased, the plan will have a priority right to purchase any
shares exceeding that amount up to 8% of the common stock. If the plan's
subscription is not filled in its entirety, the employee stock ownership plan
may purchase shares in the open market or may purchase shares directly from
DutchFork Bancshares with the approval of the Office of Thrift Supervision, if
required.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit, including all withdrawals deposits at Newberry
Federal, including non-interest bearing deposits, as of March 31, 2000 has the
right to subscribe for up to the greater of $175,000 of common stock, which
equals 17,500 shares, 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 eligible
account holders and Newberry Federal's employee stock ownership plan subscribe
for all of the shares being offered by DutchFork Bancshares, no shares will be
available for 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 supplemental eligible account holder, if possible,
to purchase a number of shares sufficient to make his or her total allocation
equal 100 shares or the number of shares actually subscribed for, whichever is
less. After that, 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 subscribing supplemental eligible account holders.
Category 4: Other Members. Each depositor of Newberry Federal,
including persons with withdrawals deposits at Newberry Federal and non-interest
bearing demand deposits, as of __________, 2000 and each borrower with a loan
outstanding on February 10, 1987 which continues to be outstanding as of
__________, 2000
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has the right to purchase up to $175,000 of common stock, which equals 17,500
shares. If eligible account holders, Newberry Federal's employee stock ownership
plan and supplemental eligible account holders subscribe for all of the shares
being offered by DutchFork Bancshares, no shares will be available for other
members. If there is an oversubscription in this category, the available shares
will be allocated among subscribing other members so as to permit each other
member, if possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. After that, unallocated shares will be
allocated among subscribing other members proportionately, based on the number
of votes of a subscribing other member as of the record date of the special
meeting of members to vote on the plan of conversion bears to total votes of all
subscribing other members as of the record date of the special meeting of
members.
Subscription rights are nontransferable. If you sell or otherwise
transfer your rights to subscribe for common stock in the subscription offering
or subscribe for common stock on behalf of another person, you may forfeit those
rights and face possible further sanctions and penalties imposed by the Office
of Thrift Supervision or another agency of the U.S. Government. If you exercise
your subscription rights, you will be required to certify that you are
purchasing shares solely for your own account and that you have 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 Newberry
Federal and DutchFork Bancshares.
DutchFork Bancshares and Newberry Federal will make reasonable attempts
to provide a prospectus and related offering materials to holders of
subscription rights. However, the subscription offering and all subscription
rights under the plan of conversion will expire at 12:00 Noon, Eastern time, on
___________, 2000, whether or not Newberry Federal has been able to locate each
person entitled to subscription rights. Orders for common stock in the
subscription offering received in hand by Newberry Federal after that time will
not be accepted. The subscription offering may be extended by DutchFork
Bancshares and Newberry Federal up to ______, 2000 without regulatory approval.
Office of Thrift Supervision regulations require that DutchFork Bancshares
complete the sale of common stock within 45 days after the close of the
subscription offering. If the direct community offering and the syndicated
community offerings are not completed within that period all funds received will
be returned promptly with interest at Newberry Federal's passbook rate and all
withdrawal authorizations will be canceled. If regulatory approval of an
extension of the time period has been granted, all subscribers will be notified
of the extension and of the duration of any extension that has been granted, and
will be given the right to increase, decrease or rescind their orders. If an
affirmative response to any resolicitation is not received by DutchFork
Bancshares from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest, or withdrawal
authorizations will be canceled. No single extension can exceed 90 days.
Direct Community Offering. Any shares of common stock that remain
unsubscribed for in the subscription offering will be offered by DutchFork
Bancshares to certain members of the general public in a direct community
offering, with preference given to natural persons residing in Newberry and
Lexington Counties, South Carolina. Purchasers in the direct community offering
are eligible to purchase up to $175,000 of common stock, which equals 17,500
shares. If not enough shares are available to fill orders in the direct
community offering, the available shares will be allocated among purchasers to
permit each purchaser, to the extent possible, to purchase the number of shares
necessary to make his or her total allocation of shares equal to the lesser of
100 shares or the number of shares subscribed for by such purchaser. Thereafter,
unallocated shares will be allocated among purchasers whose orders remain
unsatisfied on a 100 shares per order basis until all such orders have been
filled or the remaining shares have been allocated. The direct community
offering, if held, may be concurrent with, during or promptly after the
subscription offering. The direct community offering may terminate on or at any
time after 12:00 noon, Eastern time, on _____________, 2000, but no later than
45 days after the close of the subscription offering, unless extended by
DutchFork Bancshares and Newberry Federal, with approval of the Office of Thrift
Supervision. If regulatory approval of an extension of the time period has been
granted, all subscribers will be notified of the extension and of the duration
of any extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by DutchFork Bancshares from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest. DutchFork Bancshares and Newberry Federal have the
absolute right to
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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. DutchFork Bancshares presently
intends to terminate the direct community offering as soon as it has received
orders for all shares available for purchase in the conversion.
Syndicated Community Offering. The plan of conversion provides that, if
necessary, all shares of common stock not purchased in the subscription offering
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 formed and managed by Trident
Securities acting as agent of DutchFork Bancshares. DutchFork Bancshares and
Newberry Federal have the right to reject orders, in whole or part, in their
sole discretion in the syndicated community offering. Neither Trident Securities
nor any registered broker-dealer will have any obligation to take or purchase
any shares of the common stock in the syndicated community offering; however,
Trident Securities has agreed to use its best efforts in the sale of shares in
the syndicated community offering.
Stock sold in the syndicated community offering also will be sold at
the $10.00 purchase price. See "--Stock Pricing and Number of Shares to Be
Issued." No person will be permitted to subscribe in the syndicated community
offering for shares of common stock with an aggregate purchase price of more
than $175,000, which equals 17,500 shares. See "--Plan of Distribution for the
Subscription, Direct Community and Syndicated Community Offerings" for a
description of the commission to be paid to the selected dealers and to Trident
Securities.
Trident Securities 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 DutchFork Bancshares as of a
certain date for the purchase of shares. When and if Trident Securities and
DutchFork Bancshares believe that enough indications of interest and orders have
been received in the subscription offering, the direct community offering and
the syndicated community offering to consummate the conversion, Trident
Securities 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 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 DutchFork Bancshares
established for each selected dealer. Each customer's funds so forwarded to
DutchFork Bancshares, along with all other accounts held in the same title, will
be insured by the Federal Deposit Insurance Corporation up to the applicable
$100,000 legal limit. After payment has been received by DutchFork Bancshares
from selected dealers, funds will earn interest at Newberry Federal's passbook
rate until the completion of the offering. At the completion of the conversion,
the funds received will be used to purchase the shares of common stock ordered.
The shares 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 terminate no more than 45 days
after the expiration of the subscription offering, unless extended by DutchFork
Bancshares and Newberry Federal, with approval of the Office of Thrift
Supervision.
If Newberry Federal is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the board of directors of Newberry Federal, if feasible. Any other arrangements
must be approved by the Office of Thrift Supervision. The Office of Thrift
Supervision may grant one or more extensions of the offering period, provided
that no single extension exceeds 90 days, subscribers are given the right to
increase, decrease or rescind their subscriptions during the extension period,
and the extensions do not go more than two years beyond the date on which the
board of directors approved the plan of conversion. If
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the conversion is not completed within 45 days after the close of the
subscription offering, either all funds received will be returned with interest,
and withdrawal authorizations canceled, or, if the Office of Thrift Supervision
has granted an extension of time, all subscribers will be given the right to
increase, decrease or rescind their subscriptions 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 DutchFork
Bancshares from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest or withdrawal
authorizations will be canceled.
Persons in Non-Qualified States. DutchFork Bancshares and Newberry
Federal will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
under the plan of conversion reside. However, DutchFork Bancshares and Newberry
Federal are not required to offer stock in the subscription offering to any
person who resides in a foreign country or who resides in a state of the United
States in which both of the following apply (i) a small number of persons
otherwise eligible to subscribe for shares of common stock reside, and (ii) the
issuance of subscription rights or the offer or sale of stock to such persons
would require DutchFork Bancshares to register as a broker, dealer, salesman or
selling agent, under the securities laws of the state, or a request or
requirement to register or otherwise qualify the subscription rights or common
stock for sale or submit any filing in the state or such registration or
qualification would be impracticable for reasons of cost or otherwise. Where the
number of persons eligible to subscribe for shares in one state is small,
DutchFork Bancshares and Newberry Federal will base their decision as to whether
or not to offer the common stock in the state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state, and of actually
registering or qualifying the shares, or the need to register DutchFork
Bancshares, its officers, directors or employees as brokers, dealers or
salesmen.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
Newberry Federal and DutchFork Bancshares have retained Trident
Securities to consult with and advise Newberry Federal and to assist Newberry
Federal and DutchFork Bancshares, on a best efforts basis, in the distribution
of shares in the offering. Trident Securities is a broker-dealer registered with
the Securities and Exchange Commission and a member of the National Association
of Securities Dealers, Inc. Trident Securities will assist Newberry Federal in
the conversion by acting as marketing advisor with respect to the subscription
offering and will represent Newberry Federal as placement agent on a best
efforts basis in the sale of the common stock in the direct community offering
if one is held; conducting training sessions with directors, officers and
employees of Newberry Federal regarding the conversion process; and assisting in
the establishment and supervision of Newberry Federal's conversion center and,
with management's input, will train Newberry Federal's staff to record properly
and tabulate orders for the purchase of common stock and to respond
appropriately to customer inquiries.
Based on negotiations between Newberry Federal and DutchFork Bancshares
concerning the fee structure, Trident Securities will receive a management fee
of $10,000 plus a fee equal to 2.0% of the aggregate dollar amount of all stock
sold in the subscription and direct community offerings. Such amount does not
include any shares sold to the employee stock ownership plan, directors,
officers and employees of Newberry Federal or DutchFork Bancshares or their
immediate families. Such fee will be paid upon completion of the conversion.
Trident Securities will be reimbursed for its reasonable out-of-pocket expenses,
including legal fees.
Trident Securities has not prepared any report or opinion constituting
a recommendation or advice to DutchFork Bancshares or Newberry Federal or to
persons who subscribe for stock, nor has it prepared an opinion as to the
fairness to DutchFork Bancshares or Newberry Federal of the purchase price or
the terms of the stock to be sold. Trident Securities expresses no opinion as to
the prices at which common stock to be issued may trade. Trident Securities and
selected dealers participating in the syndicated community offering may receive
a commission in the syndicated community offering in a maximum amount to be
agreed upon by DutchFork Bancshares and Newberry Federal to reflect market
requirements at the time of the allocation of shares in the syndicated community
offering.
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With certain limitations, DutchFork Bancshares and Newberry Federal
have also agreed to indemnify Trident Securities against liabilities and
expenses, including legal fees, incurred from certain claims or litigation
arising out of or based upon untrue statements or omissions contained in the
offering material for the common stock or with regard to allocations of shares
if there is an oversubscription, or determinations of eligibility to purchase
shares.
Description of Sales Activities
The common stock will be offered in the subscription offering and
direct community offering principally by the distribution of this prospectus and
through activities conducted at Newberry Federal's conversion center at its main
office. The conversion center is expected to operate during normal business
hours throughout the subscription offering and direct community offering. It is
expected that at any particular time one or more Trident Securities employees
will be working at the conversion center. Employees of Trident Securities will
be responsible for mailing materials relating to the offering, responding to
questions regarding the conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives
affiliated with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of Newberry Federal may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of Newberry Federal may answer questions regarding
the business of Newberry Federal when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives. The
management and employees of DutchFork Bancshares and Newberry Federal have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.
No officer, director or employee of Newberry Federal or DutchFork
Bancshares will be compensated, directly or indirectly, for any activities
related to the offer or sale of securities issued in the conversion.
None of Newberry Federal's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Newberry Federal's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule
3a4-1 promulgated under the Securities Exchange Act of 1934, as amended. Rule
3a4-1 generally provides that an "associated person of an issuer" of securities
will not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that the person not be
associated with a broker or dealer and that the person observe certain
limitations on his or her participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is defined to include any
person who is a director, officer or employee of the issuer or a company that
controls, is controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with Newberry Federal, must
be received by Newberry Federal by 12:00 Noon, Eastern time, on _________ __,
2000. DutchFork Bancshares need not accept order forms that are not received by
that time or are executed defectively or are received without full payment or
without appropriate withdrawal instructions. In addition, Newberry Federal and
DutchFork Bancshares are not obligated to accept orders submitted on photocopied
or facsimilied stock order forms and will not accept stock order forms
unaccompanied by an executed certification form. DutchFork Bancshares and
Newberry Federal have the right to waive or permit the correction of incomplete
or improperly executed order forms, but do not represent that they will do so.
Notwithstanding the foregoing, Newberry Federal and DutchFork Bancshares will
have the right, each
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in their sole discretion, to permit institutional investors to submit
irrevocable orders together with a legally binding commitment for payment and to
thereafter pay for the shares of common stock for which they subscribe in the
direct community offering at any time before 48 hours before the completion of
the conversion. Under the plan of conversion, the interpretation by DutchFork
Bancshares and Newberry Federal of the terms and conditions of the plan of
conversion and of the order form will be final. In order to purchase shares in
the direct community offering, the order form, accompanied by the required
payment for each share subscribed for, must be received by Newberry Federal
before the direct community offering terminates, which may be on or at any time
after the end of the offering. Once received, an executed order form may not be
modified, amended or rescinded without the consent of Newberry Federal unless
the conversion has not been completed within 45 days after the end of the
subscription offering, unless 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 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 being allocated to a subscribing
member.
Full payment for subscriptions may be made by check, bank draft or
money order, or by authorization of withdrawal from deposit accounts maintained
with Newberry Federal. Appropriate means by which withdrawals may be authorized
are provided on the order form. No wire transfers or third party checks will be
accepted. Interest will be paid on payments made by cash, check, bank draft or
money order at Newberry Federal's passbook rate from the date payment is
received at the conversion center 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 order form but before closing, in which case funds will earn
interest at the passbook rate from the date of maturity until the conversion is
completed or terminated, but a hold will be placed on the funds, making them
unavailable to the depositor until completion or termination of the conversion.
When the conversion is completed, the funds received in the offering will be
used to purchase the shares of common stock ordered. The shares of common stock
issued in the conversion cannot and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency. If the conversion is not
consummated for any reason, all funds submitted will be promptly refunded with
interest as described above.
If a subscriber authorizes Newberry Federal to withdraw the amount of
the purchase price from his or her deposit account, Newberry Federal will do so
as of the effective date of conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
Newberry Federal will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time funds are
actually 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 Newberry Federal's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price upon the completion
of 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 DutchFork Bancshares to lend to the employee stock ownership
plan, at that time, the aggregate purchase price of the shares for which it
subscribed.
Individual retirement accounts maintained in Newberry Federal do not
permit investment in the common stock. A depositor interested in using his or
her individual retirement account funds to purchase common stock must do so
through a self-directed individual retirement account. Since Newberry Federal
does not offer those accounts, it will allow a depositor to make a
trustee-to-trustee transfer of the individual retirement account funds to a
trustee offering a self-directed individual retirement account program with the
agreement that the funds will be used to purchase DutchFork Bancshares's common
stock in the offering. There will be no early withdrawal or Internal Revenue
Service interest penalties for transfers. The new trustee would hold the common
stock in a self-
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directed account in the same manner as Newberry Federal now holds the
depositor's individual retirement account funds. An annual administrative fee
may be payable to the new trustee. Depositors interested in using funds in an
individual retirement account at Newberry Federal to purchase common stock
should contact the conversion center as soon as possible so that the necessary
forms may be forwarded for execution and returned before the subscription
offering ends. In addition, federal laws and regulations require that officers,
directors and 10% shareholders who use self-directed individual retirement
account funds to purchase shares of common stock in the subscription offering,
make purchases for the exclusive benefit of individual retirement accounts.
Certificates representing shares of common stock purchased, and any
refund due, will be mailed to purchasers at the address specified in properly
completed order forms or to the last address of the persons appearing on the
records of Newberry Federal as soon as practicable following the sale of all
shares of common stock. Any certificates returned as undeliverable will be
disposed of as required by 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
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, no prospectus will be mailed any later than five days
before that date or hand delivered any later than two days before that date.
Execution of the order form will confirm receipt or delivery under Rule 15c2-8.
Order forms will only be distributed with a prospectus. By executing and
returning the regulatory mandated certification form, you will be certifying
that you received this prospectus and acknowledging that the common stock is not
a deposit account and is not insured or guaranteed by any federal or state
governmental agency. You will also be acknowledging that you received disclosure
concerning the risks involved in this stock offering. The certification form
could be used as support to show that you understand the nature of this
investment.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in the conversion be based upon an estimated pro forma value of
DutchFork Bancshares and Newberry Federal as converted, as determined by an
independent appraisal. Newberry Federal and DutchFork Bancshares have retained
Keller & Company, which is experienced in the evaluation and appraisal of
business entities, to prepare an appraisal of the pro forma market value of
DutchFork Bancshares and Newberry Federal as converted, as well as a business
plan. Keller & Company will receive a fee expected to total approximately
$33,000 for its appraisal services and assistance in the preparation of a
business plan, plus reasonable out-of-pocket expenses incurred in the
preparation of the appraisal and business plan. Newberry Federal has agreed to
indemnify Keller & Company under certain circumstances against liabilities and
expenses, including legal fees, arising out of, related to, or based upon the
conversion.
Keller & Company has prepared an appraisal of the estimated pro forma
market value of DutchFork Bancshares and Newberry Federal as converted taking
into account the formation of DutchFork Bancshares as the holding company for
Newberry Federal. For its analysis, Keller & Company undertook substantial
investigations to learn about Newberry Federal's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, Keller & Company reviewed
Newberry Federal's conversion application as filed with the Office of Thrift
Supervision and DutchFork Bancshares's registration statement as filed with the
Securities and Exchange Commission. Furthermore, Keller & Company visited
Newberry Federal's facilities and had discussions with Newberry Federal's
management and its special conversion legal counsel, Muldoon, Murphy & Faucette
LLP. Keller & Company did not perform a detailed individual analysis of the
separate components of DutchFork Bancshares' or Newberry Federal's assets and
liabilities.
Keller & Company'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. Keller & Company placed the
greatest emphasis on the price/earnings and price/book methods in estimating pro
forma market value. In
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applying these procedures, Keller & Company reviewed, among other factors, the
economic make-up of Newberry Federal's primary market area, Newberry Federal's
financial performance and condition in relation to publicly traded institutions
that Keller & Company deemed comparable to Newberry Federal, the specific terms
of the offering of DutchFork Bancshares's common stock, the pro forma impact of
the additional capital raised in the conversion, conditions of securities
markets in general, and the market for thrift institution common stock in
particular. Keller & Company's analysis provides an approximation of the pro
forma market value of DutchFork Bancshares and Newberry Federal as converted
based on the valuation methods applied and the assumptions outlined in its
report. Included in its report were certain assumptions as to the pro forma
earnings of DutchFork Bancshares after the conversion that were utilized in
determining the appraised value. These assumptions included estimated expenses
and an assumed after-tax rate of return on the net conversion proceeds as
described under "Pro Forma Data," purchases by the employee stock ownership plan
of an amount equal to 8% of the common stock sold in the conversion and
purchases in the open market by the stock-based incentive plan of a number of
shares equal to 4% of the common stock sold in the conversion at the $10.00
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 analysis in its report, Keller & Company has
advised DutchFork Bancshares and Newberry Federal that, in its opinion, as of
February 7, 2000, the estimated pro forma market value of DutchFork Bancshares
and Newberry Federal, as converted and, therefore, the common stock was within
the valuation range of $11,050,000 to $14,950,000 with a midpoint of
$13,000,000. After reviewing the methodology and the assumptions used by Keller
& Company in the preparation of the appraisal, the board of directors
established the estimated valuation range which is equal to the valuation range
of $11,050,000 to $14,950,000 with a midpoint of $13,000,000. Assuming that the
shares are sold at $10.00 per share in the conversion, the estimated number of
shares would be between 1,105,000 and 1,495,000 with a midpoint of 1,300,000.
The purchase price of $10.00 per share was determined by discussion among the
boards of directors of Newberry Federal and DutchFork Bancshares and Trident
Securities, taking into account, among other factors, the requirement under
Office of Thrift Supervision regulations that the common stock be offered in a
manner that will achieve the widest distribution of the stock and desired
liquidity in the common stock after the conversion. Since the outcome of the
offering relates 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
DutchFork Bancshares at this time. The estimated valuation range may be amended,
with the approval of the Office of Thrift Supervision, if necessitated by
developments following the date of the appraisal in, among other things, market
conditions, the financial condition or operating results of Newberry Federal,
regulatory guidelines or national or local economic conditions. Keller &
Company's appraisal report is filed as an exhibit to the registration statement
that DutchFork Bancshares has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, Keller & Company, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of DutchFork Bancshares and Newberry
Federal as converted, as of the close of the subscription offering.
No shares will be sold unless Keller & Company confirms that, to the
best of its 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 materially incompatible with its estimate of the total pro
forma market value of DutchFork Bancshares and Newberry Federal as converted at
the time of the sale. If, however, the facts do not justify that statement, the
offering may be canceled, a new estimated valuation range and price per share
set and new subscription, direct community and syndicated community offerings
held. Under those circumstances, subscribers would have the right to modify or
rescind their subscriptions and to have their subscription funds returned
promptly with interest and holds on funds authorized for withdrawal from deposit
accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares
issued may be more than 1,719,250 shares or less than 1,105,000 shares. If the
total amount of shares issued is less than 1,105,000 or more than 1,719,250 for
aggregate gross proceeds of less than $11,050,000 or more than $17,192,500,
subscription
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funds will be returned promptly with interest to each subscriber unless he
indicates otherwise. If Keller & Company establishes a new valuation range, it
must be approved by the Office of Thrift Supervision.
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase arrangements will be
made by the boards of directors of Newberry Federal and DutchFork Bancshares, if
possible. Other purchase arrangements must be approved by the Office of Thrift
Supervision and may provide for purchases for investment purposes by directors,
officers, their associates and other persons in excess of the limitations
provided in the plan of conversion and in excess of the proposed director
purchases discussed earlier, although no purchases are currently intended. If
other purchase arrangements cannot be made, the plan of conversion will
terminate.
In formulating its appraisal, Keller & Company relied upon the
truthfulness, accuracy and completeness of all documents Newberry Federal
furnished to it. Keller & Company also considered financial and other
information from regulatory agencies, other financial institutions, and other
public sources, as appropriate. While Keller & Company believes this information
to be reliable, Keller & Company does not guarantee the accuracy or completeness
of the information and did not independently verify the financial statements and
other data provided by Newberry Federal and DutchFork Bancshares or
independently value the assets or liabilities of DutchFork Bancshares and
Newberry Federal. The appraisal 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 must be based on many factors which change
periodically, there is no assurance that purchasers of shares in the conversion
will be able to sell shares after the conversion at prices at or above the
purchase price.
Copies of the appraisal report of Keller & Company, including any
amendments, and the detailed memorandum of the appraiser setting forth the
method and assumptions for such appraisal are available for inspection at the
main office of Newberry Federal and the other locations specified under "Where
You Can Find More Information."
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:
. No eligible subscriber, including all persons on a joint
account or similarly titled account, may purchase more than
$175,000 of common stock in the subscription offering, which
equals 17,500 shares. All persons on a joint account or
similarly titled account will be counted as a single depositor
for purposes of determining the maximum amount that may be
subscribed for by owners of a joint account;
. The ESOP may purchase, in the aggregate, up to 8% of the
shares of common stock sold in the conversion;
. No person may purchase more than $175,000 of common stock in
the direct community offering, which equals 17,500 shares;
. No person may purchase more than $175,000 of common stock in
the syndicated community offering, which equals 17,500 shares;
and
. No person, either alone or together with associates of or
persons acting in concert with such person, may purchase in
the aggregate more than the overall maximum purchase
limitation of $175,000 of common stock, which equals 17,500
shares.
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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 if the maximum purchase limitations are exceeded.
Newberry Federal's and DutchFork Bancshares's boards of directors may,
in their sole discretion, increase the maximum purchase limitation up to 9.99%
of the shares of common stock sold in the conversion, provided that orders for
shares that 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. Newberry
Federal and DutchFork Bancshares do not intend to increase the maximum purchase
limitation unless market conditions warrant an increase in the maximum purchase
limitation and the sale of 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 above, persons who subscribed for the maximum number of
shares of common stock will be, and other large subscribers in the discretion of
DutchFork Bancshares and Newberry Federal may be, given the opportunity to
increase their subscriptions accordingly, based on the rights and preferences of
any person who has priority subscription rights.
The plan of conversion defines "acting in concert" 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. DutchFork
Bancshares and Newberry Federal may presume that certain persons are acting in
concert based upon, among other things, joint account relationships and the fact
that persons may have filed joint Schedules 13D with the Securities and Exchange
Commission with respect to other companies.
The plan of conversion defines "associate," with respect to a
particular person, to mean any corporation or organization other than Newberry
Federal or a majority-owned subsidiary of Newberry Federal of which a 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 a 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 Newberry Federal or any of its parents or
subsidiaries. For example, a corporation of which a person serves as an officer
would be an associate of a person and, therefore, all shares purchased by a
corporation would be included with the number of shares that a person could
purchase individually under the purchase limitations described above.
The plan of conversion defines "officer" to mean an executive officer
of Newberry Federal, including its Chief Executive Officer, President, Executive
Vice Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary, Treasurer and Controller.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Newberry Federal and
DutchFork Bancshares and by NASD members. See "--Restrictions on Transferability
by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Under Office of Thrift Supervision regulations, savings associations
and their holding companies may not for a period of three years from the date of
an institution's mutual-to-stock conversion repurchase any of its common stock
from any person, except in an offer made to all of its stockholders to
repurchase the common stock on a pro rata basis, approved by the Office of
Thrift Supervision or the repurchase of qualifying shares of a director.
Furthermore, repurchases of any common stock are prohibited if they would cause
the association's regulatory capital to be reduced below the amount required for
the liquidation account or the regulatory capital requirements imposed by the
Office of Thrift Supervision. Repurchases are generally prohibited during the
first year following conversion. Upon ten days' written notice to the Office of
Thrift Supervision, and if the Office of
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Thrift Supervision does not object, an institution may make open market
repurchases of its outstanding common stock during years two and three following
the conversion, provided that certain regulatory conditions are met and that the
repurchase would not adversely affect the financial condition of the
institution. Any repurchases of common stock by DutchFork Bancshares must meet
these regulatory restrictions unless the Office of Thrift Supervision would
provide otherwise.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased by directors and officers of DutchFork
Bancshares may not be sold for a period of one year following the conversion,
except upon the death of the stockholder or unless approved by the Office of
Thrift Supervision. Any stock purchased after the conversion is free of this
restriction. Accordingly, shares of common stock issued by DutchFork Bancshares
to directors and officers will bear a legend giving appropriate notice of the
restriction and, in addition, DutchFork Bancshares will give appropriate
instructions to the transfer agent for DutchFork Bancshares's common stock with
respect to the restriction on transfers. Any shares issued to directors and
officers as a stock dividend, stock split or otherwise with respect to
restricted common stock will also be restricted.
Purchases of outstanding shares of common stock of DutchFork Bancshares
by directors, officers, or any person who was an executive officer or director
of Newberry Federal after adoption of the plan of conversion, and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the Securities and Exchange
Commission, except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to negotiated
transactions involving more than 1% of DutchFork Bancshares's outstanding common
stock or to the purchase of stock under the stock-based incentive plan.
DutchFork Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued in the conversion. This
registration does not cover the resale of the shares. Shares of common stock
purchased by persons who are not affiliates of DutchFork Bancshares may be
resold without registration. Shares purchased by an affiliate of DutchFork
Bancshares will have resale restrictions under Rule 144 of the Securities Act.
If DutchFork Bancshares meets the current public information requirements of
Rule 144, each affiliate of DutchFork Bancshares who complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of certain other persons, would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares of DutchFork
Bancshares or the average weekly volume of trading in the shares during the
preceding four calendar weeks. Provision may be made in the future by DutchFork
Bancshares to permit affiliates to have their shares registered for sale under
the Securities Act under certain circumstances.
Under guidelines of the National Association of Securities Dealers,
Inc., members of that organization and their associates face certain
restrictions on the transfer of securities purchased with subscription rights
and to certain reporting requirements upon purchase of the securities.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the plan of
conversion by Newberry Federal will be final; however, such interpretations have
no binding effect on the Office of Thrift Supervision or the Federal Deposit
Insurance Corporation. The plan of conversion provides that, if deemed necessary
or desirable by the board of directors, the plan of conversion may be
substantively amended by the board of directors as a result of comments from
regulatory authorities or otherwise, without the further approval of Newberry
Federal's members.
Completion of the conversion requires the sale of all shares of the
common stock within 24 months following approval of the plan of conversion by
Newberry Federal's board of directors. If this condition is not
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satisfied, the plan of conversion will be terminated and Newberry Federal will
continue its business in the mutual form of organization. The plan of conversion
may be terminated by the board of directors at any time.
RESTRICTIONS ON ACQUISITION OF
DUTCHFORK BANCSHARES AND NEWBERRY FEDERAL
General
Newberry Federal's plan of conversion provides for the conversion of
Newberry Federal from the mutual to the stock form of organization and, as part
of the conversion, the adoption of a new federal stock charter and bylaws by
Newberry Federal's members. The plan of conversion also provides for the
concurrent formation of a holding company. See "The Conversion--General." As
described below and elsewhere in this document, certain provisions in DutchFork
Bancshares' certificate of incorporation and bylaws and in its management
remuneration provided for in the conversion, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, Newberry
Federal's federal stock charter and bylaws may also have "anti-takeover"
effects. Finally, regulatory restrictions may make it difficult for persons or
companies to acquire control of either DutchFork Bancshares or Newberry Federal.
Restrictions in DutchFork Bancshares' Certificate of Incorporation and Bylaws
DutchFork Bancshares' certificate of incorporation and bylaws contain
provisions that could make more difficult an acquisition of DutchFork Bancshares
by means of a tender offer, proxy context or otherwise. Some provisions will
also render the removal of the incumbent board of directors or management of
DutchFork Bancshares more difficult. These provisions may have the effect of
deterring a future takeover attempt that is not approved by the DutchFork
Bancshares Board, but which DutchFork Bancshares shareholders may deem to be in
their best interests or in which shareholders may receive a substantial premium
for their shares over then current market prices. As a result, shareholders who
might desire to participate in such a transaction may not have the opportunity
to do so. The following description of these provisions is only a summary and
does not provide all of the information contained in DutchFork Bancshares'
certificate of incorporation and bylaws. See "Where You Can Find More
Information" as to where to obtain a copy of these documents.
Business Combinations with Related Persons. The certificate of
incorporation requires the approval of the holders of at least 80% of DutchFork
Bancshares' outstanding shares of voting stock to approve certain "business
combinations" involving a "related person" except in cases where the proposed
transaction has been approved in advance by a majority of those members of
DutchFork Bancshares' board of directors who are unaffiliated with the related
person and were directors before the time when the related person became a
related person.
The term "related person" includes any individual that owns
beneficially or controls, directly or indirectly, 10% or more of the outstanding
shares of voting stock of DutchFork Bancshares or an affiliate of such person or
entity.
A "business combination" includes:
. any merger or consolidation of DutchFork Bancshares with or
into any related person;
. any sale, lease, exchange, mortgage, transfer, or other
disposition of 25% or more of the assets of DutchFork
Bancshares or combined assets of DutchFork Bancshares and
its subsidiaries to a related person;
. any merger or consolidation of a related person with or into
DutchFork Bancshares or a subsidiary of DutchFork
Bancshares;
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. any sale, lease, exchange, transfer, or other disposition of
25% or more of the assets of a related person to DutchFork
Bancshares or a subsidiary of DutchFork Bancshares;
. the issuance of any securities of DutchFork Bancshares or a
subsidiary of DutchFork Bancshares to a related person;
. the acquisition by DutchFork Bancshares or a subsidiary of
DutchFork Bancshares of any securities of a related person;
. any reclassification of common stock of DutchFork Bancshares
or any recapitalization involving the common stock of
DutchFork Bancshares; or
. any agreement or other arrangement providing for any of the
foregoing.
Limitation on Voting Rights. The certificate of incorporation of
DutchFork Bancshares provides that no record owner of any outstanding DutchFork
Bancshares common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of DutchFork Bancshares common stock will be entitled or permitted to any vote
in respect of the shares held in excess of the 10% limit. Beneficial ownership
is determined pursuant to the federal securities laws and includes shares
beneficially owned by such person or any of his or her affiliates (as defined in
the articles of incorporation), shares which such person or his or her
affiliates have the right to acquire upon the exercise of conversion rights or
options and shares as to which such person and his or her affiliates have or
share investment or voting power, but does not include shares beneficially owned
by directors, officers and employees of Newberry Federal or DutchFork Bancshares
or shares that are subject to a revocable proxy and that are not otherwise
beneficially, or deemed by DutchFork Bancshares to be beneficially, owned by
such person and his or her affiliates.
Evaluation of Offers. The Certificate of Incorporation of DutchFork
Bancshares further provides that the board of directors of DutchFork Bancshares,
when evaluating an offer, to (1) make a tender or exchange offer for any equity
security of DutchFork Bancshares, (2) merge or consolidate DutchFork Bancshares
with another corporation or entity or (3) purchase or otherwise acquire all or
substantially all of the properties and assets of DutchFork Bancshares, may, as
part of the exercise of its judgment in determining what is in the best interest
of DutchFork Bancshares and the stockholders of DutchFork Bancshares, give
consideration to those factors that directors of any subsidiary (including
Newberry Federal) may consider in evaluating any action that may result in a
change or potential change of control of such subsidiary, and the social and
economic effects of acceptance of such offer on: DutchFork Bancshares' present
and future customers and employees and those of its subsidiaries (including
Newberry Federal); the communities in which DutchFork Bancshares and Newberry
Federal operate or are located; the ability of DutchFork Bancshares to fulfill
its corporate objectives as a savings and loan holding company; and the ability
of Newberry Federal to fulfill the objectives of a stock savings bank under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of DutchFork Bancshares, the board of directors may
be in a stronger position to oppose such a transaction if the Board concludes
that the transaction would not be in the best interest of DutchFork Bancshares,
even if the price offered is significantly greater than the then market price of
any equity security of DutchFork Bancshares.
