As filed with the Securities and Exchange Commission on March 25, 1998
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Carnegie Financial Corporation
------------------------------
(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 Requested
- ----------------------------- ----------------- -----------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
17 West Mall Plaza, Carnegie, Pennsylvania 15106
(412) 276-1266
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(Address, including zip code, and telephone number, including area code, of
principal executive offices and principal place of business)
Ms. Shirley Chiesa
President and Chief Executive Officer
Carnegie Financial Corporation
17 West Mall Plaza, Carnegie, Pennsylvania 15106
(412) 276-1266
--------------------------------------------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Charles E. Sloane, Esq.
Andrew S. White, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE 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 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
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Title of Proposed Proposed Amount
Each Class of Shares Maximum Maximum Aggregate of
Securities to be Offering Price Offering Registration
To Be Registered Registered Per Unit Price(1) Fee
- --------------------------------------------------------------------------------
Common Stock,
$.10 Par Value 238,050 $10.00 $2,380,500 $702.25
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(1) Estimated solely for purposes of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
Up to 238,050 Shares of Common Stock
(Anticipated Maximum, as adjusted)
CARNEGIE FINANCIAL CORPORATION
17 West Mall Plaza
Carnegie, Pennsylvania 15106
================================================================================
Carnegie Savings Bank is converting from the mutual form to the stock
form of organization. As part of the conversion, Carnegie Savings Bank will
become a wholly owned subsidiary of Carnegie Financial Corporation. Carnegie
Financial Corporation was formed in February 1998 and upon consummation of the
conversion will own all of the shares of Carnegie Savings Bank. The common stock
of Carnegie Financial Corporation is being offered to the public in accordance
with a plan of conversion. The Office of Thrift Supervision has approved the
plan of conversion subject to the approval of a majority of the votes eligible
to be cast by members of Carnegie Savings Bank. No common stock will be sold if
Carnegie Savings Bank does not receive these approvals or Carnegie Financial
Corporation does not receive orders for at least the minimum number of shares.
================================================================================
TERMS OF OFFERING
An independent appraiser has estimated the market value of the
converted Carnegie Savings Bank to be between $1,530,000 and $2,070,000, which
establishes the number of shares to be offered. Subject to Office of Thrift
Supervision approval, an additional 15% above the maximum number of shares, or
up to 238,050 shares may be offered. Based on these estimates, we are making the
following offering of shares of common stock:
<TABLE>
<CAPTION>
<S> <C> <C>
o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum/Maximum, as adjusted: 153,000 to 207,000 to 238,050
o Underwriting Commissions and Other Expenses
Minimum/Maximum/Maximum, as adjusted: $260,000
o Net Proceeds to Carnegie Financial Corporation
Minimum/Maximum/Maximum, as adjusted: $1,270,000 to $1,810,000 to $2,120,500
o Net Proceeds Per Share
Minimum/Maximum/Maximum, as adjusted: $8.30 to $8.74 to $8.91
</TABLE>
Please refer to Risk Factors beginning on page 1 of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, Office of Thrift Supervision,
nor any state securities regulator has approved or disapproved these securities
or determined if this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
For information on how to subscribe, call the Stock Center at (412) 276-0535.
Capital Resources, Inc.
The date of this prospectus is ___________, 1998
<PAGE>
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TABLE OF CONTENTS
Page
----
Questions and Answers About the Stock Offering............................ (i)
Summary................................................................... (iii)
Selected Financial and Other Data......................................... (vi)
Risk Factors.............................................................. 1
Proposed Purchases by Directors and Officers..............................
Use of Proceeds...........................................................
Dividends.................................................................
Market for the Common Stock...............................................
Capitalization............................................................
Pro Forma Data............................................................
Historical and Pro Forma Capital Compliance...............................
The Conversion............................................................
Statement of Operations of Carnegie Savings Bank..........................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................
Business of Carnegie Financial Corporation................................
Business of Carnegie Savings Bank.........................................
Regulation................................................................
Taxation..................................................................
Management of Carnegie Financial Corporation..............................
Management of Carnegie Savings Bank.......................................
Restrictions on Acquisitions of Carnegie Financial Corporation............
Description of Capital Stock..............................................
Legal and Tax Matters.....................................................
Experts...................................................................
Registration Requirements.................................................
Where You Can Find Additional Information.................................
Index to Financial Statements of Carnegie Savings Bank.................... F-1
This document contains forward-looking statements which involve risks
and uncertainties. Carnegie Financial Corporation's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" beginning on page 1 of this document.
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<PAGE>
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: What is the purpose of the offering?
A: The offering gives you the opportunity to become a stockholder of our
newly formed holding company, Carnegie Financial Corporation, which
will allow you to share indirectly in our future as a federal stock
savings bank. The stock offering will increase our capital and funds
for lending and investment activities. As a stock savings institution
operating through a holding company structure, we will have greater
flexibility for operations, expansion and diversification.
Q: How do I purchase the stock?
A: You must complete and return the stock order form to us together with
your payment, on or before 12:00 p.m. (noon), Eastern Time, __________,
__________, 1998.
Q: How much stock may I purchase?
A: The minimum purchase is 25 shares (or $250). The maximum purchase is
5,000 shares (or $50,000), for any individual person or persons
ordering through a single account. No person, related person or persons
acting together, may purchase in the conversion more than 7,500 shares
(or $75,000). We may decrease or increase the maximum purchase
limitation without notifying you. In the event that the offering is
oversubscribed, we will allocate shares based upon your purchase
priority.
Q: What happens if there are not enough shares to fill all orders?
A: You might not receive any or all of the shares you want to purchase.
If there is an oversubscription in the subscription offering, the stock
will be offered on the following priority basis:
o Persons who had a deposit account of at least $50 with us on
November 30, 1996 ("Eligible Account Holders").
o Any remaining shares will be offered to the employee stock
ownership plan of Carnegie Savings Bank ("ESOP").
o Any remaining shares will be offered to persons who had a
deposit account of at least $50 with us on March 31, 1998
("Supplemental Eligible Account Holders").
o Any remaining shares will be offered to other persons entitled
to vote on the approval of the conversion ("Other Members").
If the above persons do not subscribe for all of the shares, the remaining
shares may be offered either directly by Carnegie Financial Corporation in a
community offering or in a best efforts public offering. We have the right to
reject any stock order in the community offering. In the event of a community
offering, preference will be given to natural persons residing in Allegheny
County. You are prohibited from transferring or entering into any understanding
to transfer your subscription rights.
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(i)
<PAGE>
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Q: As a depositor of Carnegie Savings Bank, am I obligated to purchase
stock?
A: No. You are not required to purchase stock.
Q: As a depositor of or borrower from Carnegie Savings Bank, what will
happen if I do not purchase any stock?
A: As a depositor, you presently have voting rights while we are in the
mutual form; however, once we convert, voting rights will be held
exclusively by stockholders. Your deposit account, certificate accounts
and any loans you may have with us will not be affected.
Q. Will the stock be traded on a market?
A. It is anticipated that the stock will be traded on the OTC Bulletin
Board. However it is not assured or guaranteed that the stock will be
traded on the OTC Bulletin Board or on any market.
Q: What particular factors should I consider when deciding whether to buy
the stock?
A: Before you decide to purchase shares, you should read the Risk Factors
section on pages 1-3 of this document.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. In addition, you may contact:
Stock Center
Carnegie Financial Corporation
17 West Mall Plaza
Carnegie, Pennsylvania 15106
(412) 276-0535
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(ii)
<PAGE>
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read carefully this entire document, including
the financial statements and the notes to the financial statements of Carnegie
Savings Bank. References in this document to "we", "us", and "our" refer to
Carnegie Savings Bank. In certain instances where appropriate, "we", "us" or
"our" refers collectively to Carnegie Financial Corporation and Carnegie Savings
Bank. References in this document to "CFC" refers to Carnegie Financial
Corporation.
The Companies
Carnegie Financial Corporation
17 West Mall Plaza
Carnegie, Pennsylvania 15106
(412) 276-1266
Carnegie Financial Corporation is not an operating company and has not
engaged in any significant business to date. It was formed in February 1998 as a
Pennsylvania-chartered corporation to be the holding company for Carnegie
Savings Bank. The holding company structure will provide greater flexibility in
terms of operations, expansion and diversification. See page ____.
Carnegie Savings Bank
17 West Mall Plaza
Carnegie, Pennsylvania 15106
(412) 276-1266
Carnegie Savings Bank began operations in 1915 under the name,
"Carnegie Savings Building and Loan." In 1995, we converted to a state savings
bank charter and obtained Federal Deposit Insurance Corporation ("FDIC")
insurance through the Bank Insurance Fund ("BIF"). In __________ ___, 1998, we
converted to a federal mutual savings bank charter, became subject to regulation
by the Office of Thrift Supervision ("OTS") and retained our FDIC insurance
through BIF. We are a community and customer oriented federal mutual savings
bank. We provide financial services to individuals, families and small
businesses. Historically, we have emphasized residential mortgage lending,
primarily originating one- to four-family mortgage loans. At December 31, 1997,
we had total assets of $16.7 million, deposits of $15.2 million, and total
retained earnings of $1.2 million. See pages ____ to ____.
The Stock Offering
Carnegie Financial Corporation is offering between 153,000 and 207,000
shares of common stock at $10 per share ("Purchase Price"). As a result of
changes in market and financial conditions prior to completion of the conversion
or to fill the order of our employee stock ownership plan and subject to the
Office of Thrift Supervision approval, we may increase the offering to 238,050
shares without further notice to you. If an increase in the offering size is
approved, you will not have the opportunity to change or cancel any stock order
previously delivered to us. See page ____.
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(iii)
<PAGE>
- --------------------------------------------------------------------------------
Stock Purchase Priorities
The shares of common stock will be offered on the basis of purchase
priorities. Certain depositors will receive subscription rights to purchase the
shares. The shares will be offered first in a subscription offering and any
remaining shares may be offered in a community offering or a public offering. We
have engaged Capital Resources, Inc. to assist in the selling of common stock on
a best-efforts basis. See pages ____ to ____.
Subscription Rights
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law. See page ____.
The Offering Range and Determination of the Price Per Share
The offering range is based on an independent appraisal of the
estimated pro forma market value of the common stock by FinPro, Inc., an
appraisal firm experienced in appraisals of savings institutions. FinPro has
estimated, that in its opinion as of March 12, 1998 the aggregate estimated pro
forma market value of the common stock ranged between $1,530,000 and $2,070,000,
with a midpoint of $1,800,000 (the "EVR"). The estimated pro forma market value
of the shares is our estimated market value after giving effect to the sale of
shares in this offering.
The appraisal was based in part upon our financial condition and
operations and the effect of the additional capital raised by the sale of common
stock in this offering. The $10.00 price per share
was determined by our board of directors and is the price most commonly used in
stock offerings involving conversions of mutual savings institutions. The
independent appraisal will be updated prior to the consummation of the
conversion. If the updated estimated pro forma market value of the common stock
is either below $1,530,000 or above $2,380,500, you will be notified and will
have the opportunity to modify or cancel your order. See pages ____ to ____.
Termination of the Offering
The subscription offering will terminate at 12:00 p.m. (noon), Eastern
Time, on __________ ___, 1998. The community offering or public offering, if
any, may terminate at any time without notice but no later than 45 days after
completion of the subscription offering, without approval by the OTS. See page
____.
Benefits to Management from the Offering
Our full-time employees will participate in the offering through
individual purchases and purchases of stock by our employee stock ownership
plan, which is a form of retirement plan. We also intend to implement a
restricted stock plan and a stock option plan, no earlier than six months
following completion of the conversion, which may benefit our President and
other officers and directors. However, the restricted stock plan and stock
option plan may not be adopted until after the conversion and are subject to
stockholder approval and compliance with OTS regulations. If we adopt the
restricted stock plan, our executive officers and directors will be awarded
common stock at no cost to them. See pages ____ to ____.
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(iv)
<PAGE>
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Use of the Proceeds Raised from the Sale of Common Stock
Carnegie Financial Corporation will use a portion of the net proceeds
from the stock offering to purchase all the common stock to be issued by us in
the conversion and to make a loan to our employee stock ownership plan to fund
its purchase of stock in the conversion. After payment for our common stock,
Carnegie Financial Corporation will retain up to 50% of the funds received in
the stock offering as its initial capitalization. We will use the proceeds of
the sale of the common stock to make investments and fund loans. See page ____
for the range of offering proceeds.
Dividends
CFC does not expect to pay dividends during the first year following
the conversion. We may establish a dividend policy after the first year. See
page ____.
Market for the Common Stock
Due to the small size of the offering, it is unlikely that an active
and liquid trading market will develop and be maintained. Investors should have
a long-term investment intent. Persons purchasing shares may not be able to sell
their shares when they desire or sell them at a price equal to or above $10.00.
Following the completion of the offering, it is anticipated that the CFC common
stock will be traded on the OTC Bulletin Board. Capital Resources, Inc. is
expected to make a market in the common stock. However, Capital Resources, Inc.
will not be subject to any obligation with respect to such efforts. See page
____.
Important Risks in Owning Common Stock
Before you decide to purchase stock in the offering, you should read
the Risk Factors section on pages 1-____ of this document.
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(v)
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL AND OTHER DATA
The following financial information is a summary only. This information
is derived in part, and should be read in conjunction with, our audited
financial statements and notes beginning on page F-1.
Selected Financial Condition and Other Data
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------
1997 1996 1995
------------------ ----------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Total Amount of:
Assets.................................... $16,723 $15,100 $13,733
Loans receivable, net..................... 9,585 9,812 9,002
Mortgage-backed securities, net 2,628 2,014 980
Investment securities, net................ 2,530 2,150 1,687
Cash and cash equivalents................. 851 557 1,542
Savings deposits.......................... 15,178 13,378 12,407
Other borrowings.......................... - 300 -
Retained earnings
(substantially restricted(1))........... 1,170 1,196 1,111
Number of:
Deposit accounts.......................... 2,309 2,221 2,080
Full service offices...................... 1 1 1
</TABLE>
(1) Composed of appropriated and unappropriated retained income.
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(vi)
<PAGE>
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Summary of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------------------------------------
1997 1996 1995
----------------- --------------- --------------
(In thousands)
<S> <C> <C> <C>
Interest income................................... $1,222 $1,074 $1,019
Interest expense.................................. 671 552 536
----- ----- -----
Net interest income............................... 551 522 483
Provision for loan losses......................... 73 2 31
----- ----- -----
Net interest income after
provision for loan losses....................... 478 520 452
Other income...................................... 63 74 73
Other expense..................................... 649 459 425
----- ----- -----
Income (loss) before income taxes................. (108) 135 100
----- ----- -----
Income tax expense (benefit)...................... (54) 36 14
Net income (loss)................................. $ (54) $ 99 $ 86
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Key Operating Ratios
At or For the
Years Ended
December 31,
----------------------------------------------------
1997 1996 1995
----------------- ------------- --------------
<S> <C> <C> <C>
Performance Ratios:
Return on average assets
(net income (loss) divided by average total (0.33)% 0.70% 0.65%
assets).............................................
Return on average equity
(net income (loss) divided by average equity)...... (4.30)% 8.60% 8.21%
Ratio of average equity to average assets
ratio (average equity divided by average
total assets)...................................... 7.73% 8.09% 7.95%
Equity to assets at period end....................... 7.00% 7.92% 8.08%
Interest rate spread................................. 3.11% 3.55% 3.62%
Net interest margin.................................. 3.50% 3.89% 3.88%
Average interest-earning assets to average
interest-bearing liabilities....................... 109.28% 108.47% 106.07%
Net interest income after provision for loan
losses to total noninterest expense.................. 73.65% 113.29% 106.35%
Asset Quality Ratios:
Non-performing loans to total assets................. 0.25% 0.22% 0.53%
Non-performing assets to total assets................ 3.12% 1.32% 1.75%
Non-performing loans to total loans.................. 0.44% 0.34% 0.81%
Allowance for loan losses to total loans
at end of period................................... 1.19% 0.40% 0.42%
Allowance for loan losses to non-performing
loans.............................................. 273.81% 118.18% 52.05%
</TABLE>
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(vii)
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Potential Impact of Changes in Interest Rates and the Current Interest Rate
Environment
Our ability to make a profit, like that of most financial institutions,
is substantially dependent on our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (e.g. such as
mortgage loans and investment securities) and the interest expense we pay on our
interest-bearing liabilities (such as deposits and borrowings). Substantially
all of our mortgage loans have rates of interest which are fixed for the term of
the loan ("fixed rate") and are originated with terms of up to 30 years, while
deposit accounts have significantly shorter terms to maturity. Because our
interest-earning assets generally have fixed rates of interest and have longer
effective maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities. As a result, our net
interest income will be adversely affected by material and prolonged increases
in interest rates. In addition, rising interest rates may adversely affect our
earnings because there might be a lack of customer demand for loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - - Asset/Liability Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. Historically, lower interest rates in recent periods
have resulted in increased prepayments of loans and mortgage-backed securities,
as borrowers refinanced their mortgages in order to reduce their borrowing cost.
Under these circumstances, we are subject to reinvestment risk to the extent
that we are not able to reinvest such prepayments at rates which are comparable
to the rates on the prepaid loans or mortgage-backed securities.
Lack of Active Market for Common Stock
Due to the small size of the offering, it is highly unlikely that an
active trading market will develop and be maintained. If an active market does
not develop, you may not be able to sell your shares promptly or perhaps at all,
or sell your shares at a price equal to or above the price you paid for the
shares. It is anticipated that CFC common stock will be traded on OTC Bulletin
Board. The common stock may not be appropriate as a short-term investment. See
"Market for the Common Stock."
Additional Capital; Return on Equity
As a result of the conversion, we will have, on a consolidated basis,
total equity that is substantially more than our equity prior to the conversion.
Loan demand is not expected to increase correspondingly, and thus we are likely
to be faced with the choice of either investing capital in lower yielding debt
securities or making higher risk investments to increase yield. Furthermore, we
are not expected to be able to immediately leverage the new capital, and
therefore, the increase in equity may adversely affect return on equity (net
income divided by average equity), absent a corresponding increase in net
income. Our return on equity was (4.62)%, 8.28% and 7.74% for the years ended
December 31, 1997, 1996 and 1995 respectively. We initially intend to invest the
net proceeds in short and medium term investments which generally have lower
yields than loans. There can be no assurance that we will be able to increase
net income in future periods in amounts commensurate with the increase in equity
resulting from the conversion. Se "Pro Forma Data." Furthermore, current OTS
policy on stock
1
<PAGE>
repurchases by CFC could limit our flexibility in utilizing the net proceeds.
See "Use of Proceeds" and "The Conversion -- Restrictions on Repurchase of
Stock."
Intent to Remain Independent
We have operated as an independent community oriented savings
association since 1915. It is our intention to continue to operate as an
independent community oriented savings association following the conversion.
Accordingly, you are urged not to subscribe for shares of our common stock if
you are anticipating a quick sale by us. See "Business of Carnegie Financial
Corporation."
Dependence on Local Economy
We operate as a community-oriented financial institution, with a focus
on servicing customers in our primary market area of Carnegie and surrounding
areas of Allegheny County, Pennsylvania. At December 31, 1997, most of our loan
portfolio consisted of loans made to borrowers and collateralized by properties
located in our primary market area. As a result of this concentration, a
downturn in the economy of our primary market area could increase the risk of
loss associated with our loan portfolio.
See "Business of Carnegie Savings Bank - Market Area."
Anti-Takeover Provisions and Statutory Provisions That Could Discourage Hostile
Acquisitions of Control
Provisions in CFC's articles of incorporation and bylaws, the general
corporation law of the Commonwealth of Pennsylvania, and certain federal
regulations may make it difficult and expensive to pursue a tender offer, change
in control or takeover attempt which is opposed by our management and the board
of directors. As a result, stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current board of directors or management of CFC more
difficult. In addition, these provisions may reduce the trading price of our
stock. These provisions include: restrictions on the acquisition of CFC's equity
securities and limitations on voting rights; the classification of the terms of
the members of the board of directors; certain provisions relating to the
meeting of stockholders; denial of cumulative voting by stockholders in the
election of directors; the issuance of preferred stock and additional shares of
common stock without shareholder approval; and super-majority provisions for the
approval of certain business combinations.
See "Restrictions on Acquisitions of Carnegie Financial Corporation".
Possible Voting Control by Directors and Officers
The proposed purchases of the common stock by our directors, officers
and employee stock ownership plan, as well as the potential acquisition of the
common stock through the stock option plan and restricted stock plan, could make
it difficult to obtain majority support for stockholder proposals which are
opposed by our management and board of directors. Based upon the midpoint of the
estimated valuation range, our officers and directors intend to purchase
approximately 17% of the common shares offered in the conversion. In addition,
the voting of those shares could block the approval of transactions (i.e.,
business combinations and amendment to our articles of incorporation and bylaws)
requiring the approval of 80% of the stockholders under the CFC's articles of
incorporation. See "Proposed Purchases by Directors and Officers," "Management
of Carnegie Savings Bank -- Executive Compensation," "Description of Capital
Stock," and "Restrictions on Acquisitions of Carnegie Financial Corporation."
2
<PAGE>
Possible Dilutive Effect of Restricted Stock Plan and Stock Options
If the conversion is completed and shareholders approve the restricted
stock plan ("RSP") and stock option plan, we will issue stock to our officers
and directors through these plans. If the shares for the RSP and stock options
are issued from our authorized but unissued stock, your voting interests could
be cumulatively diluted by up to approximately 12.3% and the trading price of
our stock may be reduced. See "Pro Forma Data," "Management of Carnegie Savings
Bank -- Proposed Future Stock Benefit Plans," and "-- Restricted Stock Plan."
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, CFC may not
repurchase its shares. During each of the second and third years following the
conversion, CFC may repurchase up to 5% of its outstanding shares. During those
periods, if we decide that additional repurchases would be an appropriate use of
funds, we would not be able to do so, without obtaining OTS approval. There is
no assurance that OTS approval would be given. See "The Conversion --
Restrictions on Repurchase of Shares."
Possible Year 2000 Computer Program Problems
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to our operations. Data processing is
also essential to most other financial institutions and many other companies.
Most of our material data processing that could be affected by this
problem is provided by a third party service bureau. Our service bureau has
advised us that it expects to resolve this potential problem before the year
2000. However, if this potential problem is not resolved before the year 2000,
we would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on our financial condition and our results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Noninterest Expense."
Financial Institution Regulation and Future of the Thrift Industry
We are subject to extensive regulation, supervision, and examination by
the OTS and FDIC. Bills have been introduced in Congress that could consolidate
the OTS with the Office of the Comptroller of the Currency ("OCC") and require
us to adopt a commercial bank charter. If we become a commercial bank, our
investment authority and the ability of CFC to engage in diversified activities
may be limited, which could adversely affect our value and profitability. See
"Regulation."
3
<PAGE>
PROPOSED PURCHASES BY DIRECTORS AND OFFICERS
The following table sets forth the approximate purchases of common
stock by each director and executive officer and their associates in the
conversion. Shares purchased by officers and directors in the conversion may not
be sold for at least one year. The table assumes that 180,000 shares (the
midpoint of the estimated valuation range, "EVR") of the common stock will be
sold at $10.00 per share and that sufficient shares will be available to satisfy
subscriptions in all categories. However, officers and directors and their
associates may not buy more than 35% of the total amount of shares sold in the
conversion.
<TABLE>
<CAPTION>
Aggregate
Total Price of Percent
Shares Shares of Shares
Name Position Purchased(1) Purchased(1) Purchased(1)
---- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shirley Chiesa Chairman, President 7,500 $75,000 4.17%
and CEO
Morry Miller Director 5,000 50,000 2.78
JoAnn V. Narduzzi Director 5,000 50,000 2.78
Lois A. Wholey Director 5,000 50,000 2.78
Charles Ruprecht Director 4,000 40,000 2.22
Joseph R. Pigoni Executive Vice 4,000 40,000 2.22
------- ------- ------
President and CFO
30,500 $305,000 16.95%
======= ======= ======
</TABLE>
- --------------------
(1) Does not include shares purchased by the employee stock ownership plan (the
"ESOP").
USE OF PROCEEDS
Carnegie Financial Corporation will use up to 50% of the net proceeds
from the offering (or such additional amounts as is necessary to increase
Carnegie Savings Bank's capital ratio to 10%) to purchase all of the capital
stock we will issue in connection with the conversion. A portion of the net
proceeds to be retained by Carnegie Financial Corporation will be loaned to our
employee stock plan to fund its purchase of 8% of the shares sold in the
conversion. On a short-term basis, the balance of the net proceeds retained by
Carnegie Financial Corporation initially will be invested in short-term
investments. Although there are no current plans, the net proceeds subsequently
may be used to fund acquisitions of other financial services institutions or to
diversify into non-banking activities. The net proceeds may also serve as a
source of funds for the payment of dividends to stockholders or for the
repurchase of the shares. A portion of the net proceeds may also be used to fund
the purchase of 4% of the shares for the RSP which is anticipated to be adopted
following the conversion. See "Pro Forma Data."
The funds we receive from the sale of our capital stock to CFC will be
added to our general funds and be used for general corporate purposes including:
(i) investment in mortgages and other loans, (ii) investment in U.S. Government
and federal agency securities, (iii) investment in mortgage-backed securities or
(iv) funding loan commitments. However, initially we intend to invest the net
proceeds in short-term investments until we can deploy the proceeds into higher
yielding assets. The funds added to our capital will further strengthen our
capital position.
The net proceeds may vary because the total expenses of the conversion
may be significantly more or less than those estimated. We estimate our expenses
to be approximately $260,000. Our
4
<PAGE>
estimated net proceeds will range from $1,270,000 to $1,810,000 (or up to
$2,121,000 in the event the maximum of the estimated valuation range is
increased to $2,380,500). See "Pro Forma Data." The net proceeds will also vary
if the number of shares to be issued in the conversion is adjusted to reflect a
change in our estimated pro forma market value. Payments for shares made through
withdrawals from existing deposit accounts with us will not result in the
receipt of new funds for investment by us but will result in a reduction of our
liabilities and interest expense as funds are transferred from interest-bearing
certificates or accounts for use in purchasing stock.
DIVIDENDS
Upon conversion, CFC's board of directors will have the authority to
declare dividends on the shares, subject to statutory and regulatory
requirements. CFC does not expect to pay cash dividends during the first year
after the conversion. Any future declarations of dividends by the board of
directors will depend upon a number of factors, including: (i) the amount of the
net proceeds retained by CFC in the conversion, (ii) investment opportunities
available, (iii) capital requirements, (iv) regulatory limitations, (v) results
of operations and financial condition, (vi) tax considerations, and (vii)
general economic conditions. Upon review of such considerations, the board may
authorize future dividends if it deems such payment appropriate and in
compliance with applicable law and regulation. For a period of one year
following the completion of the conversion, we will not pay any dividends that
would be treated for tax purposes as a return of capital nor take any actions to
pursue or propose such dividends. In addition, there can be no assurance that
regular or special dividends will be paid, or, if paid, will continue to be
paid. See "Historical and Pro Forma Capital Compliance," "The Conversion --
Effects of Conversion to Stock Form on Savers and Borrowers of Carnegie Savings
Bank -- Liquidation Account" and "Regulation -- Dividend and Other Capital
Distribution Limitations."