Board of Directors
Classified Board. The board of directors of DutchFork Bancshares is
divided into three classes, each of which contains approximately one-third of
the number of directors. The shareholders elect one class of directors each year
for a term of three years. The classified Board makes it more difficult and time
consuming for a shareholder group to fully use its voting power to gain control
of the board of directors without the consent of the incumbent board of
directors of DutchFork Bancshares.
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Filling of Vacancies; Removal. The certificate of incorporation
provides that any vacancy occurring in the DutchFork Bancshares Board, including
a vacancy created by an increase in the number of directors, may be filled by a
vote of a majority of the directors then in office. The certificate of
incorporation of DutchFork Bancshares provides that a director may be removed
from the board of directors before the expiration of his or her term only for
cause and only upon the vote of 80% of the outstanding shares of voting stock.
These provisions make it more difficult for shareholders to remove directors and
replace them with their own nominees.
Qualifications. The Bylaws of DutchFork Bancshares disqualify from
election, reelection, appointment or reappointment to the board of directors any
person who resides outside a 50 mile radius of Newberry, South Carolina. This
provision prevents non-local shareholders from nominating themselves for
election to the Board. In addition, the Bylaws of DutchFork Bancshares
disqualify from election or appointment any person who, among other offenses,
has been convicted of, or is currently charged in any complaint with
participation in, a crime involving dishonesty or breach of trust that is
punishable by imprisonment for a term exceeding one-year under state or federal
law.
Shareholder Action by Written Consent; Special Meetings of
Shareholders. Stockholders of DutchFork Bancshares must act only through an
annual or special meeting. Stockholders cannot act by written consent in lieu of
a meeting. The certificate of incorporation provides that only the Chairman or a
majority of the board of directors of DutchFork Bancshares may call special
meetings of the shareholders of DutchFork Bancshares. Shareholders are not able
to call a special meeting or require that the Board do so. At a special meeting,
shareholders may consider only the business specified in the notice of meeting
given by DutchFork Bancshares. The provisions of DutchFork Bancshares' articles
of incorporation prohibiting stockholder action by written consent may have the
effect of delaying consideration of a shareholder proposal until the next annual
meeting, unless a special meeting is called by the Chairman or at the request of
a majority of the board of directors. These provisions also would also prevent
the holders of a majority of common stock from unilaterally using the written
consent procedure to take shareholder action. Moreover, a shareholder could not
force shareholder consideration of a proposal between annual meetings over the
opposition of the Chairman and the DutchFork Bancshares Board by calling a
special meeting of shareholders.
Advance Notice Provisions for Shareholder Nominations and Proposals.
The DutchFork Bancshares bylaws establish an advance notice procedure for
shareholders to nominate directors or bring other business before an annual
meeting of shareholders of DutchFork Bancshares. A person may not be nominated
for election as a director unless that person is nominated by or at the
direction of the DutchFork Bancshares Board or by a shareholder who has given
appropriate notice to DutchFork Bancshares before the meeting. Similarly, a
shareholder may not bring business before an annual meeting unless the
shareholder has given DutchFork Bancshares appropriate notice of its intention
to bring that business before the meeting. DutchFork Bancshares' Secretary must
receive notice of the nomination or proposal not less than 90 days nor more than
120 days before the annual meeting. A shareholder who desires to raise new
business must provide certain information to DutchFork Bancshares concerning the
nature of the new business, the shareholder and the shareholder's interest in
the business matter. Similarly, a shareholder wishing to nominate any person for
election as a director must provide DutchFork Bancshares with certain
information concerning the nominee and the proposing shareholder.
Advance notice of nominations or proposed business by shareholders
gives the DutchFork Bancshares Board time to consider the qualifications of the
proposed nominees, the merits of the proposals and, to the extent deemed
necessary or desirable by the DutchFork Bancshares Board, to inform shareholders
and make recommendations about those matters.
Preferred Stock. The Certificate of Incorporation authorize the
DutchFork Bancshares Board to establish one or more series of preferred stock
and, for any series of preferred stock, to determine the terms and rights of the
series, including voting rights, conversion rates, and liquidation preferences.
Although the DutchFork Bancshares Board has no intention at the present time of
doing so, it could issue a series of preferred stock that could, depending on
its terms, impede a merger, tender offer or other takeover attempt. The
DutchFork Bancshares
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Board will make any determination to issue shares with those terms based on its
judgment as to the best interests of DutchFork Bancshares and its shareholders.
Amendment of Certificate of Incorporation. DutchFork Bancshares'
Certificate of Incorporation require the affirmative vote of 80% of the
outstanding voting stock entitled to vote to amend or repeal certain provisions
of the articles of incorporation, including the provision limiting voting
rights, the provisions relating to approval of business combinations with
related persons, calling special meetings, the number and classification of
directors, director and officer indemnification by DutchFork Bancshares and
amendment of DutchFork Bancshares' bylaws and articles of incorporation. These
supermajority voting requirements make it more difficult for the shareholders to
amend these provisions of the DutchFork Bancshares articles of incorporation.
Anti-Takeover Effects of DutchFork Bancshares' Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce DutchFork
Bancshares' vulnerability to takeover attempts and other transactions which have
not been negotiated with and approved by members of its board of directors.
Provisions of the Stock-Based Incentive Plan provide for accelerated benefits to
participants if a change in control of DutchFork Bancshares or Newberry Federal
occurs or a tender or exchange offer for their stock is made. See "Management of
Newberry Federal--Benefits--Stock-Based Incentive Plan." DutchFork Bancshares
and Newberry Federal have also entered into agreements with key officers and
intends to establish the Severance Compensation Plan which will provide such
officers and eligible employees with additional payments and benefits on the
officer's termination associated with a change in control of DutchFork
Bancshares or Newberry Federal. See "Management of Newberry Federal--Executive
Compensation--Employment Agreements," and "Benefits--Employee Severance
Compensation Plan." The foregoing provisions and limitations may make it more
difficult for companies or persons to acquire control of DutchFork Bancshares.
Additionally, the provisions could deter offers to acquire the outstanding
shares of DutchFork Bancshares which might be viewed by stockholders to be in
their best interests.
DutchFork Bancshares' board of directors believes that the provisions
of the certificate of incorporation and bylaws are in the best interest of
DutchFork Bancshares and its stockholders. 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 DutchFork Bancshares and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The Delaware
takeover statute is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, the statute provides that a "Person" who owns 15% or more
of the outstanding voting stock of a Delaware corporation (an Interested
Stockholder) may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such "Person" became an Interested Stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
the statute: (1) any business combination if, before the date a person became an
Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (2) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, excluding, for purposes of
determining the number of
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shares outstanding, shares owned by the corporation's directors who are also
officers and specific employee stock plans; (3) any business combination with an
Interested Stockholder that is approved by the board of directors and by a two-
thirds vote of the outstanding voting stock not owned by the Interested
Stockholder; and (4) certain business combinations that are proposed after the
corporation had received other acquisition proposals and which are approved or
not opposed by a majority of certain continuing members of the board of
directors. A corporation may exempt itself from the requirements of the statute
by adopting an amendment to its certificate of incorporation or bylaws electing
not to be governed by Section 203. At the present time, the board of directors
does not intend to propose any such amendment.
Restrictions in Newberry Federal's Federal Stock Charter and Bylaws
Although the board of directors of Newberry Federal is not aware of any
effort that might be made to obtain control of Newberry Federal after the
conversion, the board of directors believes that it is appropriate to adopt
provisions permitted by federal regulation to protect the interests of the
converted bank and its stockholders from any hostile takeover. These provisions
may, indirectly, inhibit a change in control of DutchFork Bancshares, as
Newberry Federal's sole stockholder. See "Risk Factors--Anti-takeover provisions
and statutory provisions could make takeover attempts more difficult to
achieve."
Newberry Federal's federal stock charter will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of Newberry Federal by
any person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate, will be prohibited for a period of three years following
the date of completion of the conversion without the prior written approval of
the Office of Thrift Supervision. If shares are acquired in violation of this
provision of Newberry Federal's federal stock charter, all shares beneficially
owned by any person in excess of 10% shall be considered "excess shares" and
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares with respect to any matters submitted to the
stockholders for a vote. This limitation shall not apply to any transaction in
which Newberry Federal forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than by the
exercise of any dissenter or appraisal rights. If holders of revocable proxies
for more than 10% of the shares of the common stock of DutchFork Bancshares
seek, among other things, to elect one-third or more of DutchFork Bancshares'
board of directors, to cause DutchFork Bancshares' stockholders to approve the
acquisition or corporate reorganization of DutchFork Bancshares or to exert a
continuing influence on a material aspect of the business operations of
DutchFork Bancshares, which actions could indirectly result in a change in
control of Newberry Federal, the board of directors of Newberry Federal will be
able to assert this provision of Newberry Federal's federal stock charter
against such holders. Although the board of directors of Newberry Federal is not
currently able to determine when and if it would assert this provision of
Newberry Federal's federal stock charter, the Board, in exercising its fiduciary
duty, may assert this provision if it were deemed to be in the best interests of
Newberry Federal, DutchFork Bancshares and its stockholders. It is unclear,
however, whether this provision, if asserted, would be successful against such
persons in a proxy contest which could result in a change in control of Newberry
Federal indirectly through a change in control of DutchFork Bancshares.
In addition, stockholders will not be permitted to cumulate their votes
in the election of Directors. Furthermore, Newberry Federal's Bylaws provide for
the election of three classes of directors to staggered terms.
Finally, the federal stock charter provides for the issuance of shares
of preferred stock on terms, including conversion and voting rights, as may be
determined by Newberry Federal's board of directors without stockholder
approval. Although Newberry Federal has no arrangements, understandings or plans
at the present time for the issuance or use of the shares of undesignated
preferred stock proposed to be authorized, the Board believes that the
availability of such shares will provide Newberry Federal with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs that may arise. If a proposed merger, tender offer
or other attempt to gain control of Newberry Federal occurs of which management
does not approve, the Board can authorize the issuance of one or more series of
preferred stock with rights and preferences which could
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impede the completion of such a transaction. An effect of the possible issuance
of such preferred stock, therefore, may be to deter a future takeover attempt.
The Board does not intend to issue any preferred stock except on terms which the
Board deems to be in the best interest of Newberry Federal and its then existing
stockholders.
Regulatory Restrictions
Office of Thrift Supervision Conversion Regulations. Regulations issued
by the Office of Thrift Supervision provide that for a period of three years
following the date of the completion of the conversion, no person, acting singly
or together with associates in a group of persons acting in concert, shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than ten percent (10%) of any class of any equity security of DutchFork
Bancshares without the prior written approval of the Office of Thrift
Supervision. Where any person, directly or indirectly, acquires beneficial
ownership of more than ten percent (10%) of any class of any equity security of
DutchFork Bancshares without the prior written approval of the Office of Thrift
Supervision, the securities beneficially owned by such person in excess of ten
percent (10%) shall not be voted by any person or counted as voting shares with
respect to any matter submitted to the stockholders for a vote, and shall not be
counted as outstanding for purposes of determining the affirmative vote
necessary to approve any matter submitted to the stockholders for a vote.
Change in Bank Control Act. The acquisition of ten percent (10%) or
more of the common stock outstanding may trigger the provisions of the Change in
Bank Control Act. The Office of Thrift Supervision has also adopted a regulation
under the Change in Bank Control Act which generally requires persons who at any
time intend to acquire control of a federally chartered savings association,
including a converted savings bank such as Newberry Federal or a savings and
loan holding company, such as DutchFork Bancshares, to provide 60 days prior
written notice and certain financial and other information to the Office of
Thrift Supervision.
The 60-day notice period does not commence until the information is
deemed to be substantially complete. Control for the purpose of this Act exists
in situations in which the acquiring party has voting control of at least
twenty-five percent (25%) of any class of DutchFork Bancshares' voting stock or
the power to direct the management or policies of DutchFork Bancshares. However,
under Office of Thrift Supervision regulations, control is presumed to exist
where the acquiring party has voting control of at least ten percent (10%) of
any class of DutchFork Bancshares' voting securities if specified "control
factors" are present. The statute and underlying regulations authorize the
Office of Thrift Supervision to disapprove a proposed acquisition on certain
specified grounds.
DESCRIPTION OF DUTCHFORK BANCSHARES STOCK
General
DutchFork Bancshares is authorized to issue 4,000,000 shares of common
stock having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share. DutchFork Bancshares will not issue any
shares of preferred stock in the conversion. Each share of DutchFork Bancshares'
common stock will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. Upon payment of the purchase
price for the common stock, as required by the plan of conversion, all stock
will be duly authorized, fully paid and nonassessable.
The common stock of DutchFork Bancshares will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency.
100
<PAGE>
Common Stock
Dividends. DutchFork Bancshares 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 DutchFork Bancshares is limited by law
and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of common stock of DutchFork Bancshares will be
entitled to receive and share equally in dividends as may be declared by the
board of directors of DutchFork Bancshares out of funds legally available for
dividends. If DutchFork Bancshares issues preferred stock, the holders of the
preferred stock may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. After the conversion, the holders of common stock of
DutchFork Bancshares will possess exclusive voting rights in DutchFork
Bancshares. They will elect DutchFork Bancshares' board of directors and act on
other matters as are required to be presented to them under Delaware law or as
are otherwise presented to them by the board of directors. Except as discussed
in "Restrictions on Acquisition of DutchFork Bancshares and Newberry Federal,"
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 DutchFork
Bancshares issues preferred stock, holders of DutchFork Bancshares preferred
stock may also possess voting rights. Certain matters require a vote of 80% of
the outstanding shares entitled to vote. See "Restrictions on Acquisition of
DutchFork Bancshares and Newberry Federal."
As a federal mutual savings bank, corporate powers and control of
Newberry Federal are currently vested in (1) its members who elect Newberry
Federal's directors, and (2) its board of directors, who elect the officers of
Newberry Federal and who fill any vacancies on the board of directors. After the
conversion, voting rights will be vested exclusively in DutchFork Bancshares,
which will own all of the outstanding capital stock of Newberry Federal, and
will be voted at the direction of DutchFork Bancshares' board of directors.
Consequently, the holders of the common stock of DutchFork Bancshares will not
have direct control of Newberry Federal.
Liquidation. If there is any liquidation, dissolution or winding up of
Newberry Federal, DutchFork Bancshares, as the holder of Newberry Federal's
capital stock, would be entitled to receive all of Newberry Federal's assets
available for distribution after payment or provision for payment of all debts
and liabilities of Newberry Federal, including all deposit accounts and accrued
interest, and after distribution of the balance in the special liquidation
account to eligible account holders and supplemental eligible account holders.
Upon liquidation, dissolution or winding up of DutchFork Bancshares, the holders
of its common stock would be entitled to receive all of the assets of DutchFork
Bancshares available for distribution after payment or provision for payment of
all its debts and liabilities. If DutchFork Bancshares issues preferred stock,
the preferred stock holders may have a priority over the holders of the common
stock upon liquidation or dissolution.
Indemnification and Limit on Liability. DutchFork Bancshares'
Certificate of Incorporation contains provisions that limit the liability of and
indemnity of its directors, officers and employees. Such provisions provide that
each person who was or is made a party or is threatened to be made a party to or
is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or officer of DutchFork Bancshares shall be indemnified and
held harmless by DutchFork Bancshares to the fullest extent authorized by the
Delaware General Corporation Law against all expense, liability and loss
reasonably incurred. Under certain circumstances, the right to indemnification
shall include the right to be paid by DutchFork Bancshares the expenses incurred
in defending any such proceeding in advance of its final disposition. In
addition, a director of DutchFork Bancshares shall not be personally liable to
DutchFork Bancshares or its stockholders for monetary damages except for
liability for any breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of the
law, under Section 174 of the Delaware General Corporation Law, or for any
transaction from which the director derived an improper personal benefit.
Preemptive Rights; Redemption. Holders of the common stock of DutchFork
Bancshares will not be entitled to preemptive rights with respect to any shares
that may be issued. The common stock cannot be redeemed.
101
<PAGE>
Preferred Stock
DutchFork Bancshares will not issue any preferred stock in the
conversion and it has no current plans to issue any preferred stock after the
conversion. Preferred stock may be issued with 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 DutchFork Bancshares are restricted by provisions in
its Certificate of Incorporation and Bylaws and by rules and regulations of
various regulatory agencies. See "Regulation and Supervision" and "Restrictions
on Acquisition of DutchFork Bancshares and Newberry Federal."
DESCRIPTION OF NEWBERRY FEDERAL STOCK
General
The Federal Stock Charter of Newberry Federal, to be effective upon
the conversion, authorizes the issuance of stock consisting of 10,000 shares of
common stock, par value $1.00 per share, and 1,000 shares of preferred stock,
par value $1.00 per share, which preferred stock may be issued in series and
classes having such rights, preferences, privileges and restrictions as the
board of directors may determine. Each share of common stock of Newberry Federal
will have the same relative rights as, and will be identical in all respects
with, each other share of common stock. After the conversion, the board of
directors will be authorized to approve the issuance of common stock up to the
amount authorized by the stock Certificate of Incorporation without the approval
of Newberry Federal's stockholders. Assuming that the holding company form of
organization is utilized, all of the issued and outstanding common stock of
Newberry Federal will be held by DutchFork Bancshares. Newberry Federal stock
will represent non-withdrawable capital, will not be an account of an insurable
type and will not be insured by the Federal Deposit Insurance Corporation.
Common Stock
Dividends. The holders of Newberry Federal's common stock will be
entitled to receive and to share equally in such dividends as may be declared by
the board of directors of Newberry Federal out of its legally available funds.
See "Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation of Income--Federal Income Taxation" for a discussion
of the consequences of the payment of cash dividends from income appropriated to
bad debt reserves.
Voting Rights. Immediately after the conversion, the holders of
Newberry Federal's common stock will possess exclusive voting rights in Newberry
Federal. Each holder of shares of common stock will be entitled to one vote for
each share held. Shareholders shall not be entitled to cumulate their votes for
the election of directors. See "Restrictions on Acquisition of DutchFork
Bancshares and Newberry Federal--Anti-Takeover Effects of DutchFork Bancshares'
Certificate of Incorporation and Bylaws and Management Remuneration Adopted in
Conversion."
Liquidation. If there is a liquidation, dissolution, or winding up of
Newberry Federal, the holders of common stock will be entitled to receive, after
payment of all Newberry Federal's debts and liabilities, including all deposit
accounts and accrued interest on deposit accounts, and distribution of the
balance in the special liquidation account to eligible account holders and
supplemental eligible account holders, all assets of Newberry Federal available
for distribution in cash or in kind. If additional preferred stock is issued
after the conversion, the holders thereof may also have priority over the
holders of common stock if there is a liquidation or dissolution.
102
<PAGE>
Preemptive Rights; Redemption. Holders of Newberry Federal's common
stock will not be entitled to preemptive rights with respect to any shares of
Newberry Federal which may be issued. Upon receipt by Newberry Federal of the
full specified purchase price therefor, the common stock will be fully paid and
non-assessable.
REGISTRATION REQUIREMENTS
DutchFork Bancshares has registered the common stock with the
Securities and Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934 and will not deregister its common stock for a period of at
least three years following the conversion. As a result of registration, the
proxy and tender offer rules, insider trading reporting and restrictions, annual
and periodic reporting and other requirements of that statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for DutchFork
Bancshares by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon, Murphy &
Faucette LLP and the South Carolina tax consequences of the conversion have been
opined upon by Clifton D. Bodiford, CPA, Columbia, South Carolina. Muldoon,
Murphy & Faucette LLP and Clifton D. Bodiford have consented to the references
to their opinions in this prospectus. Certain legal matters will be passed upon
for Trident Securities by Elias, Matz, Tiernan & Herrick, L.L.P.,
Washington, D.C.
EXPERTS
The consolidated financial statements of Newberry Federal as of
September 30, 1999 and 1998, and for each of the years in the two-year period
ended September 30, 1999, are included in this prospectus in reliance upon the
report of Clifton D. Bodiford, CPA, Columbia, South Carolina, included elsewhere
in this prospectus and upon the authority of said firm as experts in accounting
and auditing.
Keller & Company has consented to the summary in this prospectus of
its report to Newberry Federal setting forth its opinion as to the estimated pro
forma market value of DutchFork Bancshares and Newberry Federal, as converted,
and its letter with respect to subscription rights, and to the use of its name
and statements with respect to it appearing in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
DutchFork Bancshares has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-_____) under the
Securities Act of 1933, as amended, with respect to the common stock offered in
the conversion. This prospectus does not contain all the information contained
in the registration statement, certain parts of which are omitted as permitted
by the rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, South Carolina 60661; and 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies may be obtained at prescribed rates from the
Public Reference Room of the Securities and Exchange Commission at 450 Fifth
Street, NW, Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The registration statement also is available
through the Securities and Exchange Commission's World Wide Web site on the
Internet at http://www.sec.gov.
Newberry Federal has filed an application for approval of conversion
with the Office of Thrift Supervision. This prospectus omits certain information
contained in that application. The conversion application
103
<PAGE>
may be examined at the Office of Thrift Supervision, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the offices of the Regional Director of the Office
of Thrift Supervision at the Southeast Regional Office of the Office of Thrift
Supervision, 1475 Peachtree Street, N.E., Atlanta, Georgia 30309.
DutchFork Bancshares has filed with the Office of Thrift Supervision
an application to form a holding company. This prospectus omits certain
information contained in that application. The application may be inspected,
without charge, at the offices of the Office of Thrift Supervision, 1700 G
Street, N.W., Washington, D.C. 20552 and at the offices of the Regional Director
of the Office of Thrift Supervision at the Southeast Regional Office of the
Office of Thrift Supervision, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30309.
A copy of the plan of conversion, DutchFork Bancshares' Certificate of
Incorporation and Bylaws and Newberry Federal's Federal Stock Charter and Bylaws
are available without charge from Newberry Federal.
104
<PAGE>
Index to Consolidated Financial Statements
Newberry Federal Savings Bank and Subsidiary
Report of Independent Auditor.......................................... F-2
Consolidated Balance Sheets as of December 31, 1999 (unaudited)
and September 30, 1999 and 1998........................................ F-3
Consolidated Statements of Income for the Three Months Ended
December 31, 1999 and 1998 (unaudited) and for the Years Ended
September 30, 1999 and 1998............................................ 25
Consolidated Statements of Comprehensive Income for the Three
Months Ended December 31, 1999 and 1998 (unaudited) and for the
Years Ended September 30, 1999 and 1998................................ F-4
Consolidated Statements of Retained Earnings for the Three Months
Ended December 31, 1999 (unaudited) and for the Years Ended
September 30, 1999 and 1998............................................ F-5
Consolidated Statements of Cash Flow for the Three Months Ended
December 31, 1999 and 1998 (unaudited) and for the Years Ended
September 30, 1999 and 1998............................................ F-6
Notes to Consolidated Financial Statements............................. F-7
***
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for DutchFork Bancshares have not been
included in this prospectus because DutchFork Bancshares, which has engaged only
in organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses.
F-1
<PAGE>
[LETTERHEAD OF CLIFTON D. BODIFORD]
Report of Independent Auditor
The Board of Directors
Newberry Federal Savings Bank and Subsidiary
Newberry, South Carolina
I have audited the accompanying consolidated balance sheets of Newberry Federal
Savings Bank and Subsidiary as of September 30, 1999 and 1998, and the related
consolidated statements of income, comprehensive operations, retained earnings,
and cash flows for the years then ended. These financial statements are the
responsibility of the Bank's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted the audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Newberry Federal
Savings Bank and Subsidiary at September 30, 1999 and 1998 and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Columbia, South Carolina /s/ Clifton D. Bodiford
November 2, 1999 ---------------------------
Clifton D. Bodiford
Certified Public Accountant
F-2
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
------------ ------------- ------------
Assets (unaudited)
<S> <C> <C> <C>
Cash and cash equivalents (Notes 1, 2
and 12) $ 6,123,328 $ 3,256,053 $ 4,963,719
Investments and mortgage-backed securities
(Notes 1, 3, 7 and 12):
Available for sale:
Investments (cost of $24,577,854 and
$6,631,375 at September 30, 1999
and 1998 respectively and
$25,064,700 at December 31, 1999) 22,000,851 22,067,828 6,542,262
Mortgage-backed securities (cost of
$100,578,925 and $86,297,233 at
September 30, 1999 and 1998
respectively and $114,440,228
at December 31, 1999) 109,887,856 96,884,504 85,152,382
Held for investment:
Investments (fair value of
$1,141,000 and $1,346,700 at
September 30, 1999 and 1998
respectively and $1,141,000 at
December 31, 1999) 1,141,000 1,141,000 1,346,045
Mortgage-backed securities (fair
value of $4,339,769 and $6,833,377
at September 30, 1999 and 1998
respectively and $4,366,219 at
December 31, 1999) 4,332,492 4,465,704 6,818,659
Loans receivable (Notes 1, 4, 7, 10, and 12):
Held for investment 74,788,258 75,324,278 71,249,049
Repossessed assets 22,195 14,271 18,757
Premises, furniture and equipment, net (Notes
1 and 5) 3,622,623 3,656,352 3,743,885
Accrued interest receivable:
Loans and mortgage-backed securities
(Note 1) 470,146 489,453 524,766
Investments and other property 814,711 778,828 524,954
Prepaid assets 159,684 255,218 238,933
Prepaid income tax and tax refunds
receivable 1,706,024 1,440,936 60,567
Deferred tax asset (Notes 1 and 9) 530,050 461,406 525,496
Other 1,000,632 914,991 1,065,571
------------ ------------ ------------
Total assets $226,599,850 $211,150,822 $182,775,045
============ ============ ============
</TABLE>
F-3
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
------------- ------------ -------------
(unaudited)
<S> <C> <C> <C>
Liabilities and retained earnings
Liabilities:
Deposit accounts (Note 6, 12 and
15) $148,436,718 $137,537,411 $141,702,366
Federal Home Loan Bank advances
(Notes 7 and 12) 35,740,000 39,240,000 20,600,000
Other borrowings 5,325,000 7,370,000
Advances from borrowers for taxes
and insurance (Note 4) 17,004 59,983 84,930
Accrued income taxes 279,479
Accounts payable - securities 14,899,672 4,141,787
Accounts payable 39,479 50,713 107,057
Accrued expenses 690,657 698,873 577,305
Accrued interest payable 465,458 523,227 397,695
Other 4,857,680 4,828,024 255,065
------------ ------------ ------------
Total liabilities 210,471,668 194,450,018 164,003,897
------------ ------------ ------------
Commitments (Note 10)
Retained earnings, substantially restricted
(Notes 9 and 11) 20,849,689 20,551,275 19,536,945
Net unrealized depreciation on investments
and mortgage backed securities
available for sale (Notes 1 and 3) (4,721,507) (3,850,471) (765,797)
------------ ------------ ------------
16,128,182 16,700,804 18,771,148
------------ ------------ ------------
Total liabilities and retained earnings $226,599,850 $211,150,822 $182,775,045
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Consolidated Statements of Comprehensive Operations
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
1999 1998 1999 1998
---------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 298,414 $ 232,403 $ 1,014,330 $ 1,251,456
Other Comprehensive income (loss),
net of tax:
Unrealized gains (losses) arising
during the period, net of tax effect
of $(1,885,797) and $57,713 for
the years ended September 30, 1999
and 1998, respectively, and $(532,502)
and $141,540 for the three months
ending December 31, 1999 and 1998,
respectively (871,036) (231,523) (3,084,674) 94,415
---------- ---------- ----------- -----------
Comprehensive income (loss) $ (572,622) $ 880 $(2,070,344) $ 1,345,871
========== ========== =========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Consolidated Statements of Retained Earnings
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income Total
------------ ----------- -----------
<S> <C> <C> <C>
Balance at September 30, 1997 $ 18,285,489 $ (860,212) $17,425,277
Net income 1,251,456 1,251,456
Change in net unrealized depreciation
on investments available for sale
(net of deferred and current income
taxes of $57,713) 94,415 94,415
------------ ----------- -----------
Balance at September 30, 1998 19,536,945 (765,797) 18,771,148
Net income 1,014,330 1,014,330
Change in net unrealized depreciation
on investments available for sale
(net of deferred and current income
tax benefit of $(1,885,797)) (3,084,674) (3,084,674)
------------ ----------- -----------
Balance at September 30, 1999 20,551,275 (3,850,471) 16,700,804
Net income (unaudited) 298,414 298,414
Change in net unrealized depreciation
on investments available for sale
(net of deferred and current income
tax benefit of $(532,502))(unaudited) (871,036) (871,036)
------------ ----------- -----------
Balance at December 31, 1999 (unaudited) $ 20,849,689 $(4,721,507) $16,128,182
============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year ended September 30,
1999 1998 1999 1998
------------------------- ----------------------------
Operating Activities (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 298,414 $ 232,403 $ 1,014,330 $ 1,251,456
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 59,450 60,156 234,918 207,022
Provision for losses 160,000 10,000 142,000 85,000
(Gain) loss on sales of investments and mortgage-
backed securities - (10,366) (194,166) (605,752)
Net (gain)loss on sales on loans - - - (19,865)
Net (gain) loss on sales of foreclosed real estate - - 9,861 -
Increase (decrease) in deferred loan origination fees (1,082) (448) (4,747) (5,597)
Amortization of premiums (discounts) on investments,
mortgage-backed securities and loans (300,952) (431,140) (466,154) (765,900)
Decrease (increase) in accrued interest receivable and
other assets 316,297 (364,138) 485,187 (588,697)
Decrease (increase) in prepaid assets 95,534 69,904 (16,285) (152,580)
Decrease (increase) in deferred tax asset (71,194) (12,510) 16,350 (44,141)
Increase (decrease) in accrued interest payable (57,769) (117,311) 125,532 (143,442)
Increase (decrease) in accounts payable and accrued
expenses 10,598,636 (552,657) 3,927,532 6,581
Increase (decrease) in other liabilities 29,656 100,970 4,572,957 119,396
Origination of loans held for sale (47,357) - (531,370) (2,762,903)
Proceeds from sales of loans held for sale 578,727 - - 3,169,415
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities 11,658,360 (1,015,137) 9,315,945 (250,007)
----------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year ended September 30,
1999 1998 1999 1998
------------- ------------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Investing Activities
Principle payments on mortgage-backed securities 4,465,858 6,204,556 35,230,156 23,477,002
Purchases of held to maturity securities - (1,141,000) (56,000) (2,334,734)
Proceeds from maturities of securities - 1,351,782 1,351,781 4,831,715
Purchases of available for sale securities 23,579,442 (20,927,649) (125,256,440) (159,849,705)
Proceeds from sales of available for sale securities 5,199,085 14,705,839 59,720,666 130,247,475
Net (increase) decrease in loans receivable (162,191) (1,782,192) (3,704,569) (5,717,859)
Proceeds from sales of foreclosed real estate - - 18,082 -
Purchases of premises, furniture and equipment (25,721) (86,533) (147,385) (262,867)
------------ ------------ ------------- -------------
Net cash provided (used) by investing activities (14,102,411) (1,675,197) (32,843,709) (9,608,973)
------------ ------------ ------------- -------------
Financing Activities
Net increase (decrease) in deposit accounts 10,899,307 (187,445) (4,164,955) 12,981,319
Proceeds from Federal Home Loan Bank advances 4,600,000 - 18,640,000 22,000,000
Payments on Federal Home Loan Bank advances and
other borrowings (21,270,000) (7,620,000) - (29,000,000)
Proceeds from other borrowings 11,125,000 9,280,000 7,370,000 -
Increase (decrease) in advances from borrowers for
taxes and insurance (42,981) (47,202) (24,947) (26,104)
------------ ------------ ------------- -------------
Net cash provided by financing activities 5,311,326 1,425,353 21,820,098 5,955,215
------------ ------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 2,867,275 (1,264,981) (1,707,666) (3,903,765)
Cash and cash equivalents at beginning of year 3,256,053 4,963,719 4,963,719 8,867,484
------------ ------------ ------------- -------------
Cash and cash equivalents at end of year $ 6,123,328 $ 3,698,738 $ 3,256,053 $ 4,963,719
============ ============ ============= =============
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the year for:
Interest $ 2,200,605 $ 2,690,664 $ 7,271,143 $ 7,698,351
Taxes - - $ 484,097 $ 1,028,211
</TABLE>
See accompanying notes.
F-8
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
Notes to Consolidated Financial Statements
Years Ended September 30, 1999 and 1998 and Three Months Ended December 31, 1999
and 1998
(Data at and for the three months ended December 31, 1999 and 1998 is unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization
The Bank is in the business of obtaining deposits in Newberry and the
surrounding area and investing those deposits in loans and securities.
Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Bank
and Inter-Community Service Corporation. Significant intercompany
balances and transactions have been eliminated upon consolidation.
(b) Cash Equivalents
For the purpose of presentation in the consolidated financial
statements cash equivalents are defined as those investments with a
maturity of three months or less when purchased.
(c) Trading Securities
Government bonds held principally for resale in the near term, and
mortgage-backed securities held for sale in conjunction with the
Bank's mortgage banking activities, are classified as trading account
securities and recorded at their fair values. Unrealized gains and
losses on trading account securities are included immediately in other
income.
(d) Securities Held to Maturity
Bonds, notes, and debentures for which the Bank has the positive
intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income
using the interest method over the period to maturity.
F-9
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
1. Organization and Summary of Significant Accounting Policies (continued)
(e) Securities Available for Sale
Available-for-sale securities consist of bonds, notes, debentures, and
certain equity securities not classified as trading securities nor as
held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary have resulted in write-downs of the individual securities to
their fair value. The related write-downs have been included in
earnings as realized losses.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
(f) Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
(g) Loans Receivable
Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased
loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.
The accrual of interest on impaired loans is discounted when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discounted, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
F-10
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
1. Organization and Summary of Significant Accounting Policies (continued)
(g) Loans Receivable (continued)
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's
past loan losses experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral, and
current economic conditions.
For impairment recognized in accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, the entire
change in present value of expected cash flows is reported as bad debt
expense in the same manner in which impairment initially was
recognized or as a reduction in the amount of bad debt expense that
otherwise would be reported.
(h) Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value, less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in loss on foreclosed
real estate.
(i) Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
(j) Premises and Equipment
Land is carried at cost. Bank premises, and equipment are carried at
cost, less accumulated depreciation computed principally by the
straight-line method.