CFC is not subject to OTS regulatory restrictions on the payment of
dividends to its stockholders although the source of such dividends will be
dependent in part upon the receipt of dividends from us. CFC is subject,
however, to the requirements of Pennsylvania law, which generally limit the
payment of dividends to amounts that will not affect the ability of CFC, after
the dividend has been distributed, to pay its debts in the ordinary course of
business.
MARKET FOR THE COMMON STOCK
As a newly organized company, CFC has never issued capital stock, and
consequently there is no established market for the common stock. Following the
completion of the offering, it is anticipated that the common stock will be
traded on the over-the-counter market with quotations available through the OTC
Electronic Bulletin Board. Capital Resources, Inc. is expected to make a market
in the common stock. Making a market may include the solicitation of potential
buyers and sellers in order to match buy and sell orders. However, Capital
Resources, Inc. will not be subject to any obligation with respect to such
efforts. If the common stock cannot be quoted and traded on the OTC Bulletin
Board it is expected that the transactions in the common stock will be reported
in the pink sheets of the National Quotation Bureau, Inc.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. You could
have difficulty disposing of your shares and you should not view the shares as a
short-term investment. You may not be able to sell your shares at a price equal
to or above the price you paid for the shares.
5
<PAGE>
CAPITALIZATION
The following table presents, as of December 31, 1997, our historical
capitalization and the consolidated capitalization of CFC after giving effect to
the conversion and the other assumptions set forth below and under "Pro Forma
Data," based upon the sale of shares at the minimum, midpoint, maximum, and 15%
above the maximum of the EVR at a price of $10.00 per share:
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
Based on the Sale of (2)(3)
Historical 153,000 180,000 207,000 238,050
Capitalization Shares at Shares at Shares at Shares At
at December 31, $10.00 $10.00 $10.00 $10.00
1997 Per Share Per Share Per Share Per Share
------ --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1) .................................. $15,178 $15,178 $15,178 $15,178 $15,178
====== ====== ====== ====== ======
Stockholders' Equity:
Preferred Stock, no par value per share,
2,000,000 shares authorized; none to be
issued..................................... $ - $ - $ - $ - $ -
Common Stock, $.10 par value, 4,000,000
shares authorized; total shares to be
issued as reflected........................ - 2 2 2 2
Additional paid in capital.................... - 1,268 1,538 1,808 2,119
Retained earnings(4)........................ 1,156 1,156 1,156 1,156 1,156
Net unrealized gain on securities available for
sale........................................ 14 14 14 14 14
Less:
Common Stock acquired by ESOP............... - (122) (144) (166) (190)
Common Stock acquired by RSP................ - (61) (72) (83) (95)
------ ------ ------ ------ ------
Total stockholders' equity.................... $ 1,170 $ 2,257 $ 2,494 $ 2,731 $ 3,006
====== ====== ====== ====== ======
</TABLE>
- ---------------------
(1) Excludes accrued interest payable on deposits. Withdrawals from savings
accounts for the purchase of stock have not been reflected in these
adjustments. Any withdrawals will reduce pro forma capitalization by the
amount of such withdrawals.
(2) Does not reflect the increase in the number of shares of common stock after
the conversion in the event of implementation of the Stock Option Plan or
RSP. See "Management of Carnegie Savings Bank -- Proposed Future Stock
Benefit Plans -- Stock Option Plan" and "-- Restricted Stock Plan."
(3) Assumes that 8% and 4% of the shares issued in the conversion will be
purchased by the ESOP and RSP, respectively. No shares will be purchased by
the RSP in the conversion. It is assumed that the RSP will purchase common
stock in the open market within one year of the conversion in order to give
an indication of its effect on capitalization. The pro forma presentation
does not show the impact of: (a) results of operations after the
conversion, (b) changing market prices of shares of common stock after the
conversion, or (c) a smaller than 4% or 8% purchase by the RSP or ESOP,
respectively. Assumes that the funds used to acquire the ESOP shares will
be borrowed from CFC for a ten year term at the prime rate as published in
The Wall Street Journal. For an estimate of the impact of the ESOP on
earnings, see "Pro Forma Data." The Bank intends to make contributions to
the ESOP sufficient to service and ultimately retire its debt. The amount
to be acquired by the ESOP and RSP is reflected as a reduction of
stockholders' equity. The issuance of authorized but unissued shares for
the RSP in an amount equal to 4% of the outstanding shares of common stock
will have the effect of diluting existing stockholders' voting interests by
4.31%. There can be no assurance that stockholder approval of the RSP will
be obtained. See "Management of Carnegie Savings Bank -- Proposed Future
Stock Benefit Plans -- Restricted Stock Plan."
(4) Our equity will be substantially restricted after the conversion. See
"Dividends," "Regulation -- Dividends and Other Capital Distribution
Limitations," "The Conversion -- Effects of Conversion to Stock Form on
Depositors and Borrowers of Carnegie Savings Bank -- Liquidation Account"
and Note 13 to the Financial Statements.
6
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds are
currently estimated to be between $1,270,000 and $1,810,000 at the minimum and
maximum, as adjusted, of the EVR, based upon the following assumptions: (i) 8%
of the shares will be sold to the ESOP; (ii) Capital Resources, Inc. will have
received advisory and marketing fees (including legal fees and other
reimbursable expenses) of $80,000; (iii) no shares will be sold in a public
offering; (iv) other conversion expenses, excluding the fees and other expenses
paid to Capital Resources, Inc., will be $180,000; and (v) 4% of the shares will
be sold to the RSP. Because management of Carnegie Savings Bank presently
intends to adopt the RSP within the first year following the conversion, a
purchase by the RSP in the conversion has been included with the pro forma data
to give an indication of the effect of a 4% purchase by the RSP, at a $10.00 per
share purchase price in the market, even though the RSP does not currently exist
and is prohibited by OTS regulation from purchasing shares in the conversion.
The pro forma presentation does not show the effect of: (a) results of
operations after the conversion, (b) changing market prices of the shares after
the conversion, (c) less than a 4% purchase by the RSP, or (d) dilutive effects
of newly issued shares under the restricted stock plan and the stock option plan
(see footnotes 2 and 3).
The following table sets forth, our historical net earnings and
stockholders' equity prior to the conversion and the pro forma consolidated net
earnings and stockholders' equity of CFC following the conversion. Unaudited pro
forma consolidated net earnings and stockholders' equity have been calculated
for the year ended December 31, 1997, as if the common stock to be issued in the
conversion had been sold at January 1, 1997, and the estimated net proceeds had
been invested at 5.55%, which was approximately equal to the one-year U.S.
Treasury bill rate at December 31, 1997. The one-year U.S. Treasury bill rate,
rather than an arithmetic average of the average yield on interest-earning
assets and average rate paid on deposits, has been used to estimate income on
net proceeds because it is believed that the one-year U.S. Treasury bill rate is
a more accurate estimate of the rate that would be obtained on an investment of
net proceeds from the offering. In calculating pro forma income, a combined
effective state and federal income tax rate of 37% has been assumed for the
respective periods, resulting in an after tax yield of 3.50% for the year ended
December 31, 1997. Withdrawals from deposit accounts for the purchase of shares
are not reflected in the pro forma adjustments. The computations are based upon
the assumptions that 153,000 shares (minimum of EVR), 180,000 shares (midpoint
of EVR), 207,000 shares (maximum of EVR) or 238,050 shares (maximum, as
adjusted, of the EVR) are sold at a price of $10.00 per share. As discussed
under "Use of Proceeds," a portion of the net proceeds that CFC will receive
will be loaned to the ESOP to fund its anticipated purchase of 8% of shares
issued in the conversion. It is assumed that the yield on the net proceeds of
the conversion retained by CFC will be the same as the yield on the net proceeds
of the conversion transferred to us. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the
indicated number of shares. Per share amounts have been computed as if the
shares had been outstanding at the beginning of the periods or at the dates
shown, but without any adjustment of per share historical or pro forma
stockholders' equity to reflect the earnings on the estimated net proceeds.
The stockholders' equity information is not intended to represent the
fair market value of the shares, or the current value of our assets or
liabilities, or the amounts, if any, that would be available for distribution to
stockholders in the event of liquidation. For additional information regarding
the liquidation account, see "The Conversion -- Certain Effects of the
Conversion to Stock Form on Savers and Borrowers of Carnegie Savings Bank --
Liquidation Account" and Note 13 to the financial statements. The pro forma
income derived from the assumptions set forth above should not be considered
indicative of the actual results of our operations for any period. Such pro
forma data may be materially affected by a change in the price per share or
number of shares to be issued in the Conversion and by other factors. For
information regarding investment of the proceeds see "Use of Proceeds" and "The
Conversion -- Stock Pricing" and "-- Change in Number of Shares to be Issued in
the Conversion."
7
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-----------------------------------------------
153,000 180,000 207,000 238,050
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
per share per share per share per share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ............................................ $ 1,530 $ 1,800 $ 2,070 $ 2,381
Less estimated offering expenses .......................... 260 260 260 260
------- ------- ------- -------
Estimated net proceeds .................................. 1,270 1,540 1,810 2,121
Less: ESOP funded by the Company ....................... (122) (144) (166) (190)
RSP funded by the Company ........................ (61) (72) (83) (95)
------- ------- ------- -------
Estimated investable net proceeds ....................... $ 1,087 $ 1,324 $ 1,561 $ 1,836
======= ======= ======= =======
Net income (loss):
Historical net income (loss) ............................ $ (54) $ (54) $ (54) $ (54)
Pro forma earnings on investable net proceeds ........... 38 46 55 64
Pro forma ESOP adjustment(1) ............................ (8) (9) (10) (12)
Pro forma RSP adjustment(2) ............................. (8) (9) (10) (12)
------- ------- ------- -------
Total ............................................ $ (32) $ (26) $ (19) $ (14)
======= ======= ======= =======
Net income (loss) per share:
Historical net income (loss) per share .................. $ (.38) $ (0.32) $ (0.28) $ (0.24)
Pro forma earnings on net proceeds ...................... 0.27 0.28 0.29 0.29
Pro forma ESOP adjustment(1) ............................ (0.06) (0.05) (0.05) (0.05)
Pro forma RSP adjustment(2) ............................. (0.06) (0.05) (0.05) (0.05)
------- ------- ------- -------
Total(5) ......................................... $ (0.23) $ (0.14) $ (0.09) $ (0.05)
======= ======= ======= =======
Stockholders' equity:(3)
Historical .............................................. $ 1,170 $ 1,170 $ 1,170 $ 1,170
Estimated net proceeds .................................. 1,270 1,540 1,810 2,121
Less: Common stock acquired by ESOP(1) ................. (122) (144) (166) (190)
Common stock acquired by RSP(2) .................. (61) (72) (83) (95)
------- ------- ------- -------
Total ............................................ $ 2,257 $ 2,494 $ 2,731 $ 3,006
======= ======= ======= =======
Stockholders' equity per share:(3)
Historical .............................................. $ 7.65 $ 6.50 $ 5.65 $ 4.91
Estimated net proceeds .................................. 8.30 8.56 8.74 8.91
Less: Common stock acquired by ESOP(1) ................. (.80) (.80) (.80) (.80)
Common stock acquired by RSP(2) .................. (.40) (.40) (.40) (.40)
------- ------- ------- -------
Total ............................................ $ 14.75 $ 13.86 $ 13.19 $ 12.62
======= ======= ======= =======
Offering price as a percentage of pro forma stockholders'
equity per share(4) ..................................... 67.80% 72.15% 75.82% 79.24%
======= ======= ======= =======
Ratio of offering price to pro forma earnings per share(5) (43.48)x (71.43)x (111.11)x (200.00)x
======= ======= ======= =======
</TABLE>
(footnotes on following page)
8
<PAGE>
- --------------------
(1) Assumes 8% of the shares sold in the conversion are purchased by the ESOP,
and that the funds used to purchase such shares are borrowed from CFC. The
approximate amount expected to be borrowed by the ESOP is not reflected as
a liability but is reflected as a reduction of capital. We intend to make
annual contributions to the ESOP over a ten year period in an amount at
least equal to the principal and interest requirement of the debt. Interest
income earned by us on the ESOP debt offsets the interest paid by Carnegie
Savings Bank on the ESOP loan. Therefore, only the principal payments on
the ESOP debt are recorded as a tax-effected expense. The pro forma net
income assumes: (i) that 1,224, 1,440, 1,656 and 1,904 shares at the
minimum, midpoint, maximum and maximum, as adjusted of the EVR, were
committed to be released during the twelve months December 31, 1997 at an
average fair value of $10.00 per share in accordance with Statement of
Position ("SOP") 93-6 of the American Institute of Certified Public
Accountants ("AICPA"); (ii) the effective tax rate was 37% for such periods
based upon a combined federal and state tax rate; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the per share net earnings. The pro forma stockholders' equity per share
calculation assumes all ESOP shares were outstanding, regardless of whether
such shares would have been released. Because CFC will be providing the
ESOP loan, only principal payments on the ESOP loan are reflected as
employee compensation and benefits expense. As a result, to the extent the
value of the shares appreciates over time, compensation expense related to
the ESOP will increase. For purposes of the preceding tables, it was
assumed that a ratable portion of the ESOP shares purchased in the
conversion were committed to be released during the period ended December
31, 1997. See Note 5 below. If it is assumed that all of the ESOP shares
were included in the calculation of earnings per share for the year ended
December 31, 1997, earnings per share would have been $(0.21), $(0.14),
$(0.09) and $(0.06), based on the sale of shares at the minimum, midpoint,
maximum and the maximum, as adjusted, of the EVR. See "Management of
Carnegie Savings Bank -- Other Benefits -- Employee Stock Ownership Plan."
(2) Assumes issuance to the RSP of 6,120, 7,200, 8,280, and 9,522 shares at the
minimum, midpoint, maximum, and maximum, as adjusted of the EVR. The
assumption in the pro forma calculation is that (i) shares were purchased
by CFC following the conversion, (ii) the purchase price for the shares
purchased by the RSP was equal to the purchase price of $10 per share (iii)
20% of the amount contributed was an amortized expense during such period,
and (iv) the effective tax rate was 37% for such periods based upon a
combined federal and state tax rate. Such amount does not reflect possible
increases or decreases in the value of such stock relative to the Purchase
Price. As we accrue compensation expense to reflect the five year vesting
period of such shares pursuant to the RSP, the charge against capital will
be reduced accordingly. Implementation of the RSP within one year of
conversion would require regulatory and stockholder approval at a meeting
of our stockholders to be held no earlier than six months after the
conversion. If the shares to be purchased by the RSP are assumed at January
1, 1997, to be newly issued shares purchased from CFC by the RSP at the
Purchase Price, at the minimum, midpoint, maximum and maximum, as adjusted,
of the EVR, pro forma stockholders' equity per share would have been
$14.19, $13.32, $12.68, and $12.14, and pro forma earnings per share would
have been $(0.20), $(0.13), $(0.08), and $(0.05). As a result of the RSP
from newly issued shares, stockholders' voting interests could be diluted
by up to approximately 4.32%. The pro forma data assumes the required
regulatory and stockholder approvals. See "Management of Carnegie Savings
Bank -- Proposed Future Stock Benefit Plans -- Restricted Stock Plan."
(3) Assumes that following the consummation of the conversion, CFC will adopt
the Stock Option Plan, which if implemented within one year of conversion
would be subject to regulatory review and board of director and stockholder
approval, and that such plan would be considered and voted upon at a
meeting of CFC stockholders to be held no earlier than six months after the
conversion. Under the Stock Option Plan, employees and directors could be
granted options to purchase an aggregate amount of shares equal to 10% of
the shares issued in the conversion at an exercise price equal to the
market price of the shares on the date of grant. In the event the shares
issued under the Stock Option Plan were newly issued rather than purchased
in the open market, the voting interests of existing stockholders could be
diluted by up to approximately 9.1%. At the minimum, midpoint, maximum and
the maximum, as adjusted, of the EVR, if all shares under the Stock Option
Plan were newly issued at the beginning of the respective periods and the
exercise price for the stock option shares were equal to the Purchase
Price, the number of outstanding shares would increase to 157,284, 185,040,
212,796 and 244,715, respectively, pro forma stockholders'
9
<PAGE>
equity per share would have been $14.32, $13.51, $12.90, and $12.39, and
pro forma earnings per share for the year ended December 31, 1997 would
have been $(0.20), $(0.14), $(0.09), and $(0.06).
(4) Consolidated stockholders' equity represents the excess of the carrying
value of the assets over its liabilities. The calculations are based upon
the number of shares issued in the conversion, without giving effect to SOP
93-6. The amounts shown do not reflect the amounts required to be
distributed in the event of liquidation to eligible depositors from the
liquidation account which will be established upon the consummation of the
conversion. Pro forma stockholders' equity information is not intended to
represent the fair market value of the shares, the current value of our
assets or liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the conversion and by other factors.
(5) Pro forma net income per share calculations include the number of shares
assumed to be sold in the conversion and, in accordance with SOP 93-6,
exclude ESOP shares which would not have been released during the period.
Accordingly, 11,016, 12,960, 14,904, and 17,140 shares have been subtracted
from the shares assumed to be sold at the minimum, midpoint, maximum, and
maximum, as adjusted, of the EVR, respectively, and 141,984, 167,040,
192,096, and 220,910 shares are assumed to be outstanding at the minimum,
midpoint, maximum, and maximum, as adjusted of the EVR. See Note 1 above.
10
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents our historical and pro forma
capital position relative to our capital requirements as of December 31, 1997.
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 OTS. For a discussion of the capital
standards applicable to us, see "Regulation -- Savings Institution Regulation --
Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma(1)
------------------------------------------------------------------------------------------
$1,530,000 $1,800,000 $2,070,000 $2,380,500
Historical Minimum Midpoint Maximum Maximum, as adjusted
------------------- -------------------- ---------------------- ---------------------- ---------------------
Percent Percent Percent Percent Percent
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital ........$1,170 7.00% $1,819 10.47% $1,836 10.56% $1,951 11.14% $2,088 11.84%
====== ==== ====== ===== ====== ===== ====== ===== ====== =====
Tangible Capital ....$1,170 13.65% $1,819 20.55% $1,836 20.74% $1,951 21.91% $2,088 23.30%
Tangible Capital
Requirement........ 129 1.50 133 1.50 133 1.50 134 1.50 134 1.50
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess ..............$1,041 12.15% $1,686 19.05% $1,703 19.24% $1,817 20.41% $1,954 21.80%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Core Capital(3) .....$1,170 7.00% $1,819 10.47% $1,836 10.56% $1,951 11.14% $2,088 11.84%
Core Capital
Requirement(4)..... 502 3.00 521 3.00 522 3.00 525 3.00 529 3.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess ..............$ 668 4.00% $1,298 7.47% $1,314 7.56% $1,425 8.14% $1,559 8.84%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total Risk-Based
Capital(4).........$1,272 14.84% $1,921 21.70% $1,938 21.89% $2,053 23.06% $2,190 24.44%
Risk-Based Capital
Requirement........ 686 8.00 708 8.00 708 8.00 712 8.00 717 8.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess ..............$ 586 6.84% $1,213 13.70% $1,230 13.89% $1,340 15.06% $1,473 16.44%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- --------------------
(1) The pro forma data has been adjusted to reflect reductions in our
capital that would result from an assumed 8% purchase by the ESOP and
4% purchase by the RSP as of December 31, 1997. It is assumed that CFC
will use 50% of net conversion proceeds (or such greater amount as is
necessary to increase our capital ratio to 10%) to purchase all of the
common stock to be issued by us.
(2) GAAP, adjusted, or risk-weighted assets as appropriate.
(3) Proposed regulations of the OTS could increase the core capital
requirement to a ratio between 4% and 5%, based upon an association's
regulatory examination rating. See "Regulation - Regulatory Capital
Requirements."
(4) Our Risk-Based Capital includes our Tangible Capital plus $102,000 of
our allowance for loan losses. As of December 31, 1997, our
risk-weighted assets totaled approximately $8.6 million and our total
adjusted assets were $16.7 million. Net proceeds available for
investment by us are assumed to be invested in interest-earning assets
that have a 50% risk-weighting.
See Note 9 to our financial statements.
11
<PAGE>
THE CONVERSION
Our board of directors and the OTS have approved the Plan of Conversion
("Plan" or "Plan of Conversion") subject to the Plan's approval by our members,
and subject to the satisfaction of certain other conditions imposed by the OTS
in its approval. OTS approval, however, does not constitute a recommendation or
endorsement of the Plan by the OTS.
General
On December 15, 1997, our board of directors adopted a Plan of
Conversion which provides for the conversion of Carnegie Savings Bank from a
Pennsylvania mutual savings bank into a Federal mutual savings bank and then
into a Federal capital stock savings bank and become a wholly owned subsidiary
of CFC. The conversion will include adoption of the proposed Federal Stock
charter and Bylaws which will authorize the issuance of capital stock by us.
Under the Plan, our capital stock is being sold to CFC and the common stock of
CFC is being offered to our eligible depositors and members and then to the
public. The conversion will be accounted for at historical cost in a manner
similar to a pooling of interests.
The OTS has approved CFC's application to become a savings and loan
holding company and to acquire all of our common stock to be issued in the
conversion. Pursuant to such OTS approval, CFC plans to retain up to 50% of the
net proceeds from the sale of shares of our common stock and to use the
remaining proceeds to purchase all of the common stock we will issue in the
conversion. See "Use of Proceeds."
The shares are first being offered in a subscription offering to
holders of subscription rights. To the extent shares of common stock remain
available after the subscription offering, shares of common stock may be offered
in a community offering and any shares remaining after the community offering
may be offered in a public offering. The community offering or public offering,
if any, may commence anytime subsequent to the commencement of the subscription
offering. We have the right, in our sole discretion, to accept or reject, in
whole or in part, any orders to purchase shares of the common stock received in
the community or public offering. See "-- Community Offering," "-- Public
Offering."
Shares of common stock in an amount equal to our pro forma market value
as a stock savings institution must be sold in order for the conversion to
become effective. The community offering must be completed within 45 days after
the last day of the subscription offering period unless such period is extended
by us with the approval of the OTS. The Plan provides that the conversion must
be completed within 24 months after the date of the approval of the Plan by our
members.
In the event that we are unable to complete the sale of common stock
and effect the conversion within 45 days after the end of the subscription
offering, we may request an extension of the period by the OTS. No assurance can
be given that the extension would be granted if requested. Due to the volatile
nature of market conditions, no assurances can be given that our estimated
market valuation would not substantially change during any such extension. If
the valuation of the shares must be amended, no assurance can be given that such
amended valuation would be approved by the OTS. Therefore, it is possible that
if the conversion cannot be completed within the requisite period, we may not be
permitted to complete the conversion. A substantial delay caused by an extension
of the period may also significantly increase the expense of the conversion. No
sales of the shares may be completed in the offering unless the Plan is approved
by our members and by the OTS.
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The completion of the offering is subject to market conditions and
other factors beyond our control. No assurance can be given as to the length of
time following approval of the Plan at the meeting of our members that will be
required to complete the sale of shares being offered in the conversion. If
delays are experienced, significant changes may occur in our estimated pro forma
market value upon conversion together with corresponding changes in the offering
price and the net proceeds to be realized by us from the sale of the shares. In
the event the conversion is terminated, we will charge all conversion expenses
against current income and any funds collected by us in the offering will be
promptly returned, with interest, to each potential investor.
Effects of Conversion to Stock Form on Depositors and Borrowers of Carnegie
Savings Bank
Voting Rights. Currently in our mutual form, our depositors have voting
rights and may vote for the election of directors. Following the conversion, all
voting rights will be held solely by stockholders. A stockholder will be
entitled to one vote for each share of common stock owned.
Savings Accounts and Loans. The balances, terms and FDIC insurance
coverage of savings accounts will not be affected by the conversion.
Furthermore, the amounts and terms of loans and obligations of the borrowers
under their individual contractual arrangements with us will not be affected by
the conversion.
Tax Effects. We have received an opinion from our counsel, Malizia,
Spidi, Sloane & Fisch, P.C. on the federal tax consequences of the conversion.
The opinion has been filed as an exhibit to the registration statement of which
this prospectus is a part and covers those federal tax matters that are material
to the transaction. The opinion provides, in part, that: (i) the conversion will
qualify as a reorganization under Section 368(a)(1)(F) of the Code, and no gain
or loss will be recognized by us by reason of the proposed conversion; (ii) no
gain or loss will be recognized by us upon the receipt of money from CFC for our
stock, and no gain or loss will be recognized by CFC upon the receipt of money
for the shares; (iii) our assets will have the same basis before and after the
conversion; (iv) the holding period of our assets will include the period during
which the assets were held by us in our mutual form; (v) no gain or loss will be
recognized by the Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members upon the issuance to them of withdrawable savings
accounts in us in the stock form in the same dollar amount as their savings
accounts in us in the mutual form plus an interest in the liquidation account of
us in the stock form in exchange for their savings accounts in us in the mutual
form; (vi) provided that the amount to be paid for the shares pursuant to the
subscription rights is equal to the fair market value of such shares, no gain or
loss will be recognized by Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members under the Plan upon the distribution to them
of nontransferable subscription rights; (vii) the basis of each account holder's
savings accounts after the conversion will be the same as the basis of his
savings accounts prior to the conversion, decreased by the fair market value of
the nontransferable subscription rights received and increased by the amount, if
any, of gain recognized on the exchange; (viii) the basis of each account
holder's interest in the liquidation account will be zero; (ix) the holding
period of the common stock acquired through the exercise of subscription rights
shall begin on the date on which the subscription rights are exercised; (x) we
will succeed to and take into account the earnings and profits or deficit in
earnings and profits of us as of the date of conversion; and (xi) the creation
of the liquidation account will have no effect on our taxable income.
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part
on the assumption that the exercise price of the subscription rights will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed conversion. We have received an opinion of FinPro
which, based on certain assumptions, concludes that the subscription rights to
be received by Eligible Account Holders and other eligible subscribers do not
have any economic value at the time of distribution or at
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the time the subscription rights are exercised. Such opinion is based on the
fact that such rights are: (i) acquired by the recipients without payment
therefor, (ii) non-transferable, (iii) of short duration, and (iv) afford the
recipients the right only to purchase shares at a price equal to their estimated
fair market value, which will be the same price at which shares for which no
subscription right is received in the subscription offering will be offered in
the community offering, public or syndicated public offering. If the
subscription rights granted to Eligible Account Holders or other eligible
subscribers are deemed to have an ascertainable value, receipt of such rights
would be taxable only to those Eligible Account Holders or other eligible
subscribers who exercise the subscription rights in an amount equal to such
value (either as a capital gain or ordinary income), and we could recognize gain
on such distribution.
We are also subject to Pennsylvania income taxes and have received an
opinion from Malizia, Spidi, Sloane & Fisch, P.C. that the conversion will be
treated for Pennsylvania state tax purposes similar to the conversion's
treatment for federal tax purposes. The opinion has been filed as an exhibit to
the registration statement to which this Prospectus is a part and covers those
state tax matters that are material to the transaction.
Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane
& Fisch, P.C. and FinPro have no binding effect or official status, and no
assurance can be given that the conclusions reached in any of those opinions
would be sustained by a court if contested by the IRS or the Pennsylvania tax
authorities. Eligible Account Holders, Supplemental Eligible Account Holders,
and Other Members are encouraged to consult with their own tax advisers as to
the tax consequences in the event the
subscription rights are deemed to have an ascertainable value.
Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to equal distribution of
any of our assets, pro rata to the value of his accounts, remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
accounts was to the total value of all deposit accounts in us at the time of
liquidation.
Upon a complete liquidation after the conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
other general creditors of ours. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his deposit
account plus accrued interest. A depositor would not have an interest in the
residual value of our assets above that amount, if any.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled on a complete liquidation of us after
conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account held in us on the qualifying
date, November 30, 1996. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, March 31, 1998. The interest as to
each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date of ours (December 31)
is less than the amount in such account on the respective qualifying dates, then
the interest in this special liquidation account would be reduced from time to
time by an amount proportionate to any such reduction, and the interest would
cease to exist if such deposit
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account were closed. The interest in the special liquidation account will never
be increased despite any increase in the related deposit account after the
respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which we, in our converted form, are not the surviving
institution, shall be considered a complete liquidation. In such transactions,
the liquidation account shall be assumed by the surviving institution.
Subscription Rights and the Subscription Offering
Restrictions on Transfer of Subscription Rights and Shares. Persons are
prohibited from transferring or entering into any agreement or understanding to
transfer the legal or beneficial ownership of their subscription rights.
Subscription rights may be exercised only by the person to whom they are granted
and only for his account. Each person subscribing for shares will be required to
certify that he is purchasing shares solely for his own account and has not
entered into an agreement or understanding regarding the sale or transfer of
those shares. The regulations also prohibit any person from offering or making
an announcement of an offer or intent to make an offer to purchase subscription
rights or shares of common stock prior to the completion of the conversion. We
intend to pursue any and all legal and equitable remedies in the event we become
aware of the transfer of subscription rights and we will not honor orders known
by us to involve the transfer of such rights. In addition, persons who violate
the purchase limitations may be subject to sanctions and penalties imposed by
the OTS.
Subscription Priorities. Non-transferable subscription rights to
purchase shares of the common stock have been granted to persons and entities
entitled to purchase shares in the subscription offering under the Plan. If the
community offering or public offering, if any, as described below, extends
beyond 45 days following the completion of the subscription offering,
subscribers will be resolicited. Subscription priorities have been established
for the allocation of stock to the extent that shares are available after
satisfaction of all subscriptions of all persons having prior rights and subject
to the purchase limitations set forth in the Plan and as described below under
"-- Limitations on Purchases of Shares." The following priorities have been
established:
Category 1: Eligible Account Holders (First Priority). Eligible Account Holders
are persons who had a deposit account of at least $50 with us on November 30,
1996. Each Eligible Account Holder (or persons through a single account) will
receive non-transferable subscription rights on a priority basis to purchase
that number of shares of common stock which is equal to the greater of 5,000
shares ($50,000), or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares to be issued by a
fraction of which the numerator is the amount of the qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription rights
in this category results in an oversubscription, shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such account holder,
to the extent possible, to purchase the lesser of 100 shares or the total amount
of his subscription. Any shares not so allocated shall be allocated among the
subscribing Eligible Account Holders on an equitable basis, related to the
amounts of their respective qualifying deposits as compared to the total
qualifying deposits of all subscribing Eligible Account Holders. Only a
person(s) with a qualifying deposit as of the eligibility record date (or a
successor entity or estate) shall receive subscription rights. Any Person(s)
added to a Savings Account after the Eligibility Record Date is not an Eligible
Account Holder. Subscription rights received by officers and directors in this
category based on their increased deposits in Carnegie Savings Bank in the
one-year period preceding the Eligibility Record Date, are subordinated to the
subscription rights of other Eligible Account Holders. See "-- Limitations on
Purchases and Transfer of Shares."
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Category 2: Tax-Qualified Employee Benefit Plans (Second Priority). Our
tax-qualified employee benefit plans ("Employee Plans") have been granted
subscription rights to purchase up to 8% of the total shares issued in the
conversion. The ESOP is an Employee Plan.
The right of Employee Plans to subscribe for shares is subordinate to
the right of the Eligible Account Holders to subscribe for shares. However, in
the event the offering results in the issuance of shares above the maximum of
the EVR (i.e., more than 207,000 shares), the Employee Plans have a priority
right to fill their subscription (the ESOP, the only Employee Plan, currently
intends to purchase up to 8% of the common stock issued in the conversion). The
Employee Plans may, however, determine to purchase some or all of the shares
covered by their subscriptions after the conversion in the open market or, if
approved by the OTS, out of authorized but unissued shares in the event of an
oversubscription.
Category 3: Supplemental Eligible Account Holders (Third Priority). Supplemental
Eligible Account Holders are persons who had a deposit account of at least $50
with us on March 31, 1998. Each Supplemental Eligible Account Holder who is not
an Eligible Account Holder (or persons through a single account) will receive
non-transferable subscription rights to purchase that number of shares which is
equal to the greater of 5,000 shares ($50,000), or 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares 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 qualifying deposits of all Supplemental
Eligible Account Holders. If the exercise of subscription rights in this
category results in an oversubscription, shares shall be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each such
account holder, to the extent possible, to purchase the lesser of 100 shares or
the total amount of his subscription. Any shares not so allocated shall be
allocated among the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective qualifying deposits
as compared to the total qualifying deposits of all subscribing Supplemental
Eligible Account Holders. The right of Supplemental Eligible Account Holders to
subscribe for shares is subordinate to the rights of the Eligible Account
Holders and Employee Plans to subscribe for shares. See "-- Limitations on
Purchases and Transfer of Shares."
Category 4: Other Members (Fourth Priority). Other Members are persons who have
a deposit account of at least $50 on the voting record date of our special
meeting. Each Other Member who is not an Eligible Account Holder or Supplemental
Eligible Account Holder, will receive non-transferable subscription rights to
purchase up to 5,000 shares ($50,000) to the extent such shares are available
following subscriptions by Eligible Account Holders, Employee Plans, and
Supplemental Eligible Account Holders. In the event there are not enough shares
to fill the orders of the Other Members, the subscriptions of the Other Members
will be allocated so that each subscribing Other Member will be entitled to
purchase the lesser of 100 shares or the number of shares ordered. Any remaining
shares will be allocated among Other Members whose subscriptions remain
unsatisfied on a 100 share (or whatever lesser amount is available) per order
basis until all orders have been filled or the remaining shares have been
allocated. See "-- Limitations on Purchases and Transfer of Shares."
Members in Non-Qualified States. We will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for the shares pursuant to the Plan reside.
However, no person will be offered or allowed to purchase any shares under the
Plan if he resides in a foreign country or in a state with respect to which any
of the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in that state or foreign country;
(ii) the granting of subscription rights or offer or sale of shares of common
stock to those persons would require either us, or our employees to register,
under the securities laws of that state or foreign country, as a broker or
dealer or to register or otherwise qualify our securities for sale in that state
or
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foreign country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise. No payments will be made in lieu
of the granting of subscription rights to any person.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
believed by us to involve the transfer of subscription rights.
Expiration Date. The subscription offering will expire at 12:00 p.m.
(noon), Eastern Time, on __________ ___, 1998, (Expiration Date). Subscription
rights will become void if not exercised prior to the Expiration Date.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, Employee Plans,
Supplemental Eligible Account Holders and Other Members, we may offer shares to
certain members of the general public with a preference to natural persons
residing in Allegheny County, Pennsylvania, under terms and conditions as
established by the Board of Directors. The community offering, if any, will
commence subsequent to the commencement of the subscription offering. No person
in the community offering, may purchase more than 5,000 shares or $50,000 of
common stock. The right of any person or entity to purchase shares in the
community offering is subject to our right to accept or reject purchases in
whole or in part either at the time of receipt of an order, or as soon as
practicable following the completion of the community offering.
Persons and entities not purchasing the common stock in the
subscription offering may purchase common stock in the community offering by
returning to us a completed and properly executed order form along with full
payment.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the community
offering. In the event an insufficient number of shares are available to fill
orders in the community offering, the available shares will be allocated among
persons submitting orders on an equitable basis determined by the Board of
Directors, provided that a preference will be given to natural persons residing
in Allegheny County, Pennsylvania. If the community offering extends beyond 45
days following the completion of the subscription offering (__________ ___,
1998) and such extension is approved by the regulatory authorities, subscribers
will have the right to modify, confirm, decrease or rescind subscriptions for
stock previously submitted. All sales of common stock in the community offering
will be at the same price as in the subscription offering.
We will place cash and checks submitted in the community offering in a
segregated account. Interest will be paid on orders made by check or in cash at
the passbook savings account rate from the date the payment is received until
the completion or termination of the conversion. In the event that the
conversion is not completed for any reason, all funds submitted pursuant to the
community offering will be promptly refunded with interest.
Public Offering
All shares of common stock not purchased in the subscription offering
and community offering, if any, may be offered for sale to the general public in
a public offering through selected broker-dealers to be formed and managed by
Capital Resources, Inc.. The public offering, if any, will be conducted to
achieve the widest distribution of common stock subject to our right to reject
orders in whole or in part. Neither Capital Resources, Inc. nor any registered
broker-dealer shall have any obligation to take or purchase
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any shares of the common stock in the public or syndicated public offering.
Stock sold in the public or syndicated public offering will be sold at the same
price as all other shares.
No person, may purchase more than 5,000 shares or $50,000 in the public
offering. In the event that selected dealer agreements are entered into in
connection with a public offering, we will pay commissions to selected dealers
(which may include Capital Resources, Inc.) of no more than ______% for shares
sold by the selected dealer.
The public offering will terminate no more than 45 days following the
subscription offering (__________ ___, 1998), unless extended with the approval
of the OTS.
Ordering and Receiving Shares
Use of Order Forms. Rights to subscribe in the subscription offering or
purchase stock in the community offering, if any, may only be exercised by
completion of an original order form. Persons ordering shares in the
subscription offering must deliver by mail or in person a properly completed and
executed original order form to us prior to the Expiration Date. Order forms
must be accompanied by full payment for all shares ordered. See "-- Payment for
Shares." Subscription rights under the Plan will expire on the Expiration Date,
whether or not we have been able to locate each person entitled to subscription
rights. Once submitted, subscription orders cannot be revoked or modified
without our consent.
In the event an order form (i) is not delivered by the United States
Postal Service, (ii) is not received or is received after the Expiration Date,
(iii) is defectively completed or executed, or (iv) is not accompanied by full
payment for the shares subscribed for (including instances where your savings
account or certificate balance from which withdrawal is authorized is
insufficient to fund the amount of such required payment), the subscription
rights for the person to whom such rights have been granted will lapse as though
that person failed to return the completed order form within the time period
specified. We may, but will not be required to, waive any 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 we specify. The waiver of
an irregularity on an order form in no way obligates us to waive any other
irregularity on that, or any irregularity on any other, order form. Waivers will
be considered on a case by case basis. Photocopies of order forms, payments from
private third parties, or electronic transfers of funds may not be accepted. Our
interpretation of the terms and conditions of the Plan and of the acceptability
of the order forms will be final. We have the right to investigate any
irregularity on any order form.
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
forms will only be distributed with a prospectus.
Payment for Shares. Payment for shares of common stock in the
subscription offering may be made (i) in cash, if delivered in person, (ii) by
check or money order payable to us, or (iii) by authorization of withdrawal from
savings accounts (including certificates of deposit) maintained with us.
Appropriate means by which such withdrawals may be authorized are provided in
the order form. Once such a withdrawal has been authorized, none of the
designated withdrawal amount may be used by the subscriber for any purpose other
than to purchase the shares. Where payment has been authorized to be made
through withdrawal from a savings account, the sum authorized for withdrawal
will continue to earn interest at the contract rate until the conversion has
been completed or terminated. Interest penalties for early withdrawal applicable
to certificate accounts will not apply to withdrawals authorized for the
purchase of shares; however, if a partial withdrawal results in a certificate
account with a balance less than the
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applicable minimum balance requirement, the certificate evidencing the remaining
balance will earn interest at the passbook savings account rate subsequent to
the withdrawal. Payments made in cash or by check or money order, will be placed
in a segregated savings account and interest will be paid by us at our passbook
savings account rate from the date payment is received until the conversion is
completed or terminated. An executed order form, once received by us, may not be
modified, amended, or rescinded without our consent, unless the conversion is
not completed within 45 days after the conclusion of the subscription offering,
in which event subscribers may be given an opportunity to modify or cancel their
order. In the event that the conversion is not consummated, all funds submitted
pursuant to the offering will be refunded promptly with interest.
Individual Retirement Accounts ("IRAs") maintained with us do not
permit investment in common stock. If you are interested in using your IRA funds
to purchase our common stock, you must do so through a self-directed IRA. Since
we do not offer such accounts, we will allow you to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will be used to purchase our common stock in the
offering. There will be no early withdrawal or IRS interest penalties for such
transfers. The new trustee would hold your stock in a self-directed account in
the same manner as we now hold your IRA funds. An annual administrative fee may
be payable to the new trustee. If you are interested in using your IRA funds to
purchase our common stock, you should contact our Stock Center as soon as
practicable so that the necessary forms may be forwarded for execution and
returned prior to the Expiration Date.
The ESOP may subscribe for shares by submitting its order form along
with evidence of a loan commitment from another financial institution or CFC for
the purchase of the shares during the subscription offering and by making
payment for shares on the date of completion of the conversion.
Federal regulations prohibit us from lending funds or extending credit
to any person to purchase shares in the conversion.
Delivery of Stock Certificates. Certificates representing shares of
common stock issued in the conversion will be mailed to the person(s) at the
address noted on the order form, as soon as practicable following consummation
of the conversion. Any certificates returned as undeliverable will be held until
properly claimed or otherwise disposed. Persons ordering shares might not be
able to sell their shares until they receive their stock certificates.
Plan of Distribution
Materials for the subscription offering have been distributed to
persons with subscriptions rights by mail. Additional copies are available at
our stock information center. Our officers may be available to answer questions
about the conversion. Responses to questions about us will be limited to the
information contained in this document. Officers will not be authorized to
render investment advice. All subscribers for the shares being offered in the
subscription offering and if applicable, the community offering, will be
instructed to send payment directly to us. The funds will be held in a
segregated special escrow account and will not be released until the closing of
the conversion or its termination.
Marketing Arrangements
Capital Resources, Inc. has been engaged as our consultant and
financial advisor in connection with the offering. Capital Resources, Inc. has
agreed to exercise its best efforts to assist us to solicit subscriptions and
purchase orders for shares in the offering. However, Capital Resources, Inc. is
not obligated to take or purchase any shares of common stock in the offering.
Capital Resources, Inc. will receive $60,000 plus reimbursement for
out-of-pocket and legal expenses not to exceed $20,000. In the
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event that common stock is offered through a public offering, we will pay an
additional fee to such selected dealers (which may include Capital Resources,
Inc.) of up to 4.0% of the aggregate amount of stock sold in connection with the
public offering. Also, we have agreed to indemnify Capital Resources, Inc. for
reasonable costs and expenses in connection with certain claims or liabilities
which might be asserted against Capital Resources, Inc. This indemnification
covers the investigation, preparation of defense and defense of any action,
proceeding or claim relating to misrepresentation or breach of warranty of the
written agreement between Capital Resources, Inc. and us or the omission or
alleged omission of a material fact required to be stated or necessary in the
prospectus or other documents.
The shares will be offered principally by the distribution of this
document and through activities conducted at a Stock Center located at our
office. The Stock Center is expected to operate during our normal business hours
throughout the offering. A registered representative employed by Capital
Resources, Inc. will be available at the Stock Center. Capital Resources, Inc.
will assist us in responding to questions regarding the conversion and the
offering and processing order forms.
Stock Pricing
Federal Regulations promulgated by OTS require that a converting
savings association issue and sell its capital stock at a total price equal to
the estimated pro forma market value of such stock in the converted savings
association, based on an independent valuation. These regulations require us to
retain an appraiser who is independent of us, experienced and expert in the area
of corporate appraisal and acceptable to OTS. FinPro, an independent economic
consulting and appraisal firm, which is experienced in the evaluation and
appraisal of business entities, including savings institutions involved in the
conversion process has been retained by us to prepare an appraisal of our
estimated pro forma market value. The term "independent appraiser" is defined by
the federal regulations, and FinPro was required to submit information to OTS to
establish its independence in conformity with those regulations. OTS has issued
Guidelines to appraisers in connection with the appraisal of converting savings
institutions which describe the methodology that OTS expects the appraiser to
utilize. OTS reviews the appraisal and any appraisal update submitted to them,
and the methodology employed therein. If OTS indicates that it does not approve
of the appraisal or appraisal update, this will necessitate a converting savings
association such as us to adjust the appraisal or appraisal updates. Although
OTS has not objected to the appraisal of us in connection with the conversion,
the final appraisal might change and we might be required to sell additional
stock to consummate the conversion. There also can be no assurance that the
common stock will exhibit the post-conversion price and trading patterns
experienced by other converting mutual association, or that the common stock
will sell in the aftermarket at $10.00 per share or in the aggregate at or above
the estimated pro forma market value.
FinPro will receive a fee of $23,500 for preparing the appraisal and
its assistance in connection with the preparation of a business plan and will be
reimbursed for reasonable out-of-pocket expenses up to $4,000. We have agreed to
indemnify FinPro under certain circumstances against liabilities and expenses
arising out of or based on any misstatement or untrue statement of a material
fact contained in the information supplied by us to FinPro.
The appraisal was prepared by FinPro in reliance upon the information
contained herein, including the financial statements. The appraisal contains an
analysis of a number of factors including, but not limited to, our financial
condition and operating trends, the competitive environment within which we
operate, operating trends of certain savings institutions and savings and loan
holding companies, relevant economic conditions, both nationally and in the
Commonwealth of Pennsylvania which affect the operations of savings
institutions, and stock market values of certain savings institutions and stock
market conditions for publicly
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traded savings institutions and savings and loan holding companies. In addition,
FinPro has advised us that it has considered the effect of the additional
capital raised by the sale of the shares on our estimated aggregate pro forma
market value.
On the basis of the above, FinPro has determined, in its opinion, that
as of March 12, 1998 our estimated aggregate pro forma market value was
$1,800,000. OTS regulations require, however, that the appraiser establish a
range of value for the stock to allow for fluctuations in the aggregate value of
the stock due to changing market conditions and other factors. Accordingly,
FinPro has established a range of value from $1,530,000 to $2,070,000 for the
offering, the EVR. Upon the completion of the Offering, FinPro, after taking
into account factors similar to those involved in its prior appraisal as well as
the results of the Offering, will determine its estimate of the pro forma market
value as of the close of the Offering based on information available to FinPro
at that time. This may result in an increase or decrease in the EVR. An
increase or decrease in the EVR will result in a change in the number of shares
to be issued in the Conversion. See "Changes in Number of Shares to be Issued in
the Conversion."
The board of directors has reviewed the independent appraisal,
including the stated methodology of the independent appraiser and the
assumptions used in the preparation of the independent appraisal. The board of
directors is relying upon the expertise, experience and independence of the
appraiser and is not qualified to determine the appropriateness of the
assumptions.
In order for stock sales to take place FinPro must confirm to the OTS
that, to the best of FinPro's knowledge and judgment, nothing of a material
nature has occurred which would cause FinPro to conclude that the Purchase Price
on an aggregate basis was incompatible with FinPro's estimate of our pro forma
market value of us in converted form at the time of the sale. If, however, facts
do not justify such a statement, an amended EVR may be established.
The appraisal is not a recommendation of any kind as to the
advisability of purchasing these shares. In preparing the appraisal, FinPro has
relied upon and assumed the accuracy and completeness of financial and
statistical information provided by us. FinPro did not independently verify the
financial statements and other information provided by us, nor did FinPro value
independently our assets and liabilities. The appraisal considers us only as a
going concern and should not be considered as our liquidation value. Moreover,
because the appraisal is based upon estimates and projections of a number of
matters which are subject to change, the market price of the common stock could
decline below $10.00. Copies of the appraisal report of FinPro setting forth the
method and assumptions for such appraisal are on file and available for
inspection at the main office of Carnegie Savings Bank and as set forth in
"Where You can Find Additional Information." Any subsequent updated appraisal
report of FinPro also will be available for inspection.
21
<PAGE>
Change in Number of Shares to be Issued in the Conversion
Depending on market and financial conditions at the time of the
completion of the offerings, we may significantly increase or decrease the
number of shares to be issued in the conversion. In the event of an increase in
the valuation, we may increase the total number of shares to be issued in the
conversion. An increase in the total number of shares to be issued in the
conversion would decrease a subscriber's percentage ownership interest and the
pro forma net worth (book value) per share and increase the pro forma net income
and net worth (book value) on an aggregate basis. In the event of a material
reduction in the valuation, we may decrease the number of shares to be issued to
reflect the reduced valuation. A decrease in the number of shares to be issued
in the conversion would increase a subscriber's percentage ownership interest
and the pro forma net worth (book value) per share and decrease pro forma net
income and net worth on an aggregate basis. For a presentation of the possible
effects of an increase or decrease in the number of shares to be issued, see
"Pro Forma Data".
Persons ordering shares will not be permitted to modify or cancel their
orders unless the change in the number of shares to be issued in the conversion
results in an offering which is either less than $1,530,000 or more than
$2,380,500. If the offering is either less than $1,530,000 or more than
$2,380,500, only persons who subscribed for shares will have an opportunity to
modify or cancel their orders. We will resolicit such persons by providing them
an updated prospectus or supplement (and filing a post-effective amendment to
this offering). Persons who did not subscribe for shares will not have the
opportunity to do so.
Limitations on Purchases and Transfer of Shares
The Plan provides for certain additional purchase limitations. The
minimum purchase is 25 shares and the maximum purchase for any individual person
or persons ordering through a single account in the subscription offering, and
if applicable, the community offering or public offering, is 5,000 shares. In
addition, no person or persons ordering through a single account, together with
their associates, or group of persons acting together, may purchase in all
categories of the conversion more than 7,500 shares, except for the Employee
Plans which may purchase up to 8% of the shares sold. The OTS regulations
governing the conversion provide that officers and directors and their
associates may not purchase, in the aggregate, more than 35% of the shares
issued pursuant to the conversion. For purposes of the 35% limitation, purchases
by the ESOP will not be included. Pursuant to the Plan, the board of directors
has the authority to determine whether persons are associates or acting in
concert.
Depending on market conditions and the results of the offering, the
board of directors may increase or decrease any of the purchase limitations
without the approval of our members and without resoliciting subscribers. If the
maximum purchase limitation is increased, persons who ordered the maximum amount
will be given the first opportunity to increase their orders. In doing so the
preference categories in the offerings will be followed.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the EVR of up to 15% (the "Adjusted
Maximum"), the additional shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription of up to 8% of the
Adjusted Maximum number of shares (the ESOP currently intends to subscribe for
8%); (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unfulfilled subscriptions of Eligible Account Holders; (iii) in
the event that there is an oversubscription by Supplemental Eligible Account
Holders, to fill unfulfilled subscriptions to Supplemental Eligible Account
Holders; (iv) in the event that there is an oversubscription by Other Members,
to fill unfulfilled subscriptions of Other Members; and (v) to fill unfulfilled
subscriptions in the community offering or public or syndicated public offering
to the extent possible.
22
<PAGE>
The term "associate" of a person means (i) any corporation or
organization (other than us or a majority-owned subsidiary of ours) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as director or in a similar fiduciary capacity
(excluding tax-qualified employee stock benefit plans), and (iii) any relative
or spouse of such person or any relative of such spouse, who has the same home
as such person or who is a director or officer of us, or any of our
subsidiaries. For example, a corporation of which a person serves as an officer
would be an associate of that person, and therefore all shares purchased by that
corporation would be included with the number of shares which that person
individually could purchase under the above limitations.
The term "officer" may include our chairman of the board, president,
vice presidents in charge of principal business functions, Secretary and
Treasurer and any other person performing similar functions. All references
herein to an officer have the same meaning as used for an officer in the Plan.
Persons must certify on their order form that their purchase does not
conflict with the purchase limitations. In the event that the purchase
limitations are violated by any person (including any associate or group of
persons affiliated or otherwise acting in concert with such persons), we will
have the right to purchase from that person at $10.00 per share all shares
acquired by that person in excess of the purchase limitations. If the excess
shares have been sold by that person, we may recover the profit from the sale of
the shares by that person. We may assign our right either to purchase the excess
shares or to recover the profits from their sale.
Shares of common stock purchased pursuant to the conversion will be
freely transferable, except for shares purchased by our directors and officers.
For certain restrictions on the shares purchased by directors and officers, see
" -- Restrictions on Sales and Purchases of Shares by Directors and Officers."
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of such securities.
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, CFC may not
repurchase its shares and during each of the second and third years following
the conversion, CFC may repurchase five percent of the outstanding shares
provided they are purchased in open-market transactions. Repurchases must not
cause us to become undercapitalized and at least 10 days prior notice of the
repurchase must be provided to the OTS. The OTS may disapprove a repurchase
program upon a determination that (1) the repurchase program would adversely
affect our financial condition, (2) the information submitted is insufficient
upon which to base a conclusion as to whether the financial condition would be
adversely affected, or (3) a valid business purpose was not demonstrated.
However, the OTS may grant special permission to repurchase shares after six
months following the conversion and to repurchase more than five percent during
each of the second and third years. In addition, SEC rules also govern the
method, time, price, and number of shares of common stock that may be
repurchased by CFC and affiliated purchasers. If, in the future, the rules and
regulations regarding the repurchase of stock are liberalized, CFC may utilize
the rules and regulations then in effect.
Restrictions on Sales and Purchases of Shares by Directors and Officers
Shares purchased by directors and officers of CFC may not be sold for
one year following the conversion, except in the event of the death of the
director or officer. Any shares issued to directors and
23
<PAGE>
officers as a stock dividend, stock split, or otherwise with respect to
restricted stock shall be subject to the same restrictions.
For three years following the conversion, directors and officers may
purchase shares only through a registered broker or dealer. Exceptions are
available only if the OTS has approved the purchase or the purchase is an arm's
length transaction and involves more than one percent of the outstanding shares.
Interpretation and Amendment of the Plan
We have the authority to interpret and amend the Plan. Our
interpretations are final. Amendments to the Plan after the receipt of member
approval will not need further member approval unless required by the OTS.
Conditions and Termination
Completion of the conversion requires (i) the approval of the Plan by
the affirmative vote of not less than a majority of the total number of votes
eligible to be cast by our members; and (ii) completion of the sale of shares
within 24 months following approval of the Plan by our members. If these
conditions are not satisfied, the Plan will be terminated and we will continue
our business in the mutual form of organization. We may terminate the Plan at
any time prior to the meeting of members to vote on the Plan or at any time
thereafter with the approval of the OTS.