F-11
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
1. Organization and Summary of Significant Accounting Policies (continued)
(k) Financial Instruments
The majority of derivative financial instruments held or issued by the
Bank are held or issued for purposes other than trading.
Interest-Rate Exchange Agreements. Interest-rate exchange agreements
(swaps) used in asset/liability management activities are accounted
for using the accrual method. Net interest income (expense) resulting
from the differential between exchanging floating and fixed-rate
interest payments is recorded on a current basis. Gains or losses on
the sales of swaps used in asset/liability management activities are
deferred and amortized into interest income or expense over the
maturity period of the swap.
Financial Futures. Interest-rate futures contracts are entered into by
the Bank as hedges against exposure to interest-rate risk and are not
for speculation purposes. Changes in the market value of interest-rate
futures contracts are deferred while the contracts are open and
subsequently amortized into interest income or expense over the
maturity period of the hedged assets or liabilities after the contract
closes.
Other Off-Balance-Sheet Instruments. In the ordinary course of
business the Bank has entered into off-balance sheet financial
instruments consisting of commitments to extend credit, and standby
letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred
or received.
(l) Fair Values of Financial Instruments
The following methods and assumptions were used by the Bank in
estimating fair values of financial instruments as disclosed herein:
Cash and short-term instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
Available-for-sale and held-to-maturity securities. Fair values for
securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity
securities approximate fair values.
F-12
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
1. Organization and Summary of Significant Accounting Policies (continued)
(l) Fair Values of Financial Instruments (continued)
Loans receivable. For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (for example,
one-to-four family residential), credit-card loans, and other consumer
loans are based on quoted market prices of similar loans adjusted for
differences in loan characteristics. Fair values for impaired loans
are estimated using discounted cash flow analyses or underlying
collateral values, where applicable.
Deposit liabilities. The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying amounts
of variable-rate, fixed-term money-market accounts and certificates of
deposit approximate their fair values at the reporting date. Fair
values for fixed-rate certificates of deposit are estimated using
rates currently being offered for similar certificates.
The fair values of the Bank's debt are estimated using discounted cash
flow analyses based on the Bank's current incremental borrowing rates
for similar types of borrowing arrangements.
Accrued interest. The carrying amounts of accrued interest approximate
their fair values.
Off-balance sheet instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings.
(m) Use of Estimates
The financial statements are prepared in accordance with generally
accepted accounting principles which require management to make
estimates and assumptions that effect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
F-13
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
1. Organization and Summary of Significant Accounting Policies (continued)
(m) Use of Estimates (continued)
Material estimates that are particularly susceptible to significant
change relate to the determination of the reserve for loan losses. The
estimation process includes management's judgment as to future losses
on existing loans based on an internal review of the loan portfolio,
including an analysis of the borrowers' current financial position,
the consideration of current and anticipated economic conditions and
the effect on specific borrowers. In determining the collectibility of
loans, management also considers the fair value of underlying
collateral. Various regulatory agencies, as an integral part of their
examination process, review the Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the
time of the examination. Because of these factors, it is possible that
the allowance for loan losses could change materially.
(n) Reclassifications
Certain 1998 amounts have been reclassified to conform with 1999
classifications.
(o) Marketing Expenses
The Bank expenses the cost of marketing as incurred. Marketing
expenses totalled $153,569 and $136,984 for the years ended September
30, 1999 and 1998, and $48,225 and $42,420 for the three months ending
December 31, 1999 and 1998, respectively.
F-14
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
2. Cash and Cash Equivalents
Cash and cash equivalents are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
------------ ------------- ----------
<S> <C> <C> <C>
Cash and due from banks $ 4,755,381 $ 1,725,337 $ 4,001,809
Interest bearing deposits 1,367,947 1,530,716 961,910
----------- ----------- -----------
$ 6,123,328 $ 3,256,053 $ 4,963,719
=========== =========== ===========
</TABLE>
3. Investments and Mortgage-Backed Securities
Securities Available for Sale - The amortized cost, gross unrealized
gains, gross unrealized losses and fair values of securities available
for sale consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Bonds and notes-US government
and agency securities $ 22,139,795 $ $2,922,322 $ 19,217,473
------------ ---------- ---------- ------------
Equity securities:
Mutual funds 1,057,512 336 148,371 909,477
Stock in Federal Home Loan Bank 1,787,000 1,787,000
Other 80,393 6,508 86,901
------------ ---------- ---------- ------------
Total equity securities 2,924,905 6,844 148,371 2,783,378
------------ ---------- ---------- ------------
Total investments $ 25,064,700 $ 6,844 $3,070,693 $ 22,000,851
============ ========== ========== ============
Mortgage-backed securities-
Government guaranteed $ 87,073,372 $ 602,928 $4,011,591 $ 83,664,709
Other 27,366,856 4,077 1,147,786 26,223,147
------------ ---------- ---------- ------------
Total Mortgage-backed securities $114,440,228 $ 607,005 $5,159,377 $109,887,856
============ ========== ========== ============
</TABLE>
F-15
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
3. Investments and Mortgage-Backed Securities (continued)
<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Bonds and notes-US government
and agency securities $ 21,487,174 $ 498 $2,376,744 $19,110,928
------------ ---------- ---------- -----------
Equity securities:
Mutual funds 1,056,858 142,365 914,493
Stock in Federal Home Loan Bank 1,962,000 1,962,000
Other 71,822 8,585 80,407
------------ ---------- ---------- -----------
Total equity securities 3,090,680 8,585 142,365 2,956,900
------------ ---------- ---------- -----------
Total investments $ 24,577,854 $ 9,083 $2,519,109 $22,067,828
============ ========== ========== ===========
Mortgage-backed securities-
Government guaranteed $ 76,792,538 $1,391,260 $3,833,097 $74,350,701
Other 23,786,387 137,936 1,390,520 22,533,803
------------ ---------- ---------- -----------
Total Mortgage-backed securities $100,578,925 $1,529,196 $5,223,617 $96,884,504
============ ========== ========== ===========
</TABLE>
F-16
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
3. Investments and Mortgage-Backed Securities (continued)
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Bonds and notes-US government
and agency securities $ 3,976,224 $ 11,975 $ 13,778 $ 3,974,421
----------- ---------- ---------- -----------
Equity securities:
Mutual funds 1,053,343 87,310 966,033
Stock in Federal Home Loan Bank 1,530,000 1,530,000
Other 71,808 71,808
----------- ---------- ---------- -----------
Total equity securities 2,655,151 87,310 2,567,841
----------- ---------- ---------- -----------
Total investments $ 6,631,375 $ 11,975 $ 101,088 $ 6,542,262
=========== ========== ========== ===========
Mortgage-backed securities-
Government guaranteed $71,133,220 $1,063,377 $2,321,412 $69,875,185
Other 15,164,013 113,184 15,277,197
----------- ---------- ---------- -----------
Total Mortgage-backed securities $86,297,233 $1,176,561 $2,321,412 $85,152,382
=========== ========== ========== ===========
</TABLE>
Securities Held to Maturity - The amortized cost, gross unrealized gains, gross
unrealized losses and fair value of securities held to maturity consisted of
the following:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Municipal securities $1,091,000 $ $ $1,091,000
Other 50,000 50,000
---------- ---------- -------- ----------
1,141,000 1,141,000
---------- ---------- -------- ----------
Mortgage-backed securities 4,332,492 124,910 91,183 4,366,219
---------- ---------- -------- ----------
$5,473,492 $ 124,910 $ 91,183 $5,507,219
========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Municipal securities $1,091,000 $ $ $1,091,000
Other 50,000 50,000
---------- ---------- -------- ----------
1,141,000 1,141,000
---------- ---------- -------- ----------
Mortgage-backed securities 4,465,704 10,197 136,132 4,339,769
---------- ---------- -------- ----------
$5,606,704 $ 10,197 $136,132 $5,480,769
========== ========== ======== ==========
</TABLE>
F-17
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
3. Investments and Mortgage-Backed Securities (continued)
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Bonds and notes-US government
and agency securities $ 255,045 $ 655 $ $ 255,700
Municipal securities 1,091,000 1,091,000
---------- -------- ---------- ----------
1,346,045 655 1,346,700
Mortgage-backed securities 6,818,659 66,289 51,571 6,833,377
---------- -------- ---------- ----------
$8,164,704 $ 66,944 $ 51,571 $8,180,077
========== ======== ========== ==========
</TABLE>
At September 30, 1999, investments with a book value of approximately
$12,153,000 were pledged as collateral for various deposits, and
investments with a book value of $5,843,699 were pledged as collateral on
Federal Home Loan Bank advances. At December 31, 1999, investments with a
book value of approximately $15,274,191 were pledged as collateral on
various deposits, and investments with a book value of $5,278,967 were
pledged as collateral on Federal Home Loan Bank advances.
Gross realized gains and gross realized losses on sales of available-for-
sale securities were $207,410 and $13,249, respectively for the year ended
September 30, 1999. For the year ended September 30, 1998 gross realized
gains were $642,797 and realized losses were $37,045. For the three months
ending December 31, 1999, and 1998, gross realized gains on sales of
available for sale securities were $0 and $10,366, respectively.
F-18
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
3. Investments and Mortgage-Backed Securities(continued)
The scheduled maturities of securities (other than equity securities) were
as follows:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------
Held-to maturity securities Available-for-sale securities
----------------------------- -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ $ $ 9,660,937 $ 9,660,937
Due from one to five years
Due from five to ten years 967,737 935,220
Due after ten years 5,473,492 5,507,219 125,951,349 118,509,172
---------- ---------- ------------ ------------
$5,473,492 $5,507,219 $136,580,023 $129,105,329
========== ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------------
Held-to maturity securities Available-for-sale securities
----------------------------- -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ $ $ $
Due from one to five years
Due from five to ten years 966,620 959,950
Due after ten years 5,606,704 5,480,769 121,099,479 115,035,482
---------- ---------- ------------ ------------
$5,606,704 $5,480,769 $122,066,099 $115,995,432
========== ========== ============ ============
</TABLE>
The Bank adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (FASB
115), September 30, 1994. Under the Statement, debt securities that the
Bank has the positive intent and ability to hold to maturity are classified
as "held-to-maturity" securities and reported at amortized cost. Debt and
equity securities that are bought and held principally for the purpose of
selling in the near term are classified as "trading" securities and
reported at fair value, with unrealized gains and losses included in
earnings. Debt and equity securities that are not classified as either
held-to-maturity or trading securities are classified as "available-for-
sale" securities and reported at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of
retained earnings.
F-19
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
4. Loans Receivable
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
------------ ------------- ------------
<S> <C> <C> <C>
Commercial real estate $10,023,468 $ 9,740,346 $ 9,060,586
Commercial-other 1,832,935
Real estate construction 1,136,306 1,891,559 2,614,372
Residential mortgage 51,532,321 52,165,177 47,284,533
Consumer loans 11,736,328 12,994,160 13,136,919
----------- ----------- -----------
76,261,358 76,791,242 72,096,410
---------- ----------- -----------
Less:
Allowance for losses 332,631 184,170 181,057
Loans in process 1,033,350 1,174,593 553,356
Deferred loan origination fees, net 107,119 108,201 112,948
----------- ----------- -----------
1,473,100 1,466,964 847,361
----------- ----------- -----------
Loans receivable, net $74,788,258 $75,324,278 $71,249,049
=========== =========== ===========
</TABLE>
The Bank's loan portfolio consists principally of adjustable rate
residential first mortgage loans to individuals and to builders of single
family homes in South Carolina, primarily in Newberry County.
Loans receivable at September 30, 1999 included $531,370 of loans held for
sale. The fair value of these loans exceeded cost. There were no loans
held for sale at December 31, 1999.
Mortgage loans include $1.5 million and $2.1 million representing
participating interests in loans originated and serviced by other financial
institutions as of September 30, 1999 and 1998, and $1.2 million at
December 31, 1999.
Non-accrual loans are as follows:
Non-accrual loans $152,000 $163,000 $269,000
======== ======== ========
Interest income which would
have been recognized under
original terms $ 12,160 $ 13,040 $ 21,520
Interest income recognized 9,162 9,825 16,214
-------- -------- --------
Interest income not recognized $ 2,998 $ 3,215 $ 5,306
======== ======== ========
F-20
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
4. Loans Receivable (continued)
Mortgage loans at September 30, 1999 and 1998 are net of participations and
whole loans sold and serviced for others in the amounts of $22,049,615 and
$29,144,793, respectively and $21,795,925 at December 31, 1999. Servicing
loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts and disbursing payments to investors. Loan
servicing income is recorded on the accrual basis and includes servicing
fees from investors and certain charges collected from borrowers, such as
late payment fees. Custodial escrow balances maintained in connection with
loans serviced for others were $74,859 and $89,198 at September 30, 1999
and 1998, respectively and $37,392 at December 31, 1999.
Changes in the allowance for losses are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $184,170 $181,057 $ 181,057 $ 191,968
Provision for losses 160,000 10,000 142,000 85,000
Charge-offs (14,758) (28,569) (166,637) (122,000)
Recoveries 3,219 4,000 27,750 26,089
-------- -------- --------- ---------
Ending balance $332,631 $166,488 $ 184,170 $ 181,057
======== ======== ========= =========
</TABLE>
Restructured loans totalled approximately $54,000 and $72,000 at September
30, 1999 and 1998 and $85,000 at December 31, 1999.
The Bank is not committed to lend additional funds to debtors whose loans
have been modified.
Loan activity for loans to executive officers and directors was as follows:
<TABLE>
<CAPTION>
Three months
Ended Year Ended
March 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period $564,678 $ 311,657 $ 311,657 $361,467
New loans 5,000 431,000 541,000
Repayments (net of advances) (2,658) (225,989) (287,979) (49,810)
-------- --------- --------- --------
Balance, end of period $567,020 $ 516,668 $ 564,678 $311,657
======== ========= ========= ========
</TABLE>
F-21
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
5. Premises, Furniture, and Equipment
Premises, furniture and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Land $1,071,688 $1,071,688 $1,071,688
Buildings and improvements 2,838,402 2,838,402 2,838,402
Furniture and equipment 1,077,441 1,051,721 904,869
---------- ---------- ----------
4,987,531 4,961,811 4,814,959
Less accumulated depreciation 1,364,908 1,305,459 1,071,074
---------- ---------- ----------
Premises, furniture and
equipment, net $3,622,623 $3,656,352 $3,743,885
========== ========== ==========
</TABLE>
Depreciation expense for the years ended September 30, 1999 and 1998 was
$234,918 and $207,022, and $59,540 and $60,156 for the three months ended
December 31, 1999 and 1998, respectively.
6. Deposit Accounts
The following is a comparative summary of deposits and interest rates by
type:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
NOW and money market
-0.00% to 6.00% $ 27,619,261 $ 27,432,392 $ 24,358,590
------------ ------------ ------------
Passbook -.27% to 5.00% 17,380,879 17,734,474 18,090,133
------------ ------------ ------------
Certificates of deposit:
2.60% to 3.99% 1,253,329 785,723 486,068
4.00% to 5.99% 91,674,411 86,416,426 91,062,213
6.00% to 7.99% 8,424,633 3,328,455 6,082,072
8.00% to 9.99% 2,084,205 1,839,941 1,623,290
------------ ------------ ------------
Total certificates of
deposit 103,436,578 92,370,545 99,253,643
------------ ------------ ------------
Total deposit accounts $148,436,718 $137,537,411 $141,702,366
============ ============ ============
</TABLE>
The aggregate amount of short-term CD's with a minimum denomination of
$100,000 was approximately $21.2 million and $26.4 million at September 30,
1999 and 1998, respectively, and $31.7 million at December 31, 1999. Non-
interest bearing deposits were not material at September 30, 1999 and 1998
and at December 31, 1999.
F-22
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
6. Deposit Accounts (continued)
The scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
December 31 September 30
1999 1999
------------- ------------
<S> <C> <C>
2000 $ 91,386,898 $80,194,119
2001 9,968,647 10,419,653
2002 1,772,868 1,447,969
2003 258,500 253,390
2004 36,175 42,108
Thereafter 13,490 13,306
------------ -----------
Total certificates of deposit $103,436,578 $92,370,545
============ ===========
</TABLE>
7. Federal Home Loan Bank Advances
The Bank has an agreement for advances and security agreement with blanket
floating lien with the Federal Home Loan Bank (FHLB). Advances are
collateralized by the Bank's investment in stock in the FHLB, certain
wholly owned first mortgage loans on 1-4 family dwelling that have not been
delinquent 30 days or more during the most recent twelve month period, and
certain investments. Loans of $38,488,003 and investments of $5,843,699
collateralized the advances at September 30, 1999. At September 30, 1998,
loans of $34,614,428 and investments of $0 collateralized these advances.
At December 31, 1999, loans of $34,053,643 and investments of $5,278,967
collateralized these advances.
Advances from the FHLB consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999 1998
------------ -------------- -----------
<S> <C> <C> <C>
Contractual Maturity
Within one year- adjustable rate $23,740,000 $29,240,000 $
2000-fixed rate 2,000,000 2,600,000
2002-fixed rate 8,000,000
2008-fixed rate 10,000,000 10,000,000 10,000,000
----------- ----------- -----------
$35,740,000 $39,240,000 $20,600,000
=========== =========== ===========
Weighted average rate 5.44% 5.65% 5.65%
=========== =========== ===========
</TABLE>
The Bank had an available line of credit of $7,500,000 at September 30,
1999 and $5,500,000 at December 31, 1999.
F-23
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
8. Other Borrowings
Federal funds and other borrowings generally mature within one to four days
of the transaction date. No securities have been pledged to collateralize
other borrowings since September 15, 1998.
Information concerning other borrowings is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average balance during the period $4,417,000 $ 553,000 $2,120,000 $ 737,000
Average interest rate during the period 5.35% 5.25% 4.95% 5.25%
Average interest rate at end of period 5.10% 4.88% 5.50% ----
Maximum month end balances $5,325,000 $1,660,000 $7,370,000 $5,875,000
</TABLE>
9. Income Taxes
The Bank and Subsidiary file consolidated federal income tax returns on
a fiscal year basis.
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current $ 269,886 $ 169,813 $ 757,786 $ 805,616
Deferred (71,116) (15,578) 13,230 28,688
---------- ---------- ---------- ----------
Total income taxes $ 198,770 $ 154,235 $ 771,016 $ 834,304
========== ========== ========== ==========
</TABLE>
Income taxes differed from amounts computed by applying the statutory
federal rate (34%) to income before income taxes and cumulative effect of a
change in accounting principle as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Tax at federal
income tax rate $169,043 $131,457 $607,018 $709,158
Increase (decrease)
resulting from:
State income tax
expense, net of
federal tax benefit 19,688 15,311 75,020 45,014
Other, net 10,039 7,467 88,978 80,132
-------- -------- -------- --------
Total $198,770 $154,235 $771,016 $834,304
======== ======== ======== ========
</TABLE>
F-24
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
9. Income Taxes (continued)
The tax effects of significant items comprising the Bank's net deferred tax
asset as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Differences between book and tax basis of bad debt reserves $ 53,255 $ 53,255
Differences between book and tax basis of investments 614,428 663,186
Deferred compensation for Director Emeritus 81,530 63,314
Other 2,719 5,918
--------- ---------
Total deferred tax assets 751,932 785,673
Valuation allowance
--------- ---------
Net deferred tax assets 751,932 785,673
--------- ---------
Deferred tax liabilities:
Differences between book and tax pension expense (58,324) (46,418)
Differences between book and tax basis of Federal Home
Loan Bank stock (31,251) (91,612)
Differences between book and tax basis of property (132,307) (111,094)
--------- ---------
Total deferred tax liabilities (221,882) (249,124)
--------- ---------
Net deferred tax asset $ 530,050 $ 536,549
========= =========
</TABLE>
The tax effects of significant items comprising the Bank's net deferred tax
asset as of September 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Differences between book and tax basis of bad debt reserves $ 56,421 $ 64,050
Differences between book and tax basis of investments 616,903 664,642
Deferred compensation for Director Emeritus 81,530 63,214
Other 2,760 7,689
--------- ---------
Total deferred tax assets 757,614 799,595
Valuation allowance
--------- ---------
Net deferred tax assets 757,614 757,614
--------- ---------
Deferred tax liabilities:
Differences between book and tax pension expense (46,418) (34,457)
Differences between book and tax basis of Federal Home
Loan Bank stock (117,483) (91,750)
Differences between book
and tax basis of property (132,307) (147,892)
--------- ---------
Total deferred tax liabilities (296,208) (274,099)
--------- ---------
Net deferred tax asset $ 461,406 $ 525,496
========= =========
</TABLE>
During the years ended September 30, 1999 and 1998, income taxes (benefits)
of $(1,885,797) and $57,713, respectively, were allocated to the change in
retained earnings for the tax effects of unrealized gains and losses on
assets available for sale. For the three month periods ending December 31,
1999 and 1998, these income taxes (benefits) allocated were $(532,502) and
$141,540, respectively.
F-25
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
9. Income Taxes (continued)
Savings banks which meet certain definitional tests and operating
requirements prescribed by the Internal Revenue Code have been allowed a
special bad debt deduction and other special tax provisions. If a savings
bank did not meet the federal income tax requirements necessary to meet
these definitions, the savings bank would lose the benefits of these
special provisions.
The special bad debt deduction was based on either specified experience
formulas or a specified percentage of taxable income. The deduction was
subject to certain limitations based on the aggregate loans, savings
account balances, and retained earnings at year end. Gains and losses on
sales of repossessed property and provisions for losses on loans and
foreclosed real estate were generally adjustments to the tax bad debt
reserve and not includable in the computation of taxable income before this
deduction.
In 1996, legislation was passed that eliminated the special bad debt
deduction for thrift institutions effective for years beginning after 1995,
or for the Bank's fiscal year beginning October 1, 1996. For tax purposes,
the Bank was required to recapture its past - 1987 additions ("excess
reserves") to its bad debt reserves. Under the legislation, the Bank
qualifies as a "small bank," and the excess reserves will be restored to
taxable income ratably over the six years, beginning in the year the bank
no longer qualifies as a bank. Deferred taxes have been provided for the
amount of these excess reserves. No deferred tax liability is provided for
$4.8 million tax basis bad debt reserves that arose prior to the Bank's
1988 fiscal year.
10. Commitments
In the normal course of business, the Bank enters into financial instrument
transactions to satisfy the financial needs of its customers and to manage
its own exposure to credit and market risks. Many of these financial
instruments typically have off-balance sheet risk resulting from their
nature including the terms of settlement. These instruments may be
categorized as commitments.
Market risk arises from the possibility that market changes, including
interest rate movements, may make financial instruments less valuable.
Credit risk results from the possibility that a loss may occur from the
failure of another party to perform according to the terms of the contract.
The Bank has control procedures regarding the extent of the Bank
transactions with specific counter-parties, the manner in which
transactions are settled and the ongoing assessment of counter-party
creditworthiness.
F-26
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
10. Commitments (continued)
The contract or notional (face) amounts disclosed below and at Notes 1 and
12 provide a measure of the Bank's involvement in such instruments but are
not indicative of potential loss. Management does not anticipate any
material adverse effect on the Bank's financial position resulting from its
involvement in these instruments. In many cases, these financial
instruments serve to reduce, rather than increase, market risk.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Commitments to extend credit at
fixed rates exposes the Bank to some degree of interest rate risk. The
Bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
counter-party. Collateral held varies, but may include real property,
equipment and income-producing commercial properties.
Most of the Bank's business activity is with customers in South Carolina.
As of September 30, 1999 and December 31, 1999 the Bank had no significant
concentrations of credit risk in its loan portfolio.
The Bank had commitments outstanding to originate loans (excluding
undisbursed portion of loans in process) as follows:
December 31, 1999 September 30, 1999
----------------- ------------------
Variable rate $280,000 $162,000
Fixed rate 838,190 286,869
Lines of credit extended to borrowers amounted to approximately
$14,526,323, of which $6,554,434 was undisbursed at September 30, 1999. At
December 31, 1999, lines of credit extended to borrowers amounted to
$14,859,668, of which $6,383,405 was undisbursed.
F-27
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
11. Regulatory Capital Requirements
The Office of Thrift Supervision capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 3% leverage ratio and an 8% risk-based capital ratio.
Effective April 1, 1999, however, the minimum leverage ratio increased to
4% for all institutions except those with the highest rating on the CAMELS
financial institution rating system. In addition, the prompt corrective
action standards discussed below also establish, in effect, a minimum 2%
tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMELS financial institution rating
system) and, together with the risk-based capital standard itself, a 4%
Tier 1 risk-based capital standard. The Office of Thrift Supervision
regulations also require that, in meeting the tangible, leverage and risk-
based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.
The risk-based capital standard requires an institution to maintain Tier 1
or core capital to risk-weighted assets of at least 4% and total capital to
risk-weighted assets of at least 8%. Total capital is defined as core
capital and supplementary capital. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight factor of 0% to 100%, assigned by the
Office of Thrift Supervision capital regulation based on the risks believed
inherent in the type of asset. Core or Tier 1 capital is defined as common
stockholders' equity and retained earnings, certain noncumulative perpetual
preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less intangible other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated
debt and intermediate preferred stock, and the allowance for loan and lease
losses limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of supplementary capital included as part of total capital cannot
exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. Presently, the Office of Thrift
Supervision has deferred implementation of the interest rate risk
component.
F-28
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
11. Regulatory Capital Requirements (continued)
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Minimum For Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
-------------- -------------- ----------------
Ratio Amount Ratio Amount Ratio Amount
----- ------ ----- ------ ----- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Tangible capital 9.00% $20,850 2.00% $4,611
Core capital 8.73% $20,096 4.00% $9,222 5.00% $11,527
Risk-based capital 18.86% $20,415 8.00% $8,659 10.00% $10,824
September 30, 1999
Tangible capital 9.24% $19,797 2.00% $4,284
Core capital 9.24% $19,797 4.00% $8,569 5.00% $10,711
Risk-based capital 17.39% $19,945 8.00% $9,174 10.00% $11,467
September 30, 1998
Tangible capital 10.28% $18,785 1.50% $2,740
Core capital 10.28% $18,785 4.00% $7,308 5.00% $ 9,135
Risk-based capital 24.89% $19,670 8.00% $6,323 10.00% $ 7,904
</TABLE>
F-29
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
12. Fair Value of Financial Instruments
The following tables set forth the fair value of the Bank's financial
and nonfinancial instruments (in thousands):
<TABLE>
<CAPTION>
December 31,
1999
---------------------------
Carrying Fair
Value Value
------------ ------------
<S> <C> <C>
Financial instruments:
Assets:
Cash and cash equivalents $ 6,123 $ 6,123
Investments and mortgage-backed
securities 137,362 137,396
Loans receivable 74,788 74,497
Accrued interest receivable 1,285 1,285
Liabilities:
Deposit accounts:
Demand deposits and passbook
accounts 45,000 45,000
Certificates of deposit 103,437 103,573
FHLB advances 35,740 35,740
Other borrowings 5,325 5,325
Advances from borrowers for
taxes and insurance 17 17
</TABLE>
<TABLE>
<CAPTION>
September 30,
1999 1998
---------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Financial instruments:
Assets:
Cash and cash equivalents $ 3,256 $ 3,256 $ 4,964 $ 4,964
Investments and mortgage-backed
securities 124,559 124,433 99,859 99,874
Loans receivable 75,324 75,163 71,249 71,718
Accrued interest receivable 1,268 1,268 1,050 1,050
Liabilities:
Deposit accounts:
Demand deposits and passbook
accounts 45,166 45,166 42,449 42,449
Certificates of deposit 92,371 92,145 99,253 99,549
FHLB advances 39,240 39,240 20,600 20,600
Other borrowings 7,370 7,370
Advances from borrowers for
taxes and insurance 60 60 85 85
</TABLE>
F-30
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
12. Fair Value of Financial Instruments (continued)
Commitments to extend credit. The fair values of these instruments are
immaterial because their underlying interest rates approximate market.
The fair value of cash and cash equivalents approximates the carrying
value. The fair values of loans receivable are based on current market
prices for securities backed by similar loans. The fair values of
investments and mortgage-backed securities are based on quoted market
prices, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
The fair value of demand deposits and savings accounts approximates
the carrying value. The fair value of certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining terms. The fair value of FHLB advances and federal funds
purchased is estimated based on current rate for advances with similar
terms.
The fair value of loan commitments is estimated based on current
levels of interest rates versus the committed interest rates.
Management uses its best judgment in estimating the fair value of non-
traded financial instruments, but there are inherent limitations in
any estimation technique. For example, liquid markets do not exist for
many categories of loans held by the Bank. By definition, the function
as a financial intermediary is, in large part, to provide liquidity
where organized markets do not exist. Therefore, the fair value
estimates presented herein are not necessarily indicative of the
amounts which the Bank could realize in a current transaction.
The information presented is based on pertinent information available
to management as of December 31, 1999. Although management is not
aware of any factors, other than changes in interest rates, that would
significantly affect the estimated fair values, the current estimated
fair value of these instruments may have changed significantly since
then.
13. Employee Benefit Plans
The Bank participates in a non-contributory defined benefit plan
covering employees based on age and years of service. Benefits are
based on length of service and a percentage of qualifying
compensation. The Bank uses the service pro-rata unit credit method as
its actuarial valuation method.
F-31
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
13. Employee Benefit Plans (continued)
The following table sets forth the Plan's funded status and amounts
recognized in the consolidated financial statements as of and for the
periods indicated:
<TABLE>
<CAPTION>
September 30
1999 1998
----------- -----------
<S> <C> <C>
Accumulated benefit obligation $ 900,498 $ 704,472
Vested 8,448 6,321
Nonvested 504,375 441,542
Additional benefits based on estimated future salaries ---------- ----------
1,413,321 1,152,335
Projected benefit obligation 1,276,438 1,090,122
Plan assets at fair value ---------- ----------
136,883 62,213
Excess of plan assets over projected benefit obligation
Unrecognized net assets at transition being amortized 95,584 111,958
over 15.8 years (354,619) (264,992)
Unrecognized net losses ---------- ----------
$ (122,152) $ (90,821)
Total accrued pension liability (prepaid) ========== ==========
A reconciliation of the benefit obligation for the year ended September 30, 1999 is as follows:
Balance, September 30, 1998 $1,152,335
Benefits (49,158)
Service cost 99,707
Interest cost 68,777
Actuarial gain 69,023
Other 72,627
----------
Balance, September 30, 1999 $1,413,321
==========
A reconciliation of the fair value of plan assets for the year ended September 30, 1999 is as
follows:
Balance, September 30, 1998 $1,090,122
Return on assets 109,933
Actual contribution 125,541
Distribution (49,158)
----------
Balance, September 30, 1999 $1,276,438
==========
</TABLE>
At September 30, 1999, $935,701 of plan assets were on deposit with the
Bank.
F-32
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
13. Employee Benefit Plans (continued)
Pension expense included the following components:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, September 30,
1999 1998 1999 1998
---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Service cost - benefits earned during period $ 28,546 $ 24,926 $ 99,707 $ 86,334
Interest cost on projected benefit obligation 19,640 17,153 68,614 60,337
Expected return on plan assets (32,062) (27,483) (109,933) (59,744)
Amortization of transition asset (4,094) (4,094) (16,374) (16,374)
Recognized net actuarial gain 19,762 17,260 69,033 13,177
-------- -------- --------- --------
Total pension expense $ 31,792 $ 27,762 $ 111,047 $ 83,730
======== ======== ========= ========
</TABLE>
The discount rate and rate of increase in future salary levels used in
determining the actuarial present value of the projected benefit obligation
shown in the preceding table were 5.5% and 4.0% for 1999, respectively and
6.0% and 4.0% for 1998, respectively. The expected long-term rate of
return on assets was 5.5% and 6.75% for the years ended September 30, 1999
and 1998, respectively.
The Bank also maintains an Employee Savings Plan for all employees,
qualified under Section 401(k) of the Internal Revenue Code. The Bank
matches 100% of the first 3% of earned compensation consisting of regular
wages and overtime payments. The Bank's contributions to the 401(k) plan
were $30,412 and $31,413 for the years ended September 30, 1999 and 1998,
respectively and $7,603 and $7,853 for the three months ended December 31,
1999 and 1998, respectively.
14. Interest Rate Risk
The Bank maintains a program of asset and liability management designed to
minimize the Bank's vulnerability to material and prolonged changes in
interest rates. An interest-earning asset or interest-bearing liability is
deemed to be interest-rate sensitive within a specific time period if it is
estimated to mature or reprice within that time period. If interest-
earning assets which are estimated to mature or reprice within a particular
time period are less than the amount of interest-bearing liabilities with
comparable maturity or repricing characteristics, a negative difference or
"negative-gap" occurs, and in general, increases in interest rates would
adversely affect net interest income over such period and decreases in
interest rates would have the opposite effect.
F-33
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
14. Interest Rate Risk
Similarly, if interest-earning assets which are estimated to mature or
reprice within a particular time period exceed the amount of interest-
bearing liabilities with comparable maturity or repricing characteristics,
a positive difference or "positive gap" is present and, in general,
increases in interest rates would positively affect net interest income
over such period and decreases in interest rates would have the opposite
effect.
Interest-Rate Exchange Agreements. The Bank enters into interest-rate swap
transactions in managing its interest-rate exposure. Interest-rate swap
transactions generally involve the exchange of fixed- and floating-rate
interest-payment obligations without the exchange of the underlying
principal amounts.
Entering into interest-rate swap agreements involves not only the risk of
dealing with counterparties and their ability to meet the terms of the
contracts but also the interest-rate risk associated with unmatched
positions. Notional principal amounts often are used to express the volume
of these transactions, but the amounts potentially subject to credit risk
are much smaller.
At December 31, 1999 and September 30, 1999 and 1998 the Bank had limited
its exposure to interest rate risk through agreements to receive quarterly
payments in the London InterBank offered rate exceeds 8% rate interest
payments. The notional principal amounts of interest-rate swaps
outstanding were $10,000,000 for each of the periods, with original terms
of two years. The net cost was $16,800 the two year period, and has been
amortized against income. The Bank has not received any payments under
these agreements.