Other
All statements made in this document are hereby qualified by the
contents of the Plan, the material terms of which are set forth herein. The Plan
is attached to the proxy statement mailed to certain depositors. Copies of the
Plan are available from us and should be consulted for further information.
Adoption of the Plan by our members authorizes us to interpret, amend or
terminate the Plan.
24
<PAGE>
CARNEGIE SAVINGS BANK
STATEMENTS OF OPERATIONS
The statements of operations for the years ended December 31, 1997 and
1996, have been audited by Goff Ellenbogen Backa & Alfera, LLC, whose report
appears elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------------------
1997 1996
------ -----
<S> <C> <C>
INTEREST INCOME:
Interest on loans................................ $ 859,072 $ 843,488
Interest-bearing deposits with other banks....... 27,478 27,626
Interest on investment:
Taxable........................................ 105,860 66,467
Nontaxable..................................... 31,393 33,527
Mortgage-backed securities....................... 198,454 102,655
--------- ---------
Total interest income..................... 1,222,257 1,073,763
INTEREST EXPENSE
Interest on certificates of deposit............ 570,883 440,380
Interest on other savings accounts............. 99,797 105,828
Interest on borrowings......................... 567 5,505
---------- ----------
Total interest expense..................... 671,247 551,713
--------- ---------
Net interest income................................ 551,010 522,050
Provision for loan losses...................... 73,000 2,203
---------- ----------
Net interest income after provision for loan
losses............................................. 478,010 519,847
NONINTEREST INCOME (LOSS):
Service charges and fee income................. 54,204 41,199
Gain on sale of REO............................ 13,693 -
Gain on sale of securities..................... 1,677 7,733
Dividend income................................ 63 9,379
Net income (loss) - real estate owned.......... (7,515) 13,597
Other income................................... 369 2,067
---------- ----------
Total noninterest income................... 62,491 73,975
NONINTEREST EXPENSES:
Wages, payroll taxes and benefits.............. 442,353 249,065
General and administrative..................... 122,783 140,535
Data processing charges........................ 62,534 48,533
Depreciation and amortization.................. 21,057 20,870
---------- ----------
Total noninterest expenses................. 648,727 459,003
---------- ----------
Net income (loss) before income taxes.............. (108,226) 134,819
Income tax expense (benefit)................... (54,425) 35,400
---------- ----------
Net income (loss).................................. $ (53,801) $ 99,419
========= ==========
</TABLE>
See accompanying notes beginning on page F-7.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is intended to assist you in understanding our financial condition
and results of operations. The information in this section should also be read
with our Financial Statements and Notes to the Financial Statements elsewhere in
this document.
General
CFC has recently been formed and, accordingly, has no results of
operations. The following discussion relates only to Carnegie Savings Bank's
financial condition and results of operations. Please refer to our Pro Forma
Data discussion beginning on page _____ to see the potential effects of the
offering on our financial statements.
Our results of operations depend primarily on net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(our interest rate spread), and (ii) the relative amounts of interest-earning
assets and interest-bearing liabilities, consisting of deposits. Our results of
operations are also affected by non-interest income, including, primarily,
income from customer deposit account service charges, gains and losses from the
sale of investments and mortgage-backed securities and non-interest expense,
including, primarily, compensation and employee benefits, federal deposit
insurance premiums, office occupancy costs, and data processing costs. Our
results of operations also are affected significantly by general, and economic
and competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities, all of which are
beyond our control.
Recent Business Strategy
To the extent new deposits have exceeded our loan originations, we have
invested these deposits primarily in marketable securities so that they are
available to fund new loans in our market area. As discussed herein, this has
reduced our interest rate risk, but has adversely affected our net interest
income. Since the new deposits and stock proceeds are expected to exceed our
ability to originate loans in our market area, we may purchase loans,
mortgage-backed securities and other investments with higher yields that will
improve our interest income and net income.
Market Risk Analysis
Asset/Liability Management. Our assets and liabilities are interest
rate sensitive. An asset or liability is interest rate sensitive within a
specific time period if it will mature or reprice within that time period. If
our assets mature or reprice more quickly or to a greater extent than our
liabilities, our net portfolio value and net interest income would tend to
increase during periods of rising interest rates but decrease during periods of
falling interest rates. Conversely, if our assets mature or reprice more slowly
or to a lesser extent than our liabilities, our net portfolio value and net
interest income would tend to decrease during periods of rising interest rates
but increase during periods of falling interest rates. Our policy has been to
address the interest rate risk inherent in the historical savings institution
business of originating long-term loans funded by short-term deposits by
maintaining sufficient liquid assets for material and prolonged changes in
interest rates. We do not engage in, or intend to engage in, trading activities
or use derivative instruments to control our interest rate risk.
26
<PAGE>
We emphasize origination of fixed rate real estate loans in the nature
of one- to- four-family loans. These loans approximated 85% of our loan
portfolio at December 31, 1997. At December 31, 1997, the average weighted term
to maturity of our mortgage loan portfolio was slightly more than 21 years and
the average weighted term to maturity of our deposits was slightly more than 21
months. See "Risk Factors- Insufficient Loan Demand" and "Business of Carnegie
Savings Bank -- Lending Activities."
Net Portfolio Value. In recent years, we had been a Pennsylvania
chartered mutual savings bank regulated by the Pennsylvania Department of
Banking, and therefore had not been required to measure our interest rate
sensitivity in the manner required by the OTS. We now compute amounts by which
the net present value of expected cash flows from assets, liabilities and off
balance sheet items (our net portfolio value or "NPV") would change in the event
of a range of assumed changes in market interest rates. These computations
estimate the effect on our NPV from instantaneous and permanent 1% to 3% (100 to
300 basis points) increases and decreases in market interest rates.
The following table presents our NPV based upon calculations of FinPro,
Inc. These calculations were based upon assumptions FinPro believes to be
fundamentally sound, although they may vary from assumptions utilized by other
data providers. These assumptions relate to interest rates, loan prepayment
rates, core deposit duration, and the market values of certain assets under the
various interest rate scenarios. During the preparation of the calculations,
FinPro relied on and assumed the accuracy and completeness of the data provided
by us and other sources which FinPro deemed reliable. FinPro did not
independently verify the data provided to it by us.
Percentage Change in Net Portfolio Value
Changes ----------------------------------------
in Market Change in NPV
Interest Rates NPV Ratio(1) Ratio(2)
-------------- ------------ --------
(basis points)
+ 300 4.66% (680) bp
+ 200 7.31 (414) bp
+ 100 9.55 (190) bp
0 11.45 -
- 100 13.07 161 bp
- 200 14.43 298 bp
- 300 15.59 414 bp
- ------------------
(1) Calculated as the estimated NPV divided by present value of total assets.
(2) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio assuming no
change in interest rates.
Management believes these calculations indicate that we would be deemed
to have a greater than normal level of interest rate risk under applicable
regulatory capital requirements. See "Regulation -- Savings Institution
Regulation -- Regulatory Capital Requirements."
While we cannot predict future interest rates or their effects on our
NPV or net interest income, we do not expect current interest rates, assuming
rates remain stable, to have a material adverse effect on our NPV or net
interest income. Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including relative levels of
market interest rates, prepayments and deposit run-offs and should not be relied
upon as indicative of actual results. Certain shortcomings are
27
<PAGE>
inherent in such computations. Although certain assets and liabilities may have
similar maturity or periods of repricing they may react at different times and
in different degrees to changes in the market interest rates. The interest rates
on certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while rates on other types of assets and liabilities
may lag behind changes in market interest rates. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
The board of directors reviews our asset and liability policies. The
board of directors meets quarterly to review interest rate risk and trends, as
well as liquidity and capital ratios and requirements. Management administers
the policies and determinations of the board of directors with respect to our
asset and liability goals and strategies. We expect that our asset and liability
policies and strategies will continue as described so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Financial Condition
Our total assets increased $1.6 million, or 10.60%, to $16.7 million at
December 31, 1997 from $15.1 million at December 31, 1996. Our increase in
assets was primarily attributable to increases of $615,000 in mortgage-backed
securities, $380,000 in investment securities, $313,000 in real estate owned and
$294,000 in cash and cash equivalents. These increases were partially offset by
a $227,000 decrease in net loans receivable.
The increases in mortgage-backed securities and other investment
securities were the result of a temporary decrease in loan applications. The
changes in real estate owned resulted from the sale in April, 1997, of a
foreclosed property, and the purchase in December, of a different property, in
order to protect our interests as junior lienholder in a foreclosure.
Our liabilities also increased by $1.6 million. The increase was
primarily due to increases of $1.8 million in deposits and $158,000 in other
liabilities. These increases were partially offset by a decrease of $300,000 in
a line of credit from another financial institution. Deposits increased via a
special certificate of deposit promotion. Part of the proceeds were used to
repay the advance on the line of credit of $300,000.
Results of Operations
Our net income decreased $153,000 to a net loss of $54,000 for 1997
compared to net income of $99,000 for 1996. Our decrease was primarily
attributable to the $29,000 increase in net interest income being offset by a
$71,000 increase in our provision for loan losses. Further, our noninterest
income decreased by $12,000 and our noninterest expenses increased by $190,000.
For 1997, we had a net loss before income taxes of $108,000 compared to net
income before income taxes of $135,000 for 1996. As a result, we had an income
tax benefit of $54,000 for 1997 compared to income tax expense of $35,000 for
1996.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets primarily loans,
investment and mortgage-backed securities and interest we pay on our
interest-bearing liabilities, primarily deposits. Net interest income depends on
the volume of and rates earned on interest-earning assets and the volume of and
rates paid on interest-bearing liabilities.
28
<PAGE>
The following table sets forth certain information relating to our
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and cost are derived by dividing income or expenses by the
average balance of assets of liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily balances has
caused any material differences in the information presented.
<TABLE>
<CAPTION>
At December 31, Year ended December 31,
----------------- ----------------------------------------------------------------------------------------
1997 1997 1996 1995
----------------- ----------------------------- ------------------------------ -------------------------
Average Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousa
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)...$ 9,585 9.97% $ 9,730 $ 860 8.84% $ 9,391 $ 843 8.98% $ 9,278 $ 847 9.13%
Mortgage-backed
securities............ 2,628 7.53 2,690 198 7.36 1,478 88 5.95 771 47 6.10
Investment securities.. 2,027 6.76 2,588 137 5.33 2,185 124 5.68 1,659 86 5.18
Other interest-
earning assets(2)..... 1,454 1.86 744 27 3.63 604 28 4.64 734 39 5.31
------- ------ ------ --------- ------- ------- ------
Total interest-
earning assets......$ 15,694 7.79 15,732 1,222 7.77 13,658 1,083 7.93 12,442 1,019 8.19
------- ------ ----- --------- ------ ------ -----
Non-interest-earning
assets................. 1,030 516 567 748
------- ---------- -------
Total assets.........$ 16,724 $16,248 $ 14,225 $13,190
======= ====== ========= ======
Interest-bearing
liabilities:
NOW accounts...........$ 1,331 1.26 $ 1,150 13 1.13 $ 941 9 0.96 $ 991 12 1.21
Savings account........ 3,375 2.58 3,346 87 2.60 3,473 97 2.79 3,327 142 4.27
Money market
accounts.............. -- -- -- -- -- -- -- -- -- -- --
Certificates of
deposit............... 10,225 5.58 9,888 571 5.77 8,090 440 5.44 7,391 382 5.17
Other liabilities...... -- -- 12 -- 4.54 87 6 6.90 21 -- --
-------- ------- ------ --------- -------- -------- ------
Total interest-
bearing
liabilities........$ 14,631 4.59 14,396 671 4.66 12,591 552 4.38 11,730 536 4.57
-------- ---- ------ --- ---- ------ --- ---- ------ --- ----
Non-interest-
bearing liabilities.... --
Non-interest bearing
deposits............. 547 264 191 112
--------
Other liabilities...... 376 332 292 300
-------- ------ ------ ------
Total liabilities....$ 15,554 14,992 13,074 12,142
-------- ------ ------ ------
Retained earnings........ 1,170 1,256 1,151 1,048
------ ---------- -------
Total liabilities
and retained
income.............$ 16,724 $16,248 $ 14,225 $13,190
======== ======= =========== =======
Net interest income.... $ 551 $ 531 $ 483
======= ======== =======
Interest rate
spread (3)............ 3.20% 3.11% 3.55% 3.62%
==== ==== ==== ====
Net yield on interest-
earning assets (4)... 3.51% 3.50% 3.89% 3.88%
==== ==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities............ 109.28% 108.47% 106.07%
====== ====== ======
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield in interest-earning assets represents net interest income as a
percentage of average interest earning assets.
29
<PAGE>
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each of
interest-earning assets and interest-bearing liabilities, information is
provided on charges attributable to (i) changes in volume (changes in average
volume multiplied by old rate); (ii) changes in rates (changes in rate
multiplied by old average volume), (iii) changes in rate-volume (changes in rate
multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
--------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------- -----------------------------------
Rate Rate
Volume Rate Volume Net Volume Rate Volume Net
------- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income: (In thousands)
Loans receivable .................. $ 30 $ (14) $ (1) $ 15 $ 10 $ (14) $ -- $ (4)
Mortgage-backed securities ........ 72 21 18 111 43 (1) (1) 41
Investment securities ............. 22 (8) (1) 13 27 8 3 38
Other interest earning assets ..... 6 (5) (1) -- (6) (6) 1 (11)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets .... $ 130 $ (6) $ 15 $ 139 $ 74 $ (13) $ 3 $ 64
===== ===== ===== ===== ===== ===== ===== =====
Interest expenses:
NOW Accounts ...................... $ 2 $ 2 $ -- $ 4 $ (1) $ (2) $-- $ (3)
Savings Account ................... (4) (6) -- (10) 6 (49) (2) (45)
Money Market accounts ............. -- -- -- -- -- -- -- --
Certificates of deposit ........... (97) 27 6 130 36 21 2 59
Other liabilities ................. (4) (2) 1 (5) 3 -- 1 5
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing liabilities $ 91 $ 21 $ 7 $ 119 $ 45 $ (30) $ 1 $ 15
===== ===== ===== ===== ===== ===== ===== =====
Change in net interest income ...... $ 39 $ (27) $ 8 $ 20 $ 29 $ 17 $ 2 $ 49
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Note: The rate/volume variances should be allocated on a consistent basis
between rate and variance and the basis of allocation disclosure in a note to
this table.
30
<PAGE>
Our net interest income increased $29,000 in 1997 compared to 1996. The
increase of $2.1 million in the average balances of our interest-earning assets
more than offset the decrease of 19 basis points in their average yield. As a
result, our interest income increased $148,000. This was primarily due to an
increase of $1.2 million in the average balance of mortgage-backed securities
coupled with an increase of 49 basis points in the average yield on
mortgage-backed securities and an increase of $400,000 in the average balance of
investment securities coupled with an increase of 62 basis points in the average
yield on investment securities.
The increase of $1.8 million in the average balance of our
interest-bearing liabilities was coupled with an increase of 28 basis points in
the average rate of interest we paid on those liabilities. This was due
primarily to an increase of $1.8 million in the average balances of our
certificates of deposit and an increase of 33 basis points in the average rate
we paid on our certificates of deposit. Certificates of deposit increased as a
result of a special promotion, at a rate slightly above market.
Provision for Loan Losses. Our provision for loan losses increased to
$73,000 for 1997 from $2,000 for 1996. The Bank increased its provision for loan
losses in order to bring the provision up to approximately 1% of loans
outstanding, a banking industry norm.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. Because of the increased coverage of the allowances
for loan losses to total loans, management believes the allowance for loan
losses is at a level that is considered to be adequate to provide for estimated
losses; however, there can be no assurance that further additions will not be
made to the allowance and that such losses will not exceed the estimated amount.
Noninterest Income. Our noninterest income decreased by $12,000 for
1997 compared to 1996. The $13,000 increase in service charges and fee income
was more than offset by a decrease of $21,000 in net income on real estate
owned. We had a net loss on real estate owned of $8,000 in 1997 compared to net
income of $14,000 in 1996 due to high maintenance costs in the first quarter of
1997 and due to the costs incurred in connection with the sale of the property
in April 1997.
Noninterest Expense. Our noninterest expense increased by $190,000 in
1997. The increase was primarily attributable to a $193,000 increase in
compensation expenses. The increased compensation expenses include $36,000 and
$123,000 for accrued expenses related to the implementation of a supplemental
executive retirement plan and a directors consultation and retirement plan,
respectively, which were implemented in 1997. In future periods, the
compensation expenses recognized for these plans will be significantly less.
As a result of the conversion, our noninterest expense might also
increase because of the costs associated with our employee stock ownership plan,
restricted stock ownership plan, if implemented, and the costs of becoming a
public company.
A great deal of information has been disseminated about the global
computer year 2000. Many computer programs that can only distinguish the final
two digits of the year entered (a common programming practice in earlier years)
are expected to read entries for the year 2000 as the year 1900 and compute
payment, interest or delinquency based on the wrong date or are expected to be
unable to compute payment, interest or delinquency. Rapid and accurate data
processing is essential to our operation. Data processing is also essential to
most other financial institutions and many other companies. Most of our material
data
31
<PAGE>
processing that could be affected by this problem is provided by a third party
service bureau. Our service bureau has advised us that it expects to resolve
this potential problem before the year 2000. However, if our service bureau is
unable to resolve this potential problem in time, we would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on our financial condition
and results of operation.
Income Tax Expense (Benefit). Our income taxes decreased $90,000 to a
tax benefit of $54,000 in 1997 compared to an income tax expense of $35,000 in
1996, due to a net loss on our operations in 1997.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required minimum ratio currently is 4.0%
and our regulatory liquidity ratio was 8.90%, 11.74%, and 16.80% at December 31,
1997, December 31, 1996, and December 31, 1995, respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investments, interest-bearing deposits
with other banks and funds provided from operations. While scheduled repayments
of loans and mortgage-backed securities and maturities of investment securities
are predicable sources of funds, deposit flows, and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. We use our liquid resources principally to fund loan commitments,
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, and to meet operating expenses.
Net cash used for our operating activities (the cash effects of
transactions that enter into our determination of net income -- e.g., non-cash
items, amortization and depreciation, provision for loan losses) for 1997 was
$73,000 compared to net cash provided by our operations of $175,000 for 1996.
Net cash used for our investing activities (i.e., cash disbursed,
primarily for investment securities and mortgage-backed securities portfolios
and our loan portfolio) totaled $1.1 million for 1997, a decrease of $1.2
million from 1996.
Net cash provided by our financing activities (i.e., cash receipts from
our net increases in deposits) totaled $1.5 million in 1997 compared to $1.3
million in 1996.
BUSINESS OF CARNEGIE FINANCIAL CORPORATION
CFC is not an operating company and has not engaged in any significant
business to date. It was formed in February 1998 as a Pennsylvania-chartered
corporation to be the holding company for Carnegie Savings Bank. The holding
company structure and retention of proceeds will facilitate: (i) diversification
into non-banking activities, (ii) acquisitions of other financial institutions,
such as savings institutions, (iii) expansion within existing and into new
market areas and (iv) stock repurchases without adverse tax consequences. There
are no present plans regarding diversification, acquisitions, expansion, or
repurchases.
Since CFC will own only one savings bank, it generally will not be
restricted in the types of business activities in which it may engage, provided
that we retain a specified amount of our assets in housing-related
32
<PAGE>
investments. CFC initially will not conduct any active business and does not
intend to employ any persons other than officers but will utilize our support
staff from time to time.
The office of the CFC is located at 17 West Mall Plaza, Carnegie,
Pennsylvania. The telephone number is (412) 276-1266.
BUSINESS OF CARNEGIE SAVINGS BANK
The principal sources of funds for our activities are deposits and
payments on loans and investments. Our deposits totalled $15.2 million at
December 31, 1997. Funds are used primarily for the origination of loans secured
by mortgages on one- to four-family residences and home equity loans which are
located in our market area, consumer loans and the purchase of mortgage-backed
and investment securities. Residential real estate loans totalled $8.2 million,
or 84.90%, of our total loans receivable portfolio at December 31, 1997. Our
principal source of revenue is interest received on loans and investments and
our principal expense is interest paid on deposits.
Market Area
Our office is located in Carnegie, a suburb southwest of Pittsburgh,
Pennsylvania. Our primary market area is within Allegheny County and consists of
the Borough of Carnegie and the surrounding municipalities. Most of our deposits
and lending activity is generated from individuals who live in these areas. We
are a community-oriented institution and have served the Carnegie area community
since 1915.
Carnegie is a middle income community having a large proportion of
senior citizens. It is presently enjoying a period of revitalization, which
plans having been approved for a 60-unit townhouse project, and plans proceeding
to open the mall area to vehicular traffic. The Port Authority of Allegheny
County is presently constructing a busway from downtown Pittsburgh to the
Pittsburgh International Airport, with Carnegie slated to be a parking site for
those who will use the busway. A multi-floor municipal parking garage is
planned, with retail establishments slated for the ground floor. Economically,
the town appears to be improving, and Borough officials are quite optimistic
about the town's future.
The Greater Pittsburgh area has been in the process of restructuring
over the past decade. Once centered on heavy manufacturing, primarily steel, its
economic base is now more diverse, including technology, health and business
services. Several "Fortune 500" industrial firms are headquartered in the
Greater Pittsburgh area, including USX Corporation. The largest employers in
Pittsburgh, by the number of local employees, include the United States
Government, the Commonwealth of Pennsylvania, USAirways, University of
Pittsburgh Medical Center, and the University of Pittsburgh. Seven colleges and
universities are located in the greater Pittsburgh area.
Lending Activities
The Bank makes mortgage loans, both residential and commercial,
construction loans, home improvement loans, equity lines of credit, consumer and
savings account loans. The lines of credit are adjustable rate (based on the
Wall Street Journal prime). Some mortgages are adjustable (based on the one-year
T-bill). Savings account loans adjust with the rate paid on the underlying
collateral. Recent market conditions have made borrowers reluctant to agree to
ARMs.
33
<PAGE>
The following table sets forth information concerning the types of
loans held by us.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------
1997 1996
----------------------- ----------------------
$ % $ %
---------- ------- ---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loans:
- --------------
Real Estate Loans:
Construction................................ $ 251 2.59% $ 70 0.71%
Residential(1).............................. 8,236 84.90 8,360 84.87
Commercial.................................. 343 3.54 418 4.24
------- ------
Total Residential 8,830 8,848
Consumer Loans:
Share loans................................. 119 1.23 156 1.58
Automobile loans............................ 383 3.95 381 3.87
Unsecured................................... 368 3.79 466 4.73
------- ------ ------- ------
Total Consumer............................ 870 1,003
Total Loans................................. 9,700 100.00% 9,851 100.00%
====== ======
Less:
Loans in process............................ -- --
Deferred loan origination fees and costs.... -- --
Allowance for loan losses .................. 115 39
------- -------
Total loans, net......................... $ 9,585 $ 9,812
======= =======
</TABLE>
(1) Includes $254,000 and $94,000 for fiscal 1997 and 1996, respectively, of
multi-family loans all of which have adjustable rates of interest.
34
<PAGE>
The following sets forth the maturity of our loan portfolio at December
31, 1997. The table does not include prepayments or scheduled principal
repayments. All loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
Real Estate Loans
--------------------------------------------------
Residential Commercial Construction Consumer Total
----------- ---------- ------------ -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year.............. $ 303 $ -- $ 251 $ 44 $ 598
Over 1 to 3 years.......... 128 -- -- 307 435
Over 3 to 5 years.......... 635 -- -- 396 1,031
Over 5 to 10 years......... 1,246 -- -- 78 1,324
Over 10 to 20 years........ 1,562 343 -- 45 1,950
Over 20 years.............. 4,362 -- -- -- 4,362
------ ------ ---- ------ ------
Total amount due........... $ 8,236 $ 343 $ 251 $ 870 9,700
====== ====== ==== ====== ------
Less:
Allowance for loan loss 115
Loans in process --
Deferred loan fees --
------
Loans receivable, net $ 9,585
======
</TABLE>
The following table sets forth dollar amount of all loans due after
December 31, 1997, which have predetermined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
<S> <C> <C> <C>
Residential $ 7,248 $ 988 $ 8,236
Commercial -- 343 343
Construction 251 -- 251
Consumer 870 -- 870
--------- --------- ---------
Total $ 8,369 $ 1,331 $ 9,700
========= ========= =========
</TABLE>
Real Estate Loans. Our primary lending activity consists of the
origination of one- to four-family fixed rate residential mortgage loans secured
by property located in our primary market area. We generally originate one- to
four-family fixed rate residential mortgage loans in amounts up to 95% of the
lesser of the appraised value or purchase price, with private mortgage insurance
required on loans with a loan-to-value ratio in excess of 80%. Generally, the
maximum loan-to-value ratio on mortgage loans secured by non-owner occupied
properties and commercial buildings is limited to 70%. We retain all of our
mortgage loans and originate these loans with maturities of up to 30 years.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property securing the mortgage
loan without our consent.
We originate home equity loans and second mortgage loans which are
secured by one to four-family residences. We originate these loans on one- to
four-family residences with fixed rate terms of up to 15
35
<PAGE>
years. The loans are generally subject to a 80% combined loan-to-value
limitation, including any other outstanding mortgages or liens.
Commercial real estate lending entails significant additional risks
compared to residential property lending. These loans typically involve large
loan balances to single borrowers or groups of related borrowers. The repayment
of these loans typically is dependent on the successful operation of the real
estate project securing the loan. These risks can be significantly affected by
supply and demand conditions in the market for office and retail space and may
also be subject to adverse conditions in the economy.
Consumer Loans. We offer consumer loans in order to provide a wider
range of financial services to our customers. Consumer loans totaled $870,000,
or 8.97% of our total loans at December 31, 1997. Our consumer loans consist of
share loans, automobile loans, and unsecured loans. We make unsecured loans to
certain creditworthy borrowers. Loans secured by vehicles are financed for terms
up to 60 months. Loans secured by deposits of the bank are granted in amounts up
to 95% of the deposited amount.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Loan Approval Authority and Underwriting. We establish various lending
limits for our officers and maintain a loan committee consisting of the board of
directors. The president and loan officer have authority to approve home equity
loans up to $35,000 and $20,000, respectively, and the Officer Loan Committee
has the authority to approve unsecured consumer loans up to $5,000. The loan
committee ratifies all residential mortgage loans and all other real estate and
consumer loans.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers.
Title insurance is generally required on all real estate mortgage
loans. We do not require title insurance on home equity loans and second
mortgages under $50,000, but we obtain a property report, which indicates
whether there are any liens or other encumbrances against the property.
Borrowers also must obtain fire and casualty insurance. Flood insurance is also
required on loans secured by property that is located in a flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 45 days of the date of issuance. At December 31, 1997, there
were no outstanding commitments to cover originations of mortgage loans.
Loans to One Borrower. The maximum amount of loans which we may make to
any one borrower may not exceed the greater of $500,000 or 15% of our unimpaired
capital and unimpaired surplus. We may lend an additional 10% of our unimpaired
capital and unimpaired surplus if the loan is fully secured by readily
marketable collateral. Our maximum loan-to-one borrower limit has been $500,000.