15. Accounting Changes
Accounting for Derivative Instruments and Hedging Activities. Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities," addresses the accounting for
derivative instruments, including certain derivative instruments embedded
in other contracts and hedging activities. As recently amended by
Statement of Financial Standards No. 137, the statement is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. On
that date, hedging relationships shall be designed in accordance with the
statement. Earlier application is encouraged but is permitted only at the
beginning of any fiscal quarter that begins after issuance of the
statement. Earlier application of selected provisions of the statement is
not permitted. The statement shall not be applied retroactively to
financial statements of prior periods. The statement is not expected to
have a material adverse impact on the consolidated financial position or
results of operations of Newberry Federal.
F-34
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
15. Accounting Changes (continued)
Employers' Disclosures about Pensions and Other Postretirement Benefits.
Statement of Financial Accounting Standards No. 132, Employers' Disclosure
about Pension and Other Postretirement Benefits, revises disclosures about
pension and other post-retirement benefit plans. These disclosures are
effective for years beginning after December 15, 1997 and were made for the
year ended September 30, 1999.
16. Adoption of Plan of Conversion (Unaudited)
On January 18, 2000, the Board of Directors of the Bank, subject to
regulatory approval and approval by the members of the Bank, adopted a Plan
of Conversion to convert from a federally-chartered mutual savings bank to
a federal stock savings bank with the adoption of a federal thrift charter.
The conversion will be accomplished through the amendment of the Bank's
charter to stock form, the formation of DutchFork Bancshares, Inc. ("the
Company"), which will acquire 100% of the Bank's outstanding common stock
upon the conversion of the Bank from mutual to stock form, and the sale of
the Company's common stock in an amount equal to the pro forma market value
of the Bank after giving effect to the conversion. A subscription offering
of the shares of common stock will be offered initially to the Bank's
eligible deposit account holders, then to other members of the Bank. Any
shares of common stock not sold in the subscription offering will be
offered for sale to the general public, giving preference to the Bank's
market area.
The Board of Directors of the Bank intend to adopt an Employee Stock
Ownership Plan and the Company may adopt various stock option and incentive
plans, subject to ratification by the stockholders after conversion, if
such stockholder approval is required by any regulatory body having
jurisdiction to require such approval. In addition, the Board of Directors
is authorized to enter into employment contracts with key employees.
At the time of conversion, the Bank will establish a liquidation account in
an amount equal to its total net worth as of the latest statement of
financial condition appearing in the final prospectus. The liquidation
account will be maintained for the benefit of eligible depositors who
continue to maintain their accounts at the Bank after the conversion. The
liquidation account will be reduced annually to the extent that eligible
depositors have reduced their qualifying deposits. Subsequent increases
will not restore an eligible account holder's interest in the liquidation
account. In the event of a complete liquidation, each eligible depositor
will be entitled to receive a distribution from the liquidation account in
an amount proportionate to the current adjusted qualifying balances for
accounts then held. The liquidation account balance is not available for
payment of dividends.
The Bank may not declare or pay cash dividends on or repurchase any of its
shares of capital stock if the effect thereof would cause its net worth to
be reduced below applicable regulatory requirements or the amount of the
liquidation accounts of such a declaration and payment would otherwise
violate regulatory requirements.
F-35
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
16. Adoption of Plan of Conversion (Unaudited) (continued)
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all
costs will be charged to expense. At December 31, 1999, no expenses have
been deferred.
F-36
<PAGE>
Newberry Federal Savings Bank
and Subsidiary
16. Adoption of Plan of Conversion (Unaudited) (continued)
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all
costs will be charged to expense. At December 31, 1999, no expenses have
been deferred.
F-37
<PAGE>
You should rely only on the information contained in this prospectus. Neither
DutchFork Bancshares nor Newberry Federal has authorized anyone to provide you
with different information. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered by this
prospectus to any person or in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation in those jurisdictions. Neither the delivery of
this prospectus nor any sale by means of this prospectus shall under any
circumstances imply that there has been no change in the affairs of DutchFork
Bancshares or Newberry Federal since any of the dates as of which information is
furnished in this prospectus or since the date of this prospectus.
[Logo for DutchFork Bancshares]
(Proposed Holding Company for Newberry Federal Savings Bank)
1,495,000 Shares of Common Stock
_______
Prospectus
_______
Trident Securities,
A Division of McDonald Investments, Inc.
________, 2000
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ___________, 2000, all dealers that buy, sell or trade these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
-----
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason that he or she is or was a Director or an Officer of the Corporation
or is or was serving at the request of the Corporation as a Director, Officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by a majority vote of
the Directors who are not parties to such proceeding, even though less than a
quorum.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in
any other capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections A and B of this Article TENTH
shall be contract rights and such rights shall continue as to an indemnitee
who has ceased to be a Director, Officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within 60 days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expenses of prosecuting or defending such suit.
In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not
met any applicable standard for indemnification set forth in the Delaware
General Corporation Law. Neither the failure of the Corporation (including
its Board of
<PAGE>
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article TENTH or
otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by a
majority vote of the Directors who are not parties to such proceeding, even
though less than a quorum, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of the
Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
--------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended 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 fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a Director
of the Corporation existing at the time of such repeal or modification.
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC filing fee........................................... $ 4,539
OTS filing fee........................................... 8,400
NASD filing fee.......................................... 2,220
Nasdaq filing fee........................................ 38,750
Edgar, printing, postage and mailing..................... 90,000
Legal fees and expenses.................................. 225,000
Accounting fees and expenses............................. 60,000
Appraisers' fees and expenses (including business plan).. 33,000
Securities marketing firm expenses (1)................... 300,000
Underwriter's counsel legal and out-of-pocket fees....... 42,500
Conversion Agent fees and expenses....................... 16,500
Blue Sky fees and expenses............................... 20,000
Certificate printing..................................... 5,000
Miscellaneous............................................ 4,091
--------
TOTAL $850,000
========
</TABLE>
- ---------------------
*Unless otherwise noted, fees are based upon the registration of 1,719,250
shares at $10.00 per share.
(1) Trident Securities will receive a management fee of $10,000 plus a
commission of 2.0% of the aggregate dollar amount of the shares of common
stock sold in the subscription offering and the direct community offering,
excluding shares purchased by the ESOP and by officers and directors of
Newberry Federal Savings Bank and their associates. See "The
Conversion--Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings."
Item 26. Recent Sales of Unregistered Securities.
None.
<PAGE>
Item 27. Exhibits.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Newberry Federal Savings Bank and Trident
Securities, a Division of McDonald Investments, Inc.
1.2 Draft Form of Agency Agreement*
2.0 Plan of Conversion (including the Federal Stock Charter and Bylaws of
Newberry Federal Savings Bank)
3.1 Certificate of Incorporation of DutchFork Bancshares, Inc.
3.2 Bylaws of DutchFork Bancshares, Inc.
4.0 Specimen Stock Certificate of DutchFork Bancshares, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Draft Opinion of Clifton D. Bodiford, CPA re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of Newberry Federal Savings Bank Employment Agreement
10.3 Form of DutchFork Bancshares, Inc. Employment Agreement
10.4 Form of Newberry Federal Savings Bank Employee Severance Compensation Plan
10.5 Form of Newberry Federal Savings Bank Supplemental Executive Retirement
Plan
21.0 Newberry Federal Savings Bank will be the Sole Subsidiary of DutchFork
Bancshares, Inc.
23.1 Consent of Muldoon, Murphy & Faucette LLP
23.2 Consent of Clifton D. Bodiford, CPA
23.3 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Marketing Materials
- --------------------------------------
(P) Filed pursuant to Rule 202 of Regulation S-T.
* To be filed by amendment.
<PAGE>
Item 28. Undertakings.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Newberry, State of South Carolina, on March 8, 2000.
DUTCHFORK BANCSHARES, INC.
By: /s/ J. Thomas Johnson
------------------------------------
J. Thomas Johnson
Chairman, President and
Chief Executive Officer
(duly authorized representative)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Name Title Date
---- ----- ----
/s/ J. Thomas Johnson Chairman, President and March 8, 2000
- ----------------------------- Chief Executive Officer
J. Thomas Johnson (principal executive officer)
/s/ Steve P. Sligh Executive Vice President, March 8, 2000
- ----------------------------- Treasurer, Chief Financial
Steve P. Sligh Officer and Director
(principal accounting
and financial officer)
/s/ Robert E. Livingston, III Corporate Secretary March 8, 2000
- -----------------------------
Robert E. Livingston, III
/s/ Keitt Purcell Director March 8, 2000
- -----------------------------
Keitt Purcell
/s/ Robert W. Owen Director March 8, 2000
- -----------------------------
Robert W. Owen
/s/ James E. Wiseman Director March 8, 2000
- -----------------------------
James E. Wiseman
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the trustees (or
other persons who administer the Newberry Federal Savings Bank 401(k) Plan) have
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Newberry, South Carolina, on March 8,
2000.
NEWBERRY FEDERAL SAVINGS BANK
401(K) PLAN
By: /s/ J. Thomas Johnson
-------------------------------------
J. Thomas Johnson
<PAGE>
EXHIBIT 1.1
[TRIDENT SECURITIES LETTERHEAD]
December 29, 1999
Board of Directors
Newberry Federal Savings Bank
1735 Wilson Road
Newberry, SC 29108
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, a division of McDonald Investments, Inc. ("Trident") and Newberry
Federal Savings Bank, together with its successors and assigns, (the "Savings
Bank") concerning our investment banking services in connection with the
conversion of the Savings Bank from a mutual to a capital stock form of
organization.
Trident is prepared to assist the Savings Bank in connection with the offering
of its shares of common stock during the subscription offering and community
offering as such terms are defined in the Savings Bank's Plan of Conversion. The
specific terms of the services contemplated hereunder shall be set forth in a
definitive sales agency agreement (the "Agreement") between Trident and the
Savings Bank to be executed on the date the prospectus is declared effective by
the appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Savings Bank's Board of Directors, based upon an independent appraisal as
approved by the appropriate regulatory authorities, provided such price is
mutually acceptable to Trident and the Savings Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the
Savings Bank in the sale of its common stock during the subscription offering
and community offering. Additionally, Trident may enter into agreements with
other National Association of Securities Dealers, Inc., ("NASD") member firms to
act as selected dealers, assisting in the sale of the common stock. Trident and
the Savings Bank will determine the selected dealers to assist the Savings Bank
during the community offering. At the appropriate time, Trident in conjunction
with its counsel, will conduct an examination of the relevant documents and
records of the Savings Bank as Trident deems necessary and appropriate. The
Savings Bank will make all documents, records and other information deemed
necessary by Trident or its counsel available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Savings Bank:
1. A management fee in the amount of $10,000.
<PAGE>
Board of Directors
December 29, 1999
Page 2
2. A commission equal to two percent (2.0%) of the aggregate dollar
amount of stock sold in the subscription and community offerings,
excluding any shares of stock sold to the Savings Bank's directors,
executive officers and employee benefit plans. Additionally,
commissions will be excluded on those shares sold to "Associates" of
the Savings Bank's directors and executive officers. The term
"Associates" as used herein shall have the same meaning as that found
in the Savings Bank's Plan of Conversion.
3. The foregoing fees and commissions are to be payable to Trident at the
closing as defined in the Agreement to be entered into between the
Savings Bank and Trident.
4. Trident shall be reimbursed for legal and out-of-pocket expenses
incurred by them and their counsel, whether or not the Agreement is
consummated. Trident's legal and out-of-pocket expenses will not
exceed $42,500. The Savings Bank will forward to Trident a check in
the amount of $10,000 as an advance payment to defray the expenses of
Trident.
It further is understood that the Savings Bank will pay all other expenses of
the conversion including but not limited to its attorneys' fees, NASD filing
fees, and filing and registration fees and fees of either Trident's attorneys or
the attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the
Savings Bank warrants that: (a) the Savings Bank has not privately placed any
securities within the last 18 months; (b) there have been no material dealings
within the last 12 months between the Savings Bank and any NASD member or any
person related to or associated with any such member; (c) none of the officers
or directors of the Savings Bank has any affiliation with the NASD; (d) except
as contemplated by this engagement letter with Trident, the Savings Bank has no
financial or management consulting contracts outstanding with any other person;
(e) the Savings Bank has not granted Trident a right of first refusal with
respect to the underwriting of any future offering of the Savings Bank stock;
and (f) there has been no intermediary between Trident and the Savings Bank in
connection with the public offering of the Savings Bank's shares, and no person
is being compensated in any manner for providing such service.
The Savings Bank agrees to indemnify and hold harmless Trident and each person,
if any, who controls the firm against all losses, claims, damages or
liabilities, joint or several and all legal or other expenses reasonably
incurred by them in connection with the investigation or defense thereof
(collectively, "Losses"), to which they may become subject under securities laws
or under the common law, that arise out of or are based upon the conversion or
the engagement hereunder of Trident except to the extent such losses are the
result of the gross negligence or willful misconduct of Trident. If the
foregoing indemnification is unavailable for any reason, the Savings Bank agrees
to contribute to such Losses in the proportion that its financial interest in
the conversion bears to that of the indemnified parties. If the agreement is
entered into with respect the common stock to be issued in the conversion, the
Agreement will provide for indemnification, which will be in addition to any
rights that Trident or any other indemnified party may have at common law or
otherwise. The indemnification provision of this paragraph will be superseded by
the indemnification provisions of the Agreement entered into by the Savings Bank
and Trident.
<PAGE>
Board of Directors
December 29, 1999
Page 3
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (4) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Savings Bank agree in principle to the contents hereof and propose to
proceed promptly, and in good faith, to work out the arrangements with respect
to the proposed offering, any legal obligations between Trident and the Savings
Bank shall be only as set forth in a duly executed Agreement. Such Agreement
shall be in form and content satisfactory to Trident and the Savings Bank, as
well as their counsel, and Trident's obligations thereunder shall be subject to,
among other things, there being in Trident's opinion no material adverse change
in the condition or obligations of the Savings Bank or no market conditions
which might render the sale of the shares by the Savings Bank hereby
contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter, along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, A Division
Of McDonald Investments, Inc.
By: /s/ Timothy E. Lavelle
--------------------------
Timothy E. Lavelle
Managing Director
Agreed and accepted to this 4th day
---
of January, 2000
-------
NEWBERRY FEDERAL SAVINGS BANK
By: /s/ J. Thomas Johnson
-------------------------
J. Thomas Johnson
President and CEO
<PAGE>
EXHIBIT 2.0
- --------------------------------------------------------------------------------
Plan of Conversion
for
Newberry Federal Savings Bank
as Adopted on
January 18, 2000
- --------------------------------------------------------------------------------
<PAGE>
PLAN OF CONVERSION
FOR
NEWBERRY FEDERAL SAVINGS BANK
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Newberry
Federal Savings Bank ("BANK") from a federally-chartered mutual savings bank to
a federally-chartered capital stock savings bank. The board of Directors of the
BANK contemplates that all of the stock of the BANK shall be held by a
corporation (the "Holding Company"). The Board of Directors has carefully
considered the alternatives available to the BANK with respect to its corporate
structure and has determined that a mutual to stock conversion as described in
this Plan is in the best interests of the BANK, its depositors and the community
served by the BANK. The Board of Directors believes that the decline in
mutuality is placing mutual savings banks, such as the BANK, at a disadvantage
to the increasing base of stock thrift institutions and commercial banks. The
restructuring of the BANK into the capital stock form of organization will
enable the BANK to compete more effectively with commercial banks and other
financial institutions for new business opportunities, and as a stock
institution, to increase its equity capital base and access the capital markets
when needed and to enhance the BANK'S ability to expand its franchise and the
products it offers. The use of the Holding Company will also provide greater
organizational and operating flexibility. Shares of capital stock of the BANK
will be sold to the Holding Company and the Holding Company will offer the
Conversion Stock upon the terms and conditions set forth herein to the Eligible
Account Holders, the Employee Plans established by the BANK or Holding
<PAGE>
Company, Supplemental Eligible Account Holders and Other Members in the
respective priorities set forth in this Plan. Any shares of Conversion Stock not
subscribed for by the foregoing classes of persons will be offered for sale to
certain members of the public either directly by the BANK and the Holding
Company through a Community Offering or a Syndicated Community Offering, or
through an underwritten firm commitment public offering, or through a
combination thereof. In addition to the foregoing, the BANK and the Holding
Company, as part of this Plan, intend to implement stock option plans and other
stock benefit plans and will provide employment or severance agreements to
certain management employees and certain other compensation to the directors,
officers and employees of the BANK as described in the prospectus for the
Conversion Stock.
This Plan, which has been unanimously approved by the Board of Directors of
the BANK, must also be approved by the affirmative vote of a majority of the
total number of outstanding votes entitled to be cast by Voting Members of the
BANK at a special meeting to be called for that purpose. Prior to the
submission of this Plan to the Voting Members for consideration, the Plan must
be approved by the Office of Thrift Supervision (the "OTS").
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Savings
--------------
Account in the BANK.
Acting in Concert - The term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities
2
<PAGE>
of an issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the BANK and
the Holding Company or a majority-owned subsidiary of the BANK and the Holding
Company) of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity except that for the purposes of Sections 9 and
14 hereof, the term "Associate" does not include any Non-Tax-Qualified Employee
Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan in which a
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity, and except that, for purposes of aggregating total
shares that may be held by Officers and Directors the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or
spouse of such person, or any relative of such spouse, who has the same
3
<PAGE>
home as such person or who is a Director or Officer of the BANK or the Holding
Company, or any of its parents or subsidiaries.
Bank - The term BANK means Newberry Federal Savings, Newberry, South
----
Carolina.
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the common stock offered
----------------
and issued by the Holding Company upon conversion.
Director - The term Director means a member of the Board of Directors of
--------
the BANK and, where applicable, a member of the Board of Directors of the
Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the BANK and is November 30, 1998.
Employees - The term Employees means all Persons who are employed by the
---------
BANK but does not include an Officer or Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans approved by the Board of Directors of the BANK.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Directors of the
BANK within which the aggregate amount of Conversion Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated
pro forma market value of the Conversion Stock as determined by the
4
<PAGE>
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the corporation formed for
---------------
the purpose of acquiring all of the shares of capital stock of the BANK to be
issued upon its conversion to stock form. Shares of common stock of the Holding
Company will be issued in the conversion to Participants and others in a
Subscription, Community, Syndicated Community, or underwritten firm commitment
public offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the BANK to prepare an appraisal of the pro forma market value of
the Conversion Stock.
Local Community - The term Local Community means all counties in which the
---------------
BANK has its home office or a branch office, which are Newberry and Lexington
Counties in South Carolina.
Member - The term Member means any Person or entity who qualifies as a
------
member of the BANK pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury and its successors.
Officer - The term Officer means an executive officer of the BANK which
-------
includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and Controller and any person performing
functions similar to those performed by the foregoing persons.
5
<PAGE>
Order Form - The term Order Form means any form together with attached
----------
cover letter, sent by the BANK to any Participant or Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Subscription and Community Offerings.
Other Member - The term Other Member means any person who is a Member of
------------
the BANK (other than an Eligible Account Holder or Supplemental Eligible Account
Holder) at the close of business on the Voting Record Date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a partnership,
------
an bank, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the BANK as it exists
----
on the date hereof and as it may hereafter be amended in accordance with its
terms.
Preferred Subscribers - The term Preferred Subscribers means those members
---------------------
of the general public which are natural persons residing in the BANK's Local
Community.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the BANK at the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date, whichever
may be the case. Savings Accounts with total deposit balances of less than $50
shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the United States Securities and Exchange
---
Commission.
6
<PAGE>
Savings Account - The term Savings Account includes savings accounts, as
---------------
that term is defined in Section 561.42 of the Rules and Regulations of the OTS,
withdrawable accounts, including certificates of deposit, and demand accounts
which are defined in Section 561.16.
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for purchase through Order Forms to Participants.
Subscription Price - The term Subscription Price means the amount per share
------------------
of Conversion Stock to be paid initially by Participants in the Subscription
Offering and by persons in the Community Offering.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the BANK. The Supplemental Eligibility Record Date
shall be the last day of the calendar quarter preceding the OTS' approval of the
application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
-----------------------------
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
7
<PAGE>
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. A "Non-Tax-
Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined
contribution plan which is not so qualified.
Voting Members - The term Voting Members means those persons qualifying as
--------------
voting members of the BANK pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by a vote of not less than two-thirds (2/3) of
the Board of Directors of the BANK, the Plan shall be submitted together with
all other requisite material to the OTS for its approval. Notice of the
adoption of the Plan by the Board of Directors of the BANK and the submission of
the Plan to the OTS for its approval will be published in a newspaper having
general circulation in each community in which an office of the BANK is located
and copies of the Plan will be made available at each office of the BANK for
inspection by the Members. Upon the filing with the OTS of an application to
convert in accordance with the provisions of the Plan, the BANK also will cause
to be published a notice of the filing. Following approval by the OTS, the Plan
will be submitted to a vote of the Voting Members at the Special Meeting of
Members called for that purpose. Upon approval of the Plan by a majority of the
total outstanding votes of the Voting
8
<PAGE>
Members, the BANK will take all other necessary steps pursuant to applicable
laws and regulations to convert the BANK to stock form. The conversion must be
completed within 24 months of the approval of the Plan by the Voting Members,
unless a longer time period is permitted by governing laws and regulations.
The Board of Directors of the BANK intends to take all necessary steps to
form the Holding Company, including the filing of an Application on Form H-(e)1
or H-(e)1-S, if available to the Holding Company, with the OTS. Upon
conversion, the BANK will issue capital stock to the Holding Company and the
Holding Company will issue and sell the Conversion Stock in accordance with this
Plan.
The Conversion Stock will not be insured by the FDIC. The BANK will not
knowingly lend funds or otherwise extend credit to any Person to purchase shares
of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 or Form SB-2, if available to the Holding Company, to be
filed with the SEC. The BANK shall be a wholly-owned subsidiary of the Holding
Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting
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of Members and must be commenced in time to complete the Conversion within the
time period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the BANK. The
sale of all Conversion Stock subscribed for in the Subscription and Community
Offerings will be consummated simultaneously on the date the sale of Conversion
Stock in the Syndicated Community Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The BANK may elect to offer to pay fees on a per share basis to brokers who
assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Directors
of the BANK and the Board of Directors of the Holding Company immediately prior
to the commencement of the Subscription and Community Offerings, subject to
adjustment thereafter if necessitated by market or financial
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conditions, with the approval of the OTS, if necessary. In particular, the total
number of shares may be increased by up to 15% of the number of shares offered
in the Subscription and Community Offering if the Estimated Price Range is
increased subsequent to the commencement of the Subscription and Community
Offering to reflect changes in market and financial conditions.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the BANK and the Holding
Company. The estimated consolidated pro forma market value of the BANK and the
Holding Company will be determined for such purpose by the Independent
Appraiser. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Price Range will be established, which range will vary
within 15% above to 15% below the midpoint of such range. The number of shares
of Conversion Stock to be issued and the purchase price per share may be
increased or decreased by the BANK. In the event that the aggregate purchase
price of the Conversion Stock is below the minimum of the Estimated Price Range,
or materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required provided that up to a 15% increase above the maximum
of the Estimated Price Range will not be deemed material so as to require a
resolicitation. Up to a 15% increase in the number of shares to be issued which
is supported by an appropriate change in the estimated pro forma market value of
the BANK and the Holding Company will not be deemed to be material so as to
require a resolicitation of subscriptions. In the event that the aggregate
purchase price of the Conversion Stock is below the minimum of the Estimated
Price Range or in excess of 15% above the maximum of the Estimated Price Range,
and
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a resolicitation is required, such resolicitation shall be effected in such
manner and within such time as the BANK shall establish with the approval of the
OTS, if required.
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Holding Company and the Board of Directors of the BANK will fix the Subscription
Price and the range of the number of shares to be offered. If upon completion
of the Subscription and Community Offerings all of the Conversion Stock is
subscribed for, or if because of a limited number of unsubscribed shares or
otherwise a Syndicated Community Offering cannot be effected, the total number
of shares of Conversion Stock to be issued and sold will be jointly determined
by the BANK and Holding Company as follows: (a) the estimated aggregate pro
forma market value of the BANK and the Holding Company immediately after
conversion as determined by the Independent Appraiser, expressed in terms of a
specific aggregate dollar amount rather than as a range, upon completion of the
Subscription and Community Offerings or other sale of all of the Conversion
Stock shall be divided by (b) the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the Conversion Stock is sold in such Syndicated Community
Offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the BANK and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock at the Actual
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Purchase Price is incompatible with its estimate of the aggregate consolidated
pro forma market value of the Holding Company and the BANK. If such confirmation
is not received, the BANK and the Holding Company may cancel the Subscription
and Community Offerings and/or the Syndicated Community Offering, extend the
Conversion, establish a new Subscription Price Range and/or Estimated Price
Range, extend, reopen or hold new Subscription and Community Offerings and/or
Syndicated Community Offering or take such other action as the OTS may permit.
The Conversion Stock to be issued in the conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE BANK
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the BANK all of the capital stock of the BANK
to be issued by the BANK in the conversion in exchange for the conversion
proceeds that are not permitted to be retained by the Holding Company.
The Holding Company will apply to the OTS to retain an amount not to exceed
50% of the proceeds of the conversion. The BANK believes that the conversion
proceeds will provide economic strength to the Holding Company and the BANK for
the future in a highly competitive and regulated environment and would
facilitate expansion through acquisitions, diversification into other related
businesses and for other business and investment purposes, including the payment
of dividends and future repurchases of Conversion Stock as permitted by the OTS.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount
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up to the greater of: the amount permitted to be subscribed for in the Community
Offering which amount, pursuant to Section 12, currently is $175,000 of the
Conversion Stock offered, but which may be increased to 5% or decreased to less
than $175,000 without the further approval of members or resolicitation of
subscribers; one-tenth of one percent (0.10%) of the total offering of shares of
Conversion Stock; or fifteen 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, in each
case on the Eligibility Record Date, subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Eligible Account Holders exercise subscription
rights for a number of shares of Conversion Stock in excess of the total number
of shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holders. Any shares remaining after that allocation
will be allocated among the subscribing Eligible Account Holders whose
subscriptions remain unsatisfied in the proportion that the amount of the
Qualifying Deposit of each Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible
Account Holders whose subscriptions remain unsatisfied. If the amount so
allocated exceeds the amount subscribed for by any one or more Eligible Account
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Holders, the excess shall be reallocated (one or more times as necessary) among
those Eligible Account Holders whose subscriptions are still not fully satisfied
on the same principle until all available shares have been allocated or all
subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Employee Plans. If, after the
filling of subscriptions of Eligible Account Holders, a sufficient number of
shares are not available to fill the subscriptions by such Employee Plans, the
subscription by such Employee Plans shall be filled to the maximum extent
possible; provided, however, that in the event of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%, the additional shares may be sold to the Employee Plans subject to the
provisions of Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the BANK.
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10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is $175,000 of the Conversion Stock offered,
but which may be increased to 5% or decreased to less than $175,000 without the
further approval of members or resolicitation of subscribers; one-tenth of one
percent (0.10%) of the total offering of Conversion Stock; or fifteen 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 in the BANK on
the Supplemental Eligibility Record Date, subject to the maximum purchase
limitation specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the remaining shares of
Conversion Stock shall be allocated among the subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible Account
Holder, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation of Conversion Stock equal to the lesser of 100
shares or the number of shares
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<PAGE>
subscribed for by the Supplemental Eligible Account Holder. Any shares remaining
after that allocation will be allocated among the subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of the Qualifying Deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Supplemental Eligible
Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is $175,000
of the Conversion Stock offered, but which may be increased to 5% or decreased
to less than $175,000 without the further approval of members or resolicitation
of subscribers; or one-tenth of one percent (0.10%) of the total offering of
shares of Conversion Stock, subject to the maximum purchase limitation
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<PAGE>
specified in Section 14A and the minimum purchase limitation specified in
Section 14C and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%.
B. In the event that Other Members exercise subscription rights for a
number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the remaining shares of Conversion Stock shall be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
which may subscribe together with any Associate or group of persons Acting in
Concert for up to $175,000 of the shares of Conversion Stock offered subject to
the Maximum Overall Purchase
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Limitation as specified in Section 14A and the minimum purchase limitation
specified in Section 14C and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%;
provided, however, that the amount permitted to be purchased in the Community
Offering may be increased to 5% of the Conversion Stock or decreased to less
than $175,000 without the further approval of members or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. Any excess
of shares will be available for purchase by the general public with preference
given to Preferred Subscribers. The BANK and the Holding Company shall make
distribution of the Conversion Stock to be sold in the Community Offering in
such a manner as to promote the widest distribution of Conversion Stock. The
BANK and the Holding Company reserve the right to reject any or all orders, in
whole or in part, which are received in the Community Offering.
If the subscribers in the Community Offering, whose orders would otherwise
be accepted, subscribe for more shares than are available for purchase, the
shares available to them will be allocated among the subscribers in the manner
which permits each such person to the extent possible, to purchase the number of
shares necessary to make his total allocation of Conversion Stock equal to the
lesser of 100 shares or the number of shares subscribed for by such persons.
Thereafter, unallocated shares will be allocated among the subscribers whose
subscriptions remain unsatisfied on a 100 shares per order basis until all such
orders have been filled or the remaining shares have been allocated. The BANK
and the Holding Company may establish all other terms and conditions
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of such offer. It is expected that the Community Offering will commence
concurrently with the Subscription Offering. The Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the BANK and the Holding Company, in a manner that will achieve the widest
distribution of the Conversion Stock subject to the right of the BANK and the
Holding Company to accept or reject in whole or in part all subscriptions in the
Syndicated Community Offering. In the Syndicated Community Offering, any person
together with any Associate or group of persons Acting in Concert may purchase
up to $175,000 of the total number of shares of Conversion Stock offered subject
to the maximum purchase limitation specified in Section 14A and the minimum
purchase limitation specified in Section 14C and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated Price Range of
up to 15%; provided, however, that this amount may be increased to 5% or
decreased to less than $175,000 without the further approval of members or
resolicitation of subscribers. The shares purchased by any Person together with
any Associate or group of persons Acting in Concert pursuant to Section 12 shall
be counted toward meeting the maximum percentage of shares permitted to be
purchased pursuant to this Section. Provided that the Subscription Offering has
commenced, the BANK and the Holding Company may commence the Syndicated
Community Offering at any time after the mailing to the Members of the Proxy
Statement to be used in connection with the Special Meeting of Members, provided
that the completion of the offer and sale of the Conversion Stock
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shall be conditioned upon the approval of this Plan by the Voting Members. If
the Syndicated Community Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated Community Offering will be
commenced as soon as practicable following the date upon which the Subscription
and Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the BANK and
the Holding Company shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment public offering. The provisions of Section 14 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters, the BANK and the Holding Company, which will in no event exceed an
amount deemed to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings can not be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the BANK and the Holding
Company, if possible. Such other purchase arrangements will be subject to the
approval of the OTS.
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14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
shall not exceed the greater of 1% of the shares of Conversion Stock offered
(exclusive of an increase in the total number of shares issued due to an
increase in the Estimated Price Range of up to 15%) or $175,000 of the shares of
Conversion Stock offered (the "Maximum Overall Purchase Limitation"), except for
the Employee Plans which may subscribe for up to 10% of the Conversion Stock
issued and except for certain Eligible Account Holders and Supplemental Eligible
Account Holders which may subscribe for or purchase shares in accordance with
Sections 8 and 10 herein, respectively; provided, however, in the event that the
Maximum Overall Purchase Limitation is increased to more than 2.0% of the shares
of Conversion Stock offered, orders for Conversion Stock in the Community
Offering and in the Syndicated Community Offering (or, alternatively an
underwritten firm commitment public offering), if any, shall, as determined by
the BANK and the Holding Company, first be filled to a maximum of 2.0% of the
total number of shares of Conversion Stock offered and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
B. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the Conversion by Officers and Directors of the
BANK and the Holding Company and
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their Associates in the aggregate shall not exceed 31% of the total number of
shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares of
Conversion Stock which when multiplied by the price per share shall not exceed
$500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8, 10, 11, 12 and 13, to any Person or that Person's Associates would
be in excess of the maximum number of shares permitted as set forth above, the
number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
Associates shall be reduced so that the aggregate allocation to that Person and
his or her Associates complies with the above maximums, and such maximum number
of shares shall be reallocated among that Person and his or her Associates as
they may agree, or in the absence of an agreement, in proportion to the shares
subscribed by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Board of Directors of
the BANK and the Holding Company, without further approval of the Members, may
decrease or increase the purchase limitations in this Plan, provided that the
maximum purchase limitations may not be increased to a percentage in excess of
5%. Notwithstanding the foregoing, the Maximum Overall Purchase Limitation may
be increased up to 9.99% provided that orders for Conversion Stock exceeding 5%
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of the shares being offered shall not exceed, in the aggregate, 10% of the total
offering. If the BANK and the Holding Company increase the maximum purchase
limitations, the BANK and the Holding Company are only required to resolicit
Persons who subscribed for the maximum purchase amount and may, in the sole
discretion of the BANK and the Holding Company, resolicit certain other large
subscribers.
In the event shares of Conversion Stock are sold in excess of the maximum
of the Estimated Price Range (the "Adjusted Maximum"), such shares will be
allocated in the following order of priority: (i) to fill the Employee Plans'
subscription to the Adjusted Maximum; (ii) in the event that there is an over
subscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 8; (iii) in the event there is an over subscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an over
subscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum in accordance with Section 12.
For purposes of this Section 14, the Directors and Officers of the BANK and
the Holding Company shall not be deemed to be Associates or a group affiliated
with each other or otherwise Acting in Concert solely as a result of their being
Directors or Officers of the BANK or the Holding Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
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For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of common stock of the Holding Company, except from
a broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Holding Company the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Holding
Company made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-
Tax-Qualified Employee Stock Benefit Plan of the BANK or the Holding Company
(including the Employee Plans) which may be attributable to any Officer or
Director. As used herein, the term "negotiated transaction" means a transaction
in which the securities are offered and the terms and arrangements relating to
any sale are arrived at through direct communications between the seller or any
person acting on its behalf and the purchaser or his investment representative.
The term "investment representative" shall mean a professional investment
advisor acting as agent for the purchaser and independent of the seller and not
acting on behalf of the seller in connection with the transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
BANK, together with a properly completed and executed Order Form, or purchase
order in the case of the Syndicated Community Offering, on or prior to the
expiration date specified on the Order Form or purchase order, as the case may
be, unless such date is extended by the BANK; provided, however, that if the
Employee Plans subscribe for shares during the Subscription Offering, such plans
will not be required to pay for the shares at the time they subscribe but rather
may pay for such shares of Conversion Stock subscribed
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for by such plans at the Actual Purchase Price upon consummation of the
Conversion, provided that, in the case of the employee stock ownership plan
("ESOP") there is in force from the time of its subscription until the
consummation of the Conversion, a loan commitment from the Holding Company or an
unrelated financial institution to lend to the ESOP, at such time, the aggregate
Subscription Price of the shares for which it subscribed. The BANK may make
scheduled discretionary contributions to an Employee Plan provided such
contributions do not cause the BANK to fail to meet its regulatory capital
requirements.
Notwithstanding the foregoing, the BANK and the Holding Company shall have
the right, in their sole discretion, to permit institutional investors to submit
contractually irrevocable orders in the Community Offering and to thereafter
submit payment for the Conversion Stock for which they are subscribing in the
Community Offering at any time prior to 48 hours before the completion of the
Conversion, unless such 48 hour period is waived by the BANK and the Holding
Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the BANK on the Order Form to make a withdrawal from the
subscriber's Savings Account at the BANK in an amount equal to the purchase
price of such shares. Such authorized withdrawal, whether from a savings
passbook or certificate account, shall be without premature withdrawal penalty.
If the authorized withdrawal is from a certificate account, and the remaining
balance does not meet the applicable minimum balance requirement, the
certificate shall be cancelled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which
a withdrawal is
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authorized will remain in the subscriber's Savings Account but may not be used
by the subscriber until the Conversion Stock has been sold or the 45-day period
(or such longer period as may be approved by the OTS) following the Subscription
and Community Offering has expired, whichever occurs first. Thereafter, the
withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the purchase price per share.
Interest will continue to be earned on any amounts authorized for withdrawal
until such withdrawal is given effect. Interest will be paid by the BANK at not
less than the passbook annual rate on payments for Conversion Stock received in
cash or by check or money order. Such interest will be paid from the date
payment is received by the BANK until consummation or termination of the
Conversion. If for any reason the Conversion is not consummated, all payments
made by subscribers in the Subscription, Community and Syndicated Community
Offerings will be refunded to them with interest. In case of amounts authorized
for withdrawal from Savings Accounts, refunds will be made by cancelling the
authorization for withdrawal. The BANK is prohibited by regulation from
knowingly making any loans or granting any lines of credit for the purchase of
stock in the Conversion, and therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and BANK has been declared effective by the OTS and the SEC, Order Forms will be
distributed to all Eligible Account Holders, the Employee Plans, the
Supplemental Eligible Account Holders and Other Members at their last known
addresses appearing on the records of the BANK for the purpose of subscribing to
shares of Conversion Stock in the Subscription Offering and will be made
available
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for use by those Persons entitled to purchase in the Community Offering.
Notwithstanding the foregoing, the BANK may elect to send Order Forms only to
those Persons who request them after such notice as is approved by the OTS and
is adequate to apprise all Eligible Account Holders, the Employee Plans,
Supplemental Eligible Account Holders and Other Members of the pendency of the
Subscription Offering has been given. Such notice may be included with the proxy
statement for the Special Meeting of Members and may also be included in a
notice of the pendency of the Conversion and the Special Meeting of Members sent
to all Eligible Account Holders and Supplemental Eligible Account Holders in
accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus
describing the Holding Company, the BANK, the Conversion Stock and the
Subscription and Community Offerings. Each Order Form will contain, among other
things, the following:
A. A specified date by which all Order Forms must be received by the
BANK, which date shall be not less than twenty (20), nor more than forty-five
(45) days, following the date on which the Order Forms are mailed by the BANK,
and which date will constitute the termination of the Subscription Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
subscription rights or otherwise purchased in the Community Offering;
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D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus prior to execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the BANK withdraw said amount from the subscriber's Savings Account at the
BANK) to the BANK; and
G. A statement to the effect that the executed Order Form, once received
by the BANK, may not be modified or amended by the subscriber without the
consent of the BANK.
Notwithstanding the above, the BANK and the Holding Company will not accept
orders received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the BANK
by the United States Postal Service or the BANK is unable to locate the
addressee, (b) are not received back by the BANK or are received by the BANK
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment, except in the
case of
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institutional investors in the Community Offering, by delivering irrevocable
orders together with a legally binding commitment to pay in cash, check or money
order the full amount of the purchase price prior to 48 hours before the
completion of the Conversion for the shares of Conversion Stock subscribed for
(including cases in which savings accounts from which withdrawals are authorized
are insufficient to cover the amount of the required payment), or (e) are not
mailed pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights of the person to whom such rights have been granted will
lapse as though such person failed to return the contemplated Order Form within
the time period specified thereon; provided, however, that the BANK may, but
will not be required to, waive any immaterial irregularity on any Order Form or
require the submission of corrected Order Forms or the remittance of full
payment for subscribed shares by such date as the BANK may specify. The
interpretation by the board of directors of the BANK of terms and conditions of
the Plan and of the Order Forms will be final, subject to the authority of the
OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the BANK or the Holding Company and their Associates in the Conversion shall be
subject to the restriction that, except as provided in Section 18B, below, or as
may be approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (l) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the BANK or the Holding Company, which has been approved
by the OTS; and
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(ii) Any disposition of such shares following the death of the person
to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent for the
Holding Company as not to recognize or effect any transfer of any certificate or
record of ownership of any such shares in violation of the restriction on
transfer; and
(iii) Any shares of capital stock of the Holding Company issued
with respect to a stock dividend, stock split, or otherwise with respect to
ownership of outstanding shares of Conversion Stock subject to the restriction
on transfer hereunder shall be subject to the same restriction as is applicable
to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon the completion of the conversion, the holders of the capital stock of
the BANK shall have the exclusive voting rights with respect to the BANK as
specified in its charter. The holders of the common stock of the Holding
Company shall have the exclusive voting rights with respect to the Holding
Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The BANK shall establish at the time of conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
conversion ("Liquidation Account"). The Liquidation Account will be maintained
by the BANK for the benefit of the Eligible Account
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Holders and Supplemental Eligible Account Holders who continue to maintain their
Savings Accounts at the BANK. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to his or her Savings Account, hold
a related inchoate interest in a portion of the Liquidation Account balance, in
relation to his or her Savings Account balance at the Eligibility Record Date
and/or Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
In the unlikely event of a complete liquidation of the BANK (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their Savings Accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the Liquidation Account, in the amount of the then
adjusted subaccount balance for his or her Savings Account then held, before any
liquidation distribution may be made to any holders of the BANK's capital stock.
No merger, consolidation, bulk purchase of assets with assumption of Savings
Accounts and other liabilities, or similar transactions with an FDIC-insured
institution, in which the BANK is not the surviving institution, shall be deemed
to be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the BANK. Such initial
subaccount balance shall not
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be increased, but shall be subject to downward adjustment as described below.
For Savings Accounts in existence at both dates, separate subaccounts shall be
determined on the basis of the Qualifying Deposits in such Savings Account on
such record dates. Such initial subaccount balances shall not be increased but
shall be subject to downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit in such Savings Account, 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
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the BANK.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE BANK
Upon conversion, each holder of a Savings Account at the BANK prior to the
conversion will continue to have a Savings Account, without payment therefor, in
the same amount and subject to
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the same terms and conditions (except for voting and liquidation rights) as in
effect prior to the conversion.
After the conversion, the BANK will succeed to all the rights, interests,
duties and obligations of the BANK before the conversion, including but not
limited to all rights and interests of the BANK in and to its assets and
properties, whether real, personal or mixed. The BANK will continue to be a
member of the Federal Home Loan Bank System and all its insured savings deposits
will continue to be insured by the FDIC to the extent provided by applicable
law.
22. RESTRICTIONS ON ACQUISITION OF THE BANK AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of the conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the BANK
without the prior written consent of the OTS.
B. 1. The Federal Stock Charter of the BANK contains a provision
stipulating that no person, except the Holding Company, for a period of five
years following the date of the conversion shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of an
equity security of the BANK, without the prior written approval of the OTS. In
addition, such charter may also provide that for a period of five years
following the conversion, shares beneficially owned in violation of the above-
described charter provision shall not be entitled to vote and shall not be voted
by any person or counted as voting stock in connection with any matter submitted
to stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Bank's board
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of directors, and shareholders shall not be permitted to cumulate their votes
for the election of directors.
2. The Certificate/Articles of Incorporation of the Holding Company
if will contain a provision stipulating that in no event shall any record owner
of any outstanding shares of the Holding Company's common stock who beneficially
owns in excess of 10% of such outstanding shares be entitled or permitted to any
vote in respect to any shares held in excess of 10%. In addition, the
Certificate/Articles of Incorporation and Bylaws of the Holding Company provide
for staggered terms of the directors, noncumulative voting for directors,
limitations on the calling of special meetings, a fair price provision for
certain business combinations and certain notice requirements.
C. For the purposes of this Section 22:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an BANK, a joint stock company, a trust,
an unincorporated organization or similar company, a syndicate or any other
group formed for the purpose of acquiring, holding or disposing of securities of
an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription
rights issued pursuant to a plan of conversion as well as a "security" as
defined in 15 U.S.C. (S)78c(a)(10).
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23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The BANK shall not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause its regulatory capital to be
reduced below (i) the amount required for the Liquidation Account or (ii) the
federal regulatory capital requirements in Section 567.2 of the Rules and
Regulations of the OTS. Otherwise, the BANK may declare dividends, make capital
distributions or repurchase its capital stock in accordance with applicable law
and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Members to vote on the Plan by a
two-thirds vote of the BANK's board of directors, and at any time thereafter by
such vote of such board of directors with the concurrence of the OTS. Any
amendment to the Plan made after approval by the Members with the approval of
the OTS shall not necessitate further approval by the Members unless otherwise
required by the OTS. The Plan may be terminated by majority vote of the BANK's
board of directors at any time prior to the Special Meeting of Members to vote
on the Plan, and at any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the BANK authorize the Bank's board
of directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the BANK will be voting to adopt a
Federal Stock Charter and Bylaws for a Federal Stock Savings Bank attached as
Exhibits I and II to this Plan. The effective date of the BANK's Federal Stock
Charter and Bylaws shall be the date of issuance and sale of the Conversion
Stock as specified by the OTS.
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26. CONSUMMATION OF CONVERSION
The Conversion of the BANK shall be deemed to take place and be effective
upon the completion of all requisite organizational procedures for obtaining a
Federal Stock Charter for the BANK and sale of all Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
Conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The BANK and the Holding Company will make reasonable efforts to comply
with the securities laws of all States in the United States in which Persons
entitled to subscribe for shares of Conversion Stock pursuant to the Plan
reside. However, no such Person will be issued subscription rights or be
permitted to purchase shares of Conversion Stock in the Subscription Offering if
such Person resides in a foreign country or in a state of the United States with
respect to which both of the following apply: (A) a small number of Persons
otherwise eligible to subscribe for shares under the Plan reside in such state
and; (B) the issuance of subscription rights or the offer or sale of shares of
Conversion Stock to such Persons would require the Holding Company, under the
securities laws
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<PAGE>
of such state, to register as a broker, dealer, salesman or agent or to register
or otherwise qualify its securities for sale in such state and such registration
or qualification would be impracticable for reasons of cost or otherwise.
29. EXPENSES OF CONVERSION
The BANK shall use its best efforts to assure that expenses incurred by it
in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion of the BANK pursuant to this Plan is expressly conditioned
upon the following:
(a) Prior receipt by the BANK of rulings of the United States Internal
Revenue Service and any applicable state taxing authority, or opinions of
counsel, substantially to the effect that the Conversion will not result in any
adverse federal or state tax consequences to Eligible Account Holders or to the
BANK and the Holding Company before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the board of directors of the BANK
shall be final, subject to the authority of the OTS.
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FEDERAL STOCK CHARTER
FOR
NEWBERRY FEDERAL SAVINGS BANK
Section 1. Corporate Title.
The full corporate title of the bank is Newberry Federal Savings Bank (the
"BANK").
Section 2. Office.
The home office shall be located in the City of Newberry, in the State of
South Carolina.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings association chartered under Section 5 of the Home Owners' Loan
Act and to exercise all the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which the
BANK has the authority to issue is eleven thousand (11,000), of which ten
thousand (10,000) shall be common stock, par value $1.00 per share, and of which
one thousand (1,000) shall be preferred stock, par value $1.00 per share. The
shares may be issued from time to time as authorized by the Board of Directors
without further approval of shareholders except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the BANK. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor or services actually
performed for the BANK, or any combination of the foregoing. In the absence of
actual fraud in the transaction, the value of such property, labor, or services,
as determined by the Board of Directors of the BANK, shall be conclusive. In
the case of a stock dividend, that part of the retained earnings of the BANK
that is transferred to common stock or paid-in capital accounts upon the
issuance of shares as a stock dividend shall be deemed to be the consideration
for their issuance.
<PAGE>
Except for shares issued in connection with the conversion of the BANK from
the mutual to the stock form of capitalization, no shares of capital stock
(including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the BANK other than as part of a general public offering
or as qualifying shares to a director, unless their issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share; provided,
--------
however, that this restriction on voting separately by class or series shall not
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apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision that would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
BANK if the preferred stock is exchanged for securities of such other
corporation; provided, however, that no provision may require such
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approval for transactions undertaken with the assistance or pursuant
to the direction of the Office or the Federal Deposit Insurance
Corporation; or
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or consolidation for
the BANK, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the BANK's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by each
holder. There shall be no cumulative voting for the election of
directors.
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<PAGE>
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, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
BANK, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the BANK available for distribution remaining
after: (i) payment or provision for payment of the BANK'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 the BANK. Each share of common stock
shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The BANK may provide in supplementary sections to
---------------
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full or limited, if any, of the 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;
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(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 BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the BANK and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the Board of Directors, the BANK shall
file with the Secretary of the Office a dated copy of that supplementary section
of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive Rights.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
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<PAGE>
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of November 30, 1998 and
______________, ____ ("eligible savers"). In the event of a complete
liquidation of the BANK, it shall comply with such regulations with respect to
the amount and the priorities on liquidation of each of the BANK's eligible
saver's inchoate interest in the liquidation account, to the extent it is still
in existence; provided, however, that an eligible saver's inchoate interest in
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the liquidation account shall not entitle such eligible saver to any voting
rights at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to the
contrary, for a period of five years from the date of consummation of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the BANK.
This limitation shall not apply to a transaction in which the BANK
forms a holding company without change in the respective beneficial
ownership interests of the BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the
purchase of shares by a tax-qualified employee stock benefit plan
which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office Regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent shall
be considered "excess shares" and shall not be counted as shares
entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matters submitted to the
shareholders for a vote.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, any unincorporated organization or
similar company, a syndicate or any other group formed for the
purpose of acquiring, holding or disposing of the equity
securities of the BANK.
(ii) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
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(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in
a joint activity or conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) 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.
B. Call for Special Meetings. Special meetings of shareholders relating
-------------------------
to changes in control of the BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number or lesser number is
approved by the Director of the Office or his or her delegate.
Section 10. Amendment of Charter.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is proposed by the
Board of Directors of the BANK, approved by the shareholders by a majority of
the votes eligible to be cast at a legal meeting, unless a higher vote is
otherwise required, and approved or preapproved by the Office.
* * *
6
<PAGE>
NEWBERRY FEDERAL SAVINGS BANK
Attest:________________________ By:________________________________
Secretary President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest:________________________ By:________________________________
Secretary
Declared effective on
the _____ day of __________, 2000
7
<PAGE>
FEDERAL STOCK BYLAWS
FOR
NEWBERRY FEDERAL SAVINGS BANK
ARTICLE I - HOME OFFICE
The home office of Newberry Federal Savings Bank ("Bank") shall be at 1735
Wilson Road, Newberry, in the State of South Carolina.
ARTICLE II - SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
----------------------------
shareholders shall be held at the home office of the Bank or at such other
convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Bank for
-------------------------
the election of directors and for the transaction of any other business of the
Bank shall be held annually within 150 days after the end of the Bank's fiscal
year on the third Tuesday of April of each year if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday, at
2:00 p.m., local time, or at such other date and time within such 150-day period
as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
---------------------------
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office") or the Bank's Federal Stock Charter, may
be called at any time by the chairman of the board, the president, or a majority
of the board of directors, and shall be called by the chairman of the board, the
president, or the secretary upon the written request of the holders of not less
than one-tenth of all of the outstanding capital stock of the Bank entitled to
vote at the meeting. Such written request shall state the purpose or purposes of
the meeting and shall be delivered to the home office of the Bank addressed to
the chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and
-----------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Bank as of the record date prescribed in section 6 of
this article
<PAGE>
II with postage prepaid. When any shareholders' meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such 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, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
-----------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Bank shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Bank and
shall be subject to inspection by any shareholder of record or the shareholder's
agent at any time during usual business hours for a period of 20 days prior to
such meeting. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any shareholder of
record or any shareholder's agent during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in (S)552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Bank
-----------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
<PAGE>
Section 9. Proxies. At all meetings of shareholders, a shareholder may
------------------
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the Bank to the contrary, at any meeting of the shareholders of
the Bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------------------
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares outstanding in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may by voted by the
Bank if no other instructions are received. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under control of a
receiver may be voted by such receiver without the transfer into his or her name
if authority to do so is consigned in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Bank nor shares held
by another Corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Bank, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Inspectors of Election. In advance of any meeting of
----------------------------------
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the
3
<PAGE>
votes represented at the meeting shall, make such appointment at the meeting. If
appointed at the meeting, the majority of the votes present shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the board of directors in advance of the meeting
or at the meeting by the chairman of the board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper
for conduct the election or vote with fairness to all shareholders.
Section 13. Nominating Committee. The board of directors shall act as a
--------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual
------------------------
meeting shall be stated in writing and filed with the secretary of the Bank at
least five days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
Section 15. Informal Action by Shareholders. Any action required to be
-------------------------------------------
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be
4
<PAGE>
taken without a meeting if consent in writing, setting forth the action so
taken, shall be given by all of the shareholders entitled to vote with respect
to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Bank shall be
-------------------------
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2 . Number and Term. The board of directors shall consist of six
---------------------------
(6) and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
---------------------------
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The board of directors may provide, by resolution, the time
and place, for the holding of additional regular meetings without other notice
than such resolution. Directors may participate in a meeting by means of a
conference telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
------------------------
beneficial owner of not less than 100 shares of capital stock of the Bank unless
the Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
---------------------------
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Bank's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
making use of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given to
-----------------
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Bank receives notice of delivery if electronically transmitted. Any
director may waive notice of any meeting by a writing filed with the secretary.
The attendance of a director at a meeting shall constitute a waiver
5
<PAGE>
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by section
-----------------
2 of this article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors; but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by section 5 of this article III.
Section 8. Manner of Acting. The act of the majority of the directors
---------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
-----------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
-----------------------
written notice of such resignation to the home office of the Bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may
---------------------
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
------------------------
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Bank who is present
---------------------------------
at a meeting of the board of directors at which action on any bank matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered
6
<PAGE>
mail to the secretary of the Bank within five days after the date a copy of the
minutes of the meeting is received. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
--------------------------------
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Section 15. Age Limitation. No person 75 years of age or older will be
--------------------------
eligible for election, reelection, appointment, or reappointment to the board of
directors of the Bank. No director shall serve as such beyond the annual
meeting of the Bank immediately following his or her attaining age 75. This
limitation applies only to persons first elected as directors after January 1,
1992. This limitation does not apply to an advisory director or director
emeritus.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a
----------------------
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
--------------------
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Bank, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Bank otherwise than in the
usual and regular course of its business; a voluntary dissolution of the Bank; a
revocation of any of the foregoing; or the approval of a transaction in which
any member of the executive committee, directly or indirectly, has any material
beneficial interest.
Section 3. Tenure. Subject to the provisions of section 8 of this article
-----------------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
-------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less
7
<PAGE>
than one day's notice stating the place, date, and hour of the meeting, which
notice may be written or oral. Any member of the executive committee may waive
notice of any meeting and no notice of any meeting need be given to any member
thereof who attends in person. The notice of a meeting of the executive
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
-----------------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
-----------------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
--------------------
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
-----------------------------------
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Bank. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
--------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
----------------------------
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
Section 1 . Positions. The officers of the Bank shall be a president, one
---------------------
or more vice presidents, a secretary, and a treasurer or comptroller, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The offices of the
secretary and treasurer or comptroller may be held by the same person and a vice
president may also be either the secretary or the treasurer or comptroller. The
board of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the Bank may
require. The officers shall have such authority and perform such duties as the
board of
8
<PAGE>
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 Bank shall be
--------------------------------------
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee, or agent shall not of
itself create contractual rights. The board of directors may authorize the Bank
to enter into an employment contract with any officer in accordance with
regulations of the Office; but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with section
3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
------------------
whenever in its judgment the best interests of the Bank will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
-----------------------
from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
--------------------
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the Bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Bank and
----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks; Drafts. etc. All checks, drafts, or other orders for the
------------------------------
payment of money, notes, or other evidences of indebtedness issued in the name
of the Bank shall be signed by one or more officers, employees or agents of the
Bank in such manner as shall from time to time be determined by the board of
directors.
9
<PAGE>
Section 4. Deposits. All funds of the Bank not otherwise employed shall be
-------------------
deposited from time to time to the credit of the Bank in any duly authorized
depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
----------------------------------
capital stock of the Bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Bank
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the owner
of shares and date of issue, shall be entered on the stock transfer books of the
Bank. All certificates surrendered to the Bank for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
-----------------------------
Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner for
all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Bank shall end on the 30/th/ day of September of
each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Bank's charter and the regulations and orders
of the Office, the board of directors may, from time to time, declare, and the
Bank may pay, dividends on its outstanding shares of capital stock.
10
<PAGE>
ARTICLE X - CORPORATE SEAL
The board of directors shall provide the Bank seal which shall be two
concentric circles between which shall be the name of the Bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Bank at any legal meeting, and (ii) receipt of
any applicable regulatory approval. When the Bank fails to meet its quorum
requirements, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws.
11
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DUTCHFORK BANCSHARES, INC.
FIRST: The name of the corporation is DutchFork Bancshares, Inc.
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
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State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
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activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
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A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is four million and five hundred
thousand (4,500,000), consisting of:
1. Five hundred thousand (500,000) shares of preferred stock,
par value one cent ($.01) per share (the "Preferred Stock");
and
2. Four million (4,000,000) shares of common stock, par value
one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate 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 stockholders entitled to vote
on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the "Limit"), be
entitled, or permitted to any vote in respect of the shares
held in excess of the Limit. The number of votes which may
be cast by any record owner by virtue
<PAGE>
of the provisions hereof in respect of Common Stock
beneficially owned by such person beneficially 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 beneficially owned by such person would be entitled to
cast, (subject to the provisions of this Article FOURTH)
multiplied by a fraction, the numerator of which is the
number of shares of such class or series which are both
beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total
number of shares of Common Stock beneficially owned by such
person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
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 amended, as in
effect on the date of filing of this Certificate 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, as amended, (or
any successor rule or statutory provision), or, if said
Rule 13d-3 shall be rescinded and there shall be no
successor rule or provision thereto, pursuant to said
Rule 13d-3 as in effect on the date of filing of this
Certificate of Incorporation; provided, however, that a
person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement
or understanding (but shall not be deemed to be
the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more
of clauses 1 through 5 of Section A of Article
EIGHTH of this Certificate of Incorporation
("Article EIGHTH")), or upon the exercise of
conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared
voting or investment power with
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<PAGE>
respect thereto pursuant to any agreement,
arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the
beneficial owner of any voting shares solely by
reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a
public solicitation of proxies for such meeting,
with respect to shares of which neither such
person nor any such Affiliate is otherwise deemed
the beneficial owner); or
(3) 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 this
Corporation; and provided further, however, that:
(1) no Director or Officer of this Corporation (or
any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities
as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially
owned by any other such Director or Officer (or
any Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of this
Corporation or any subsidiary of this 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 only of computing the percentage of
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
shares of Common Stock which may be issuable by
this 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 shares
of Common Stock then outstanding and shall not
include any shares of Common Stock which may be
issuable by this Corporation pursuant to any
agreement, or upon the
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<PAGE>
exercise of conversion rights, warrants or
options, or otherwise.
c. The "Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with
respect to: (i) the number of shares of Common Stock
beneficially owned by any person; (ii) whether a person is
an affiliate of another; (iii) whether a person has an
agreement, arrangement, or understanding with another as to
the matters referred to in the definition of beneficial
ownership; (iv) the application of any other definition or
operative provision of the section to the given facts; or
(v) any other matter relating to the applicability or effect
of this section.
4. The Board of Directors shall have the right to demand that
any person who is reasonably believed to beneficially own
shares of 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 requested 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 stockholders, and every reference in this Certificate
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
stockholder consent or approval shall be deemed to refer to
such majority or other proportion of the votes
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<PAGE>
(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 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
stockholders.
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 shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders 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 stockholders, including
stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
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business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Subject to the rights of the holders of any class or series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
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<PAGE>
SIXTH:
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A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors, other than those who may be
elected by the holders of any class or series of Preferred Stock, shall be
divided, with respect to the time for which they severally hold office,
into three classes, with the term of office of the first class to expire at
the first annual meeting of stockholders, the term of office of the second
class to expire at the annual meeting of stockholders one year thereafter
and the term of office of the third class to expire at the annual meeting
of stockholders two years thereafter, with each Director to hold office
until his or her successor shall have been duly elected and qualified. At
each annual meeting of stockholders, Directors elected to succeed those
Directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
B. Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines,
newly created directorships resulting from any increase in the authorized
number of directors or any vacancies in the Board of Directors resulting
from death, resignation, retirement, disqualification, removal from office
or other cause may be filled only by a majority vote of the Directors then
in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which
the term of office of the class to which they have been elected expires and
until such Director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Board
shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH of this Certificate of Incorporation ("Article
FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
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repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote
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<PAGE>
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH), voting together as a single class, shall be required to adopt,
amend or repeal any provisions of the Bylaws of the Corporation.
EIGHTH:
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A. In addition to any affirmative vote required by law or by this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant
to an employee benefit plan of the Corporation or any
Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation
or any Subsidiary which is
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<PAGE>
directly or indirectly owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of capital stock of the
Corporation entitled to vote in the election of Directors (the "Voting
Stock") (after giving effect to the provisions of Article FOURTH), voting
together as a single class. Such affirmative vote shall be required
notwithstanding that no vote may be required, or that a lesser percentage
may be specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by the holders of Common Stock
in such Business Combination shall at least be equal to
the higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date"); or
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<PAGE>
or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in
this Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the
following (it being intended that the requirements of
this subparagraph (b) shall be required to be met with
respect to every such class of outstanding Voting
Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of
Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
for any shares of such class of Voting Stock
acquired by it: (i) within the two-year period
immediately prior to the Announcement Date; or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such
class of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as
the Interested Stockholder has previously paid for
shares of such class of Voting Stock. If the
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Interested Stockholder has paid for shares of any class
of Voting Stock with varying forms of consideration,
the form of consideration to be received per share by
holders of shares of such class of Voting Stock shall
be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The
price determined in accordance with subparagraph B.2 of
this Article EIGHTH shall be subject to appropriate
adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination: (1) except as approved by a
majority of the Disinterested Directors (as hereinafter
defined), there shall have been no failure to declare
and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any
outstanding stock having preference over the Common
Stock as to dividends or liquidation; (2) there shall
have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary
to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested
Directors; and (ii) an increase in such annual rate of
dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the
effect of reducing the number of outstanding shares of
the Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the
Disinterested Directors, and (3) neither such
Interested Stockholder or any of its Affiliates shall
have become the beneficial owner of any additional
shares of Voting Stock except as part of the
transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the
Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
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<PAGE>
f. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, and the
rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any holding company or Subsidiary
thereof) who or which:
a. is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under
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the Securities Exchange Act of 1934, as amended, as in
effect on the date of filing of this Certificate of
Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment
or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
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8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the
holders of such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of the Voting Stock (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall
be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when
evaluating any offer of another Person (as defined in Article EIGHTH hereof) to:
(A) make a tender or exchange offer for any equity security of the Corporation;
(B) merge or consolidate the Corporation with another corporation or entity; or
(C) purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in
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<PAGE>
evaluating any action that may result in a change or potential change in the
control of the subsidiary, and the social and economic effect of acceptance of
such offer: on the Corporation's present and future customers and employees and
those of its Subsidiaries (as defined in Article EIGHTH hereof); on the
communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings institution to fulfill the objectives of a
stock form savings institution under applicable statutes and regulations.
TENTH:
-----
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason that he or she is or was a Director or an Officer
of the Corporation or is or was serving at the request of the Corporation
as a Director, Officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a Director, Officer, employee or agent or in any other capacity
while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
a majority vote of the Directors who are not parties to such proceeding,
even though less than a quorum.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights
14
<PAGE>
shall continue as to an indemnitee who has ceased to be a Director,
Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within 60 days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expenses
of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or subsidiary or Affiliate or another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by a majority vote of the Directors who are not parties to such proceeding,
even though less than a quorum, grant rights to indemnification and to the
advancement of expenses to any employee or agent
15
<PAGE>
of the Corporation to the fullest extent of the provisions of this Article
TENTH with respect to the indemnification and advancement of expenses of
Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable
--------
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability: (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Delaware General Corporation Law is amended 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 fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- --------------------------------
Joseph P. Daly Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
16
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand on February 11, 2000.
/s/ Joseph P. Daly
-----------------------------------
Joseph P. Daly
Incorporator
17
<PAGE>
Exhibit 3.2
DUTCHFORK BANCSHARES, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class
<PAGE>
or classes present in person or represented by proxy (after giving effect to the
provisions of Article FOURTH of the Corporation's Certificate of Incorporation)
shall constitute a quorum entitled to take action with respect to that vote on
that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such regulation of the
manner of voting and the conduct of discussion as deem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting: (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) nor more than one hundred and twenty (120) days prior to the
date of the annual meeting; provided, however, that in the event that less than
one hundred (100) days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such
2
<PAGE>
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, he
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures set
forth in these Bylaws shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders at which directors are to be elected only: (i) by
or at the direction of the Board of Directors; or (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 6(c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) nor more than one hundred and twenty (120) days prior to the
date of the meeting; provided, however, that in the event that less than one
hundred (100) days notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth: (i) as to each
person whom such stockholder proposes to nominate for election or re-election as
a Director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
and (ii) as to the stockholder giving the notice (x) the name and address, as
they appear on the Corporation's books, of such stockholder and (y) the class
and number of shares of the Corporation's capital stock that are beneficially
owned by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a Director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation
3
<PAGE>
unless nominated in accordance with the provisions of this Section 6(c). The
Officer of the Corporation or other person presiding at the meeting shall, if
the facts so warrant, determine that a nomination was not made in accordance
with such provisions and, if he or she shall so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used; provided, however, that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be six
(6). The Board of Directors shall annually elect a Chairman of the Board from
among its members who shall, when present, preside at its meetings.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Any vacancy occurring in the Board of Directors may be filled in accordance
with the Certificate of Incorporation.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President is incapacitated or otherwise unable to call such meeting, by
the Secretary, and shall be held at such place, on such date, and at such time
as he or she shall fix. Notice of the place, date, and time of each such
special meeting shall be given each Director by whom it is not waived by mailing
written notice not less than five (5) days before the meeting or by telegraph or
facsimile, or similar means of transmission, of the
5
<PAGE>
same not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
--------- ------
Except as otherwise required by law, the Board of Directors may exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
Officer upon any other person for the time being;
6
<PAGE>
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Qualifications.
---------- --------------
(a) To be eligible for election, reelection, appointment or reappointment
to the Board of Directors, a person must reside within 50 miles of an office of
the Corporation or one of its depository institution subsidiaries.
(b) No person 75 years of age or older will be eligible for election,
reelection, appointment, or reappointment to the Board of Directors of the
Corporation. No Director shall serve as such beyond the annual meeting of the
Corporation immediately following his or her attaining age 75. With respect to
Directors of the Corporation who are also Directors of Newberry Federal Savings
Bank, this limitation applies only to those Directors who were first elected as
Directors of Newberry Federal Savings Bank after January 1, 1992. This
limitation does not apply to an advisory director or director emeritus.
(c) No person shall be eligible for election or appointment to the board
of directors if such person (i) has, within the previous 10 years, been the
subject of supervisory action by a financial regulatory agency that resulted in
a cease and desist order or an agreement or other written statement subject to
public disclosure under 12 U.S.C. 1818(u), or any successor provision, that
involved fraud, moral turpitude, dishonesty, breach of trust or fiduciary
duties, organized crime or racketeering or violation of depository institution
laws or regulations (ii) has been convicted of a
7
<PAGE>
crime involving dishonesty or breach of trust which is punishable by
imprisonment for a term exceeding one year under state or federal law, or (iii)
is currently charged in any information, indictment, or other complaint with the
commission of or participation in such a crime.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
8
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors, as soon as may be practicable after the
annual meeting of stockholders, shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen,
but any Officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of Directors then constituting the Board
of Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him or her by the Board of Directors and
which are delegated to him or her by the Board of Directors by resolution of the
Board of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer shall have general responsibility
for the management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President and Chief Executive Officer or which are delegated to
him or her by the Board of Directors. Subject to the direction of the Board of
Directors, the President and Chief Executive Officer shall have power to sign
all stock certificates, contracts and other instruments of the Corporation which
are authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
--------- --------------
The Vice President(s) shall perform the duties of the President in his or
her absence or during his or her inability to act. In addition, the Vice
President(s) shall perform the duties and exercise the
9
<PAGE>
powers usually incident to their respective offices and/or such other duties and
powers as may be properly assigned to them by the Board of Directors, the
Chairman of the Board or the President. The Vice President(s) may be designated
as Executive Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
--------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
--------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
10
<PAGE>
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
11
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond(s) of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
12
<PAGE>
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
These Bylaws may be amended or repealed in the manner set forth in the
Certificate of Incorporation.
* * *
The above Bylaws are effective as of February 15, 2000.
13
<PAGE>
EXHIBIT 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
DUTCHFORK BANCSHARES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF DUTCHFORK BANCSHARES, INC.
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. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation 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.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, DutchFork Bancshares, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
DUTCHFORK BANCSHARES, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate 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 any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted 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
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT - _____ custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ____________________________________________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
DATED ________________________ __________________________________________
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.