At December 31, 1997, our five largest borrowers had aggregate outstanding
balances of between $294,000 and $495,000. These loans are performing loans.
36
<PAGE>
Nonperforming and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 30 days past due, a
notice of nonpayment is sent to the borrower. If such payment is not received by
month end, an additional notice of nonpayment is sent to the borrower. After 60
days, if payment is still delinquent, a notice of right to cure default is sent
to the borrower giving 30 additional days to bring the loan current before
foreclosure is commenced. If the loan continues in a delinquent status for 90
days past due and no repayment plan is in effect, foreclosure proceedings will
be initiated.
Loans are reviewed and are placed on a non-accrual status when the loan
becomes more than 90 days delinquent or when, in our opinion, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on nonaccrual status is charged against interest income. Subsequent
interest payments, if any, are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
Nonperforming Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. We
have no loans categorized as troubled debt restructurings within the meaning of
SFAS 15 and no impaired loans within the meaning of SFAS 114, as amended by SFAS
118. Interest income that would have been recorded on loans accounted for on a
nonaccrual basis under the original terms of such loans was approximately $3,000
for the year ended December 31, 1997.
We presently have one piece of real estate owned property, a
residential property in Peters Township, appraised at $540,000. The original
loan, an equity line of credit, was granted on March 29, 1989, in the amount of
$300,000 and was increased to $320,000 on May 9, 1995. The borrowers defaulted
on
37
<PAGE>
their first mortgage. As second lienholders, we purchased the property at a
Sheriff's Sale on December 5, 1997.
<TABLE>
<CAPTION>
At December 31,
--------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Construction loans .............................. $-- $ -- $--
Permanent loans secured by 1-4 dwelling units ... 14 9 57
All other mortgage loans ........................ -- -- --
Non-mortgage loans:
Other ........................................... -- -- --
Consumer ........................................ 28 24 16
----- ------ ----
Total ............................................. $ 42 $ 33 $ 73
===== ====== ====
Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
Construction loans .............................. -- -- --
Permanent loans secured by 1-4 dwelling units ... -- -- --
All-other mortgage loans ........................ -- -- --
Non-mortgage loans:
Other ........................................... -- -- --
Consumer ........................................ -- -- --
----- ------ ----
Total ........................................... $-- $ -- $--
===== ====== ====
Total non-accrual and accrual loans ............... $ 42 $ 33 $ 73
===== ====== ====
Real estate owned ................................. $ 480 $ 167 $167
===== ====== ====
Other non-performing assets ....................... $-- $ -- $--
===== ====== ====
Total non-performing assets ....................... $ 522 $ 200 $240
===== ====== ====
Total non-accrual and accrual loans to net loans .. 0.44% 0.34% 0.81%
===== ====== ====
Total non-accrual and accrual loans to total assets 0.25% 0.22% 0.53%
===== ====== ====
Total non-performing assets to total assets ....... 3.12% 1.32% 1.75%
===== ====== ====
</TABLE>
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings banks which covers all problem assets. Under this
classification system, problem assets of savings banks such as ours are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the borrower or of the collateral pledged, if any. Substandard
assets include those characterized by the "distinct possibility" that the
savings bank will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weaknesses that do not currently warrant
classification in one of the aforementioned categories.
When a savings bank classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been established to recognize the inherent risk associated with lending
38
<PAGE>
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When a savings bank classifies problem assets as
loss, it is required either to establish a specific allowance for losses equal
to 100% of that portion of the asset so classified or to charge off such amount.
A savings bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS, which may
order the establishment of additional general or specific loss allowances. A
portion of general loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining a
savings bank's regulatory capital. Specific valuation allowances for loan losses
generally do not qualify as regulatory capital.
The following table sets forth our classified assets in accordance with
our classification system.
At December 31, 1997
--------------------
(In thousands)
Special Mention.............. $104
Substandard.................. 35
Doubtful assets.............. 42
Loss assets.................. 11
---
$192
====
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in our loan portfolio. The evaluation, including a review of all loans on which
full collectibility of interest and principal may not be reasonably assured,
considers: (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts and
additional provisions for loan losses could be required. In addition, our
determination of the amount of the allowance for loan losses is subject to
review by the OTS, as part of its examination process. After a review of the
information available, the OTS might require the establishment of an additional
allowance. Any increase in the loan loss allowance required by the OTS would
have a negative impact on our earnings.
39
<PAGE>
The following table illustrates the allocation of the allowance for
loan losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1997 1996
----------------------------------- -------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loans:
- --------------
Real Estate Loans:
Construction $ -- 2.59% $ -- 0.71%
Residential 75 84.90 23 84.87
Commercial 3 3.54 7 4.24
------ ------
Total Real Estate 78 30
Consumer Loans:
Share Loans -- 1.23 -- 1.58
Automobile Loans -- 3.95 -- 3.87
Unsecured 37 3.79 9 4.73
------ ------
Total Consumer 37 9
------ ------ ------ ------
Total $ 115 100.00% $ 39 100.00%
====== ====== ====== ======
</TABLE>
40
<PAGE>
The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------
1997 1996
---------- -----------
(In thousands)
<S> <C> <C>
Total loans outstanding......................... $ 9,700 $9,851
======== =====
Average loans outstanding....................... $ 9,730 $9,390
======== =====
Allowance balance (at beginning of period)...... $ 39 $ 38
Provision:
Real Estate Loans:
Construction.................................. -- --
Residential................................... 73 2
Commercial.................................... -- --
Consumer Loans:
Share Loans................................... -- --
Automobile Loans.............................. -- --
Unsecured..................................... -- --
Net (Charge-offs) recoveries:
Real Estate Loans:
Construction.................................. -- --
Residential................................... -- --
Commercial.................................... -- --
Consumer Loans:
Share Loans................................... -- --
Automobile Loans.............................. -- --
Unsecured..................................... 3 (1)
-------- -----
Allowance balances (at end of period)........... $ 115 $ 39
======== ======
Allowance for loan losses as a percent of
total loans outstanding......................... 1.19% 0.40%
Net loans charged off as percent of average
loans outstanding............................... 0% 0%
</TABLE>
Investment Activities
Investment Securities. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -- Savings
Institution Regulation -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The level of liquid assets varies depending
upon several factors, including: (i) the yields on investment alternatives, (ii)
our judgment as to the attractiveness of the yields then available in relation
to other opportunities, (iii) expectation of future yield levels, and (iv) our
projections as to the short-term demand for funds to be used in loan origination
and other activities. We classify our investment securities as "available for
sale" or "held to maturity" in accordance with SFAS No. 115. At December 31,
1997,
41
<PAGE>
our investment portfolio policy allowed investments in instruments such as: (i)
U.S. Treasury obligations, (ii) U.S. federal agency or federally sponsored
agency obligations, (iii) local municipal obligations, (iv) mortgage-backed
securities, (v) banker's acceptances, (vi) certificates of deposit, (vii)
federal funds, including FHLB overnight and term deposits, and (viii) investment
grade corporate bonds, commercial paper and mortgage derivative products. See
"-- Mortgage-backed Securities." The board of directors may authorize additional
investments.
Mortgage-backed Securities. To supplement lending activities, we have
invested in residential mortgage-backed securities. Mortgage-backed securities
can serve as collateral for borrowings and, through repayments, as a source of
liquidity. Mortgage-backed securities represent a participation interest in a
pool of single-family or other type of mortgages. Principal and interest
payments are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as us. The
quasi-governmental agencies guarantee the payment of principal and interest to
investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
Government National Mortgage Association ("GNMA"), and Federal National Mortgage
Association ("FNMA.")
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages. Expected maturities will differ from contractual
maturities due to scheduled repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.
Mortgage-backed securities issued by FHLMC and GNMA make up a majority of the
pass-through certificates market.
42
<PAGE>
Securities Portfolio. The following table sets forth the carrying
(i.e., amortized cost) value of our investment securities held to maturity, at
the dates indicated. Our securities portfolio classified as available for sale
is carried at market value.
<TABLE>
<CAPTION>
At December 31,
----------------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Securities held to maturity:
U.S. Government Securities.................................. $ - $ -
U.S. Agency Securities...................................... 300 550
State and Local Government.................................. 614 714
Other Debt securities....................................... -- 199
Mortgage-backed Securities held to maturity................. 1,721 2,014
AMR Arm Fund................................................ 503 --
------ ------
Total Securities Held to Maturity...................... 3,138 3,477
------ ------
Securities Available for Sale:
U.S. Government Securities................................. 204 389
U.S. Agency Securities..................................... 810 199
Federal funds Sold......................................... -- --
Other Debt securities...................................... 99 99
FHLB Stock................................................. -- --
Mortgage-backed Securities Available for sale.............. 907 --
------ ------
Total Securities Available for Sale.................... 2,020 687
------ ------
Total Investment and Mortgage-Backed Securities $ 5,158 $ 4,164
====== ======
</TABLE>
43
<PAGE>
The following table sets forth information regarding the scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investment and mortgage-backed securities portfolio at December
31, 1997 by contractual maturity. The following table does not take into
consideration the effects of scheduled repayments or the effects of possible
prepayments.
<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------------------------------------------------------------------
Total Investment
More than More than Securities and Mortgage-
One Year or Less One to Five Years Five to Ten Years More than Ten Years backed Securities
---------------- ----------------- ----------------- ------------------- ------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- -------- -------- ------- -------- -------- -------- -------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments securities
U.S. Government Securities.... $ -- --% $ -- --% $ 100 5.75% $ 104 6.25% $ 204 6.00% $ 204
U.S. Agency Securities........ -- -- 100 5.67 700 6.91 310 8.15 1,110 7.14 1,108
State and Local Government.... 25 4.10 90 4.33 499 4.93 -- -- 614 4.81 624
Other Securities.............. 503 5.86 -- -- -- -- -- -- 503 5.86 503
--- ----- ---- ---- ----- -----
Total investment securities. 528 190 -- 1,299 -- 414 2,431 2,439
Interest-bearing Deposits....... -- -- -- -- 99 7.30 -- -- 29 7.30 99
Federal Funds Sold.............. -- -- -- -- -- -- -- -- -- -- --
FHL Stock -- -- -- -- --
Mortgage-backed Securities...... -- -- -- -- 241 7.10 2,367 6.66 2,628 6.70 2,651
---- ------ ------ ---- ----- ------ ----- ---- ----- ------ -----
Total investment............. $528 5.78% $ 190 5.04% $1,639 6.29% $2,801 6.81% $5,158 6.47% $5,189
==== ====== ====== ==== ===== ====== ===== ==== ===== ===== =====
</TABLE>
44
<PAGE>
Sources of Funds
Deposits are our major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans and prepayment of loans and maturities of investment securities and
mortgage-backed securities and, to a much lesser extent, borrowings and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including passbook savings accounts, money market accounts,
and term certificate accounts. IRA accounts and NOW accounts are also offered.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
At December 31, 1997, we had no brokered deposits and our deposits were
represented by the following types of savings programs.
<TABLE>
<CAPTION>
Minimum Balance as of Percentage
Interest Balance December 31, of Total
Category Term Rate(1) Amount 1997 Deposits
- -------- ---- ------- ------- ------------- -----------
(Dollars in
thousands)
<S> <C> <C> <C> <C> <C>
Accounts:
NOW None 1.50% $ 500 $ 1,031 6.79%
Passbook savings None 2.25 100 1,098 7.23
Premium passbook savings None 2.50 1,000 2,264 14.92
Passbook savings club None 1.75 -- 14 0.09
Non interest-bearing None -- 100 546 3.60
Certificates of Deposit(2):
Fixed Term, Fixed Rate 1-3 months -- -- -- 0.00
Fixed Term, Fixed Rate 4-6 months 4.50 1,000 1,380 9.09
Fixed Term, Fixed Rate 7-12 months 5.25 500 1,771 11.67
Fixed Term, Fixed Rate 13-24 months 5.25 500 3,557 23.43
Fixed Term, Fixed Rate 25-36 months 5.25 500 698 4.60
Fixed Term, Fixed Rate 37-48 months 5.50 500 80 0.53
Fixed Term, Fixed Rate 49-120 months 6.00 500 2,739 18.05
------ ------
Total $15,178 100.00%
====== ======
</TABLE>
- ---------------
(1) Current interest rate offering as of December 31, 1997.
(2) Includes jumbo certificates of deposit of $1.4 million. See table of
maturities of certificates of deposit of $100,000 or more.
45
<PAGE>
The following table sets forth our time deposits classified by interest
rate as of the dates indicated.
As of December 31,
-------------------------------
1997 1996
---------- ---------
(In thousands)
Interest Rate
2.00% or less $ -- $ --
2.01 - 4.00% -- 28
4.01 - 6.00 5,146 5,282
6.01 - 8.00 4,978 3,617
8.01 - 10.00 101 140
10.01 or more -- --
------- ------
Total $10,225 $9,067
====== =====
The following table sets forth amount and maturities of time deposits
at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1998 1999 2000 2000 Total
- ------------- ----------------- ------------------- ------------------ ------------------- ------------------
(In thousands)
<C> <C> <C> <C> <C> <C>
4.00% or less $ - $ - $ - $ - $ -
4.01 - 6.00% 3,194 408 537 323 4,462
6.01 - 8.00% 554 3,051 772 1,133 5,510
8.01 - 10.00% 9 78 -- 166 253
------- ------- ------ -------- -------
Total $ 3,757 $ 3,537 $ 1,309 $ 1,622 $10,225
======= ======= ====== ======== ======
</TABLE>
The following table indicates the amount of our certificates of deposit
of $100,000 or more by time remaining until maturity as of December 31, 1997.
Certificates
Maturity Period of Deposits
--------------- -------------
(In thousands)
Within three months $ 419
Three through six months 100
Six through twelve months 200
Over twelve months 722
-----
$1,441
======
Borrowings. Advances (borrowing) may be obtained from the FHLB of
Pittsburgh to supplement our supply of lendable funds. Advances from the FHLB of
Pittsburgh are typically secured by a pledge of our stock in the FHLB of
Pittsburgh, a portion of our first mortgage loans and other assets. Each FHLB
credit program has its own interest rate, which may be fixed or adjustable, and
range of maturities. We expect to become a member of the FHLB of Pittsburgh as
part of the Conversion and will be able to borrow up to the amount set by the
FHLB of Pittsburgh. If the need arises, we may also access the Federal Reserve
Bank discount window to supplement our supply of lendable funds and to meet
deposit withdrawal requirements. At December 31, 1997, we were not a member of
and had no borrowings from the FHLB of Pittsburgh.
46
<PAGE>
At December 31, 1997 and 1996, we had an available line of credit in
the amount of $500,000. The outstanding balance on the line of credit at
December 31, 1997 and 1996 was $0 and $300,000, respectively. The line of credit
is payable upon demand and bears interest at a rate of prime plus 1.25%. In
addition, pursuant to the terms of the line of credit agreement, in order for us
to borrow any funds we are required to maintain a certificate of deposit at the
lending institution; as of December 31, 1997 and 1996, this certificate of
deposit was $100,000.
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in our market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers, most of whom have far greater resources than we have.
Properties
We operate from one office, which we own, located at 17 West Mall
Plaza, Carnegie, Pennsylvania 15106. The office was acquired in 1986 and has a
net book value at December 31, 1997 of $144,000.
Personnel
At December 31, 1997 we had six full-time employees. None of our
employees are represented by a collective bargaining group. We believe that our
relationship with our employees is good.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not currently a party to any legal proceedings
which are expected to have a material adverse effect on our financial
statements.
REGULATION
Set forth below is a brief description of certain laws which relate to
us. The description is not complete and is qualified in its entirety by
references to applicable laws and regulation.
Carnegie Financial Corporation Regulation
General. CFC will be required to register and file reports with the OTS
and will be subject to regulation and examination by the OTS. In addition, the
OTS will have enforcement authority over CFC and any non-savings institution
subsidiaries. This will permit the OTS to restrict or prohibit activities that
it determines to be a serious risk to us. This regulation is intended primarily
for the protection of our depositors and not for the benefit of you, as
stockholders of CFC.
QTL Test. Since CFC will only own one savings institution, it will be
able to diversify its operations into activities not related to banking, but
only as long as we satisfy the QTL test. If CFC controls more than one savings
institution, it would lose the ability to diversify its operations into
non-banking related activities, unless such other savings institutions each also
qualify as a QTL or were acquired in a supervised acquisition. See "-- Savings
Institution Regulation -- Qualified Thrift Lender Test."
47
<PAGE>
Restrictions on Acquisitions. CFC must obtain approval from the OTS
before acquiring control of any other FDIC-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
Savings Institution Regulation
General.
As a federally chartered, BIF-insured savings institution, we are
subject to extensive regulation by the OTS and the FDIC. Our lending activities
and other investments must comply with various federal and state statutory and
regulatory requirements.
The OTS, in conjunction with the FDIC, regularly examines us and
prepares reports for the consideration of our board of directors on any
deficiencies that the OTS finds in our operations. Our relationship with our
depositors and borrowers is also regulated to a great extent by federal and
state law, especially in such matters as the ownership of savings accounts and
the form and content of our mortgage documents.
We must file reports with the OTS and the FDIC concerning our
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the BIF and depositors.
The regulatory structure also gives regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in regulations, whether by the OTS, the FDIC or any other government
agency, could have a material adverse impact on our operations.
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
such as ours were substantially less than premiums for deposits which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at September 30, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
48
<PAGE>
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This will increase BIF assessments for healthy
banks to approximately $.0125 per $100 of deposits in 1998. SAIF assessments for
healthy savings institutions in 1998 will be approximately $.0628 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, we might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. We cannot predict the impact of our conversion to, or
regulation as, a bank until the legislation requiring such change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. Our capital ratios are set forth under "Historical and Pro Forma Capital
Compliance."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A federal savings association must calculate
its risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require federal
savings institutions with more than a "normal" level of interest rate risk to
maintain additional total capital. An institution's interest rate
49
<PAGE>
risk will be measured in terms of the sensitivity of its "net portfolio value"
to changes in interest rates. Net portfolio value is defined, generally, as the
present value of expected cash inflows from existing assets and off-balance
sheet contracts less the present value of expected cash outflows from existing
liabilities. A federal savings institution will be considered to have a "normal"
level of interest rate risk exposure if the decline in its net portfolio value
after an immediate 200 basis point increase or decrease in market interest rates
(whichever results in the greater decline) is less than two percent of the
current estimated economic value of its assets. An institution with a greater
than normal interest rate risk will be required to deduct from total capital,
for purposes of calculating its risk-based capital requirement, an amount (the
"interest rate risk component") equal to one-half the difference between the
institution's measured interest rate risk and the normal level of interest rate
risk, multiplied by the economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk component, if any, to
be deducted from an institution's total capital will be based on the
institution's Thrift Financial Report filed two quarters earlier. Federal
savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS may require any
exempt institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis and may be subject to
an additional capital requirement based upon its level of interest rate risk as
compared to its peers. However, due to our net size and risk-based capital
level, we are exempt from the interest rate risk component.
Dividend and Other Capital Distribution Limitations. OTS regulations
will require us to give the OTS 30 days advance notice of any proposed
declaration of dividends to CFC, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends by us to CFC. In
addition, we may not declare or pay a cash dividend on our capital stock if the
effect would be to reduce our regulatory capital below the amount required for
the liquidation account to be established at the time of the conversion. See
"The Conversion -- Effects of Conversion to Stock Form on Depositors and
Borrowers of Carnegie Savings Bank -- Liquidation Account."
OTS regulations impose limitations upon all capital distributions by
federal savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. We expect
to qualify as a Tier 1 institution.
In the event our capital falls below our fully phased-in requirement or
the OTS notifies us that we are in need of more than normal supervision, we
would become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75%
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose
50
<PAGE>
to make any capital distribution, and Tier 2 institutions that propose to make a
capital distribution in excess of the noted safe harbor level, must obtain OTS
approval prior to making such distribution. In addition, the OTS could prohibit
a proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. The OTS has proposed rules relaxing
certain approval and notice requirements for well-capitalized institutions.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which are eligible for expedited
treatment under current OTS regulations are not required to file a notice or an
application with the OTS if (i) the savings association would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
capital distribution does not exceed an amount equal to the savings
association's net income for that year to date, plus the savings association's
retained net income for the previous two years. Thus, under the proposed
regulation, only undistributed net income for the prior two years may be
distributed in addition to the current year's undistributed net income without
the filing of an application with the OTS. Savings associations which do not
qualify for expedited treatment or which desire to make a capital distribution
in excess of the specified amount, must file an application with, and obtain the
approval of, the OTS prior to making the capital distribution. Under certain
other circumstances, savings associations will be required to file a notice with
OTS prior to making the capital distribution. The OTS proposed limitations on
capital distributions are similar to the limitations imposed upon national
banks. We are unable to predict whether or when the proposed regulation will
become effective.
A federal savings institution is prohibited from making a capital
distribution if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a federal savings institution cannot distribute
regulatory capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender ("QTL") test. If we maintain an appropriate level of
qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, we will have full borrowing privileges from the FHLB
of Pittsburgh. The required percentage of QTIs is 65% of portfolio assets
(defined as all assets minus intangible assets, property used by the institution
in conducting its business and liquid assets equal to 10% of total assets).
Certain assets are subject to a percentage limitation of 20% of portfolio
assets. In addition, federal savings institutions may include shares of stock of
the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is determined
on a monthly basis in nine out of every 12 months. We are not yet subject to the
QTL requirements.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. Our
affiliates include CFC and any company which would be under common control with
us. In addition, a savings institution may not extend credit to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat subsidiaries of savings institution as affiliates on a case-by-case
basis.
51
<PAGE>
Liquidity Requirements. All federal savings institutions are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement
may vary from time to time (between 4% and 10%) depending upon economic
conditions and savings flows of all savings institutions. Monetary penalties may
be imposed upon institutions for violations of liquidity requirements.
Federal Home Loan Bank System. We are a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of Pittsburgh in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. We are in compliance with this requirement. The FHLB
imposes various limitations on advances such as limiting the amount of certain
types of real estate related collateral to 30% of a member's capital and
limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
52
<PAGE>
TAXATION
Federal Taxation
We are subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
Thrift institutions with $500 million of assets or less are generally allowed to
account for their bad debts by using a reserve method of accounting under Code
ss.585. Alternatively, thrift institutions may choose to account for their bad
debts by using the specific charge off method under Code ss.166. In the past,
due to certain State law restrictions which no longer apply to us, we have
accounted for our bad debts using the specific charge off method. Currently, we
are reviewing the benefits, if any, of changing our method of accounting for our
bad debts to the reserve method of accounting.
We are not currently required by the Code to use the accrual method of
accounting for tax purposes. However, we are reviewing the benefits, if any, of
changing from the cash basis to the accrual method of accounting for tax
purposes to determine the most favorable method for us. Further, for taxable
years ending after 1986, the Code disallows 100% of a savings institution's
interest expense deemed allocated to certain tax-exempt obligations acquired
after August 7, 1986. Interest expense allocable to (i) tax-exempt obligations
acquired after August 7, 1986 which are not subject to this rule, and (ii)
tax-exempt obligations issued after 1982 but before August 8, 1986, are subject
to the rule which applied prior to the Code disallowing the deductibility of 20%
of the interest expense.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items,
including the excess of the tax bad debt reserve deduction using the percentage
of taxable income method over the deduction that would have been allowable under
the experience method. Only 90% of AMTI can be offset by net operating loss
carryovers of which we currently have none. AMTI is also adjusted by determining
the tax treatment of certain items in a manner that negates the deferral of
income resulting from the regular tax treatment of those items. Thus, our AMTI
is increased by an amount equal to 75% of the amount by which our adjusted
current earnings exceeds our AMTI (determined without regard to this adjustment
and prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986 and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modifications) over $2 million
is imposed on corporations, including us, whether or not an AMT is paid.
CFC may exclude from its income 100% of dividends received from us as a
member of the same affiliated group of corporations. A 70% dividends received
deduction generally applies with respect to dividends received from corporations
that are not members of such affiliated group, except that an 80% dividends
received deduction applies if CFC owns more than 20% of the stock of a
corporation paying a dividend. The above exclusion amounts, with the exception
of the affiliated group figure, were reduced in years in which we availed
ourself of the percentage of taxable income bad debt deduction method.
Our federal income tax returns have not been audited by the IRS since
our fiscal year ended December 31, 1993. As a result of the audit, there was no
material effect to our financial statements.
State Taxation
We are subject to the Mutual Thrift Institutions Tax of the
Commonwealth of Pennsylvania based on our financial net income determined in
accordance with generally accepted accounting principles with certain
adjustments. Our tax rate under the Mutual Thrift Institutions Tax is 11.5%.
Interest on state
53
<PAGE>
and federal obligations is excluded from net income. An allocable portion of net
interest expense incurred to carry the obligations is disallowed as a deduction.
Three year carryforwards of losses are allowed.
Upon consummation of the conversion, we will also be subject to the
Corporate Net Income Tax and the Capital Stock Tax of the Commonwealth of
Pennsylvania.
MANAGEMENT OF CARNEGIE FINANCIAL CORPORATION
CFC board of directors consists of the same individuals who serve as
directors of Carnegie Savings Bank. The articles of incorporation and bylaws of
CFC require that directors be divided into four classes, as nearly equal in
number as possible. Each class of directors serves for a four-year period, with
approximately one-fourth of the directors elected each year. The officers of CFC
will be elected annually by the board and serve at the board's discretion. Such
officers are also officers of Carnegie Savings Bank.
See "Management of Carnegie Savings Bank."
MANAGEMENT OF CARNEGIE SAVINGS BANK
Directors and Executive Officers
Our board of directors is composed of five members each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our proposed stock charter and bylaws require that directors be
divided into four classes, as nearly equal in number as possible. Our officers
are elected annually by our board and serve at the board's discretion.
The following table sets forth information with respect to our
directors and executive officers, all of whom will continue to serve in the same
capacities after the conversion.
<TABLE>
<CAPTION>
Age at Current
December 31, Director Term
Directors 1997 Position Since Expires(1)
- --------- ------------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Shirley Chiesa 60 Chairman of the Board, 1972 1999
President and C.E.O.
Morry Miller 61 Director 1985 2000
JoAnn V. Narduzzi 60 Director 1988 2000
Charles Rupprecht 61 Director 1979 1998
Lois A. Wholey 42 Director and Secretary 1986 1998
Joseph R. Pigoni 34 Executive Vice President N/A N/A
and Chief Financial
Officer
</TABLE>
- -------------------
(1) The terms for directors of CFC are the same as those of Carnegie
Savings Bank except that Lois A. Wholey's term will expire in 2001.
The business experience for the past five years of each of the
directors and executive officers is as follows:
Shirley Chiesa has been a member of the Board since 1972 and the
Chairman since 1980. Ms. Chiesa has been employed by the Carnegie Savings Bank
since 1955 and is currently the President and
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Chief Executive Officer. She is a director of the Western Pennsylvania League of
Financial Institutions. She is Vice-Chairman of the Chartiers Boys and Girls
Club, is the past president and current secretary of the Carnegie Lions Club and
is on the advisory board of the Carnegie Historical Society.