SIGNATURE GUARANTEED: _________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5.0
______________, 2000
Board of Directors
DutchFork Bancshares, Inc.
1735 Wilson Road
Newberry, South Carolina 29108
Re: The issuance of up to 1,719,250 shares of
DutchFork Bancshares, Inc. common stock
---------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of the Newberry Federal Savings Bank (the
"Bank"), a federal savings bank, from the mutual to the stock form of ownership
(the "Conversion"), and the related subscription offering, direct community
offering and syndicated community offering (the "Offerings") by DutchFork
Bancshares, Inc. (the "Company"), a Delaware corporation and the proposed
holding company for the Bank, of up to 1,495,000 shares of its common stock, par
value $.01 per share ("Common Stock") (1,719,250 shares if the estimated
valuation range is increased up to 15% to reflect changes in market and
financial conditions following commencement of the Offerings).
We understand that the Company will lend to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP trust will use to
purchase shares of Common Stock for which the ESOP trust subscribes pursuant to
the Offerings and, for purposes of rendering the opinion set forth in paragraph
2 below, we assume that: (a) the Board of Directors of the Company (the "Board")
has duly authorized the loan to the ESOP trust (the "Loan"); (b) the ESOP serves
a valid corporate purpose for the Company; (c) the Loan will be made at an
interest rate and on other terms that are fair to the Company; (d) the terms of
the Loan will be set forth in customary and appropriate documents including,
without limitation, a promissory note representing the indebtedness of the ESOP
trust to the Company as a result of the Loan; and (e) the closing for the Loan
and for the sale of Common Stock to the ESOP trust will be held after the
closing for the sale of the other shares of Common Stock sold in the Offerings
and the receipt by the Company of the proceeds thereof.
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on
<PAGE>
Board of Directors
DutchFork Bancshares, Inc.
_________, 2000
Page 2
February 11, 2000 (the "Certificate of Incorporation"); the Company's Bylaws;
the Company's Registration Statement on Form SB-2, as initially filed with the
Securities and Exchange Commission on ____________, 2000 and as amended on
__________, 2000 (the "Registration Statement"); a consent of the sole
incorporator of the Company; the Plan of Conversion, as amended; the ESOP trust
agreement and the ESOP Loan agreement; resolutions of the Board concerning the
organization of the Company, the Offerings and designation of a pricing
committee of the Board (the "Pricing Committee"); and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Delaware Secretary of State certifying
the Company's good standing as a Delaware corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Certificate of
Incorporation.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP trust) will be duly authorized and, when such shares are sold and paid for
in accordance with the terms set forth in the prospectus which is included in
the Registration Statement and such resolution of the Pricing Committee and
certificates representing such shares in the form provided to us are duly and
properly issued, will be validly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent,
<PAGE>
Board of Directors
DutchFork Bancshares, Inc.
__________, 2000
Page 3
if any, that a court applying Delaware law were to impose
equitable limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We assume no obligation to advise you of any events that occur subsequent
to the date of this opinion.
Very truly yours,
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.1
[FORM OF FEDERAL TAX OPINION]
___________, 2000
Board of Directors
Dutchfork Bancshares, Inc.
1735 Wilson Road
Newberry, South Carolina 29108
Board of Directors
Newberry Federal Savings Bank
1735 Wilson Road
Newberry, South Carolina 29108
Re: Federal Tax Consequences of the Conversion of Newberry Federal Savings
Bank from a Federally-chartered Mutual Savings Bank to a Federally-
chartered Stock Savings Bank and the Offer and Sale of Common Stock of
Dutchfork Bancshares, Inc. (the "Conversion")
To the Members of the Board of Directors:
You have requested an opinion regarding all the material federal income tax
consequences of the proposed conversion of Newberry Federal Savings Bank (the
"Bank") from a federally-chartered mutual savings bank to a federally-chartered
stock savings bank (the "Converted Bank") and the acquisition of the Converted
Bank's capital stock by Dutchfork Bancshares, Inc., a Delaware corporation (the
"Holding Company"), pursuant to the plan of conversion adopted by the Board of
Directors on January 18, 2000 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
__________, 2000
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received factual representations of the Holding Company and the
Bank concerning the Holding Company and the Bank as well as the transaction
("Representations"). These Representations are required to be furnished prior to
the execution of this letter and again prior to the closing of the Conversion.
We will rely upon the accuracy of the Representations of the Holding Company and
the Bank and the statements of facts contained in the examined documents,
particularly the Plan of Conversion. We have also assumed the authenticity of
all signatures, the legal capacity of all natural persons and the conformity to
the originals of all documents submitted to us as copies. Each capitalized term
used herein, unless otherwise defined, has the meaning set forth in the Plan of
Conversion. We have assumed that the Conversion will be consummated strictly in
accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided by
the Holding Company and the Bank are incorporated in this letter as part of the
statement of the facts.
The Bank, with its headquarters in Newberry, South Carolina, is a
federally-chartered mutual savings bank. As a mutual savings bank, the Bank has
never been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Bank belong to the deposit account holders
of the Bank, hereinafter sometimes referred to as "shareholders." A shareholder
of the Bank has a right to share, pro rata, with respect to the withdrawal value
of his respective deposit account in any liquidation proceeds distributed in the
event the Bank is ever liquidated. In addition, a shareholder of the Bank is
entitled to interest on his account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted the Plan of Conversion whereby the Bank will
convert itself into a federally-chartered stock savings bank, the stock of which
will be held entirely by the Holding Company. The Holding Company will acquire
the stock of the Converted Bank by purchase, in exchange for the Conversion
proceeds that are not permitted to be retained by the Holding Company. The
Holding Company will apply to the Office of Thrift Supervision ("OTS") to retain
up to 50% of the proceeds received from the Conversion. The aggregate sales
price of the Common Stock issued in the Conversion will be based on an
independent appraiser's valuation of the estimated pro forma market value of the
Holding Company and the Converted Bank. The Conversion and sale of the Common
Stock will be subject to applicable regulatory approval and the approval by the
affirmative vote of a majority of the Members.
<PAGE>
Board of Directors
__________, 2000
Page 3
The Bank shall establish at the time of Conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Converted Bank for
the benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their deposit accounts at the Converted Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to his Savings Account, hold a related inchoate interest in a
portion of the liquidation account balance, in relation to his deposit account
balance on the Eligibility Record Date and/or Supplemental Eligibility Record
Date or to such balance as it may be subsequently reduced, as provided in the
Plan of Conversion.
In the unlikely event of a complete liquidation of the Converted Bank (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their deposit accounts), each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his deposit accounts then held,
before any liquidation distribution may be made to any holders of the Converted
Bank's capital stock. No merger, consolidation, purchase of bulk assets with
assumption of Savings Accounts and other liabilities, or similar transaction
with a Federal Deposit Insurance Corporation ("FDIC") institution, in which the
Converted Bank is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the federal, state, or city tax consequences of the Conversion
under any section of the Code except if and to the extent specifically
addressed.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, and assuming the transaction occurs in accordance with the
Plan of Conversion, and taking into consideration the limitations noted
throughout this opinion, it is our opinion that under current federal income tax
law:
<PAGE>
Board of Directors
__________, 2000
Page 4
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual entity is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
entity to a stock savings bank is a tax-free reorganization since it
is a mere change in identity, form or place of organization within the
meaning of section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105,
1980-1 C.B. 78). Neither the Bank nor the Converted Bank shall
recognize gain or loss as a result of the Conversion. The Bank and the
Converted Bank shall each be "a party to a reorganization" within the
meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of
<PAGE>
Board of Directors
__________, 2000
Page 5
Common Stock will be recognized but only in an amount not in excess of
the fair market value of such subscription rights (Section 356(a)).
Eligible Account Holders and Supplemental Eligible Account Holders
will not realize any taxable income as a result of the exercise by
them of the nontransferable subscription rights (Rev. Rul. 56-572,
1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders and Supplemental Eligible Account Holders of
the Bank shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113). The basis
of the Holding Company Common Stock to its stockholders will be the
purchase price thereof plus the basis, if any, of nontransferable
subscription rights (Section 1012 of the Code). Accordingly, assuming
the nontransferable subscription rights have no value, the basis of
the Common Stock to the Eligible Account Holders and Supplemental
Eligible Account Holders will be the amount paid therefor. The holding
period of the Common Stock purchased pursuant to the exercise of
subscription rights shall commence on the date on which the right to
acquire such stock was exercised (Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and (7)
above assumes that the subscription rights to purchase shares of Common Stock
received by Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have a fair market value of zero. We understand that you have
received a letter from Keller & Company, Inc. that the subscription rights do
not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all
<PAGE>
Board of Directors
__________, 2000
Page 6
the information and Representations referred to herein. Any change in the
transaction could cause us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
Application for Conversion of the Bank and the references to and summary of this
opinion in such Application for Conversion. We also consent to the inclusion of
this opinion as an exhibit to the Form SB-2 Registration Statement and the Form
H-(e)1-S Application of Dutchfork Bancshares, Inc. and the references to and
summary of this opinion in both the Form SB-2 and the Form H-(e)1-S.
Sincerely,
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.2
[CLIFTON BODIFORD LETTERHEAD]
FORM OF STATE TAX OPINION
, 2000
Board of Directors
Dutchfork Bancshares, Inc.
1735 Wilson Road
Newberry, South Carolina 29108
Board of Directors
Newberry Federal Savings Bank
1735 Wilson Roads
Newberry, South Carolina 29108
Re: State Tax Consequences of the Conversion of Newberry Federal Savings Bank
from a Federally-chartered Mutual Savings Bank to a Federally-chartered Stock
Savings Bank and the Offer and Sale of Common Stock of Dutchfork Bancshares,
Inc. (the "Conversion").
To the Members of the Board of Directors:
You have requested an opinion regarding all the material state income tax
consequences of the proposed conversion of Newberry Federal Savings Bank (the
"Bank") from a federally-chartered mutual savings bank to a federally-chartered
stock savings bank (the "Converted Bank") and the acquisition of the Converted
Bank's capital stock by Dutchfork Bancshares, Inc., a Delaware corporation (the
"Holding Company"), pursuant to the plan of conversion adopted by the Board of
Directors of January 18, 2000 (the "Plan of Conversion").
You have previously received a favorable opinion from Muldoon, Murphy and
Faucette, LLP stating that the conversion from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank (the "Converted Bank")
and the acquisition of the Converted Bank's capital stock by Dutchfork
Bancshares, Inc., no adverse federal income tax consequences should result to
the Savings Bank or its members by virtue of the implementation of the Plan of
Reorganization and Stock Issuance, ("Plan of Reorganization").
<PAGE>
The State of South Carolina will, for income tax purposes, treat the
conversion in an identical manner as it is treated by the Internal Revenue
Service for federal income tax purposes. Based upon the facts and circumstances
attendant to the conversion, and applicable provisions of the Code, it is my
opinion that, under the laws of the State of South Carolina, no adverse income
tax consequences will be incurred by either the Savings Bank or its members as a
result of the implementation of the Plan of Reorganization.
No opinion is expressed on any matter other than income tax consequences
including, but not limited to, any franchise or capital stock taxes which might
result from the implementation of the Plan of Reorganization.
I consent to the inclusion of this opinion as an exhibit to the Form AC
Application for Conversion of the Bank and the references to and summary of this
opinion in such Application for Conversion. I also consent to the inclusion of
this opinion as an exhibit to the Form SB-2 Registration Statement and the Form
H-(e)1-S Application of Dutchfork Bancshares, Inc., and the references to and
summary of this opinion in both the Form SB-2 and the Form H-(e)1-S.
Yours very truly,
Clifton Bodiford
<PAGE>
EXHIBIT 10.1
[DUTCHFORK BANCSHARES, INC. LETTERHEAD]
______________,2000
Newberry Federal Savings Bank
1735 Wilson Road
Newberry, South Carolina 29108
Dear Mr. _____________:
This letter confirms DUTCHFORK BANCSHARES, INC., commitment to fund a
leveraged ESOP in an amount sufficient to purchase 8% of the shares offered in
the conversion of Newberry Federal Savings Bank from mutual to stock form of
organization (the "Conversion"). The commitment is subject to the following
terms and conditions:
1. Lender: DutchFork Bancshares, Inc. (the "Company").
------
2. Borrower: Newberry Federal Savings Bank Employee Stock Ownership
--------
Plan.
3. Trustee: ______________
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
Newberry Federal Savings Bank Employee Stock Ownership Plan Trust.
5. Maturity: Up to 10 years from takedown.
--------
6. Amortization: Equal quarterly principal and interest payments
------------
7. Pricing:
-------
a. Lowest "prime rate" as published in the Wall Street Journal on
the date of the loan transaction.
8. Interest Payments:
-----------------
a. Annual on a 365 day basis.
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Loan Agreement") is made and entered in as of the __
day of ___________ 2000, by and between NEWBERRY FEDERAL SAVINGS BANK EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Borrower"), a trust forming part of the Newberry
Federal Savings Bank Employee Stock Ownership Plan ("ESOP"); and DutchFork
Bancshares, Inc. ("Lender"), a corporation organized and existing under the laws
of the State of Delaware.
W I T N E S S E T H
WHEREAS, the Borrower is authorized to purchase shares of common stock of
DutchFork Bancshares, Inc. ("Common Stock"), either directly from DutchFork
Bancshares, Inc. or in open market purchases in an amount not to exceed
__________ shares of Common Stock.
WHEREAS, the Borrower is authorized to borrow funds from the Lender for the
purpose of financing authorized purchases of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such
purpose:
NOW, THEREFORE, the parties agree hereto as follows:
ARTICLE I
---------
DEFINITIONS
-----------
The following definitions shall apply for purposes of this Loan Agreement,
except to the extent that a different meaning is plainly indicated by the
context:
Business Day means any day other than a Saturday, Sunday or other day on
------------
which banks are authorized or required to close under federal or local law.
Code means the Internal Revenue Code of 1986, as amended (including the
----
corresponding provisions of any succeeding law).
Default means an event or condition which would constitute an Event of
-------
Default. The determination as to whether an event or condition would constitute
an Event of Default shall be determined without regard to any applicable
requirements of notice or lapse of time.
ERISA means the Employee Retirement Income Security Act of 1974, as amended
-----
(including the corresponding provisions of any succeeding law).
Event of Default means an event or condition described in Article 5.
----------------
Loan means the loan described in section 2.1
----
<PAGE>
Loan Documents means, collectively, the Loan Agreement, the Promissory Note
--------------
and the Pledge Agreement and all other documents now or hereafter executed and
delivered in connection with such documents, including all amendments,
modifications and supplements of or to all such documents.
Pledge Agreement means the agreement described in section 2.8(a).
----------------
Principal Amount means the face amount of the Promissory Note, determined
----------------
as set forth in section 2.1(c).
Promissory Note means the promissory note described in section 2.3.
---------------
Register means the register described in section 2.9.
--------
ARTICLE II
----------
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
-----------------------------------
Section 2.1 The Loan; Principal Amount.
--------------------------
(a) The Lender hereby agrees to lend to the Borrower such amount, and at
such time, as shall be determined under this Section 2.1; provided, however,
that in no event shall the aggregate amount lent under this Loan Agreement from
time to time exceed the aggregate amount paid by the Borrower to purchase up to
______________ shares of Common Stock.
(b) Subject to the limitations of Section 2.1(a), the Borrower shall
determine the amounts borrowed under this Agreement, and the time at which such
borrowings are effected. Each such determination shall be evidenced in a
writing which shall set forth the amount to be borrowed and the date on which
the Lender shall disburse such amount, and such writing shall be furnished to
the Lender by notice from the Borrower. The Lender shall disburse to the
Borrower the amount specified in each such notice on the date specified therein
or, if later, as promptly as practicable following the Lender's receipt of such
notice; provided, however, that the Lender shall have no obligation to disburse
funds pursuant to this Agreement following the occurrence of a Default or an
Event of Default until such time as such Default or Event of Default shall have
been cured.
(c) For all purposes of this Loan Agreement, the Principal Amount on any
date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to section
2.1(b) on or before such date; over
2
<PAGE>
(ii) the aggregate amount of any repayments of such amounts made
before such date.
The Lender shall maintain on the Register a record of, and shall record in the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
Section 2.2 Interest.
--------
(a) The Borrower shall pay to the Lender interest on the Principal Amount,
for the period commencing with the first disbursement of funds under this Loan
Agreement and continuing until the Principal Amount shall be paid in full, at
the rate of ___________ (_____%) per annum. Interest payable under this
Agreement shall be computed on the basis of a year of 365 days and actual days
elapsed (including the first day but excluding the last) occurring during the
period to which the computation relates.
(b) Accrued interest on the Principal Amount shall be payable by the
Borrower on the dates set forth in Schedule I to the Promissory Note. All
interest on the Principal Amount shall be paid by the Borrower in immediately
available funds.
(c) Anything in the Loan Agreement or the Promissory Note to the contrary
notwithstanding, the obligation of the Borrower to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Such
deferred interest shall not bear interest.
Section 2.3 Promissory Note.
---------------
The Loan shall be evidenced by the Promissory Note of the Borrower attached
hereto as an exhibit payable to the order of the lender in the Principal Amount
and otherwise duly completed.
Section 2.4 Payment of Trust Loan.
---------------------
The Principal Amount of the Loan shall be repaid in accordance with
Schedule I to the Promissory Note on the dates specified therein until fully
paid.
3
<PAGE>
Section 2.5 Prepayment.
----------
The Borrower shall be entitled to prepay the Loan in whole or in part, at
any time and from time to time; provided, however, that the Borrower shall give
notice to the Lender of any such prepayment; and provided, further, that any
partial prepayment of the Loan shall be in an amount not less than $1,000. Any
such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all
accrued interest through the date of such prepayment; (c) made without premium
or penalty; and (d) applied on the inverse order of the maturity of the
installment thereof unless the Lender and the Borrower agree to apply such
prepayments in some other order.
Section 2.6 Method of Payments.
------------------
(a) All payments of principal, interest, other charges (including
indemnities) and other amounts payable by the Borrower hereunder shall be made
in lawful money of the United States, in immediately available funds, to the
Lender at the address specified in or pursuant to this Loan Agreement for
notices to the Lender, on the date on which such payment shall become due. Any
such payment made on such date but after such time shall, if the amount paid
bears interest, and except as expressly provided to the contrary herein, be
deemed to have been made on, and interest shall continue to accrue and be
payable thereon until, the next succeeding Business Day. If any payment of
principal or interest becomes due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, and when paid, such
payment shall include interest to the day on which payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this Loan
Agreement or the Promissory Note, the Borrower shall not be obligated to make
any payment, repayment or prepayment on the Promissory Note if doing so would
cause the ESOP to cease to be an employee stock ownership plan within the
meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of
the Code or cause the Borrower to cease to be a tax exempt trust under section
501(a) of the Code or if such act or failure to act would cause the Borrower to
engage in any "prohibited transaction" as such term is defined in the section
4975(c) of the Code and the regulations promulgated thereunder which is not
exempted by section 4975(c)(2) or (d) of the Code and the regulations
promulgated thereunder or in section 406 of ERISA and the regulations
promulgated thereunder which is not exempted by section 408(b) of ERISA and the
regulations promulgated thereunder; provided, however, that in each case, the
Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the
basis of an opinion of counsel, and any opinion of such counsel. The Borrower
may consult with counsel, and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such opinion of
counsel. Nothing contained in this section 2.6(b) shall be construed as
imposing a duty on the Borrower to consult with counsel. Any obligation of the
Borrower to make any payment, repayment or prepayment on the Promissory Note or
refrain from taking any other act hereunder or under the Promissory Note which
is excused pursuant to this section 2.6(b) shall be considered a binding
obligation of the Borrower, or both, as the case may be, for the purposes of
determined whether a Default or Event of Default has occurred hereunder or
4
<PAGE>
under the Promissory Note and nothing in this section 2.6(b) shall be construed
as providing a defense to any remedies otherwise available upon a Default or an
Event of Default hereunder (other than the remedy of specific performance).
Section 2.7 Use of Proceeds of Loan.
-----------------------
The entire proceeds of the Loan shall be used solely for acquiring shares
of Common Stock, and for no other purpose whatsoever.
Section 2.8 Security.
--------
(a) In order to secure the due payment and performance by the Borrower of
all of its obligations under this Loan Agreement, simultaneously with the
execution and delivery of this Loan Agreement by the Borrower, the Borrower
shall:
(i) pledge to the Lender as Collateral (as defined in the Pledge
Agreement), and grant to the Lender a first priority lien on and security
interest in, the Common Stock purchased with the Principal Amount, by the
execution and delivery to the lender of the Pledge Agreement attached
hereto as an exhibit; and
(ii) execute and deliver, or cause to be executed and delivered, such other
agreement, instruments and documents as the Lender may reasonable require
in order to effect the purposes of the Pledge Agreement and this Loan
Agreement.
(b) The Lender shall release from encumbrance under the Pledge Agreement
and transfer to the Borrower, as of the date on which any payment or repayment
of the Principal Amount is made, a number of shares of Common Stock held as
Collateral determined pursuant to the applicable provisions of the ESOP.
Section 2.9 Registration of the Promissory Note.
-----------------------------------
(a) The Lender shall maintain a Register providing for the registration of
the Principal Amount and any stated interest and of transfer and exchange of the
Promissory Note. Transfer of the Promissory Note may be effected only by the
surrender of the old instrument and either the reissuance by the Borrower of the
old instrument to the new holder or the issuance by the Borrower of a new
instrument to the new holder. The old Promissory Note so surrendered shall be
canceled by the Lender and returned to the Borrower after such cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a) shall carry
the same rights to interest (unpaid and to accrue) carried by the Promissory
Note so transferred or exchanged so that there will not be any loss or gain of
interest on the note surrender. Such new Promissory Note shall be subject to
all of the provisions and entitled to all of the benefits of this Agreement.
Prior to due presentment for registration or transfer, the Borrower may deem and
treat the registered holder of any Promissory Note as the holder thereof for
purposes of payment and other purposes. A notation
5
<PAGE>
shall be made on each new Promissory Note of the amount of all payments of
principal and interest theretofore paid.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
The Borrower hereby represents and warrants to the Lender as follows:
Section 3.1 Power, Authority, Consents.
--------------------------
The Borrower has the power to execute, deliver and perform this Loan
Agreement, the Promissory Note and Pledge Agreements, all of which have been
duly authorized by all necessary and proper corporate or other action.
Section 3.2 Due Execution, Validity, Enforceability.
---------------------------------------
Each of the Loan Documents, including, without limitation, this Loan
Agreement, the Promissory Note and the Pledge Agreement, have been duly executed
and delivered by the Borrower; and each constitutes the valid and legally
binding obligation of the Borrower, enforceable in accordance with its terms.
Section 3.3 Properties, Priority of Liens.
-----------------------------
The liens which have been created and granted by the Pledge Agreement
constitute valid, first liens on the properties and assets covered by the Pledge
Agreement, subject to no prior or equal lien.
Section 3.4 No Defaults, Compliance with Laws.
---------------------------------
The Borrower is not in default in any material respect under any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgement to
which it is an party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it is materially
affected.
Section 3.5 Purchase of Common Stock.
------------------------
Upon consummation of any purchase of Common Stock by the Borrower with the
proceeds of the Loan, the Borrower shall acquire valid, legal and marketable
title to all of the Common Stock so purchased, free and clear of any liens,
other than a pledge to the Lender of the Common Stock so purchased pursuant to
the Pledge Agreement. Neither the execution and delivery of the Loan Documents
nor the performance of any obligation thereunder violates any provisions of law
or conflicts with or results in a breach of or creates (with or without the
giving of notice of lapse of
6
<PAGE>
time, or both) a default under any agreement to which the Borrower is a party or
by which it is bound or any of its properties is affected. No consent of any
federal, state, or local governmental authority, agency, or other regulatory
body, the absence of which could have a materially adverse effect on the
Borrower or the Trustee, is or was required to be obtained in connection with
the execution, delivery, or performance of the Loan Documents and the
transaction contemplated therein or in connection therewith, including without
limitation, with respect to the transfer of the shares of Common Stock purchased
with the proceeds of the Loan pursuant thereto.
Section 3.6 ESOP; Contributions.
-------------------
As of the effective date of the ESOP sponsor's mutual-to-stock conversion,
the ESOP and the Borrower will be duly created, organized and maintained by the
ESOP sponsor in compliance with all applicable laws, regulations and rulings.
The ESOP will qualify as an "employee stock ownership plan" as defined in
section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may
make contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note; provided,
however, that no such contributions shall be required if they would adversely
affect the qualification of the ESOP under section 401(a) of the Code.
Section 3.7 Trustee.
-------
The trustees of the ESOP have been duly appointed by the ESOP sponsor.
Section 3.8 Compliance with Laws; Actions.
-----------------------------
Neither the execution and delivery by the Borrower of this Loan Agreement
or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Borrower is a party of which the Borrower is bound or to
which the Borrower is subject, which violation or event of default would have a
material adverse effect on the Borrower. There is no action or proceeding
pending or threatened against either the ESOP or the Borrower before any court
or administrative agency.
7
<PAGE>
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE LENDER
--------------------------------------------
The Lender hereby represents and warrants to the Borrower as follows:
Section 4.1 Power, Authority, Consents.
--------------------------
The Lender has the power to execute, deliver and perform this Loan
Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
Section 4.2 Due Execution, Validity, Enforceability.
---------------------------------------
This Loan Agreement and the Pledge Agreement have been duly executed and
delivered by the Lender, and each constitutes a valid and legally binding
obligation of the Lender, enforceable in accordance with its terms.
ARTICLE V
---------
EVENTS OF DEFAULT
-----------------
Section 5.1 Events of Default under Loan Agreement.
--------------------------------------
Each of the following events shall constitute an "Event of Default"
hereunder:
(a) Failure to make any payment or mandatory prepayment of principal of
the Promissory Note when due, or failure to make any payment of interest on the
Promissory Note not later than five (5) Business Days after the date when due.
(b) Failure by the Borrower to perform or observe any term, condition or
covenant of this Loan Agreement or of any of the other Loan Documents, including
without limitation, the Promissory Note and the Pledge Agreement.
(c) Any representation or warranty made in writing to the Lender in any of
the Loan Documents, or any certificate, statement or report made or delivered in
compliance with this Loan Agreement, shall have been false or misleading in any
material respect when made or delivered.
8
<PAGE>
Section 5.2 Lender's Rights upon Event of Default.
-------------------------------------
If an Event of Default under this Loan Agreement shall occur and be
continuing, the Lender shall have no rights to assets of the Borrower other
than: (a) contributions (other than contributions of Common Stock) that are made
by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to
this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); provided, however, that; (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment schedule of the Loan; and (iii) all rights of the Lender to the
Common Stock purchased with the proceeds of the Loan covered by the Pledge
Agreement following an Event of Default shall be governed by the terms of the
Pledge Agreement.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
Section 6.1 Payments Due to the Lender.
--------------------------
If any amount is payable by the Borrower to the Lender pursuant to any
indemnity obligation contained herein, then the Borrower shall pay, at the time
or times provided therefor, any such amount and shall indemnify the Lender
against and hold it harmless from any loss of damage resulting from or arising
out of the nonpayment or delay in payment of any such amount. If any amounts as
to which the Borrower has so indemnified the Lender hereunder shall be assessed
or levied against the Lender, the Lender may notify the Borrower and make
immediate payment thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive immediate
reimbursement therefor from the Borrower together with interest on each such
amount as provided in section 2.2(c). Notwithstanding any other provision
contained in this Loan Agreement, the covenants and agreements of the Borrower
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
Section 6.2 Payments.
--------
All payments hereunder and under the Promissory Note shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Loan Agreement and the Promissory Note, subject to any
applicable tax withholding requirements. Upon payment in full of the Promissory
Note, the Lender shall mark such Promissory Note "Paid" and return it to the
Borrower.
9
<PAGE>
Section 6.3 Survival.
--------
All agreements, representations and warranties made herein shall
survive the delivery of this Loan Agreement and the Promissory Note.
Section 6.4 Modifications, Consents and Waivers; Entire Agreement.
-----------------------------------------------------
No modification, amendment or waiver of or with respect to any provision of
this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the
other Loan Documents, nor consent to any departure from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by the party against whom enforcement thereof is sought. Any
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.5 Remedies Cumulative.
-------------------
Each and every right granted to the Lender hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Lender or the holder of the Promissory Note to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right. The due payment and
performance of the obligations under the Loan Documents shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which the
Borrower may have against the Lender and without regard to any other obligation
of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Lender for payment or performance of such
obligations.
Section 6.6 Further Assurances; Compliance with Covenants.
---------------------------------------------
At any time and from time to time, upon the request of the Lender, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Lender may reasonably request in order to fully
effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
10
<PAGE>
Section 6.7 Notices.
-------
Except as otherwise specifically provided for herein, all notice, requests,
reports and other communications pursuant to this Loan Agreement shall be in
writing, either by letter (delivered by hand or commercial messenger service or
sent by registered or certified mail, return receipt requested, except for
routine reports delivered in compliance with Article VI hereof which may be sent
by ordinary first-class mail) or telex or telecopier addressed as follows:
(a) If to the Borrower:
Newberry Federal Savings Bank Employee Stock Ownership Plan
1735 Wilson Road
Newberry, South Carolina 29108
(b) If to the Lender:
DutchFork Bancshares, Inc.
1735 Wilson Road
Newberry, South Carolina 29108
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or telecopier, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
Section 7.1 Counterparts.
------------
This Loan Agreement may be signed in any number of counterparts which, when
taken together, shall constitute one and the same document.
Section 7.2 Construction; Governing Law.
---------------------------
The headings used in the table of contents and in this Loan Agreement are
for convenience only and shall not be deemed to constitute a part hereof. All
uses herein of any gender or of singular or plural terms shall be deemed to
include uses of the other genders or plural or singular terms, as the context
may require. All references in this Loan Agreement of an Article or section
shall be to an Article or section of this Loan Agreement, unless otherwise
specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and
the other Loan Documents shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware.
11
<PAGE>
Section 7.3 Severability.
------------
Wherever possible, each provision of this Loan Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
of provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provisions in this Loan Agreement in and jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement
independent, and compliance by a party with any of them shall not excuse non-
compliance by such party with any other. The Borrower shall not take any action
the effect of which shall constitute a breach or violation of any provision of
this Loan Agreement.
Section 7.4 Binding Effect: No Assignment or Delegation.
-------------------------------------------
This Loan Agreement shall be binding upon and inure to the benefit of the
Borrower and its successors and the Lender and its successors and assigns. The
rights and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the Lender, and any
purported assignment or delegation without such consent shall be void.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
executed as of the date first written above.
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
_________________________________________________
Duly authorized officer of _________, as Trustee
DUTCHFORK BANCSHARES, INC.
By: ______________________________________________
For the Entire Board of Directors
12
<PAGE>
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT ("Pledge Agreement") is made as of the ___ day of
_____________________ 2000, by and between NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("Pledgor"), and DUTCHFORK BANCSHARES, INC.,
a corporation organized and existing under the laws of the State of Delaware
("Pledgee").
W I T N E S S E T H
WHEREAS, this Pledge Agreement is being executed and delivered to the
Pledgee pursuant to the terms of a Loan Agreement ("Loan Agreement"), by and
between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and in the Loan Agreement, the parties hereto do hereby covenant and agree as
follows:
Section 1. Definitions. The following definitions shall apply for
-----------
purposes of this Pledge Agreement, except to the extent that a different meaning
is plainly indicated by the context; all capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Loan
Agreement:
Collateral shall mean the Pledged Shares and, subject to section 5 hereof,
----------
and to the extent permitted by applicable law, all rights with respect thereto,
and all proceeds of such Pledged Shares and rights.
ESOP shall mean the Newberry Federal Savings Bank Employee Stock Ownership
----
Plan.
Event of Default shall mean an event so defined in the Loan Agreement.
----------------
Liabilities shall mean all the obligations of the Pledgor to the Pledgee,
-----------
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due, under the Loan
Agreement and the Promissory Note.
Pledged Shares shall mean all the Shares of Common Stock of the Pledgee
--------------
purchased by the Pledgor with the proceeds of the loan made by the Pledgee to
the Pledgor pursuant to the Loan Agreement, but excluding any such shares
previously released pursuant to Section 4.
Section 2. Pledge. To secure the payment of and performance of all the
------
Liabilities, the Pledgor hereby pledges to the Pledgee, and the grants to the
Pledgee, a security interest in, and lien upon, the Collateral.
Section 3. Representations and Warranties of the Pledgor. The Pledgor
---------------------------------------------
represents, warrants, and covenants to the Pledgee as follows:
<PAGE>
(a) the execution, delivery and performance of this Pledge Agreement and
the pledging of the Collateral hereunder do not and will not conflict with,
result in a violation of, or constitute a default under, any agreement binding
upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by the Pledgor
free and clear of any liens or rights of any other person except the lien
hereunder and under the Loan Agreement in favor of the Pledgee, and the security
interest of the Pledgee in the Pledged Shares and the proceeds thereof is and
will continue to be prior to and senior to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and enforceable
obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the Pledgee,
promptly deliver to the Pledgee such stock powers, proxies, and similar
documents, satisfactory in form and substance to the Pledgee, with respect to
the Collateral as the Pledgee may reasonably request; and
(e) subject to the first sentence of Section 4(b), the Pledgor shall not,
so long as any Liabilities are outstanding, sell, assign, exchange, pledge or
otherwise transfer or encumber any of its rights in and to any of the
Collateral.
Section 4. Eligible Collateral.
-------------------
(a) As used herein the term "Eligible Collateral" shall mean the amount of
Collateral which has an aggregate fair market value equal to the amount by which
the Pledgor is in default (without regard to any amounts owing solely as the
result of an acceleration of the Loan Agreement) or such lesser amount of
Collateral as may be required pursuant to section 13 of this Pledge Agreement.
(b) The Pledged Shares shall be released from this Pledge Agreement in a
manner conforming to the requirements of Treasury Regulations Section 54.4975-
7(b)(8), as the same may be from time to time amended or supplemented, and the
applicable provisions of the ESOP. Subject to such Regulations, the Pledgee may
from time to time, after any Default or Event of Default, and without prior
notice to the Pledgor, transfer all or any part of the Eligible Collateral in
the name of the Pledgee or its nominee, without disclosing that such Eligible
Collateral is subject to any rights of the Pledgor and may from time to time,
whether before or after any of the Liabilities shall become due and payable,
without notice to the Pledgor, take all or any of the following actions: (i)
notify the parties obligated on any of the Eligible Collateral to make payment
to the Pledgee of any amounts due or due to become due thereunder, (ii) release
or exchange all or any part of the Eligible Collateral, or compromise or extend
or renew for any period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto, and (iii) take
control of any proceeds of the Eligible Collateral.