Morry Miller has been a member of the Board since 1985. Mr. Miller is
the President of Izzy Miller Furniture Company. He is a past board member of the
Salvation Army and the Greater Pittsburgh Guild for the Blind.
JoAnn V. Narduzzi has been a member of the Board since 1988. Dr.
Narduzzi is the Hospital Physician Administrator with the Pittsburgh Mercy
Health System. She is on the board of the Pittsburgh Care Partnership and is the
Proclaimer of Word at the St. Thomas More Church.
Charles Rupprecht has been a member of the Board since 1979. Mr.
Rupprecht is the Transportation Supervisor at the Calgon Carbon Corp.
Lois A. Wholey has been a member of the Board since 1986 and is the
Secretary of Carnegie Savings Bank. Ms. Wholey is an attorney and the owner of
Lois Wholey and Associates. She is a member of the board of the Children's
Festival Chorus and the Society for Contemporary Crafts.
Joseph R. Pigoni has been Executive Vice President since December 1997
and Chief Financial Officer since May 1997. Prior to that time he was Assistant
Vice President and Controller of ESB Bank and PennFirst Bancorp, Inc. from
August 1995 to March 1997 and Controller of Mt. Troy Savings Bank from June 1990
to July 1995. He is Vice President of the Pittsburgh chapter of the Financial
Managers Society.
Meetings and Committees of the Board of Directors
The board of directors conducts its business through meetings of the
board and through activities of its committees. During the year ended December
31, 1997, the board of directors held 12 regular meetings. No director attended
fewer than 75% of the total meetings of the board of directors and committees on
which such director served during the year ended December 31, 1997.
Director Compensation
Each director is paid fees in the amount of $300.00 per meeting
attended. The total fees paid to the directors for the year ended December 31,
1997 were $19,800.
Directors Consultant and Retirement Plan ("DRP"). The DRP provides
retirement benefits to directors following retirement after age 60 and
completion of at least 10 years of service. If a director agrees to become a
consulting director to our board upon retirement, he or she will receive a
monthly payment equal to 80% of the Board fee in effect at the date of
retirement for a period of 120 months. Benefits under our DRP will begin upon a
director's retirement. In the event there is a change in control, all directors
will be presumed to have not less than 10 years of service and each director
will receive a lump sum payment equal to the present value of future benefits
payable.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer at
December 31, 1997. No employee earned in excess of $100,000 for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------
Other Annual All other
Compensation Compensation
Name and Principal Position Year Salary Bonus (1) ($)(2)
- --------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Shirley Chiesa, President 1997 $72,500 $15,000 $3,600 $8,750
1996 $72,500 $10,000 $3,000 $8,250
1995 $72,500 $10,000 $2,400 $8,250
</TABLE>
- --------------------
(1) Consists of director fees.
(2) Includes contributions of $8,250 representing 10% of compensation to
Simplified Employees Pension.
Employment Agreement. We have entered into an employment agreement with
our President, Ms. Shirley Chiesa. Ms. Chiesa's base salary under the employment
agreement is $75,000. The employment agreement has a term of three years. The
agreement is terminable by us for "just cause" as defined in the agreement. If
we terminate Ms. Chiesa without just cause, Ms. Chiesa will be entitled to a
continuation of her salary from the date of termination through the remaining
term of the agreement. The employment agreement contains a provision stating
that in the event of the termination of employment in connection with any change
in control of us, Ms. Chiesa will be paid a lump sum amount equal to 2.99 times
her five year average annual taxable cash compensation. If such payments had
been made under the agreement as of December 31, 1997, such payments would have
equaled approximately $246,435. The aggregate payments that would have been made
to Ms. Chiesa would be an expense to us, thereby reducing our net income and our
capital by that amount. The agreement may be renewed annually by our board of
directors upon a determination of satisfactory performance within the board's
sole discretion. If Ms. Chiesa shall become disabled during the term of the
agreement, she shall continue to receive payment of 100% of the base salary for
a period of 12 months and 65% of such base salary for the remaining term of such
agreement. Such payments shall be reduced by any other benefit payments made
under other disability programs in effect for our employees.
Retirement Plan. Our Simplified Employee Pension Plan ("SEP") provides
for an annual contribution at the discretion of our directors of up to 15% of
the eligible employee's compensation. In 1997, our SEP expenses were $15,000.
Supplemental Executive Retirement Plan. We have implemented a
supplemental executive retirement plan ("SERP") for the benefit of our
President, Shirley Chiesa. The SERP provides that Ms. Chiesa may receive
additional retirement income in addition to the value of her SERP account,
provided she remains employed until not less than age 65 and has completed not
less than 25 years of service. Benefits payable under the SERP will equal
approximately $3,300 per month for a period of 120 months. Upon a termination of
employment following a change in control, Ms. Chiesa will be presumed to have
attained not less than the minimum retirement age under the SERP. Payments under
the SERP will be accrued for financial reporting purposes during the period of
employment of Ms. Chiesa. The SERP shall be unfunded. All benefits payable under
the SERP will be paid from our current assets. There are no tax
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consequences to either Ms. Chiesa or us related to the SERP prior to payment of
benefits. Upon receipt of payment of benefits, Ms. Chiesa will recognize taxable
ordinary income in the amount of such payments received and we will be entitled
to recognize a tax-deductible compensation expense at that time.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the ESOP will be submitted to
the IRS. Although no assurances can be given, we expect that the ESOP will
receive a favorable letter of determination from the IRS.
The ESOP is to be funded by contributions made by us in cash or common
stock. Benefits may be paid either in shares of the common stock or in cash. In
accordance with the Plan, the ESOP may borrow funds with which to acquire up to
8% of the common stock to be issued in the conversion. The ESOP intends to
borrow funds from the Company. The loan is expected to be for a term of ten
years at an annual interest rate equal to the prime rate as published in The
Wall Street Journal. Presently it is anticipated that the ESOP will purchase up
to 8% of the common stock to be issued in the offering (i.e., 14,400 shares,
based on the midpoint of the EVR). The loan will be secured by the shares
purchased and earnings of ESOP assets. Shares purchased with such loan proceeds
will be held in a suspense account for allocation among participants as the loan
is repaid. We anticipate contributing approximately $14,400 annually (based on
a $144,000 purchase) to the ESOP to meet principal obligations under the ESOP
loan, as proposed. It is anticipated that all such contributions will be
tax-deductible. This loan is expected to be fully repaid in approximately 10
years.
Shares sold above the maximum of the EVR (i.e., more than 207,000
shares) may be sold to the ESOP before satisfying remaining unfilled orders of
Eligible Account Holders to fill the ESOP's subscription or the ESOP may
purchase some or all of the shares covered by its subscription after the
conversion in the open market.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan allocations
following five years of service. Employment prior to the adoption of the ESOP
shall be credited for the purposes of vesting. Vesting will be accelerated upon
retirement, death, disability, change in control of the Company, or termination
of the ESOP. Forfeitures will be reallocated to participants on the same basis
as other contributions in the plan year. Benefits may be payable in the form of
a lump sum upon retirement, death, disability or separation from service. Our
contributions to the ESOP are discretionary and may cause a reduction in other
forms of compensation. Therefore, benefits payable under the ESOP cannot be
estimated.
The board of directors has appointed non-employee the directors to the
ESOP Committee to administer the ESOP and to serve as the initial ESOP Trustees.
The board of directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the board of directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
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Proposed Future Stock Benefit Plans
Stock Option Plan. Our board of directors intends to adopt a stock
option plan (the Option Plan) following the conversion, subject to approval by
CFC's stockholders, at a stockholders meeting to be held no sooner than six
months after the conversion. The Option Plan would be in compliance with the OTS
regulations in effect. See "-- Restrictions on Stock Benefit Plans." If the
Option Plan is implemented within one year after the conversion, in accordance
with OTS regulations, a number of shares equal to 10% of the aggregate shares of
common stock to be issued in the offering (i.e., 18,000 shares based upon the
sale of 180,000 shares at the midpoint of the EVR) would be reserved for
issuance by CFC upon exercise of stock options to be granted to our officers,
directors and employees from time to time under the Option Plan. The purpose of
the Option Plan would be to provide additional performance and retention
incentives to certain officers, directors and employees by facilitating their
purchase of a stock interest in CFC. Under the OTS regulations, the Option Plan,
would provide that options awarded would vest over a five year period (i.e., 20%
per year), beginning one year after the date of grant of the option. Options
would be granted based upon several factors, including seniority, job duties and
responsibilities, job performance, our financial performance and a comparison of
awards given by other savings institutions converting from mutual to stock form.
CFC would receive no monetary consideration for the granting of stock
options under the Option Plan. It would receive the option price for each share
issued to optionees upon the exercise of such options. Shares issued as a result
of the exercise of options will be either authorized but unissued shares,
treasury shares, or shares purchased in the open market by CFC. The exercise of
options and payment for the shares received would contribute to the equity of
CFC.
If the Option Plan is implemented more than one year after the
conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Restricted Stock Plan. Our board of directors intends to adopt the RSP
following the conversion, the objective of which is to enable us to retain
personnel and directors of experience and ability in key positions of
responsibility. CFC expects to hold a stockholders' meeting no sooner than six
months after the conversion in order for stockholders to vote to approve the
RSP. If the RSP is implemented within one year after the conversion, in
accordance with applicable OTS regulations, the shares granted under the RSP
will be in the form of restricted stock vesting over a five year period (i.e.,
20% per year) beginning one year after the date of grant of the award.
Compensation expense in the amount of the fair market value of the common stock
granted will be recognized pro rata over the years during which the shares are
payable. Until they have vested, such shares may not be sold, pledged or
otherwise disposed of and are required to be held in escrow. Any shares not so
allocated would be voted by the RSP Trustees. The RSP will be implemented in
accordance with applicable OTS regulations. See "-- Restrictions on Stock
Benefit Plans." Awards would be granted based upon a number of factors,
including seniority, job duties and responsibilities, job performance, our
performance and a comparison of awards given by other institutions converting
from mutual to stock form. The RSP would be managed by a committee of
non-employee directors (the "RSP Trustees"). The RSP Trustees would have the
responsibility to invest all funds contributed by us to the trust created for
the RSP (the "RSP Trust").
We expect to contribute sufficient funds to the RSP so that the RSP
Trust can purchase, in the aggregate, up to 4% of the amount of common stock
that is sold in the conversion. The shares purchased by the RSP would be
authorized but unissued shares, treasury shares or would be purchased in the
open market. In the event the market price of the common stock is greater than
$10.00 per share, our contribution of funds will be increased. Likewise, in the
event the market price is lower than $10.00 per share, our contribution will be
decreased. In recognition of their prior and expected services to us and CFC, as
the
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case may be, the officers, other employees and directors responsible for
implementation of the policies adopted by the board of directors and our
profitable operation will, without cost to them, be awarded stock under the RSP.
Based upon the sale of 180,000 shares of common stock in the offering at the
midpoint of the EVR, the RSP Trust is expected to purchase up to 7,200 shares of
common stock. If the RSP is implemented more than one year after the conversion,
the RSP will comply with such OTS regulations and policies that are applicable
at such time.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25% of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of CFC's stockholders held no earlier than six months
following the conversion, (8) for stock option plans, the exercise price must be
at least equal to the market price of the stock at the time of grant, (9) for
restricted stock plans, no stock issued in a conversion may be used to fund the
plan, (10) neither stock option awards nor restricted stock awards may vest
earlier than 20% as of one year after the date of stockholder approval and 20%
per year thereafter, and vesting may be accelerated only in the case of
disability or death (or if not inconsistent with applicable OTS regulations in
effect at such time, in the event of a change in control), (11) the proxy
material must clearly state that the OTS in no way endorses or approves of the
plans, and (12) prior to implementing the plans, all plans must be submitted to
the Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the same
plans that were filed with and disclosed in the proxy materials relating to the
meeting at which stockholder approval was received.
RESTRICTIONS ON ACQUISITIONS OF CARNEGIE FINANCIAL CORPORATION
While the board of directors is not aware of any effort that might be
made to obtain control of CFC after conversion, the board of directors believes
that it is appropriate to include certain provisions as part of CFC's articles
of incorporation to protect the interests of CFC and its stockholders from
hostile takeovers ("anti-takeover"provisions) which the board of directors might
conclude are not in the best interests of us or our stockholders. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the board of directors but which individual stockholders may
deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over the current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current board of directors or management of CFC more difficult.
The following discussion is a general summary of the material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions of CFC, which may be deemed to have such an anti-takeover
effect. The description of these provisions is necessarily general and reference
should be made in each case to the articles of incorporation and bylaws of CFC
which are filed as exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Find Additional Information" as to how
to obtain a copy of these documents.
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Provisions of CFC Articles of Incorporation and Bylaws
Limitations on Voting Rights. The articles of incorporation of CFC
provide that for a period of five years from completion of the conversion, in no
event shall any record owner of any outstanding equity security which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of any class of equity security outstanding (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 who
beneficially owned shares in excess of the Limit shall be a number equal to the
total number of votes which a single record owner of all common stock owned by
such person would be entitled to cast, multiplied by a fraction, the numerator
of which is the number 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. In
addition, for a period of five years from the completion of our conversion, no
person may directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of CFC.
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the conversion more than 10% of the
common stock is beneficially owned by a person) and (2) limit the vote on common
stock held by the beneficial owner to 10% or possibly reduce the amount that may
be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a beneficial nor record owner. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The articles of incorporation of CFC further
provide that this provision limiting voting rights may only be amended upon the
vote of a majority of the outstanding shares of voting stock.
Election of Directors. Certain provisions of CFC's articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. CFC's articles of incorporation provide that the board of directors
of CFC will be divided into four staggered classes, with directors in each class
elected for four-year terms. Thus, it would take three annual elections to
replace a majority of CFC's board. CFC's articles of incorporation provide that
the size of the board of directors may be increased or decreased only if
two-thirds of the directors then in office concur in such action. The articles
of incorporation also provide that any vacancy occurring in the board of
directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. Finally, the articles of incorporation and
the bylaws impose certain notice and information requirements in connection with
the nomination by stockholders of candidates for election to the board of
directors or the proposal by stockholders of business to be acted upon at an
annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least a majority of the shares
of CFC entitled to vote generally in an election of directors cast at a meeting
of stockholders called for that purpose.
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Restrictions on Call of Special Meetings. The articles of incorporation
of CFC provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the board of directors.
Absence of Cumulative Voting. CFC's articles of incorporation provide
that stockholders may not cumulate their votes in the election of directors.
Authorized Shares. The articles of incorporation authorizes the
issuance of 4,000,000 shares of common stock and 2,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide CFC's board
of directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of CFC. The board of directors also has sole
authority to determine the terms of any one or more series of Preferred Stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of Preferred Stock, the
board has the power, to the extent consistent with its fiduciary duty, to issue
a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Procedures for Certain Business Combinations. The articles of
incorporation require the affirmative vote of at least 80% of the outstanding
shares of CFC entitled to vote in the election of directors in order for CFC to
engage in or enter into certain "Business Combinations," as defined therein,
with any Principal Shareholder (as defined below) or any affiliates of the
Principal Shareholder, unless the proposed transaction has been approved in
advance by CFC's board of directors, excluding those who were not directors
prior to the time the Principal Shareholder became the Principal Shareholder.
The term "Principal Shareholder" is defined to include any person and the
affiliates and associates of the person (other than CFC or its subsidiary) who
beneficially owns, directly or indirectly, 20% or more of the outstanding shares
of voting stock of CFC. Any amendment to this provision requires the affirmative
vote of at least 80% of the shares of CFC entitled to vote generally in an
election of directors.
Amendment to Articles of Incorporation and Bylaws. Amendments to CFC's
articles of incorporation must be approved by CFC's board of directors and also
by a majority of the outstanding shares of CFC's voting stock, provided,
however, that approval by at least 80% of the outstanding voting stock is
generally required for certain provisions (i.e., provisions relating to
restrictions on the acquisition and voting of greater than 10% of the common
stock; number, classification, election and removal of directors; amendment of
bylaws; call of special stockholder meetings; director liability; certain
business combinations; power of indemnification; and amendments to provisions
relating to the foregoing in the articles of incorporation).
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of the holders of at least 80% of the outstanding shares
of CFC entitled to vote in the election of directors cast at a meeting called
for that purpose.
Benefit Plans. In addition to the provisions of CFC's articles of
incorporation and bylaws described above, certain benefit plans of ours adopted
in connection with the conversion contain provisions which also may discourage
hostile takeover attempts which the boards of directors might conclude are not
in the best interests for us or our stockholders. For a description of the
benefit plans and the provisions of such plans relating to changes in control,
see "Management of Carnegie Savings Bank -- Proposed Future Stock Benefit
Plans."
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Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, OTS regulations prohibit any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition would be, the beneficial owner of more
than 10% of such stock. In the event that any person, directly or indirectly,
violates this regulation, the securities beneficially owned by such person in
excess of 10% shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to a vote of stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
CFC is authorized to issue 4,000,000 shares of the common stock, $0.10
par value per share, and 2,000,000 shares of serial preferred stock, no par
value per share. CFC currently expects to issue up to 207,000 shares of common
stock in the conversion. CFC does not intend to issue any shares of serial
preferred stock in the conversion, nor are there any present plans to issue such
preferred stock following the conversion. The aggregate par value of the issued
shares will constitute the capital account of CFC. The balance of the purchase
price will be recorded for accounting purposes as additional paid-in capital.
See "Capitalization." The capital stock of CFC will represent nonwithdrawable
capital and will not be insured by us, the FDIC, or any other government agency.
Common Stock
Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects with every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in CFC, except to the extent that shares of serial preferred stock issued
in the future may have voting rights, if any. Each holder of the common stock
will be entitled to only one vote for each share held of record on all matters
submitted to a vote of holders of the common stock and will not be permitted to
cumulate their votes in the election of CFC's directors.
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Liquidation. In the unlikely event of the complete liquidation or
dissolution of CFC, the holders of the common stock will be entitled to receive
all assets of CFC available for distribution in cash or in kind, after payment
or provision for payment of (i) all debts and liabilities of CFC; (ii) any
accrued dividend claims; and (iii) liquidation preferences of any serial
preferred stock which may be issued in the future.
Restrictions on Acquisition of the Common Stock. See "Certain
Restrictions on Acquisition of CFC" for a discussion of the limitations on
acquisition of shares of the common stock.
Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Therefore, the board of directors may sell shares of
capital stock of CFC without first offering such shares to existing stockholders
of CFC. The common stock is not subject to call for redemption, and the
outstanding shares of common stock when issued and upon receipt by CFC of the
full purchase price therefor will be fully paid and non-assessable.
Issuance of Additional Shares. Except in the subscription offering, or,
if any, the community offering or public or syndicated public offering and
possibly pursuant to the RSP or Stock Option Plan, the CFC has no present plans,
proposals, arrangements or understandings to issue additional authorized shares
of the common stock. In the future, the authorized but unissued and unreserved
shares of the common stock will be available for general corporate purposes,
including, but not limited to, possible issuance: (i) as stock dividends; (ii)
in connection with mergers or acquisitions; (iii) under a cash dividend
reinvestment or stock purchase plan; (iv) in a public or private offering; or
(v) under employee benefit plans. See "Risk Factors -- Possible Dilutive Effect
of RSP and Stock Options" and "Pro Forma Data." Normally no stockholder approval
would be required for the issuance of these shares, except as described herein
or as otherwise required to approve a transaction in which additional authorized
shares of the common stock are to be issued.
For additional information, see "Dividends," "Regulation" and
"Taxation" with respect to restrictions on the payment of cash dividends; "The
Conversion -- Restrictions on Sales and Purchases of Shares by Directors and
Officers" relating to certain restrictions on the transferability of shares
purchased by directors and officers; and "Restrictions on Acquisitions of
Carnegie Financial Corporation" for information regarding restrictions on
acquiring common stock of CFC.
Serial Preferred Stock
None of the 2,000,000 authorized shares of serial preferred stock of
CFC will be issued in the conversion. After the conversion is completed, the
board of directors of CFC will be authorized to issue serial preferred stock and
to fix and state voting powers, designations, preferences or other special
rights of such shares and the qualifications, limitations and restrictions
thereof, subject to regulatory approval but without stockholder approval. If and
when issued, the serial preferred stock is likely to rank prior to the common
stock as to dividend rights, liquidation preferences, or both, and may have full
or limited voting rights. The board of directors, without stockholder approval,
can issue serial preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of the common stock. The board
of directors has no present intention to issue any of the serial preferred
stock.
LEGAL AND TAX MATTERS
The legality of the common stock has been passed upon for us by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Capital Resources, Inc. may be passed upon by Steele, Silcox & Browning, P.C.,
Washington, D.C. The federal and state income tax consequences of the
63
<PAGE>
conversion have been passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C.,
Washington, D.C.
EXPERTS
The financial statements of Carnegie Savings Bank as of and for the
years ended December 31, 1997 and 1996 appearing in this document have been
audited by Goff Ellenbogen Backa & Alfera, LLC, independent certified public
accountants, as set forth in their report which appears elsewhere in this
document, and is included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
FinPro, Inc. has consented to the publication herein of a summary of
its letters to Carnegie Savings Bank setting forth its opinion as to the
estimated pro forma market value of us in the converted form and its opinion
setting forth the value of subscription rights and to the use of its name and
statements with respect to it appearing in this document.
REGISTRATION REQUIREMENTS
The common stock of CFC will be registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") prior to
completion of the conversion. CFC will be subject to the information, proxy
solicitation, insider trading restrictions, tender offer rules, periodic
reporting and other requirements of the SEC under the Exchange Act. CFC may not
deregister the common stock under the Exchange Act for a period of at least
three years following the conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
CFC and Carnegie Savings Bank are not currently subject to the
informational requirements of the Exchange Act.
CFC has filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The SEC also maintains an internet address ("Web site") that
contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. The address for this Web site is "http://www.sec.gov." The statements
contained in this document as to the contents of any contract or other document
filed as an exhibit to the Form SB-2 are, of necessity, brief descriptions and
are not necessarily complete; each such statement is qualified by reference to
such contract or document.
Carnegie Savings Bank has filed an Application for conversion with the
OTS with respect to the conversion. Pursuant to the rules and regulations of the
OTS, this document omits certain information contained in that Application. The
Application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Northeast Regional Office of the OTS, 10
Exchange Place, Jersey City, New Jersey 07302, without charge.
A copy of the Articles of Incorporation and the Bylaws of CFC are
available without charge from Carnegie Savings Bank.
64
<PAGE>
Carnegie Savings Bank
Index to Financial Statements
Page
----
Independent Auditors' Report........................................... F-2
Statements of Condition................................................ F-3
Statements of Operations............................................... 25
Statements of Changes in Retained Earnings............................. F-4
Statements of Cash Flows............................................... F-5
Notes to Financial Statements.......................................... F-6
All schedules are omitted because the required information is either not
applicable or is included in the financial statements or related notes.
Separate financial statements for CFC have not been included since it will not
engage in material transactions until after the conversion. CFC, which has been
inactive to date, has no significant assets, liabilities, revenues, expenses or
contingent liabilities.
F-1
<PAGE>
Goff
Ellenbogen
Backa & Alfera, LLC
- ---------------------------
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees
Carnegie Savings Bank
Carnegie, Pennsylvania
We have audited the accompanying statements of condition of Carnegie Savings
Bank as of December 31, 1997 and 1996, and the related statements of operations,
changes in retained earnings, and cash flows for the years then ended. These
financial statements are the representation of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Carnegie Savings Bank as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/Goff Ellenbogen Backa & Alfera, LLC.
- ---------------------------------------
GOFF ELLENBOGEN BACKA & ALFERA, LLC.
Pittsburgh, Pennsylvania
February 17, 1998
[LOGO]
-------------------------
South Hills Office:
3325 Saw Mill Run Blvd.
Pittsburgh, PA 15227-2736
412/885-5045
412/885-4870 Fax
Edgewood Office:
640 Allenby Avenue
Pittsburgh, PA 15218-1363
412/731-1500
412/731-9620 Fax
- ----------------------------
Member: American and Pennslyvania Institutes of Certified Public Accountants,
AICPA Private Companies and SEC Practice Sections.
An affiliate of INPACT International.
F-2
<PAGE>
Carnegie Savings Bank
Statements of Condition
December 31,
<TABLE>
<CAPTION>
Note 1997 1996
-----------------------------------------------
ASSETS
------
<S> <C> <C> <C>
Cash and cash equivalents 1 $ 850,891 $ 556,658
Certificates of deposits with other banks 1;6 100,000 100,000
Investment securities available for sale, net 1;2 1,112,694 687,312
Investment securities held to maturity, net (market
value of $1,425,656 and $1,453,244) 1;2 1,416,894 1,462,353
Mortgage-backed securities available for sale, net 1;2 906,869 -
Mortgage-backed securities held to maturity, net
(market value of $1,744,014 and $2,030,225) 1;2 1,721,250 2,013,551
Loans receivable (net of allowance for loan
losses of $114,832 and $39,144) 1;3 9,585,360 9,811,840
Accrued interest receivable 1 107,361 101,244
Property and equipment, net 1;4 184,878 188,910
Real estate owned 1 480,326 166,570
Deferred tax asset 1;7 92,700 -
Other assets 1 164,245 11,831
----------------- ------------------
Total assets $ 16,723,468 $ 15,100,269
================= ==================
LIABILITIES AND RETAINED EARNINGS
---------------------------------
Deposits 1;5 $ 15,177,917 $ 13,377,825
Line of credit 6 - 300,000
Advance payments by borrowers for taxes
and insurance 143,129 158,770
Deferred income taxes 1;7 33,698 13,400
Accrued income taxes payable 1;7 6,316 20,600
Other liabilities 8 192,363 34,000
----------------- ------------------
Total liabilities 15,553,423 13,904,595
Unrealized gains (losses) on securities
available-for-sale, net of tax 1;2 13,658 ( 14,514)
Retained earnings 1,156,387 1,210,188
----------------- ------------------
Total retained earnings 1,170,045 1,195,674
----------------- ------------------
Total liabilities and retained earnings $ 16,723,468 $ 15,100,269
================= ==================
</TABLE>
See Independent Auditor's Report and Notes to Financial Statements.
F-3
<PAGE>
Carnegie Savings Bank
Statement of Changes in Retained Earnings
December 31,
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Available
Retained for Sale,
Earnings Net of Taxes Total
-------- ------------ -----
<S> <C> <C> <C>
Balance, December 31, 1995 $1,110,769 $ ( 1,805) $1,108,964
Net income 99,419 - 99,419
Change in net unrealized gains/(losses)
AFS investment securities - ( 12,709) ( 12,709)
---------- ------------ ----------
Balance, December 31, 1996 1,210,188 ( 14,514) 1,195,674
Net loss (53,801) - ( 53,801)
Change in net unrealized gains/(losses)
on AFS investment securities - 28,172 28,172
---------- ------------ ----------
Balance, December 31, 1997 $1,156,387 $ 13,658 $1,170,045
========== ============ ==========
</TABLE>
See Independent Auditor's Report and Notes to Financial Statements.