2
<PAGE>
Section 5. Delivery.
--------
(a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge
Agreement (i) either (A) certificates for the Pledged Shares, each certificate
duly signed in blank by the Pledgor or accompanied by a stock transfer power
duly signed in blank by the Pledgor and each such certificate accompanied by all
required documentary or stock transfer tax stamps or (B) if the Trustee does not
yet have possession of the Pledged Shares, an assignment by the Pledgor of all
the Pledgor's rights to and interest in the Pledged Shares and (ii) an
irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by
the Pledgor with respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, (i) the Pledgor shall be entitled to exercise any and all voting and
other rights pertaining to the Collateral or any part thereof for any purpose
not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor
shall be entitled to receive any and all cash dividends or other distributions
paid in respect of the Collateral.
Section 6. Events of Default.
-----------------
(a) If a Default or Event of Default shall be existing, in addition to the
rights it may have under the Loan Agreement, the Promissory Note, and this
Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may
exercise, with respect to the Eligible Collateral, from time to time, any rights
and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of Delaware or otherwise available to it and (ii) the
Pledgee shall have the right, for and in the name, place and stead of the
Pledgor, to execute endorsement, assignments, stock powers and other instruments
of conveyance or transfer with respect to all or any of the Eligible Collateral.
Written notification of intended disposition of any of the Eligible Collateral
shall be given by the Pledgee to the Pledgor at least three (3) Business Days
before such disposition. Subject to section 13 below, any proceeds of any
disposition of Eligible Collateral may be applied by the Pledgee to the payment
of expenses in connection with the Eligible Collateral, including, without
limitation, reasonable attorney fees and legal expenses, and any balance of such
proceeds may be applied by the Pledgee toward the payment of such of the
Liabilities as are in Default, and in such order of application, as the Pledgee
may from time to time elect. No action of the Pledgee permitted hereunder shall
impair or affect its rights in and to the Eligible Collateral. All rights and
remedies of the Pledgee expressed hereunder are in addition to all other rights
and remedies possessed by it, including, without limitation, those contained in
the documents referred to in the definition of Liability in section 1 hereof.
(b) In any sale of any of the Eligible Collateral after a Default or an
Event of Default shall have occurred, the Pledgee is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid violation of applicable law
(including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers or further restrict such
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account
3
<PAGE>
for investment and not with a view to the distribution or resale of such
Eligible Collateral), or in order to obtain such required approval of the sale
or of the purchase by any governmental regulatory authority or official, and the
Pledgor further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Pledgee be liable or accountable to the Pledgor for any discount
allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
Section 7. Payment in Full. Upon the payment in full of all outstanding
---------------
Liabilities, this Pledge Agreement shall terminate and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to the Pledge Agreement.
Section 8. No Waiver. No failure or delay on the part of the Pledgee in
---------
exercising any right or remedy hereunder or under any other document which
confers or grants any rights in the Pledgee in respect of the Liabilities shall
operate as a waiver thereof nor shall any single or partial exercise of any such
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy of the Pledgee.
Section 9. Binding Effect; No Assignment or Delegation. This Pledge
-------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Pledgee and their respective successors and assigns, except that the Pledgor may
not assign or transfer its rights hereunder without the prior written consent of
the Pledgee (which consent shall not unreasonably be withheld). Each duty or
obligation of the Pledgor to the Pledgee pursuant to the provisions of this
Pledge Agreement shall be performed in favor of any person or entity designated
by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be
performed by any other person or entity designated by the Pledgee.
Section 10. Governing Law. This Pledge Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
agreements to be performed wholly within the State of Delaware.
Section 11. Notices. All notices, requests, instructions or documents
-------
hereunder shall be in writing and delivered personally or sent by United States
mail, registered or certified, return receipt requested, with proper postage
prepaid as follows:
(a) If to the Pledgee:
DutchFork Bancshares, Inc.
1735 Wilson Road
Newberry, South Carolina 29108
4
<PAGE>
(b) If to the Pledgor:
Newberry Federal Savings Bank Employee Stock Ownership Plan
c/o___________, as trustee
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if delivered by mail, the date on which such notice,
request, instruction, or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
Section 12. Interpretation. Wherever possible, each provision of this
--------------
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision herein shall be prohibited by
or invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof.
Section 13. Construction. All provisions hereof shall be construed so as
------------
to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan
under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the
"Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code
and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the
Treasury Regulations and as described in Department of Labor Regulation section
2550.408b-3.
5
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the
parties hereto as of the day and year first above written.
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
_________________________________________________
Duly authorized officer of__________, as Trustee
DUTCHFORK BANCSHARES, INC.
By:______________________________________________
For the Entire Board of Directors
6
<PAGE>
PROMISSORY NOTE
---------------
$____________________ _________, 2000
FOR VALUE RECEIVED, the undersigned, NEWBERRY FEDERAL SAVINGS BANK EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Borrower"), hereby promises to pay to the order of
DUTCHFORK BANCSHARES, INC. ("Lender"), an amount sufficient to purchase
_______________shares of DutchFork Bancshares, Inc. common stock payable in
accordance with the Loan Agreement made and entered into between the Borrower
and the Lender of even date herewith ("Loan Agreement") pursuant to which this
Promissory Note is issued.
The Principal Amount of this Promissory Note shall be payable in accordance
with the schedule attached hereto ("Schedule I").
This Promissory Note shall bear interest at the rate per annum set for or
established under the Loan Agreement, such interest to be payable in accordance
with Schedule I.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the
extent that the Lender's receipt thereof would not be permissible under the law
or laws applicable to the Lender limiting rates on interest which may be charged
or collected by the Lender. Any such payments on interest which are not made as
a result of the limitation referred to in the preceding sentence shall be made
by the Borrower to the Lender on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charged or collected by the
Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory Note are to be
made at the principal office of the Lender or such other place as the holder
hereof shall designate to the Borrower in writing, in lawful money of the United
States of America in immediately available funds.
Failure to make any payments of principal on this Promissory Note when due,
or failure to make any payment of interest on this Promissory Note not later
than five (5) Business Days after the date when due, shall constitute a default
hereunder, whereupon the principal amount of accrued interest on this Promissory
Note shall immediately become due and payable in accordance with the terms of
the Loan Agreement.
<PAGE>
This Promissory Note is secured by a Pledge Agreement between the Borrower
and the Lender of even date herewith and is entitled to the benefits thereof.
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
__________________________________________________
Duly authorized officer of __________, as Trustee
2
<PAGE>
Exhibit 10.2
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ____________, 2000, by
and among Newberry Federal Savings Bank (the "Bank"), a federally chartered
stock savings bank, with its principal administrative office at
__________________________, Dutchfork Bancshares, Inc., a corporation organized
under the laws of the State of Delaware, the holding company for the Bank (the
"Holding Company"), and ______________ ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
_____________________________________ of the Bank. Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the Bank
("Board") may extend the Agreement an additional year such that the remaining
term of the Agreement shall be thirty-six (36) months unless Executive elects
not to extend the term of this Agreement by giving written notice in accordance
with Section 8 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $___________
per year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Bank. Such Base
Salary shall be payable in accordance with the regular payroll practices of the
Bank. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary at any
time. Any increase in Base Salary shall become "Base Salary" for purposes of
this Agreement. In addition to Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank. In addition, Executive shall be entitled to incentive compensation
and bonuses as provided in any plan or arrangement of the Bank in which
Executive is eligible to participate.
(b) Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under all plans relating to
stock options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group life
insurance, medical and other health and welfare coverage, education, cash or
stock bonuses that are now or hereafter made available by the Bank to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to Executive under any such plan
-2-
<PAGE>
or arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) The Bank shall pay or reimburse Executive for all reasonable expenses
incurred by Executive performing his obligations under this Agreement and may
provide such additional compensation in such form and such amounts as the Board
may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Bank of Executive's full-time employment hereunder for any reason other than
a termination governed by Section 5(a) hereof, or Termination for Cause, as
defined in Section 7 hereof; (ii) Executive's resignation from the Bank's employ
upon any (A) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (B)
relocation of Executive's principal place of employment by more than 35 miles
from its location at the effective date of this Agreement, unless consented to
by Executive, (C) material reduction in the benefits and perquisites to
Executive from those being provided as of the effective date of this Agreement,
unless consented to by Executive, (D) a liquidation or dissolution of the Bank
or Holding Company, or (E) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), or (E) above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of: (i)
Base Salary and bonuses in accordance with Section 3(a) of this Agreement that
would have been paid to Executive for the remaining term of this Agreement had
the Event of Termination not occurred; and (ii) all benefits, including health
insurance in accordance with Section 3(b) that would have been provided to
Executive for the remaining term of the this Agreement had an Event of
Termination not occurred; provided, however, that any payments pursuant to this
-------- -------
subsection and subsection 4(c) below shall not, in the aggregate, exceed three
times Executive's average annual compensation for the five most recent taxable
years that Executive has been employed by the Bank or such lesser number of
years in the event that Executive shall have been employed by the Bank for less
than five years. In the event the Bank is not in compliance with its minimum
capital requirements or if such payments pursuant to this subsection (b) would
cause the Bank's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Bank or
successor thereto is in capital compliance. At the election of Executive, which
election is to be made prior
-3-
<PAGE>
to an Event of Termination, such payments shall be made in a lump sum as of
Executive's Date of Termination. In the event that no election is made, payment
to Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to Executive, except to
the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1 of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act and
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of Change in Control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) 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 voting securities of the Bank or the Holding Company representing
25% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
-4-
<PAGE>
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation during the twelve (12) month period following the date of the Change
in Control following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 35
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) Base Salary and bonuses in accordance with Section 3(a) of
this Agreement that would have been paid to Executive for the remaining term of
this Agreement had the event described in Subsection (b) of this Section 5 not
occurred and all benefits, including health insurance, in accordance with
Section 3(b) that would have been provided to Executive for the remaining term
of this Agreement had the event described in Subsection (b) of this Section 5
not occurred; or (2) three (3) times Executive's Average Annual Compensation (as
defined herein) for the five (5) most recent taxable years that Executive has
been employed by the Bank or such lesser number of years in the event that
Executive shall have been employed by the Bank for less than five (5) years.
Such "Average Annual Compensation" shall include all taxable income paid by the
Bank, including but not limited to, Base Salary, commissions, and bonuses, as
well as contributions on Executive's behalf to any pension and/or profit sharing
plan, retirement payments, directors or committee fees and fringe benefits paid
or to be paid to Executive in any such year and payment of any expense items
without accountability or business purpose or that do not meet the Internal
Revenue Service requirements for deductibility by the Bank; provided, however,
-------- -------
that any payment under this provision and subsection 5(d) below shall not exceed
three (3) times Executive's Average Annual Compensation. In the event the Bank
is not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Bank or successor thereto is in capital compliance. At the election of
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of Executive's Date of Termination. In
the event that no election is made, payment to Executive will be made in
approximately equal installments on a monthly basis over a period of thirty-six
(36) months following Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his severance at no premium cost to Executive, except to the extent
that such coverage may be changed in its application for all Bank
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employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
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8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given.).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish
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an office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Bank. The parties hereto,
recognizing that irreparable injury will result to the Bank, its business and
property in the event of Executive's breach of this Subsection 10(a) agree that
in the event of any such breach by Executive, the Bank, will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank.
Further, Executive may disclose information regarding the business activities of
the Bank to the OTS and the Federal Deposit Insurance Corporation ("FDIC")
pursuant to a formal regulatory request. In the event of a breach or threatened
breach by Executive of the provisions of this Section, the Bank will be entitled
to an injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ___________, between
Executive and the Holding Company, such compensation payments and benefits paid
by the Holding Company will be subtracted from
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any amounts due simultaneously to Executive under similar provisions of this
Agreement. Payments pursuant to this Agreement and the Holding Company Agreement
shall be allocated in proportion to the services rendered and time expended on
such activities by Executive as determined by the Holding Company and the Bank
on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
In the event any of the foregoing provisions of this Section 15 are in
conflict with the terms of this Agreement, this Section 15 shall prevail.
(a) The Bank may terminate Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to
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<PAGE>
compensation or other benefits under this Agreement. Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion: (i)
pay Executive all or part of the compensation withheld while their contract
obligations were suspended; and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution: (i) by the Director of the OTS
(or his designee), the FDIC or the Resolution Trust Corporation, at the time the
FDIC enters into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the Federal Deposit Insurance
Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee)
at the time the Director (or his designee) approves a supervisory merger to
resolve problems related to the operations of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
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16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of South Carolina, without regards to
principles of conflicts of law of this state, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, 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; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
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<PAGE>
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. (S)1828(k) and 12 C.F.R. Section
545.121 and any rules or regulations promulgated thereunder.
23. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Newberry Federal Savings Bank and Dutchfork Bancshares,
Inc. have caused this Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the __ day of _______________.
ATTEST: NEWBERRY FEDERAL SAVINGS BANK
_______________________________ By: _________________________________________
For the Entire Board of Directors
[SEAL]
ATTEST: DUTCHFORK BANCSHARES, INC.
(Guarantor)
_______________________________ By: _________________________________________
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
_______________________________ ____________________________________
____________________
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EXHIBIT 10.3
DUTCHFORK BANCSHARES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _____________, 2000,
by and between DutchFork Bancshares, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware with its principal offices at 1735 Wilson
Road, Newberry, South Carolina 29108 and _______________ ("Executive"). Any
reference to "Institution" herein shall mean ___________________________ or any
successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as _____________________________________ of the Holding Company.
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic
<PAGE>
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as President of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $_____________ per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any tax-
qualified retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable in accordance with the Holding Company's payroll
practices. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board delegated such responsibility by the Board.
The Committee or the Board may increase Executive's Base Salary at any time. Any
increase in Base Salary shall become "Base Salary" for purposes of this
Agreement. In addition to Base Salary provided in this Section 3(a), the Holding
Company shall also provide Executive, at no premium cost to Executive, with all
such other benefits as provided uniformly to permanent full-time employees of
the Holding Company and its Subsidiaries. In addition, Executive shall be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company or its Subsidiaries in which Executive is
eligible to participate.
(b) Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under all plans relating to stock options, restricted
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stock awards, stock purchases, pension, thrift, supplemental retirement, profit-
sharing, employee stock ownership, group life insurance, medical and other
health and welfare coverage, education, cash or stock bonuses that are now or
hereafter made available by the Holding Company or its Subsidiaries to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive compensation and
bonuses as provided in any plan of the Holding Company and its Subsidiaries in
which Executive is eligible to participate. Nothing paid to Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which Executive is entitled under this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all
reasonable expenses incurred in the performance of Executive's obligations under
this Agreement and may provide such additional compensation in such form and
such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other than termination governed by Section 5(a) hereof, or for Cause, as defined
in Section 7 hereof; (ii) Executive's resignation from the Holding Company's
employ, upon, any (A) failure to elect or reelect or to appoint or reappoint
Executive as President and Chief Executive Officer, unless consented to by
Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by Executive, (C) a relocation of
Executive's principal place of employment by more than 35 miles from its
location at the effective date of this Agreement, unless consented to by
Executive, (D) a material reduction in the benefits and perquisites to Executive
from those being provided as of the effective date of this Agreement, unless
consented to by Executive, (E) a liquidation or dissolution of the Holding
Company or the Institution, or (F) breach of this Agreement by the Holding
Company. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full calendar months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred and (ii) all benefits,
including health insurance in
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accordance with Section 3(b) that would have been provided to Executive for the
remaining term of this Agreement had an Event of Termination not occurred. At
the election of Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
Executive. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, and the Rules and Regulations promulgated by the Office
of Thrift Supervision (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of Change in Control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) 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 voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof 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 stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal
4
<PAGE>
regulatory approvals not including the lapse of any statutory waiting periods,
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Institution
or the Holding Company shall be distributed, or (E) a tender offer is made for
20% or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 35
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the event described in Subsection (b) of this Section 5 not
occurred, plus the value, as calculated by a recognized firm customarily
performing such valuation, of any stock option or related rights which as of the
Date of Termination have been granted to Executive, but are not exercisable by
Executive and the value of restricted stock awards or related rights which have
been granted to Executive, but which Executive does not have a non-forfeitable
or fully vested interest as of the Date of Termination and all benefits,
including health insurance, in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of this Agreement had the event
described in Subsection (b) of this Section 5 not occurred; or (ii) three (3)
times Executive's Average Annual Compensation (as defined herein) for the five
(5) preceding taxable years that Executive has been employed by the Holding
Company or its Subsidiaries or such lesser number of years in the event
Executive shall have been employed with the Holding Company or its Subsidiaries
less than five (5) years. Such Average Annual Compensation shall include all
taxable income paid by the Holding Company or its Subsidiaries, including but
not limited to, Base Salary, commissions and bonuses, as well as contributions
on behalf of Executive to any pension and profit sharing plan, severance
payments, directors or committee fees and fringe benefits paid or to be paid to
Executive during such years. At the election of Executive, which election is to
be made prior to a Change in Control, such payment shall be made in a lump sum.
In the event that no election is made, payment to Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the
5
<PAGE>
Agreement. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Company will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Institution for
Executive at no premium cost to Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of thirty-six (36) months following
the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding Section 5, for any taxable year in which Executive shall be
liable, as determined for the payment of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Holding Company or the Bank to (or for the benefit of)
Executive pursuant to this Agreement or otherwise, the Holding Company shall pay
to Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
---------------------------
1 - [(FI x (1 - SLI)) + SLI + E [+ M + PO]]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 2;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question; and
M = highest marginal rate of Medicare tax; and
PO = adjustment for phase out of or loss of deduction, personal
exemption or other similar items.
6
<PAGE>
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under Section 5 shall be made to Executive on the earliest of
(i) the date the Holding Company is required to withhold such tax, (ii) the date
the tax is required to be paid by Executive, or (iii) at the time of the Change
in Control. It is the intention of the parties that the Holding Company provide
Executive with a full tax gross-up under the provisions of this Section, so that
on a net after-tax basis, the result to Executive shall be the same as if the
excise tax under Section 4999 (or any successor provisions) of the Code had not
been imposed. The tax gross-up may be adjusted if alternative minimum tax rules
are applicable to Executive.
Notwithstanding the foregoing, if it shall subsequently be determined in a
final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P," above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to Executive, in order to put Executive (or the Holding
Company, as the case may be) in the same position as Executive (or the Holding
Company, as the case may be) would have been if the amount determined as "P"
above had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, the independent accountants shall take into
account any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
In each calendar year that Executive receives payments or benefits under
this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of reporting
such information. Executive shall promptly notify the Holding Company in writing
whenever Executive receives notice of the Bank of a judicial or administrative
proceeding, formal or informal, in which the federal tax treatment under Section
4999 of the Code of any amount paid or payable under this Agreement is being
reviewed or is in dispute. The Holding Company shall assume control at its
expense over all legal and accounting matters pertaining to such federal tax
treatment (except to the extent necessary or appropriate for Executive to
resolve any such proceeding with respect to any matter unrelated to amounts paid
or payable pursuant to this contract) and Executive shall cooperate fully with
the Holding Company in any such proceeding. Executive shall not enter into any
compromise or settlement or otherwise prejudice any rights the Holding Company
may have in connection therewith without prior consent to the Holding Company.
7
<PAGE>
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be
8
<PAGE>
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation, benefit
and insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
9
<PAGE>
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ________________,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
10
<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable principles
of conflicts of law.
11
<PAGE>
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, 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; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. (S)1828(k) and 12 C.F.R. Part 359
and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to
12
<PAGE>
perform the Holding Company's obligations under this Agreement, in the same
manner and to the same extent that the Holding Company would be required to
perform if no such succession or assignment had taken place.
[REMAINDER OF INTENTIONALLY BLANK]
13
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, DutchFork Bancshares, Inc. has caused this Agreement to
be executed and its seal to be affixed hereunto by its duly authorized officer
and its directors, and Executive has signed this Agreement, on the __ day of
____________.
ATTEST: DUTCHFORK BANCSHARES, INC.
____________________________ By: _________________________________________
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
____________________________ By: _________________________________________
_______________________
14
<PAGE>
Exhibit 10.4
NEWBERRY FEDERAL SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this Newberry Federal Savings Bank Employee Severance
Compensation Plan is to assure the services of employees of the Bank in the
event of a Change in Control. The benefits contemplated by the Plan recognize
the value to the Bank of the services and contributions of the employees of the
Bank and the effect upon the Bank resulting from the uncertainties of continued
employment, reduced employee benefits, management changes and relocations that
may arise in the event of a Change in Control. The Board believes that the Plan
will also aid the Bank in attracting and retaining the 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 in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "Newberry
Federal Savings Bank Employee Severance Compensation Plan." The purposes of the
Plan are as set forth above.
1.2 Application of Plan
-------------------
The benefits provided by this Plan shall be available to all employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those officers of the Bank who have entered into, or
who enter into in the future, and continue to be subject to, an employment or
change in control agreement with the Employer.
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 in the event of a
Change in Control, enforceable by the Participant against the Employer, the
Bank, or both. The Plan does not provide, and should not be construed as
providing, benefits of any kind to any employee except in the event of a Change
in Control and, in the event of a Change in Control, only upon the involuntary
or voluntary termination of an employee in the manner contemplated herein.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
"Annual Compensation" of a Participant means and includes all wages and
salary paid (including accrued amounts) by an Employer as consideration for the
Participant's service during the 12-month period ending on the last day of the
month preceding the date of a Participant's termination pursuant to Section 4.2.
"Bank" means Newberry Federal Savings Bank or any successor as provided for
in Article VII hereof.
"Board" means the Board of Directors of the Bank.
"Change in Control" of the Holding Company or the Bank shall mean an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); or (ii) results in a Change in Control of the Institution or
the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as
amended, the Federal Deposit Insurance Act, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board shall substitute its judgment for that of the OTS); or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) 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 voting securities of
the Institution or the Holding Company representing 20% or more of the
Institution's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Institution
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof 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 stockholders
was approved by a Nominating Committee solely composed of members which are
Incumbent Board members, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or the Holding Company or similar transaction occurs
or is effectuated in which the Institution or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding
<PAGE>
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board must advise the Board that it is either not possible to determine if or
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said employees lifetime.
"Effective Date" means the date the Plan is approved by the Board of the
Bank, or such other date as the Board shall designate in its resolution
approving the Plan.
"Employer" means (i) the Bank or (ii) a subsidiary of the Bank or a parent
company of the Bank which has adopted the plan pursuant to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Holding Company" means Dutchfork Bancshares, Inc., a Delaware corporation,
the holding company of the Bank.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an employee of an Employer who meets the eligibility
requirements of Article III.
"Plan" means this Newberry Federal Savings Bank Employee Severance
Compensation Plan.
"Termination for Cause" means termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any 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 other
similar offenses) or any final cease-and-desist order.
2.2 Applicable Law
--------------
The laws of the State of South Carolina shall be controlling law in all
matters relating to the Plan to the extent not preempted by federal law.
<PAGE>
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term "Participant" shall include all employees of an Employer who have
completed at least one year of service with the Employer at the time of any
termination pursuant to Section 4.2 herein. For purposes of this Plan, a "year
of service" shall mean a 12 consecutive month period during which an employee
was credited with at least 500 actual hours of service and "years of service"
shall be determined without regard to any break in service. Notwithstanding
the foregoing, an employee who has entered into and continues to be covered by
an individual employment contract with an Employer shall not be entitled to
participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. 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 or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall not
be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for the reasons specified in
Section 4.2, Disability or Termination for Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
in accordance with Section 4.3 if employment by an Employer is terminated,
voluntarily or involuntary, for any one or more of the following reasons:
<PAGE>
(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 materially changes Participant's function, duties or
responsibilities which would cause the Participant's position to be one of
lesser responsibility, importance or scope with the Employer than immediately
prior to the Change in Control.
(c) 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 thirty-five (35) 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.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all employees of the Bank on a non-discriminatory basis
shall not trigger a Payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer, or any successor to the Employer, breaches any
other provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than Termination for Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Bank, a lump sum cash payment equal to one-twelfth of his
Annual Compensation for each year of service up to a maximum of 100% of his
Annual Compensation.
(b) Notwithstanding the provisions of paragraph (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 meanings as defined in Section 280G of
the Internal Revenue Code of 1986, as amended, or any successor provision
thereto. 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 hereunder.
<PAGE>
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 thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid 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.
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. (S)567.2. Any payments or portions thereof not paid shall be suspended
until such time as their payment would not result in a failure to meet the
Bank's minimum regulatory capital requirements. Any portion of benefit payments
which have not been suspended will be paid on an equitable basis, pro rata based
upon amounts due each Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this 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's Employer any obligation to retain the Participant, to maintain the
status of the Participant's employment, or to change the Employer's policies
regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of the Bank, this Plan may be adopted by
any subsidiary of the Bank or by the Company. Upon such adoption, the
subsidiary or the Company shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the employees of that subsidiary or the
Company. The term "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.
<PAGE>
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to 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 this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration 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 the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this 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 the Bank, unless a Change in Control has
previously occurred. If a Change in Control occurs, the Plan no longer shall be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board. A
proper termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this
Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
<PAGE>
(b) This Plan shall be binding upon, and inure to the benefit of, each
employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Employer may terminate an Employee's employment at any time, but
any termination by the Employer, other than Termination for Cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. Employee shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as otherwise provided
hereunder.
10.2 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
10.3 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the Bank
under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
10.5 All obligations under the Plan shall be terminated, except to the
extent determined that continuation of the Plan is necessary for the continued
operation of the Bank:
(a) by the Director or her designee, at the time the Federal Deposit
Insurance Corporation or the Resolution Trust 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 Federal Deposit Insurance Act; or
<PAGE>
(b) by the Director or her designee, at the time the Director or her
designee approves a supervisory merger to resolve problems related to operation
of the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition.
Any rights of the parties that have already vested, however, shall not be
affected by such action.
10.6 Any payments made to a Participant pursuant to this Plan, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Board (or, by a committee of
non-employee directors designated by the Board). Subject to the other
provisions of the Plan, the Board shall have authority to adopt, amend, alter
and repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, to
interpret the provisions of the Plan and to decide all disputes arising in
connection with the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole and
absolute discretion. The Board's decisions and interpretations shall be final
and binding. Any action of the Board with respect to the administration of the
Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.
Having been adopted by its Board on __________, 2000, this Plan is executed
by duly authorized officer of the Bank this ___ day of__________________.
Attest
________________ _____________________________________________
_____________________________________________
For the Entire Board of Directors
<PAGE>
EXHIBIT 10.5
NEWBERRY FEDERAL SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
Newberry Federal Savings Bank
Supplemental Executive Retirement Plan
Table of Contents
<TABLE>
<S> <C>
Article I - Introduction.................................................... 1
Article II - Definitions.................................................... 2
Article III - Eligibility and Participation................................. 5
Article IV - Benefits....................................................... 6
Article V - Accounts........................................................ 7
Article VI - Supplemental Benefit Payments.................................. 8
Article VII - Claims Procedures............................................. 9
Article VIII - Amendment and Termination.................................... 11
Article IX - General Provisions............................................. 12
Article X - Required Regulatory Provisions.................................. 15
</TABLE>
i
<PAGE>
Article I
Introduction
Section 1.01 Purpose, Design and Intent.
--------------------------
(a) The purpose of the Newberry Federal Savings Bank Supplemental Executive
Retirement Plan (the "Plan") is to assist Newberry Federal Savings Bank
(the "Bank") and its affiliates in retaining the services of key employees
until their retirement, to induce such employees to use their best efforts
to enhance the business of the Bank and its affiliates, and to provide
certain supplemental retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is specifically designed to
provide certain key employees with retirement benefits that would have been
payable under various tax-qualified retirement plans sponsored by the Bank
but for the limitations placed on the benefits and contribution under that
plan by various provisions of the Internal Revenue Code of 1986, as
amended.
1
<PAGE>
Article II
Definitions
Section 2.01 Definitions. In this Plan, whenever the context so indicates,
-----------
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or Beneficiary, as the case may be, and, except as otherwise
provided, or unless the context otherwise requires, the capitalized terms shall
have the following meanings:
(a) "Affiliate" means any "parent corporation" or any "subsidiary corporation"
of the Bank, as such terms are defined in Sections 424(e) and 424(f),
respectively, of the Code.
(b) "Applicable Limitations" means one of the following:
(i) the maximum limitation on annual benefits payable by a qualified
defined benefit plan under Section 415(b) of the Code;
(ii) the maximum limitations on annual additions to a qualified defined
contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the annual amount of compensation that
may, under Section 401(a)(17) of the Code, be taken into account
in determining contributions to and benefits under qualified
plans; and
(iv) the maximum limitations, under Sections 401(k), 401(m), or 402(g)
of the Code, on pre-tax contributions that may be made to a
qualified defined contribution plan.
(c) "Bank" means Newberry Federal Savings Bank and its successors.
(d) "Board of Directors" means the Board of Directors of the Bank.
(e) "Change in Control" means with respect to the Bank or the Company, an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Bank, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) 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 voting securities of the Bank or the Holding Company representing
20%
2
<PAGE>
or more of the Bank's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a Nominating Committee solely composed of members
which are Incumbent Board members, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs or is
effectuated in which the Bank or Holding Company is not the resulting entity, or
(D) a proxy statement has been distributed soliciting proxies from stockholders
of the Holding Company, by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means Dutchfork Bancshares, Inc. and its successors.
(j) "Effective Date" means January 1, 2000.
(k) "Eligible Individual" means any Employee of the Bank or an Affiliate who
participates in the ESOP and whom the Board of Directors determines is one of a
"select group of management or highly compensated employees," as such phrase is
used for purposes of Sections 101, 201, and 301 of ERISA.
(l) "Employee" means any person employed by the Bank or an Affiliate.
(m) "Employer" means the Bank or Affiliate that employs the Employee.
(n) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
3
<PAGE>
(o) "ESOP" means the Newberry Federal Savings Bank Employee Stock Ownership
Plan, as amended from time to time.
(p) "ESOP Acquisition Loan" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
(q) "Participant" means an Eligible Employee who is entitled to benefits under
the Plan.
(r) "Pension Plan" means the Newberry Federal Savings Bank Fixed Benefit
Pension Plan, as amended from time to time.
(s) "Plan" means this Newberry Federal Savings Bank Supplemental Executive
Retirement Plan.
(t) "Retirement" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under the ESOP or
Pension Plan, as applicable.
(u) "Savings Plan" means the Newberry Federal Savings Bank Salary Savings Plan,
as amended from time to time.
(v) "Supplemental ESOP Account" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(w) "Supplemental ESOP Benefit" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(x) "Supplemental Pension Benefit" means the benefit earned by a Participant
pursuant to Section 4.02 of the Plan.
(y) "Supplemental Savings Account" means an account established by an Employer,
pursuant to Section 5.02 of the Plan, with respect to a Participant Supplement
Savings Benefit.
(z) "Supplemental Savings Benefit" means the benefit credited to a Participant
pursuant to Section 4.02 of the Plan.
4
<PAGE>
Article III
Eligibility and Participation
Section 3.01 Eligibility and Participation.
-----------------------------
(a) Each Eligible Employee may participate in the Plan. An Eligible Employee
shall become a Participant in the Plan upon designation as such by the
Board of Directors. An Eligible Employee whom the Board of Directors
designates as a Participant in the Plan shall commence participation as of
the date established by the Board of Directors. The Board of Directors
shall establish an Eligible Employee's date of participation at the same
time it designates the Eligible Employee as a Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee as
a Participant for any or all supplemental benefits provided for under
Article IV of the Plan.
5
<PAGE>
Article IV
Benefits
Section 4.01 Supplemental ESOP Benefit.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated to
the accounts of the Participant under the ESOP for the applicable plan year
if the provisions of the ESOP were administered without regard to and of
the Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such
allocation required by the limitations imposed by any of the Applicable
Limitations.
Section 4.02 Supplemental Pension Benefit.
----------------------------
A Participant or, in the event of his death, his beneficiary, whose retirement
or survivor benefits under the Pension Plan are limited by one or more of the
Applicable Limitations shall be entitled to a supplemental retirement benefit or
survivor benefit (Supplemental Pension Benefit) under this Plan in an amount
equal to the excess of:
(i) the benefit to which he would be entitled under the Pension Plan in
the absence of the Applicable Limitations, computed as of the day the
Participant separates from service with the Employer on the basis of
the benefit form elected under the Pension Plan; over
(ii) the actual benefit to which he is entitled under the Pension Plan,
computed as of the day the Participant separates from service with the
Employer on the basis of the benefit form elected under the Pension
Plan;
provided, however, that, if the Plan is frozen or terminated with respect to a
Participant prior to his separation from service with the Employer, such
Supplemental Pension Benefit shall not exceed the Supplemental Pension Benefit
that would have been payable under this Section 4.02, on the basis of the
benefit form elected under the Pension Plan, if his separation from service had
occurred as of the date of the termination of the Plan.
6
<PAGE>
Section 4.03 Supplemental Savings Benefit.
----------------------------
A Participant's Supplemental Savings Benefit under the Plan shall be equal to
the excess of (a) over (b), where:
(a) is matching contributions that would otherwise be allocated to an account
of the Participant under the Savings Plan for a particular year if the
provisions of the Savings Plan were administered without regard to any of
the Applicable Limitations; and
(b) is the matching contributions made by the Employer that are actually
allocated to an account of the Participant under the provisions of the
Savings Plan for that particular year after giving effect to any reduction
of such allocation required by any of the Applicable Limitations.
7
<PAGE>
Article V
Accounts
Section 5.01 Supplemental ESOP Benefit Account.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the Applicable Limitations.
Shares of Common Stock shall be valued under this Plan in the same manner as
under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
Section 5.02 Supplemental Savings Account.
----------------------------
The Employer shall establish a memorandum account, the "Supplemental Savings
Account" for each Participant on its books, and each year the Committee will
credit the amount of contributions determined under Section 4.03 of the Plan.
Contributions credited to a Participant's Supplemental Savings Account shall be
credited monthly with interest at a rate equal to the combined weighted return
provided to the Participant's matching contribution account under the Savings
Plan.
8
<PAGE>
Article VI
Supplemental Benefit Payments
Section 6.01 Payment of Supplemental ESOP Benefit.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or in the event of the Participant's death, to his beneficiary in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
Section 6.02 Payment of Supplemental Pension Benefit.
---------------------------------------
(a) A Participant's Supplemental Pension Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Pension Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental
Pension Benefit under this Plan in the same percentage as he has to his
accrued benefits under the Pension Plan at the time the benefits become
distributable to him under the Pension Plan.
Section 6.03 Payment of Supplemental Savings Benefit.
---------------------------------------
(a) A Participant's Supplemental Savings Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Savings Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental
Savings Benefit under this Plan in the same percentage as he has to his
accrued benefits under the Pension Plan at the time the benefits become
distributable to him under the Savings Plan.
Section 6.04 Alternative Payment of Benefits.
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Pension Benefit and/or Supplemental Savings Benefit to which he is
entitled, and the survivor benefit to which his beneficiary under the Pension
Plan may be entitled under Section 4.02 be paid commencing at a different time,
over a different period, in a different form, or to different persons, than the
benefit to which he or his beneficiary may be entitled under the ESOP, Savings
Plan or the Pension Plan; provided, however, that in the event of any difference
with respect to his Supplemental Pension Benefit, the benefit
9
<PAGE>
actually paid under this Section 6.04 shall be the actuarial equivalent (as
determined based on applicable tables, factors, and assumption set forth in the
Pension Plan) of the benefit that would be paid in accordance with the
provisions of Section 6.02 of the Plan.
10
<PAGE>
Article VII
Claims Procedures
Section 7.01 Claims Reviewer.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
Section 7.02 Claims Procedure.
----------------
(a) An initial claim for benefits under the Plan must be made by the
Participant or his or her beneficiary or beneficiaries in accordance with
the terms of this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant,
unless special circumstances require the extension of such 90-day period.
If such extension is necessary, the Claims Reviewer shall provide the
Participant or the Participant's beneficiary or beneficiaries with written
notification of such extension before the expiration of the initial 90-day
period. Such notice shall specify the reason or reasons for the extension
and the date by which a final decision can be expected. In no event shall
such extension exceed a period of ninety (90) days from the end of the
initial 90-day period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's
claim, the claimant may have a full and fair review of the claim by the
Committee upon written request submitted by the claimant or the claimant's
duly authorized representative and received by the Committee within sixty
(60) days after the claimant receives written notification that the
claimant's claim has been denied. In connection with such review, the
claimant or the claimant's duly authorized representative shall be entitled
to review pertinent documents and submit the claimant's views as to the
issues, in writing. The Committee shall act to deny or accept the claim
within sixty (60) days after receipt of the claimant's written request for
review unless special circumstances require the extension of such 60-day
period. If such extension is necessary, the Committee shall provide the
claimant with written notification of such extension before the expiration
of such initial 60-day period. In all events, the Committee shall act to
deny or accept the claim within 120 days of the receipt of the claimant's
written request for review. The action of the
11
<PAGE>
Committee shall be in the form of a written notice to the claimant and its
contents shall include all of the requirements for action on the original
claim.
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
12
<PAGE>
Article VIII
Amendment and Termination
Section 8.01 Amendment of the Plan.
---------------------
The Bank may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
Section 8.02 Termination of the Plan.
-----------------------
The Bank may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
13
<PAGE>
Article IX
General Provisions
Section 9.01 Unfunded, Unsecured Promise to Make Payments in the Future.
----------------------------------------------------------
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the Bank or
its Affiliates and neither a Participant nor his designated beneficiary or
beneficiaries shall have any rights in or against any amount credited to any
account under this Plan or any other assets of the Bank or an Affiliate. The
Plan at all times shall be considered entirely unfunded both for tax purposes
and for purposes of Title I of ERISA. Any funds invested hereunder shall
continue for all purposes to be part of the general assets of the Bank or an
Affiliate and available to its general creditors in the event of bankruptcy or
insolvency. Accounts under this Plan and any benefits which may be payable
pursuant to this Plan are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's beneficiary. The
Plan constitutes a mere promise by the Bank or Affiliate to make benefit
payments in the future. No interest or right to receive a benefit may be taken,
either voluntarily or involuntarily, for the satisfaction of the debts of, or
other obligations or claims against, such Participant or beneficiary, including
claims for alimony, support, separate maintenance and claims in bankruptcy
proceedings.
Section 9.02 Committee as Plan Administrator.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Bank or Affiliate, as they may
deem appropriate. The Committee shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
retained by the Bank with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
Section 9.03 Expenses.
--------
Expenses of administration of the Plan shall be paid by the Bank or an
Affiliate.
Section 9.04 Statements.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
14
<PAGE>
Section 9.05 Rights of Participants and Beneficiaries.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive
whatever benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in
any trust which may be established in connection with the Plan or assets of
the Bank or an Affiliate will be sufficient to pay any benefit hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as
creating any contract of employment or service between the Bank or an
Affiliate and any Participant or other individual. The Plan shall not
affect the right of the Bank or an Affiliate to deal with any Participants
in employment or service respects, including their hiring, discharge,
compensation, and conditions of employment or other service.
Section 9.06 Incompetent Individuals.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Bank or an Affiliate and
the Plan for such Participant or beneficiary.
Section 9.07 Sale, Merger, or Consolidation of the Bank.
------------------------------------------
The Plan may be continued after a sale of assets of the Bank, or a merger or
consolidation of the Bank into or with another corporation or entity only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. Additionally, upon a merger, consolidation or other change
in control any amounts credited to Participant's deferral accounts shall be
placed in a grantor trust to the extent not already in such a trust. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall be terminated subject to the provisions of Section
8.02 of the Plan. Any legal fees incurred by a Participant in determining
benefits to which such Participant is entitled under the Plan following a sale,
merger, or consolidation of the Bank or an Affiliate of which the Participant is
an Employee or, if applicable, a member of the Board of Directors, shall be paid
by the resulting or succeeding entity.
15
<PAGE>
Section 9.08 Location of Participants.
------------------------
Each Participant shall keep the Bank informed of his or her current address and
the current address of his or her designated beneficiary or beneficiaries. The
Bank shall not be obligated to search for any person. If such person is not
located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
Section 9.09 Liability of the Bank and its Affiliates.
----------------------------------------
Notwithstanding any provision herein to the contrary, neither the Bank nor any
individual acting as an employee or agent of the Bank shall be liable to any
Participant, former Participant, beneficiary, or any other person for any claim,
loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Bank or any such
employee or agent of the Bank.
Section 9.10 Governing Law.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of South Carolina.
16
<PAGE>
Article X
Required Regulatory Provisions
Section 10.01 Required Regulatory Provisions.
------------------------------
(a) The Employer may terminate an Employee's employment at any time, but any
termination by the Employer, other than termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. An Employee shall not have the right to receive compensation or other
benefits for any period after a termination for cause as otherwise provided
hereunder.
(b) 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this Plan shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this Plan shall terminate as of the date of default, but this paragraph shall
not affect any vested rights of the Participants.
(e) Any payments made to Participants pursuant to this Plan, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
Having been adopted by its Board of Directors on the ____ day of ____________,
2000, this Plan is executed by its duly authorized officer this ___ day
of ________________.
NEWBERRY FEDERAL SAVINGS BANK
Attest:
________________________ By:___________________________________
For the Entire Board of Directors
17
<PAGE>
EXHIBIT 23.1
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form SB-2 filed by DutchFork Bancshares, Inc. (the
"Company"), and all amendments thereto; in the Form H-(e)1-S for the Company,
and all amendments thereto; and in the Application for Conversion on Form AC
filed by Newberry Federal Savings Bank (the "Bank"), and all amendments
thereto, relating to the conversion of the Bank from a federally-chartered
mutual savings bank to a federally-chartered stock savings bank, the concurrent
issuance of the Bank's outstanding capital stock to the Company, a holding
company formed for such purpose, and the offering of the Company's common stock.
/s/ Muldoon, Murphy & Faucette LLP
MULDOON, MURPHY & FAUCETTE LLP
Dated this 8th day of
March 2000
<PAGE>
EXHIBIT 23.3
KELLER & COMPANY, INC.
FINANCIAL INSTITUTION CONSULTANTS
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
March 8, 2000
The Board of Directors
Newberry Federal Savings Bank
1735 Wilson Road
Newberry, South Carolina 29108
Re: Subscription Rights - Conversion of Newberry Federal Savings Bank
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of DutchFork Bancshares,
Inc. (the "Corporation"), Newberry, South Carolina, in regard to the conversion
of Newberry Federal Savings Bank, ("Newberry Federal" or the "Bank") from a
federally chartered mutual savings bank to a federally chartered stock savings
bank.
Because the Subscription Rights to purchase shares of common stock in the
Corporation, which are to be issued to the depositors of Newberry Federal, and
the other members of the Bank and will be acquired by such recipients without
cost, will be nontransferable and of short duration and will afford the
recipients the right only to purchase shares of common stock at the same price
as will be paid by members of the general public in a Direct Community Offering,
we are of the opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/John A. Shaffer
- ------------------
John A. Shaffer
Vice President
<PAGE>
KELLER & COMPANY, INC.
FINANCIAL INSTITUTION CONSULTANTS
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
March 8, 2000
Re: Valuation Appraisal of DutchFork Bancshares, Inc.
Newberry Federal Savings Bank
Newberry, South Carolina
We hereby consent to the use of our firm's name, Keller & Company, Inc.
("Keller"), and the reference to our firm as experts in the Application for
Conversion on Form AC to be filed by Newberry Federal Savings Bank and any
amendments thereto and references to our opinion regarding subscription rights
filed as an exhibit to the applications referred to hereafter. We also consent
to the use of our firm's name in the Form SB-2 to be filed by DutchFork
Bancshares, Inc. with the Securities and Exchange Commission and any amendments
thereto, and to the statements with respect to us and the references to our
Valuation Appraisal Report and in the said Form AC and any amendments thereto
and in the notice and Application for Conversion filed by Newberry Federal
Savings Bank.
Very truly yours,
KELLER & COMPANY, INC.
/s/ John A. Shaffer
by: _________________________
John A. Shaffer
Vice President
<PAGE>
EXHIBIT 24.0
CONFORMED
POWER OF ATTORNEY
We, the undersigned directors and officers of DutchFork Bancshares, Inc.,
(the "Company") do hereby severally constitute and appoint J. Thomas Johnson and
Steve P. Sligh true and lawful attorneys and agents to do any and all things and
acts in our names in the capacities indicated below and to execute any and all
instruments for us and in our names in the capacities indicated below which said
J. Thomas Johnson and Steve P. Sligh may deem necessary or advisable to enable
the Company to comply with the Securities Act of 1933 in connection with the
Registration Statement on Form SB-2 relating to the offering of the Company'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 said J. Thomas
Johnson and Steve P. Sligh shall do or cause to be done by virtue hereof.
/s/ J. Thomas Johnson Chairman, President and March 8, 2000
- ------------------------------
J. Thomas Johnson Chief Executive Officer
(principal executive officer)
/s/ Steve P. Sligh Executive Vice President, March 8, 2000
- ------------------------------
Steve P. Sligh Treasurer, Chief Financial
Officer and Director
(principal accounting
and financial officer)
/s/ Robert E. Livingston, III Corporate Secretary March 8, 2000
- ------------------------------
Robert E. Livingston, III and Director
/s/ Keitt Purcell Director March 8, 2000
- ------------------------------
Keitt Purcell
/s/ Robert W. Owen Director March 8, 2000
- ------------------------------
Robert W. Owen
/s/ James E. Wiseman Director March 8, 2000
- ------------------------------
James E. Wiseman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR DUTCHFORK BANCSHARES, INC. FOR THE
THREE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,746,826
<INT-BEARING-DEPOSITS> 1,367,947
<FED-FUNDS-SOLD> 5,325,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 131,888,707
<INVESTMENTS-CARRYING> 5,473,492
<INVESTMENTS-MARKET> 5,507,219
<LOANS> 74,788,258
<ALLOWANCE> 332,631
<TOTAL-ASSETS> 226,599,850
<DEPOSITS> 148,436,718
<SHORT-TERM> 41,065,000
<LIABILITIES-OTHER> 20,969,950
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 16,128,182
<TOTAL-LIABILITIES-AND-EQUITY> 226,599,850
<INTEREST-LOAN> 1,493,267
<INTEREST-INVEST> 2,228,442
<INTEREST-OTHER> 67,543
<INTEREST-TOTAL> 3,774,169
<INTEREST-DEPOSIT> 1,622,930
<INTEREST-EXPENSE> 2,142,836
<INTEREST-INCOME-NET> 1,631,333
<LOAN-LOSSES> 160,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,215,328
<INCOME-PRETAX> 497,184
<INCOME-PRE-EXTRAORDINARY> 497,184
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298,414
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.07
<LOANS-NON> 152,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 85,000
<LOANS-PROBLEM> 637,853
<ALLOWANCE-OPEN> 184,170
<CHARGE-OFFS> 14,758
<RECOVERIES> 3,219
<ALLOWANCE-CLOSE> 332,631
<ALLOWANCE-DOMESTIC> 322,631
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.2
Dutchfork Bancshares, Inc.
Proposed Holding Company for
Newberry Federal Savings Bank
Newberry, South Carolina
Proposed Marketing Materials
3/03/00
Prepared by: Melanie A. Johnson
Trident Securities
<PAGE>
Marketing Materials
Dutchfork Bancshares
Newberry, South Carolina
Table of Contents
-----------------
<TABLE>
<S> <C>
I. Press Releases
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Individual Letters and Community Meeting Invitation
IV. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
V. Proxy Reminder
A. Explanation
B. Example
VI. Subscription Rights Notice
A. Explanation
B. Example
</TABLE>
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers receive prompt accurate
information in a simultaneous manner, Trident advises Newberry Federal to
forward press releases to area newspapers, radio stations, etc. at various
points during the conversion process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
C. Distribution List
National Distribution List
--------------------------
National Thrift News Wall Street Journal
- -------------------- --------------------------
212 West 35th Street World Financial Center
13th Floor 200 Liberty
New York, New York 10001 New York, NY 10004
Richard Chang
American Banker SNL Securities
- --------------- --------------------------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia 22902
Michael Weinstein
Barrons Investors Business Daily
- ------- --------------------------------
Dow Jones & Savings Bank 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California 90066
Chicopee, Massachusetts 01020
New York Times
- --------------
229 West 43rd Street
New York, NY 10036
<PAGE>
Local Media List
----------------
(To be provided)
Newspaper
- ---------
Radio
- -----
<PAGE>
D. Press Release Examples
PRESS RELEASE FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
J. Thomas Johnson, Chairman and CEO
(803) 321-3200
NEWBERRY FEDERAL SAVINGS BANK
-----------------------------
CONVERSION TO STOCK FORM APPROVED
---------------------------------
Newberry, South Carolina (May __, 2000) - J. Thomas Johnson, Chairman and
CEO of Newberry Federal Savings Bank ("Newberry Federal"), Newberry, South
Carolina announced today that Newberry Federal has received approval from the
Office of Thrift Supervision to convert from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. In connection with the
Conversion, Newberry Federal has formed a holding company, Dutchfork Bancshares,
Inc. ("Dutchfork Bancshares"), to hold all of its outstanding capital stock.
Dutchfork Bancshares is offering up to 1,495,000 shares of its common
stock, subject to adjustment, at a price of $10.00 per share. Certain account
holders and borrowers of Newberry Federal will have an opportunity to subscribe
for stock in a Subscription Offering that closes at 12:00 noon on June __, 2000.
Shares that are not subscribed for during the Subscription Offering may be
offered subsequently to the general public in a Direct Community Offering and a
Syndicated Community Offering, with first preference given to natural persons
and trusts of natural persons residing in Newberry and Lexington Counties, South
Carolina. The Subscription Offering, and the Community Offerings, if conducted,
will be managed by Trident Securities of Raleigh, North Carolina. Copies of the
Prospectus relating to the offerings and describing the Plan of Conversion will
be mailed on or about May __, 2000.
As a result of the Conversion, Newberry Federal will be structured in the
stock form and will be a wholly-owned subsidiary of Dutchfork Bancshares.
According to Mr. Johnson, "Our day
<PAGE>
to day operations will not change as a result of the Conversion and deposits
will continue to be insured by the FDIC up to the applicable legal limits."
Customers with questions concerning the stock offering should call Newberry
Federal's Stock Information Center at (___) ___-___, or visit Newberry Federal's
main office.
<PAGE>
PRESS RELEASE #2 FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
J. Thomas Johnson, Chairman and CEO
(803) 321-3200
DUTCHFORK BANCSHARES, INC. COMPLETES INITIAL PUBLIC OFFERING
------------------------------------------------------------
Newberry, South Carolina - (June __, 2000) J. Thomas Johnson, Chairman and
CEO of Newberry Federal Savings Bank ("Newberry Federal"), announced today that
Dutchfork Bancshares, Inc. ("Dutchfork Bancshares") the proposed holding company
for Newberry Federal, has completed its initial stock offering in connection
with Newberry Federal's conversion from a mutual to a stock organization. A
total of _______ shares were sold at the price of $10.00 per share.
On June __, 2000, Newberry Federal's Plan of Conversion was approved by its
voting members at a special meeting.
Mr. Johnson said that the officers and boards of directors of Dutchfork
Bancshares and Newberry Federal wished to express their thanks for the response
to the stock offering and that Newberry Federal looks forward to serving the
needs of its customers and new stockholders as a community-based stock
institution. The stock will commence trading on about June __, 2000 on The
NASDAQ Small Cap Market under the symbol "DFBS". Trident Securities of Raleigh,
North Carolina managed the stock offering.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify Newberry
Federal's customers and members of the local community that the conversion
offering is underway.
The intended use of advertisement "B" is to remind Newberry Federal's
customers of the closing date of the Subscription Offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and
possibly run weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers of the close of The Subscription Offering, and the Community
Offering, if conducted.
Alternatively, Trident may, depending upon the response from the customer
base, choose to run fewer ads or no ads at all.
These ads will run in the local newspapers.
The ad size will be as shown or smaller.
<PAGE>
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
New Issue ____________, 2000
1,495,000 Shares
These shares are being offered pursuant
to the Plan of Conversion whereby
Newberry Federal Savings Bank
Newberry, South Carolina, will convert from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank
and become a wholly owned subsidiary of
Dutchfork Bancshares, Inc.
Common Stock
_______________
Price $10.00 Per Share
_______________
Trident Securities
For a copy of the prospectus call (___) ___-____.
<PAGE>
Advertisement (B)
- -------------------------------------------------------------------------------
NEWBERRY FEDERAL SAVINGS BANK
JUNE __, 2000 IS THE DEADLINE TO
SUBSCRIBE FOR STOCK OF DUTCHFORK BANCSHARES.
Customers of Newberry Federal Savings Bank
have the opportunity to invest in Newberry Federal by subscribing
for common stock in its proposed holding company.
DUTCHFORK BANCSHARES
A Prospectus relating to these securities is
available at our Stock Information Center located
at our main office. The telephone number for the
Stock Information Center is (___) ___-____.
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
- --------------------------------------------------------------------------------
<PAGE>
III. Individual Letters and Community Meeting Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding community meetings in various locations. In an effort to target a group
of interested investors, Trident requests that each Director of Newberry Federal
submit a list of people that he or she would like to invite to a community
meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his or her list of prospects. Invitations are sent to each
Director's prospects through the mail. All invitations are preceded by a
Prospectus and all attendees are given a Prospectus at the meeting. Letters will
be sent all attendees to thank them for their attendance and to remind them of
closing dates.
C. Examples enclosed.
<PAGE>
(Trident Letterhead)
May __, 2000
To Members and Friends of Newberry Federal Savings Bank:
Trident Securities, a member of the National Association of Securities
Dealers, Inc., is assisting Newberry Federal Savings Bank ("Newberry Federal")
in its conversion from a federally-chartered mutual savings bank to a federally-
chartered stock savings bank, whereby Newberry Federal will operate as a wholly-
owned subsidiary of Dutchfork Bancshares, Inc. ("Dutchfork Bancshares").
At the request of Newberry Federal, we are enclosing materials explaining
the subscription offering process and your right to subscribe for common shares
of Dutchfork Bancshares. Please read the enclosed offering materials carefully
before subscribing for stock.
If you have any questions, please call the Stock Information Center at
(___) ___-____.
Sincerely,
TRIDENT SECURITIES
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
(Newberry Federal Letterhead)
____________, 2000
Dear Valued Customer:
Newberry Federal Savings Bank ("Newberry Federal") is pleased to announce
that it has received regulatory approval to proceed with its plan to convert to
a federally-chartered stock savings bank. This stock conversion is the most
significant event in the history of Newberry Federal in that it allows
customers, community members, directors and employees an opportunity to own
stock in Dutchfork Bancshares, Inc. ("Dutchfork Bancshares"), the proposed
holding company for Newberry Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage deposits at
Newberry Federal, or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with Newberry Federal. Let us also
assure you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of Newberry Federal.
As one of our valued members, you have the opportunity to invest in
Newberry Federal's future by subscribing for stock in Dutchfork Bancshares
during the Subscription Offering, without paying a sales commission. If you
decide to exercise your rights to subscribe for shares, you must return the
properly completed stock order form together with full payment for the
subscribed shares to be received by Newberry Federal no later than 12:00 noon,
Eastern time, on June __, 2000.
The Plan of Conversion will be voted on at a Special Meeting of members to
be held on June __, 2000. Your Board of Directors urges you to vote "FOR"
Newberry Federal's Plan of Conversion on the enclosed proxy card. A vote in
favor of the Plan does not obligate you to subscribe for stock. Please sign and
return your proxy card promptly; your vote is important to us.
We have also enclosed a Prospectus and Proxy Statement which fully the
describes Newberry Federal, its management, Board of Directors, business and the
Plan of Conversion. Please review it carefully before you vote or invest. For
your convenience we have established a Stock Information Center. If you have any
questions, please call the Stock Information Center collect at (___) ___-____.
We look forward to continuing to provide quality financial services to you.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
(Newberry Federal Letterhead)
____________, 2000
Dear Friend:
Newberry Federal Savings Bank ("Newberry Federal") is pleased to announce
that it has received regulatory approval to proceed with its plan to convert to
a federally-chartered stock savings bank. This stock conversion is the most
significant event in the history of Newberry Federal in that it allows
customers, community members, directors and employees an opportunity to own
stock in Dutchfork Bancshares, Inc. ("Dutchfork Bancshares"), the proposed
holding company for Newberry Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on Newberry Federal
deposits, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with Newberry Federal. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of Newberry Federal.
Our records indicate that you were a depositor of Newberry Federal on
November 30, 1998 or ________________, 2000, but that you were not a member on
________________, 2000. Therefore, under applicable law, you are entitled to
subscribe for Common Stock in Dutchfork Bancshares's Subscription Offering.
Orders submitted by you and others in the Subscription Offering are contingent
upon the current members' approval of the Plan of Conversion at a special
meeting of members to be held on June __, 2000 and upon receipt of all required
regulatory approvals.
If you decide to exercise your rights to subscribe for stock, you must
return the properly completed stock order form together with full payment for
the subscribed shares so that it is received by Newberry Federal not later than
12:00 noon Eastern Time on June __, 2000.
Enclosed is a Prospectus that fully describes Newberry Federal, its
management, Board of Directors, business and Plan of Conversion. Please review
it carefully before you invest. For your convenience we have established a Stock
Information Center. If you have any questions, please call the Stock Information
Center collect at (___) ___-____.
We look forward to continuing to provide quality financial services to you.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
(Newberry Federal Letterhead)
___________, 2000
Dear Member:
As a qualified member of Newberry Federal Savings Bank ("Newberry
Federal"), you have the right to vote upon Newberry Federal's Plan of Conversion
and also generally have the right to subscribe for shares of common stock of
Dutchfork Bancshares, Inc. ("Dutchfork Bancshares"), the proposed holding
company for Newberry Federal through its mutual to stock conversion.
However, the Plan of Conversion, which has been approved by the Office of
Thrift Supervision, provides that Dutchfork Bancshares will not offer stock in
any state in which compliance with the securities laws would be impracticable
for reasons of cost or otherwise. Unfortunately, the securities laws of your
state would require Dutchfork Bancshares to register its common stock and/or its
employees in order to sell the common stock to you. Such registration would be
prohibitively expensive or otherwise impracticable in light of the few members
residing in your state.
You may vote on the Plan of Conversion and we urge you to read the enclosed
Summary Proxy Statement and execute the enclosed Revocable Proxy. Questions
regarding the execution of the Revocable Proxy should be directed to Newberry
Federal's Stock Information Center at (___) ___-____.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
(Newberry Federal Letterhead)
____________, 2000
Dear Interested Investor:
Newberry Federal Savings Bank ("Newberry Federal") is pleased to announce
that it has received regulatory approval to proceed with its plan to convert to
a federally-chartered stock savings bank. This stock conversion is the most
significant event in the history of Newberry Federal in that it allows
customers, community members, directors and employees an opportunity to own
stock in Dutchfork Bancshares, Inc. ("Dutchfork Bancshares"), the proposed
holding company for Newberry Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on Newberry Federal
deposits, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with Newberry Federal. Let us also assure
you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of Newberry Federal.
Enclosed is a Prospectus fully describing Newberry Federal, its management,
Board of Director, business and Plan of Conversion. Please review it carefully
before you make an investment decision. If you decide to invest, please return
to Newberry Federal a properly completed stock order form together with full
payment for shares at your earliest convenience but not later than 12:00 noon
Eastern Time on June __, 2000. For your convenience we have established a Stock
Information Center. If you have any questions, please call the Stock Information
Center collect at (___) ___-____.
We look forward to continuing to provide quality financial services to you.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
Sent to prospects who are customers*
_______________, 2000
&salutation& &firstname& &last name&
&address&
&city&, &state& &zip&
Dear &prefername&
Recently you may have read in the newspaper that Newberry Federal Savings
Bank ("Newberry Federal") will convert from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank. This is the most significant
event in the history of Newberry Federal in that it allows customers, employees
and directors the opportunity to share in Newberry Federal's future by becoming
charter stockholders of Newberry Federal's newly-formed holding company,
Dutchfork Bancshares, Inc. ("Dutchfork Bancshares").
As a customer of Newberry Federal, you should have received a packet of
information regarding the conversion, including a Prospectus and a Proxy
Statement. In addition, we are holding several presentations to discuss the
stock offering in more detail. You will receive an invitation in the near
future.
Please feel free to call me or Newberry Federal's Stock Information Center
at (___) ___-____ if you have any questions. I look forward to seeing you at one
of our informational presentations.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
*Sent to prospects who are not customers*
____________, 2000
&salutation& &firstname& &lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
Recently you may have read in the newspaper that Newberry Federal Savings
Bank ("Newberry Federal") will be converting from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. This is the most
significant event in the history of Newberry Federal in that it allows
customers, employees and directors the opportunity to share in Newberry
Federal's future by becoming charter stockholders of Newberry Federal's holding
company, Dutchfork Bancshares, Inc. ("Dutchfork Bancshares").
[Director] has asked that you be sent a Prospectus and stock order form,
which would allow you to become a charter stockholder, should stock be
available. In addition, we are holding several presentations to discuss the
stock offering in more detail. You will receive an invitation in the near
future.
Please feel free to call me or Newberry Federal's Stock Information Center
at (___) ___-____ if you have any questions. I look forward to seeing you at one
of our information presentations.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
*Sent to those attending a community meeting*
____________, 2000
&salutation& &firstname& &lastname&
&address&
&City&, &state& &zip&
Dear &prefername&:
Thank you for attending our informational presentation relating to Newberry
Federal's conversion to a stock savings bank. The information presented at the
meeting and the Prospectus you recently received should assist you in making an
informed investment decision.
Obviously, we are excited about this stock offering and the opportunity for
the community to share in the future of Newberry Federal. This conversion is the
most important event in our history and it gives Newberry Federal the strength
to compete in the future and will provide Newberry Federal additional corporate
flexibility.
We may contact you in the near future to see if you are interested in
participating in our offering. If you decide to invest, please return your
properly completed stock order form no later than 12:00 noon, Eastern Time, on
June __, 2000. If you have any questions, please call the Stock Information
Center at (___) ___-____.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
* Sent to those not attending a community meeting *
_________, 2000
&salutation& &firstname& &lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am sorry you were unable to attend our recent presentation regarding
Newberry Federal's mutual to stock conversion. We are enthusiastic about the
stock offering and the opportunity for the community to share in the future of
Newberry Federal.
We have established a Stock Information Center to assist you with any
questions regarding the stock offering. Should you require any assistance
between now and the Subscription Offering deadline of 12:00 Noon, Eastern Time,
on June __, 2000, I encourage you to either stop by our Stock Information Center
or call (___) ___-____.
I hope you will join me as a charter stockholder in Dutchfork Bancshares.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
* Final Reminder Letter *
_________, 2000
&salutation&firstname&lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am writing to remind you that the deadline for subscribing for stock in
Dutchfork Bancshares is quickly approaching. I hope you will join me in
becoming a charter stockholder in one of South Carolina's newest publicly owned
financial institutions.
The deadline for becoming a charter stockholder is 12:00 Noon, Eastern
Time, on June __, 2000. If you have any questions, please call our Stock
Information Center at (___) ___-____.
Once again, I look forward to having you join me as a charter stockholder
in Dutchfork Bancshares.
Sincerely,
J. Thomas Johnson
Chairman and CEO
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
*Charter Stockholder Letter*
June __, 2000
Dear Charter Stockholder:
On behalf of the Board of Directors, management and employees of the Newberry
Federal Savings Bank, it is my pleasure to welcome you as a charter stockholder
of Dutchfork Bancshares, Inc. We are very proud of the overwhelming support we
received from our customers, as we successfully completed the sale of _________
shares of common stock.
Your new stock certificate is enclosed and should be kept in a safe place.
Please take a moment to be sure that the name(s) and mailing address are
correct. We have selected ________________________________ to serve as our
Transfer Agent. If there is an error on your stock certificate, if your address
changes, or if at any time you wish to change the registration of your
certificate, you should contact ___________________________ at:
______________________________
_____________________
__________________
Attn: Investor Relations
1-800-___-____
The stock will be traded under the symbol "DFBS" on The NASDAQ Small Cap Market,
and should begin trading on or about June __, 2000. If you are interested in
price or trading information, please call your broker or our underwriter,
Trident Securities at 1-800-340-6321.
If you purchased shares with a check or cash, you will receive a check for
interest earned on those funds in a separate mailing. If you authorized a
withdrawal(s) from your Newberry Federal Savings Bank account, the funds have
been withdrawn from your account(s).
Thank you for your support of our mutual to stock conversion. We are proud of
the confidence you have expressed in us by becoming a charter stockholder in
Dutchfork Bancshares, Inc. and pledge our best efforts to make your investment a
successful one.
Sincerely,
J. Thomas Johnson
Chairman and Chief Executive Officer
Enclosure
<PAGE>
================================================================================
The Directors and Officers
of
Newberry Federal Savings Bank
cordially invite you to attend a brief
presentation regarding the stock offering of
Dutchfork Bancshares, our proposed holding company.
Please join us at the
______________
_____________________
___________________________
____________
____________
for refreshments
YOU MUST RESPOND BY ____________ TO RESERVE A SEAT
R.S.V.P. (___) ___-____
================================================================================
<PAGE>
IV. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
Newberry Federal's customers and members of the local community that the
stock sale is underway and (2) to remind the customers of the end of the
Subscription Offering. Many people often forget the deadline for
subscribing and therefore we suggest the use of these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at Newberry Federal's
office.
C. Example
D. Size
The counter card will be approximately 8 1/2" x 11".
The lobby poster will be approximately 16" x 20".
<PAGE>
C.
POSTER OR COUNTER CARD
================================================================================
"TAKE STOCK IN OUR FUTURE"
"DUTCHFORK BANCSHARES
STOCK OFFERING MATERIALS
AVAILABLE HERE"
"DEADLINE TO SUBSCRIBE FOR STOCK IS JUNE __, 2000."
NEWBERRY FEDERAL SAVINGS BANK
===============================================================================
<PAGE>
V. Proxy Reminder
A. Explanation
A proxy reminder is used when the majority of votes needed to adopt the
Plan of Conversion is still outstanding. The proxy reminder is mailed to
those "target vote" depositors who have not previously returned their
signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
C. Size
Proxy reminder is approximately 8 1/2" x 11".
<PAGE>
B. Example
________________________________________________________________________________
P R O X Y R E M I N D E R
Newberry Federal Savings Bank
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
- --------- ---------------------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE PLAN OF CONVERSION.
VOTING FOR THE PLAN OF CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR
ACCOUNTS. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE
APPLICABLE LIMITS.
YOU MAY SUBSCRIBE FOR STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR
----------------------------
DELIVER, THE PROXY CARD TO NEWBERRY FEDERAL TODAY.
PLEASE VOTE ALL PROXY CARDS RECEIVED.
---
WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
NEWBERRY FEDERAL SAVINGS BANK
________________________________________________________________________________
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST
FOR FURTHER INFORMATION CALL (___) ___-____.
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Dutchfork Bancshares. The offer is made only through the prospectus. There
shall be no offer in any state where such offer or solicitation of an offer to
buy Dutchfork Bancshares stock would be unlawful. The shares of Dutchfork
Bancshares common stock are not deposits or savings accounts and will not be
insured by the FDIC or any other governmental agency.
<PAGE>
VI. Subscription Rights Special Notice
A. Explanation
In an effort to educate depositors and/or borrowers of Newberry Federal
about their subscription rights and the possible violation or transfer of
subscription rights which could occur, each member and friend will receive
a special one-page notice. The notice should be printed on a colored paper
and will contain language from the Prospectus that discusses the transfer
of subscription rights.
A. Example enclosed
<PAGE>
Subscription Rights
Special Notice
Any transfer of, or attempt to transfer, a subscription right to any other
person is illegal and subject to civil fines and/or penalties and even criminal
fines and/or penalties. Newberry Federal Savings Bank intends to prosecute
vigorously any transfer of, or attempt to transfer, subscription rights that
come to its attention.
If you are contacted by anyone offering to give you money to buy stock in
exchange for transferring the stock to them later, share in any way proceeds
upon the sale of the stock, or transfer your subscription rights in any other
way, please call us immediately at (___) ___-____.