F-4
<PAGE>
Carnegie Savings Bank
Statements of Cash Flows
December 31,
<TABLE>
<CAPTION>
1997 1996
------------------ -- ------------------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ ( 53,801) $ 99,419
Adjustments to reconcile net income (loss) to
net cash provided (used) by operations:
Depreciation and amortization 21,057 20,870
Provision for loan losses 73,000 2,203
Deferred income taxes ( 72,402) ( 900)
Net amortization of premiums/discounts ( 10,811) 1,470
Gain on sale of real estate owned ( 13,693) -
(Gain) loss on sale of securities ( 1,677) ( 7,733)
Increase (decrease) in cash due to changes in assets and liabilities:
Accrued interest receivable ( 6,117) ( 13,402)
Other assets ( 152,414) 52,413
Income tax liabilities ( 14,284) 20,600
Other liabilities 158,363 ( 219)
------------------ ------------------
Net cash provided (used) by operations ( 72,779) 174,721
------------------ ------------------
Cash flows from investing securities: Investment securities available for sale:
Proceeds from sales and maturities 646,313 500,363
Purchases ( 1,071,695) ( 691,436)
Investment securities held to maturity:
Proceeds from maturities and repayments 551,750 20,000
Purchases ( 506,291) ( 298,639)
Mortgage-backed securities available for sale:
Purchases ( 1,053,921) -
Maturities and repayments 167,304 -
Mortgage-backed securities held to maturity:
Purchases - ( 1,247,113)
Maturities and repayments 291,936 213,570
Net (increase) decrease in loans receivable 344,516 ( 810,198)
Proceeds from sale of real estate owned 10,000 -
Investment in real estate owned ( 480,326) -
Purchase of equipment ( 17,025) ( 6,781)
------------------ ------------------
Net cash used by investing activities (1,117,439) ( 2,320,234)
------------------ ------------------
Cash flows from financing activities:
Advances from borrowers for taxes and insurance ( 15,641) ( 10,939)
Net increase in deposits 1,800,092 970,638
Net increase (decrease) in line of credit ( 300,000) 300,000
------------------ ------------------
Net cash provided by financing activities 1,484,451 1,259,699
------------------ ------------------
Net increase (decrease) in cash 294,233 ( 885,814)
Cash, beginning of year 656,658 1,542,472
------------------ ------------------
Cash and cash equivalents, end of year $ 950,891 $ 656,658
================== ==================
( See Note 11 for Supplemental Disclosures)
</TABLE>
See Independent Auditor's Report and Notes to Financial Statements.
F-5
<PAGE>
Carnegie Savings Bank
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
Nature of operations
Carnegie Savings Bank (the "Bank") provides a variety of financial services to
individual and business customers through its one location in Carnegie,
Pennsylvania, which is a southwestern suburb of the city of Pittsburgh. The
Bank's primary deposit products are interest-bearing checking accounts, passbook
savings accounts, and certificates of deposit. It's primary lending products are
single-family residential first mortgages and consumer type loans.
Effective April 3, 1995, the Bank was successful in converting from a privately
insured Pennsylvania-chartered savings association to a FDIC insured non-member
state mutual savings bank.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Bank to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in foreclosure or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and
foreclosed real estate, the Bank obtains independent appraisals for significant
properties.
A majority of the Bank's loan portfolio consists of single-family residential
mortgage loans in the southwestern Pennsylvania area. The regional economy
depends primarily on manufacturing and service related industries. The ultimate
collectibility of the Bank's loan portfolio and the recovery of the carrying
amount of foreclosed real estate are susceptible to changes in the local market
conditions.
While the Bank uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowance for loan losses may be
necessary based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses and foreclosed real estate. Such agencies
may require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.
F-6
<PAGE>
Cash equivalents
For the purpose of reporting cash flows, the Bank considers all cash and amounts
due from depository institutions, FHLB interest bearing deposits, and
certificates of deposits maturing in less than 90 days to be cash equivalents
for purposes of the statements of cash flows. As of December 31, 1997 and 1996,
the Bank had interest bearing deposits that totaled $842,138 and $540,882,
respectively.
Investment securities, net including Mortgage Backed Securities
Investment securities consist primarily of various debt securities and
mortgage-backed securities which represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal balances,
adjusted for unamortized premiums and unearned discounts.
In May 1993, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." As required by FAS 115, the Bank adopted the standard
for the year beginning January 1, 1994, without an effect on the reported
operations for 1994. Pursuant to the requirements of FAS 115, the Bank
classifies all of its investments in debt and equity securities into three
categories. Securities which the Bank has a positive intent and ability to hold
to maturity are classified as held to maturity ("HTM"). Securities that are
purchased and held principally for the purpose of selling them in the near
future are classified as trading securities. All other securities that are not
within the above classifications are classified as available for sale securities
("AFS"). Unrealized gains and losses for trading securities are included in
current earnings. Unrealized gains and losses for AFS are excluded from current
earnings and reported as a separate component of retained earnings, net of tax,
until realized. Investments classified as HTM are carried at cost and adjusted
for amortization of premiums and the accretion of discounts over the term of the
investment utilizing methods that approximate the interest method. Gains and
losses on the sales of securities are recognized upon realization. Costs of
securities is recognized using the specific identification method.
Loans receivable, net
Loans are stated at unpaid principal balances, less allowance for loan losses.
The amount of origination and loan fees is not material to the financial
statements and, accordingly, the Bank recognizes these fees as revenue when they
are received.
Loans are placed on nonaccrual status when a loan is specifically determined to
be impaired or when principal or interest payments are delinquent for 90 days or
more. Any unpaid interest previously accrued on nonaccrual loans is reversed
from current interest income. Prospectively, interest income generally is not
recognized on specific impaired loans unless the likelihood of further loss is
remote. Interest payments received on such loans are applied as a reduction of
the outstanding loan principal balance. Interest income on other nonaccrual
loans is recognized only to the extent of interest payments received. As of
December 31, 1997 and 1996, the Bank did not have any impaired loans.
The allowance for loan losses is maintained at a level which, in the Bank's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based upon the Bank's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to current operations, and reduced by charge-offs, net of recoveries.
F-7
<PAGE>
Accrued interest receivable
Accrued interest receivable consists of accrued interest on all loan types and
investment securities.
Property and equipment, net
Property and equipment are recorded at cost. Depreciation expense is generally
provided on the straight-line basis for book purposes over the estimated useful
lives of the related assets.
Real estate owned
Real estate property acquired through loan foreclosure, or deed in lieu thereof,
is recorded at the lower of the Bank's cost or the asset's fair value less costs
to sell (estimated net realizable value), which becomes the property's new
basis. Any write-downs based on the assets fair value at date of acquisition are
charged to the allowance for loan losses. After foreclosure, these assets are
carried at the lower of their new cost basis or fair value less cost to sell.
Costs incurred in maintaining real estate and subsequent write-downs to reflect
declines in the fair value of the property are included in net income (loss) on
real-estate owned on the statement of operations.
During the year ended December 31, 1997, the Bank sold a piece of property
previously reported as real estate owned resulting in a gain of approximately
$13,693. Additionally, during 1997 the Bank purchased a piece of property which
increased real estate owned by approximately $480,326.
Income taxes
The FASB issued FAS No. 109, "Accounting for Income Taxes," in February 1993.
The Bank adopted the provisions of FAS 109 in 1993 without effect on the
reported results of operations. Under FAS 109, an asset and liability approach
is required for financial accounting and reporting for income taxes.
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences caused by the recognition of certain income and
expense items on the accrual basis for financial reporting purposes and cash
basis for income tax purposes. The deferred taxes also are related to
differences between the tax and financial reporting basis for AFS securities,
loans receivable, net, accrued liabilities related to supplemental retirement
programs (see Note 8), and property and equipment, net.
Other assets
Other assets at December 31, consisted primarily of the following items:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
<S> <C> <C>
Prepaid expenses and deferred costs $ 15,022 $ 11,831
Income taxes receivable 8,559 -
In-transit escrow from purchase of REO 140,664 -
----------------------- ------------------------
Balance, end of year $ $
164,245 11,831
======================= ========================
</TABLE>
F-8
<PAGE>
Reclassification of Comparative Amounts
Certain comparative account balances for prior periods have been reclassified to
conform to the current period classifications. Such classifications did not
effect net income.
Note 2 - Investment securities, net including Mortgage Backed Securities:
- -------------------------------------------------------------------------
Investment securities held-to-maturity as of December 31, are as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Gross
Amortized Unrealized
Cost Fair Value Gain (loss)
------------------- ------------------- -------------------
<S> <C> <C> <C>
State and local government $ 613,903 $ 623,714 $ 9,811
Government sponsored agencies 300,000 299,002 ( 998)
Other debt securities 502,991 502,940 ( 51)
------------------- ------------------- -------------------
$ 1,416,894 $ 1,425,656 $ 8,762
=================== =================== ===================
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Gross
Amortized Unrealized
Cost Fair Value Gain (loss)
------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
State and local government $ 713,840 $ 712,327 $ ( 1,513)
Government sponsored agencies 549,708 543,842 ( 5,866)
Other debt securities 198,805 197,075 ( 1,730)
------------------- ------------------- -------------------
$ 1,462,353 $ 1,453,244 $ ( 9,019)
=================== =================== ===================
</TABLE>
Securities available-for-sale consist of the following as of December 31,:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Gross
Amortized Unrealized
Cost Fair Value Gain (loss)
------------------- ------------------- -------------------
<S> <C> <C> <C>
U.S. Securities $ 204,645 $ 204,328 $ ( 317)
Government sponsored agencies 808,704 809,366 662
Other debt securities 99,000 99,000 -
------------------- ------------------- -------------------
$ 1,112,349 $ 1,112,694 $ 345
=================== =================== ===================
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Gross
Amortized Unrealized
Cost Fair Value Gain (loss)
------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
U.S. Securities $ 405,179 $ 389,125 $ ( 16,054)
Government sponsored agencies 199,734 199,187 ( 547)
Other debt securities 99,000 99,000 -
------------------- ------------------- -------------------
$ 703,913 $ 687,312 $ ( 16,601)
=================== =================== ===================
</TABLE>
F-9
<PAGE>
The following is a summary of maturities of investment securities
held-to-maturity and available-for-sale as of December 31, 1997:
<TABLE>
<CAPTION>
HTM AFS
-------------------------------- -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
One year or less $ 548,081 $ 548,221 $ $ -
After one year through five years 170,011 169,798 - -
After five years through ten years 698,802 707,637 699,342 699,899
After ten years - - 413,007 412,795
--------------- ---------------- --------------- ---------------
$ 1,416,894 $ 1,425,656 $ 1,112,349 $ 1,112,694
=============== ================ =============== ===============
</TABLE>
Mortgage-backed securities consisted of the following at December 31, :
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Gross
Amortized Unrealized
Cost Fair Value Gain (loss)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Held-to-maturity:
- -----------------
GNMA $ 1,630,734 $ 1,656,280 $
25,546
FNMA 42,286 41,508 ( 778)
FHLMC 48,230 46,226 ( 2,004)
------------------- ------------------- -------------------
$ 1,721,250 $ 1,744,014 $ 22,764
=================== =================== ===================
Available-for-sale:
- -------------------
GNMA $ 210,083 $ 211,437 $ 1,354
FNMA 337,352 344,610 7,258
FHLMC 208,816 216,347 7,531
Other 130,269 134,475 4,206
------------------- ------------------- -------------------
$ 886,520 $ 906,869 $ 20,349
=================== =================== ===================
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Gross
Amortized Unrealized
Cost Fair Value Gain (loss)
------------------- ------------------- -------------------
Held-to-maturity
- ----------------
<S> <C> <C> <C>
GNMA $ 1,846,629 $ 1,862,717 $ 16,088
FNMA 78,420 78,959 539
FHLMC 88,502 88,549 47
------------------- ------------------- -------------------
$ 2,013,551 $ 2,030,225 $ 16,674
=================== =================== ===================
</TABLE>
The amortized cost and fair value of mortgage-backed securities as of December
31, 1997 and 1996, by contractual maturity, are 10 years or more, except for one
at December 31, 1997 which matures on August 20, 2005. The amortized cost and
fair value of this security at December 31, 1997 is $191,762 and $192,734,
respectively. However, expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties.
F-10
<PAGE>
Pursuant to FAS 115, the unrealized gains/(losses) on AFS securities are
required to be presented as a separate component of retained earnings, net of
tax. As of December 31, 1997 and 1996, the net unrealized gains/(losses) on AFS
securities is determined as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
<S> <C> <C>
Unrealized gains/(losses) $ ( 20,694 $ ( 16,601)
Deferred income taxes ( 7,036) 2,087
----------------------- -----------------------
$ 13,658 $ ( 14,514)
======================= =======================
</TABLE>
Note 3 - Loans Receivable, Net:
- -------------------------------
Loans receivable consisted of the following at December 31, :
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
<S> <C> <C>
Construction $ 252,322 $ 70,000
Residential 8,235,374 8,359,364
Commercial 343,195 418,929
Share loans 119,764 156,434
Automobile 382,974 380,508
Unsecured 367,563 465,749
----------------------- -----------------------
Total loans 9,700,192 9,850,984
Less: Allowance for loan losses ( 114,832) ( 39,144)
----------------------- -----------------------
$ 9,585,360 $ 9,811,840
======================= =======================
</TABLE>
An analysis of the allowance for loan losses is as follows as of December 31, :
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
<S> <C> <C>
Balance, beginning of year $ 39,144 $ 38,133
Provisions for loan losses 73,000 2,203
Loans charged off, net of recoveries 2,688 (1,192)
----------------------- -----------------------
Balance, end of year $ 114,832 $ 39,144
======================= =======================
</TABLE>
In the ordinary course of business, the Bank has and expects to continue to have
transactions, including borrowings, with its officers and directors. In the
opinion of the Bank's management, such transactions were and will continue to be
on substantially the same terms, including interest rate and collateral, as
those prevailing at the time for comparable transactions with other persons and
do not involve more than normal risk of collectibility or present any other
unfavorable features to the Bank. The approximate aggregate dollar amount of
these loans at December 31, 1997 and 1996 was $404,700 and $767,000,
respectively.
Note 4 - Property and Equipment, Net:
- -------------------------------------
Property and equipment consisted of the following at December 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------- -----------------------
<S> <C> <C>
Land and building $ 262,284 $ 262,284
Furniture and equipment 88,477 71,453
------------------------- -----------------------
350,761 333,737
Less: accumulated depreciation ( 165,883) ( 144,827)
------------------------- -----------------------
Balance, end of year $ 184,878 $ 188,910
========================= =======================
</TABLE>
F-11
<PAGE>
Note 5 - Deposits:
- ------------------
Deposits with the Bank consisted of the following at December 31, :
<TABLE>
<CAPTION>
1997 1996
-------------------------- -----------------------
<S> <C> <C>
Certificates of deposits $ 10,224,984 $ 9,067,447
Money market demand accounts 3,374,959 3,168,155
NOW accounts 1,031,088 927,073
Non-interest bearing accounts 546,886 215,150
-------------------------- -----------------------
$ 15,177,917 $ 13,377,825
========================== =======================
</TABLE>
The aggregate amount of deposit accounts exceeding $100,000 was approximately
$1,441,000 and $937,000 at December 31, 1997 and 1996, respectively.
Note 6 - Line of Credit:
At December 31, 1997 and 1996, the Bank had an available line of credit in the
amount of $500,000. The outstanding balance on the line of credit at December
31, 1997 and 1996 was $0 and $300,000, respectively. The line of credit is
payable upon demand and bears interest at a rate of prime plus 1.25%. In
addition, pursuant to the terms of the line of credit agreement, in order for
the Bank to borrow any funds it is required to maintain a certificate of deposit
at the lending institution; as of December 31, 1997 and 1996, this certificate
of deposit was $100,000.
Note 7 - Income Taxes:
- ----------------------
The income tax provision at December 31, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------- -----------------------
Current provision:
<S> <C> <C>
Federal $ 27,100 $ 21,700
State - 12,800
--------------------------- -----------------------
Total current expense 27,100 34,500
Deferred tax expense (benefit):
Federal ( 68,625) 900
Deferred state credit, net ( 12,900) -
--------------------------- -----------------------
Total income tax expense (benefit) $ ( 54,425) $ 35,400
=========================== =======================
</TABLE>
The provision for income taxes differs from that computed by applying statutory
rates to income before income tax expense, as indicated in the following
analysis for the years ended December 31,:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Expected federal tax at statutory rates $ ( 36,797) (34.0%) $ 33,802 34.0%
State tax provision, net ( 8,514) ( 7.9%) 2,773 2.8%
Effect of tax exempt income ( 10,674) ( 9.9%) (11,341) (11.4%)
Effect of dividend exclusion - - (3,189) ( 3.2%)
Other and surtax benefit 1,560 1.5% 13,355 13.4%
-------------------- ----------- ------------------ -----------
Federal tax provision $ ( 54,425) (50.3)% $ 35,400 35.6%
==================== =========== ================== ===========
</TABLE>
F-12
<PAGE>
Note 8 - Retirement Plan:
- -------------------------
Simplified Employee Pension Plan (SEP)
The Bank has adopted a SEP plan which provides for an annual contribution at the
discretion of the Board of Directors up to 15% of the eligible employee's
compensation. Pension expense charged to operations for the years ended December
31, 1997 and 1996, was $14,799 and $19,256, respectively.
Supplemental Executive Retirement Plan
On December 15, 1997, the Board of Directors adopted a non-qualified
Supplemental Executive Retirement Plan (the "Plan") with an officer of the Bank
to provide post-retirement benefits for a period of ten (10) years, assuming not
less than twenty-five (25) years of service following retirement after age 65.
Pursuant to the Plan, benefits also become payable upon disability, death, or
change of control of the Bank (as defined in the Plan document). As of December
31, 1997, approximately $35,580 has been accrued and recognized as an expense.
Directors Consultation and Retirement Plan
On December 15, 1997, the Board of Directors adopted a non-qualified Directors
Consultation and Retirement Plan ( the "Directors Plan") to provide
post-retirement benefits over a period of ten-years (10) to members of the Board
of Directors who have completed not less than ten-years (10) of service or after
attainment of not less than age 60. Pursuant to the Directors Plan, benefits
also become payable upon disability, death, or change of control of the Bank (as
defined in the Plan document). As of December 31, 1997, approximately $122,920
has been accrued and recognized as an expense.
Note 9 - Regulatory Capital Requirements:
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, The Federal Insurance Deposit Corporation (FDIC).
Failure to meet the minimum regulatory capital requirements can initiate certain
mandatory, and possible additional discretionary actions by regulators, that if
undertaken, could have a direct material affect on the Bank and the financial
statements. Under the regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines involving quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classifications under the prompt
corrective action guidelines are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of: total risk-based
capital and Tier I capital to risk-weighted assets ( as defined in the
regulations), and Tier I capital to adjusted total assets ( as defined).
Management believes, as of December 31, 1997 and 1996, the Bank meets all the
capital adequacy requirements to which it is subject.
F-13
<PAGE>
The following tables set forth certain information concerning the Bank's
regulatory capital as of December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------
Tier I Core Capital Tier I - Risk-Based Tier II -
Capital Risk-Based Capital
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Equity Capital (1) $ 1,170 $ 1,170 $ 1,170
Unrealized (gains) losses on AFS
securities ( 14) ( 14) ( 14)
Plus general valuation allowance (2) - - 102
--------------------- --------------------- --------------------
Total regulatory capital 1,156 1,156 1,258
Minimum required capital 658 326 651
--------------------- --------------------- --------------------
Excess regulatory capital $ 498 $ 830 $ 607
===================== ===================== ====================
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $ 822 $ 489 $ 814
===================== ===================== ====================
Regulatory capital as a % (3) 7.03% 14.20% 15.45%
Minimum required capital % 4.00% 4.00% 8.00%
--------------------- --------------------- --------------------
Excess regulatory capital % 3.03% 10.20% 7.45%
===================== ===================== ====================
Minimum required capital % to be well
capitalized under the Prompt
Corrective Action Provisions 5.00% 6.00% 10.00%
===================== ===================== ====================
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
Tier I Core Capital Tier I - Risk-Based Tier II -
Capital Risk-Based Capital
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Equity Capital (1) $ 1,196 $ 1,196 $ 1,196
Unrealized (gains) losses on AFS
securities 14 14 14
Plus general valuation allowance (2) - - 37
--------------------- --------------------- --------------------
Total regulatory capital 1,210 1,210 1,247
Minimum required capital 589 309 619
--------------------- --------------------- --------------------
Excess regulatory capital $ 621 $ 901 $ 628
===================== ===================== ====================
Minimum required capital to be well
capitalized under Prompt Corrective
Action Provisions $ 736 $ 464 $ 774
===================== ===================== ====================
Regulatory capital as a % (3) 8.22% 15.64% 16.12%
Minimum required capital % 4.00% 4.00% 8.00%
--------------------- --------------------- --------------------
Excess regulatory capital % 4.22% 11.64% 8.12%
===================== ===================== ====================
Minimum required capital % to be well
capitalized under the Prompt
Corrective Action Provisions 5.00% 6.00% 10.00%
===================== ===================== ====================
</TABLE>
(See footnotes to table of regulatory capital requirements below.)
F-14
<PAGE>
Footnotes to regulatory capital tables:
Note #: Footnote Description:
- ----------- --------------------------------------------------------------------
1 Represents equity capital of the Bank as reported to the FDIC and
the Department of Banking on Form 033 for the quarters ended
December 31, 1997 and 1996
2 Limited to 1.25% of risk adjusted assets.
3 Tier I capital is calculated as a percentage of adjusted total
average assets of $16,445 and $14,716 as of December 31, 1997 and
1996, respectively. Tier I and Tier II risk-based capital are
calculated as a percentage of adjusted risk weighted assets of
$8,143 and $7,736 as of December 31, 1997 and 1996, respectively.
Note 10 - Reconciliation of Net Income and Retained Earnings from Financial
- --------------------------------------------------------------------------------
Statements to Annual Regulatory Reports:
- ----------------------------------------
The following is a reconciliation of net income and retained earnings as
reported in the audited financial statements to the net income and retained
earnings as reported by the Bank in its annual call reports as of December 31, :
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
Net Loss Retained Earnings
----------------------- ------------------------
<S> <C> <C>
Per audited financial statements: $ ( 53,801) $ 1,156,387
Audit adjustments:
Income taxes ( 53,068) ( 53,068)
Accrued pension expense 118,500 118,500
Other accrued expenses 9,000 9,000
Computer conversion costs 6,456 6,456
Other Audit adjustments, net 2,813 2,813
----------------------- ------------------------
Net adjustments 83,701 83,701
----------------------- ------------------------
Change in net unrealized gains/losses on AFS
securities - 13,000
----------------------- ------------------------
Per call report $ 29,900 $ 1,253,088
======================= ========================
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------
Net Income Retained Earnings
----------------------- ------------------------
<S> <C> <C>
Per audited financial statements: $ 99,419 $1,210,188
Audit adjustments:
Income taxes 6,623 6,623
Accrued interest payable on deposits 7,847 7,847
Other Audit adjustments, net 2,436 2,436
-----------------------
------------------------
Net adjustments 16,906 16,906
----------------------- ------------------------
Change in unrealized holding gains
and losses on AFS securities - (12,000)
----------------------- ------------------------
Per call report $116,325 $1,215,094
======================= ========================
</TABLE>
15
<PAGE>
Note 11 - Supplemental Statement of Cash Flows Disclosures:
- -----------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
<S> <C> <C>
Loan transferred to performing loan from real
estate owned $ 166,570 $ -
======================== ========================
Cash paid during year for interest $ 660,954 $ 543,100
======================== ========================
Cash paid during year for income taxes $ 28,932 $ 13,900
======================== ========================
</TABLE>
Note 12 - Commitments and Contingencies:
- ----------------------------------------
Commitments
In the normal course of business, the Bank makes various commitments which are
not reflected in the accompanying financial statements. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the statement of condition. The Bank's exposure to
credit loss in the event of nonperformance by the other parties to the financial
instruments is represented by the contractual amounts disclosed. The Bank
minimizes its exposure to credit loss under these commitments by subjecting them
to credit approval and review procedures, and collateral requirements, as deemed
necessary.
The off-balance sheet commitments as of December 31, 1997 and 1996, consisted
approximately of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------- -----------------------
<S> <C> <C>
Commitments to extend credit:
One to four family $ 516,000 $ -
Lines of credit 297,000 333,000
--------------------------- -----------------------
$ 813,000 $ 333,000
=========================== =======================
</TABLE>
The Bank has no commitment to loan additional funds to borrowers of impaired or
nonaccrual loans. The majority of the Bank's commitments to fund the equity
lines of credit are at variable market rates of interest; the Bank's commitment
to fund future loans for one to four family mortgage loans are generally fixed
rates ranging from 7.25% to 8.25%
Contingencies
In the normal course of business, the Bank is involved in various legal
proceedings primarily involving the collection of outstanding loans. None of
these proceedings are expected to have a material effect on the financial
position of the Bank.
The Bank is aware of the issues associated with the programming code in existing
computer systems as the millennium ( Year 2000 ) approaches. The "Year 2000"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
F-16
<PAGE>
The Bank utilizes a service bureau to process the majority of its accounting
transactions. The Bank is utilizing the expertise of the service bureau to
identify, correct or reprogram, and test the systems for the year 2000
compliance. As of December 31, 1997, the Bank's service bureau has reported that
it is 82% complete with the project to bring its computer system into compliance
with the year 2000. It is expected that the project will be fully completed by
June 30, 1998, and for testing to begin in the third quarter of 1998. However,
the Bank will be responsible for verifying that all of its vendors software
upgrades are year 2000 compliant and are fully tested, including any interface
to its service bureau. As a result, the year 2000 compliance creates risk for
the Bank from unforeseen problems in its own computer systems and from third
parties with whom the Bank deals on financial transactions worldwide. The Bank
has not yet assessed the year 2000 compliance expense and related potential
effect on the Bank's earnings.
Note 13 - Plan of Conversion:
- -----------------------------
On December 15, 1997, the Board of Trustees of the Bank, subject to regulatory
approval, ratified a Plan of Conversion ( the "Plan" ) to convert from a state
mutual savings bank to a federally insured stock savings bank and the concurrent
formation of a holding company for the Bank. The Plan provides that the holding
company will offer nontransferable subscription rights to purchase common stock
of the holding company. The rights will be offered first to eligible account
holders, the Bank's tax-qualified employee stock benefits plans, supplemental
eligible account holders, and directors, officers, and employees. Any shares
remaining may then be offered to the general public.
Costs associated with the conversion will be deferred and deducted from the
proceeds of the stock offering. If, for any reason, the offering is not
successful, the deferred costs will be charged to operations. As of December 31,
1997, there was $11,200 of costs associated with the conversion that have been
deferred and presented as other assets.
Note 14 - Confirmation Statistics:
- ----------------------------------
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
Number $ Amount
----------------------- ------------------------
<S> <C> <C>
Loan confirmations:
Total gross loans 332 $ 9,700,192
======================= ========================
Positive 44 $ 5,652,557
Negative 41 $ 849,740
----------------------- ------------------------
Total confirmations 85 $ 6,502,296
======================= ========================
Percentage coverage 26% 67%
======================= ========================
Savings confirmations:
Total deposits 2,297 $ 15,177,917
======================= ========================
Positive 27 $ 2,787,870
Negative 64 $ 475,595
----------------------- ------------------------
91 $ 3,263,465
======================= ========================
Percentage coverage 4% 22%
======================= ========================
</TABLE>
F-17
<PAGE>
All but twenty four (24) of the positive confirmations for both loans and
deposits were returned without exception. Alternative procedures were performed
on the 24 positive confirmations not returned which did not result in any
exceptions. No confirmation was returned with an exception.
F-18
<PAGE>
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this document in connection with
the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by Carnegie
Savings Bank, Carnegie Financial Corporation or Capital Resources, Inc. This
document does not constitute an offer to sell, or the solicitation of an offer
to buy, any of the securities offered hereby to any person in any jurisdiction
in which such offer or solicitation would be unlawful. Neither the delivery of
this document by Carnegie Savings Bank, Carnegie Financial Corporation or
Capital Resources, Inc. nor any sale made hereunder shall in any circumstances
create an implication that there has been no change in the affairs of Carnegie
Savings Bank or Carnegie Financial Corporation since any of the dates as of
which information is furnished herein or since the date hereof.
CARNEGIE FINANCIAL CORPORATION
Up to 238,050 Shares
(Anticipated Maximum, As Adjusted)
Common Stock
-----------------
PROSPECTUS
-----------------
Capital Resources, Inc.
Dated __________, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
Until the later of __________ ____, 1998, or 90 days after commencement of
the offering of common stock, all dealers that buy, sell or trade these
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Sections 1741 through 1747 of the Pennsylvania Business Corporation Act
sets forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in their
capacities as such.
The Articles of Incorporation of Carnegie Financial Corporation (the
"Articles") attached as Exhibit 3(i) hereto, requires indemnification of
directors, officers and employees to the fullest extent permitted by
Pennsylvania law.
Carnegie Financial Corporation ("CFC") may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of CFC or is or was serving at the request of CFC as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not CFC would have the power to indemnify him against such liability
under the provisions of the Articles.
Item 25. Other Expenses of Issuance and Distribution
* Special counsel and local counsel legal fees...............$ 50,000
* Printing and postage.........................................30,000
* Appraisal/Business Plan......................................27,500
* Accounting fees..............................................25,000
* Data processing/Conversion agent.............................10,000
* SEC Registration Fee..........................................1,000
* OTS Filing Fees...............................................8,400
* Blue Sky legal and filing fees............................... 6,000
* Underwriting fees and expenses,
including legal fees...................................... 80,000
* Stock Certificates............................................2,000
* Transfer Agent................................................5,000
* Miscellaneous expenses...................................... 15,100
--------
* TOTAL......................................................$260,000
========
- -----------------
* Estimated.
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1 Form of Sales Agency Agreement with Capital Resources, Inc.*
2 Plan of Conversion of Carnegie Savings Bank
3(i) Articles of Incorporation of Carnegie Financial Corporation
3(ii) Bylaws of Carnegie Financial Corporation
4 Specimen Stock Certificate of Carnegie Financial Corporation
5.1 Form of Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
5.2 Opinion of FinPro, Inc. as to the value of subscription rights
8.1 Form of Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 Form of State Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
10.1 Form of Employment Agreement between the Bank and Shirley Chiesa
10.2 Supplemental Executive Retirement Plan
10.3 Form of Directors Consultation and Retirement Plan between the Bank and each of the directors
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions filed as Exhibits 5.1
8.1 and 8.2)
23.2 Consent of Goff Ellenbogen Backa & Alfera, LLC
23.3 Consent of FinPro, Inc.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule**
99.1 Stock Order Form
99.2 Appraisal Report of FinPro, Inc.*
99.3 Marketing Materials*
</TABLE>
----------------
* To be filed by amendment
** Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To 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 ("Securities 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
<PAGE>
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities 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.
(4) The undersigned registrant hereby undertakes to 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.
(5) Insofar as indemnification for liabilities arising under the
Securities 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Pittsburgh,
Pennsylvania, on March 24, 1998.
By: /s/Shirley Chiesa
--------------------------------
Shirley Chiesa
President and Director
(Duly Authorized Representative)
We the undersigned directors and officers of Carnegie Financial
Corporation do hereby severally constitute and appoint Shirley Chiesa our true
and lawful attorney and agent, to do any and all things and acts in our names in
the capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Shirley Chiesa may deem
necessary or advisable to enable Carnegie Financial Corporation to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
registration statement on Form SB-2 relating to the offering of Carnegie
Financial Corporation 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 Shirley Chiesa shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of March 24, 1998.
/s/Lois A. Wholey /s/Shirley Chiesa
- -------------------------------------------- ---------------------------------
Lois A. Wholey Shirley Chiesa
Director President and Director
(Principal Executive Officer)
/s/Charles L. Rupprecht /s/Morry J. Miller
- -------------------------------------------- ---------------------------------
Charles L. Rupprecht Morry J. Miller
Treasurer and Director Director
/s/Joseph Pigoni /s/JoAnn Narduzzi, M.D.
- -------------------------------------------- ---------------------------------
Joseph Pigoni JoAnn Narduzzi, M.D.
Executive Vice President Director
(Principal Accounting and Financial Officer)
EXHIBIT 2
<PAGE>
PLAN OF CONVERSION
Adopted on
December 15, 1997
-----------------
and Subsequently Amended
By the Board of Directors of
CARNEGIE SAVINGS BANK
Carnegie, Pennsylvania
<PAGE>
TABLE OF CONTENTS
Page
----
1. Introduction.................................................... 1
2. Definitions..................................................... 2
3. Procedure for Conversion........................................ 5
4. Holding Company Applications and Approvals...................... 5
5. Sale of Conversion Stock........................................ 5
6. Number of Shares and Purchase Price of
Conversion Stock......................................... 6
7. Purchase by the Holding Company of the Stock
of the Institution....................................... 7
8. Subscription Rights of Eligible Account
Holders (First Priority)................................. 7
9. Subscription Rights of Employee Plans (Second Priority)......... 7
10. Subscription Rights of Supplemental Eligible
Account Holders (Third Priority)......................... 8
11. Subscription Rights of Other Members
(Fourth Priority)........................................ 8
12. Community Offering.............................................. 9
13. Public Offering................................................. 9
14. Limitation on Purchases......................................... 10
15. Payment for Conversion Stock.................................... 11
16. Manner of Exercising Subscription Rights
Through Order Forms...................................... 12
17. Undelivered, Defective or Late Order Forms or
Insufficient Payment..................................... 13
18. Restrictions on Resale or Subsequent Disposition................ 13
19. Voting Rights of Stockholders................................... 14
20. Establishment of Liquidation Account............................ 14
21. Transfer of Savings Accounts.................................... 15
22. Restrictions on Acquisition of the Institution
and Holding Company...................................... 15
23. Payment of Dividends and Repurchases of Stock................... 16
24. Amendment of Plan............................................... 16
25. Charter and Bylaws.............................................. 16
26. Consummation of Conversion...................................... 16
27. Registration and Marketing...................................... 16
28. Residents of Foreign Countries and Certain States............... 16
29. Expenses of Conversion.......................................... 17
30. Conditions to Conversion........................................ 17
31. Interpretation.................................................. 17
<PAGE>
PLAN OF CONVERSION
FOR
CARNEGIE SAVINGS BANK
CARNEGIE, PENNSYLVANIA
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of
Carnegie Savings Bank ("INSTITUTION") first from a Pennsylvania mutual savings
bank into a Federal mutual savings bank and then into a federal capital stock
savings institution, to be known as Carnegie Savings Bank. The Board of
Directors of the INSTITUTION currently contemplates that all of the stock of the
INSTITUTION shall be held by another corporation (the "Holding Company"). The
purpose of this conversion is to enable the INSTITUTION to be in the stock form
of organization, like commercial banks and most other corporations. The
conversion will result in an increase in the INSTITUTION's capital available to
support growth and for expansion of its facilities, possible diversification
into other related financial services activities and further enhance the
INSTITUTION's ability to render services to the public and compete with other
financial institutions. The use of the Holding Company would also provide
greater organizational flexibility. Shares of capital stock of the INSTITUTION
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 Eligible
Account Holders, the tax-qualified employee stock benefit plans (the "Employee
Plans") established by the INSTITUTION or the Holding Company, which may be
funded by the Holding 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 may be
offered for sale to certain members of the public either directly by the
INSTITUTION and the Holding Company through a Community Offering or through a
Public Offering by an Underwriter. In the event that the INSTITUTION decides not
to utilize the Holding Company in the conversion, Conversion Stock of the
INSTITUTION, in lieu of the Holding Company, will be sold as set forth above and
in the respective priorities set forth in this Plan. In addition to the
foregoing, the INSTITUTION and the Holding Company intend to implement stock
option plans and other stock benefit plans at the time of or subsequent to the
conversion and may provide employment or severance agreements to certain
management employees and certain other benefits to the directors, officers and
employees of the INSTITUTION as described in the prospectus for the Conversion
Stock.
This Plan, which has been approved by the Board of Directors of the
INSTITUTION, must also be approved by the affirmative vote of a majority of the
total number of votes entitled to be cast by Voting Members of the INSTITUTION
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").
Upon conversion, each Account Holder having a Savings Account at the
INSTITUTION prior to conversion will continue to have a Savings Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion. After conversion, the INSTITUTION will succeed to all the rights,
interests, duties and obligations of the INSTITUTION before conversion,
including but not limited to all rights and interests of the INSTITUTION in and
to its assets and properties, whether real, personal or mixed. The INSTITUTION
will become a member of the Federal Home Loan Bank System and all its insured
savings deposits will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the extent provided by applicable law.
A-1
<PAGE>
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 INSTITUTION.
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 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.
Associate - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) 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 Tax-Qualified Employee Stock Benefit Plan or any Non-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 home as such person or who is a Director or
Officer of the INSTITUTION or the Holding Company, or any of its parents or
subsidiaries.
Community Offering - The term Community Offering, if applicable, means
the offering for sale to certain members of the general public directly by the
Holding Company, of shares not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.10 par value
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 INSTITUTION 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 at the INSTITUTION on the Eligibility Record
Date. Only the name(s) of the Person(s) listed on the account as of the
Eligibility Record Date (or a successor entity or estate) is an Eligible Account
Holder. Any Person(s) added to a Qualifying Deposit after the Eligibility Record
Date is not an Eligible Account Holder.
Eligibility Record Date - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the INSTITUTION and is the
close of business on November 30, 1996.
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Employees - The term Employees means all Persons who are employed by
the INSTITUTION, excluding Directors and Officers.
Employee Plans - The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans, including the Employee Stock Ownership Plan,
approved by the Board of Directors of the INSTITUTION.
Estimated Valuation Range. The term Estimated Valuation Range means the
range of the estimated pro forma market value of the Conversion Stock as
determined by the 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
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the Conversion to Participants and others in a
Subscription, Community, Public Offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an
appraiser retained by the INSTITUTION to prepare an appraisal of the pro forma
market value of the Conversion Stock.
Institution - The term INSTITUTION means Carnegie Savings Bank,
Carnegie, Pennsylvania.
Local Community - The term local community means the county of
Allegheny in the Commonwealth of Pennsylvania.
Member - The term Member means any Person or entity who qualifies as a
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department
of the Treasury.
Officer - The term Officer means an executive officer of the
INSTITUTION and may include the Chairman of the Board, President, Vice
Presidents in charge of principal business functions, Secretary and Treasurer
and any individual performing functions similar to those performed by the
foregoing persons.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any 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 INSTITUTION (other than Eligible Account Holders or Supplemental Eligible
Account Holders) 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 association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof.
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Plan - The term Plan means this Plan of Conversion of the INSTITUTION
as it exists on the date hereof and as it may hereafter be amended in accordance
with its terms.
Public Offering - The term Public Offering, if applicable, means the
offering for sale through the Underwriter to the general public of any shares of
Conversion Stock not subscribed for in the Subscription Offering.
Purchase Order - The term Purchase Order means any form together with
attached cover letter, sent by the Underwriter to any 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 Public Offering.
Purchase Price - The term Purchase Price means the per share price at
which the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the INSTITUTION at the close of business
on the Eligibility Record Date or Supplemental Eligibility Record Date. Savings
Accounts with total deposit balances of less than $50 shall not constitute a
Qualifying Deposit. Pursuant to the authority contained in 12 C.F.R.
ss.563b.3(e)(1), the term Qualifying Deposit also includes demand accounts as
defined in 12 C.F.R. ss.561.16(a) of $50 or more in the INSTITUTION at the close
of business on the Eligibility Record Date or Supplemental Eligibility Record
Date.
SEC - The term SEC refers to the Securities and Exchange Commission.
Savings Account - The term Savings Account includes savings accounts as
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
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.
Supplemental Eligibility Record Date - The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the INSTITUTION (other
than an officer or trustee or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
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.
Underwriter - The term Underwriter means the investment banking firm or
firms through which the Conversion Stock will be offered and sold in the Public
Offering.
Voting Members - The term Voting Members means those Persons qualifying
as voting members of the INSTITUTION pursuant to its charter and bylaws.
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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 the Board of Directors of the
INSTITUTION, 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 INSTITUTION will be published in a newspaper having
general circulation in each community in which an office of the INSTITUTION is
located and copies of the Plan will be made available at each office of the
INSTITUTION for inspection by the Members. Upon filing the application with the
OTS, the INSTITUTION also will cause to be published a notice of the filing with
the OTS of an application to convert in accordance with the provisions of the
Plan. Following approval by the OTS, the Plan will be submitted to a vote of the
Voting Members at a Special Meeting of Members called for that purpose. Upon
approval of the Plan by a majority of the total votes eligible to be cast by the
Voting Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION 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 INSTITUTION 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 INSTITUTION will issue its capital stock to the Holding Company
and the Holding Company will issue and sell the Conversion Stock in accordance
with this Plan.
The Board of Directors of the INSTITUTION may determine for any reason
at any time prior to the issuance of the Conversion Stock not to utilize a
holding company form of organization in the Conversion, in which case, the
Holding Company's registration statement on Form S-1 or Form SB-2 will be
withdrawn from the SEC, the INSTITUTION will take all steps necessary to
complete the conversion from the mutual to the stock form of organization,
including filing any necessary documents with the OTS and will issue and sell
the Conversion Stock in accordance with this Plan. In such event, any
subscriptions or orders received for Conversion Stock of the Holding Company
shall be deemed to be subscriptions or orders for Conversion Stock of the
INSTITUTION without any further action by the INSTITUTION or the subscribers for
the Conversion Stock. Any references to the Holding Company in this Plan shall
mean the INSTITUTION in the event the Holding Company is eliminated in the
Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION
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 an 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 to be filed with the SEC. The INSTITUTION
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 of
Members and must be commenced in time to complete the conversion within the time
period specified in Section 3.
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Any shares of Conversion Stock not subscribed for in the Subscription
Offering may be offered for sale in the Community Offering, if any, as provided
in Section 12 of this Plan or offered in a Public Offering, as provided in
Section 13, if necessary and feasible. The Subscription Offering may be
commenced prior to the Special Meeting of Members and, in that event, the
Community Offering or Public 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.
Shares of Conversion Stock may be sold in a Public 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 INSTITUTION. In the
event of a Public Offering, the sale of all Conversion Stock subscribed for in
the Subscription Offering will be consummated simultaneously on the date the
sale of Conversion Stock in the Public Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to pay fees on either a fixed fee or
commission basis or combination thereof to an investment banking firm which
assists it in the sale of the Conversion Stock in the 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 by the Boards of Directors of
the INSTITUTION and the Holding Company, immediately prior to the commencement
of the Offerings, subject to adjustment thereafter if necessitated by a change
in the appraisal due to changes in market or financial conditions, with the
approval of the OTS, if necessary.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the 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 INSTITUTION. The estimated
consolidated pro forma market value of the INSTITUTION will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Valuation 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/or the
Purchase Price may be increased or decreased by the INSTITUTION. In the event
that the aggregate Purchase Price of the Conversion Stock is below the minimum
of the Estimated Valuation Range, or materially above the maximum of the
Estimated Valuation Range, a resolicitation only of persons who submitted a
purchase order may be required, provided that up to a 15% increase above the
maximum of the Estimated Valuation Range will not be deemed material so as to
require a resolicitation. Any such resolicitation shall be effected in such
manner and within such time as the INSTITUTION shall establish, with the
approval of the OTS, if required. 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 INSTITUTION or in order to fill the order by the
Employee Plans will not be deemed to be material so as to require a
resolicitation of subscriptions.
Based upon the independent valuation, as updated prior to the
consummation of the Subscription, Community and/or Public Offerings, the Boards
of Directors of the INSTITUTION and the Holding Company will fix the Purchase
Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION 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 sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the INSTITUTION. If such
confirmation is not received, the INSTITUTION may cancel the Subscription
Offering, Community Offering and/or the Public Offering, reopen or hold new
Offerings to take such other action as the OTS may permit.
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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 INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the INSTITUTION all of the capital stock of
the INSTITUTION to be issued by the INSTITUTION 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 up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%. Only a Person(s)
with a Qualifying Deposit as of the Eligibility Record Date (or a successor
entity or estate) shall receive subscription rights. Any Person(s) added to a
Qualifying Deposit after the Eligibility Record Date is not an Eligible Account
Holder.
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 such 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 Holder. 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 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 EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Conversion Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Holding
Company or the INSTITUTION.
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10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Conversion Stock Offered; and (iii) or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, shares of Conversion Stock shall be allocated among
the subscribing Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares of Conversion Stock sufficient to make his total
allocation (including the number of shares of Conversion Stock, if any,
allocated in accordance with Section 8) equal to 100 shares of Conversion Stock
or the total amount of his subscription, whichever is less.
(2) Any shares of Conversion Stock not allocated in accordance
with subparagraph (1) above shall be allocated among the subscribing
Supplemental Eligible Account Holders on an equitable basis, related to the
amounts of their respective Qualifying Deposits as compared to the total
Qualifying Deposits of all subscribing Supplemental Eligible Account Holders.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering or one-tenth of one percent of the Conversion Stock offered,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%, which
will be allocated only after first allocating to Eligible Account Holders, the
Employee Plans and Supplemental Eligible Account Holders all shares of
Conversion Stock subscribed for pursuant to Sections 8, 9 and 10 above.
B. In the event that such Other Members subscribe for a number of
shares of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Other Members will
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 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 will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
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12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public. The maximum number of shares
of Conversion Stock, which may be subscribed for in the Community Offering, if
any, by any Person shall not exceed such number of shares of Conversion Stock as
shall equal $50,000 divided by the Purchase Price, subject to the maximum and
minimum purchase limitations specified in Section 14. The shares may be made
available in the Community Offering, if any, 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. In the Community Offering, if any, shares will
be available for purchase by the general public with preference given to natural
persons residing in the Local Community. Subject to these preferences, the
INSTITUTION 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.
If Persons 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 Persons submitting orders in the
Community Offering in an equitable manner as determined by the Board of
Directors. The INSTITUTION may establish all terms and conditions of such offer.
The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of 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.
The INSTITUTION and the Holding Company, in their absolute discretion,
reserve the right to reject any or all orders in whole or in part which are
received in the Community Offering, at the time of receipt or as soon as
practicable following the completion of the Community Offering. Actions
concerning the rejection of orders should not be in contravention of law.
13. PUBLIC OFFERING
Any shares of Conversion Stock not sold in the Subscription Offering
may be sold through the Underwriter to the general public at the Purchase Price
in the Public Offering, subject to such terms, conditions and procedures as may
be determined by the Boards of Directors of the INSTITUTION and the Holding
Company, in a manner that will achieve the widest distribution of the Conversion
Stock and subject to the right of the INSTITUTION and the Holding Company, in
their absolute discretion, to accept or reject in whole or in part all
subscriptions in the Public Offering. In the Public Offering, if any, any Person
may purchase up to the maximum purchase limitation established for the Community
Offering, subject to the maximum and minimum purchase limitations specified in
Section 14. 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 purchase limitation specified for this Section. Provided
that the Subscription Offering has commenced, the INSTITUTION may commence the
Public 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 shall be
conditioned upon the approval of this Plan by the Voting Members. It is expected
that the Public Offering, if any, will commence just prior to, or as soon as
practicable after, the termination of the Subscription Offering. The Public
Offering shall be completed within 45 days after the termination of the
Subscription Offering, unless such period is extended as provided in Section 3,
above.
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If for any reason a Public Offering of shares of Conversion Stock not
sold in the Subscription and Community Offerings can not be effected, other
purchase arrangements will be made for the sale of unsubscribed shares by the
INSTITUTION, if possible. Such other purchase arrangements will be subject to
the approval of the OTS.
14. LIMITATION ON PURCHASES
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
purchased in the Subscription Offering or Community Offering and/or Public
Offering by any Person (or persons through a single account) shall not exceed
such number of shares as shall equal $50,000 divided by the Purchase Price.
B. 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 persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $75,000 divided by the Purchase Price, except for Employee Plans,
which in the aggregate may subscribe for up to 10% of the Conversion Stock
issued. In accordance with Section 31, the Board of Directors shall have the
authority to determine whether persons are Acting in Concert or otherwise are in
compliance with the limitations on purchases.
C. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 35% of the
total number of shares of Conversion Stock issued.
D. 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 the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
E. The Employee Plans shall not be deemed to be associates or
affiliates of or Persons Acting in Concert with any Director or Officer of the
Holding Company or the Institution.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8 through 13, inclusive, 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 Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his
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 INSTITUTION 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 purchase
limitation may be increased up to 9.99% provided that orders for Conversion
Stock exceeding 5% of the shares being offered shall not exceed, in the
aggregate, 10% of the total offering. If the INSTITUTION and the Holding Company
increase the maximum purchase limitations, the INSTITUTION 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 INSTITUTION and the
Holding Company, resolicit certain other large subscribers. For purposes of this
Section 14, the Directors of the INSTITUTION 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 of the INSTITUTION
or the Holding Company.
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In the event of an increase in the total number of shares offered in
the conversion due to an increase in the maximum of the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employees Plan's
subscription to up to 10% of the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8; (iii) in the event that there is an oversubscription at
the Supplemental Eligible Account Holder level, to fill unfilled subscriptions
of Supplemental Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 10; (iv) in the event that there is an oversubscription at
the Other Member level, to fill unfilled subscriptions of Other Members
exclusive of the Adjusted Maximum in accordance with Section 11; and (v) to fill
unfilled Subscriptions in the Community Offering exclusive of the Adjusted
Maximum.
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.
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 INSTITUTION 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, Public Offerings must be delivered in full to the INSTITUTION,
together with a properly completed and executed Order Form, or Purchase Order in
the case of the Public 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 INSTITUTION; provided, however, that if the Employee Plans
subscribes for shares during the Subscription Offering, the Employee Plan will
not be required to pay for the shares at the time they subscribe but rather may
pay for such shares of Conversion Stock upon consummation of the Conversion. The
INSTITUTION may make scheduled discretionary contributions to an Employee Plan
provided such contributions do not cause the INSTITUTION to fail to meet its
regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION 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,
Public Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering, Public Offering at any
time prior to the completion of the Conversion.
Payment for Conversion Stock subscribed for shall be made either in
cash (if delivered in person), check or money order. Alternatively, subscribers
in the Offerings may pay for the shares subscribed for by authorizing the
INSTITUTION on the Order Form or Purchase Order to make a withdrawal from the
subscriber's Qualifying Deposit at the INSTITUTION 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 penalty as to
premature withdrawal. 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 canceled at the time of withdrawal,
without penalty, and the
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remaining balance will earn interest at the passbook rate. Funds for which a
withdrawal is authorized will remain in the subscriber's Qualifying Deposit 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 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
INSTITUTION at not less than the passbook annual rate on payments for Conversion
Stock received in cash or by money order or check. Such interest will be paid
from the date payment is received by the INSTITUTION until consummation or
termination of the conversion. If for any reason the Conversion is not
consummated, all payments made by subscribers in the Offerings will be refunded
to them with interest. In case of amounts authorized for withdrawal from
Qualifying Deposits, refunds will be made by canceling the authorization for
withdrawal.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and INSTITUTION has been declared effective by the OTS and the SEC,
Order Forms will be distributed to the Participants at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering.
Notwithstanding the foregoing, the INSTITUTION 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 the Participants 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 in accordance with regulations of the OTS.
Each Order Form or Purchase Order will be preceded or accompanied by
the Prospectus (if a holding company form of organization is utilized) or the
Offering Circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the INSTITUTION, the Conversion
Stock and the Offerings. Each Order Form or Purchase Order will contain, among
other things, the following:
A. A specified date by which all Order Forms and Purchase Orders must
be received by the INSTITUTION, 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 INSTITUTION, and which date will constitute the termination of
the Subscription Offering;
B. The purchase price per share for shares of Conversion Stock to be
sold in the 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 or Public
Offering;
D. Instructions as to how the recipient of the Order Form or Purchase
Order 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 or Purchase
Order has received a final copy of the Prospectus or Offering Circular, as the
case may be, prior to execution of the Order Form or Purchase Order.
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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 INSTITUTION withdraw said amount from the subscriber's Qualifying
Deposit at the INSTITUTION) to the INSTITUTION; and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the INSTITUTION, may not be modified or amended by the
subscriber without the consent of the INSTITUTION.
Notwithstanding the above, the INSTITUTION and the Holding Company
reserve the right in their sole discretion to accept or reject orders received
on photocopied or facsimiled order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering or
Public Offering, by delivering irrevocable orders together with a legally
binding commitment to pay in cash, check, money order or wire transfer 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 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 completed Order Form within the time period
specified thereon; provided, however, that the INSTITUTION may, but will not be
required to, waive any immaterial irregularity on any Order Form or Purchase
Order or require the submission of corrected Order Forms or Purchase Orders or
the remittance of full payment for subscribed shares by such date as the
INSTITUTION may specify. The interpretation of the INSTITUTION of terms and
conditions of the Plan and of the Order Forms or Purchase Orders 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 INSTITUTION or the Holding Company 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 (1) 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 INSTITUTION or the Holding Company, which has been
approved by the OTS; and
(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;
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(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 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 conversion, the holders of the capital stock of the INSTITUTION
shall have the exclusive voting rights with respect to the INSTITUTION 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 INSTITUTION 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
INSTITUTION for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
INSTITUTION. 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
Savings Account balance at the Eligibility Record Date and 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 INSTITUTION (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 Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC institution, in which the INSTITUTION 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 or 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 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
INSTITUTION. Such initial subaccount balance 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, as applicable, or (ii) the amount
of the Qualifying Deposit in such Savings Account, the subaccount balance of
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
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<PAGE>
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 INSTITUTION.
21. TRANSFER OF SAVINGS ACCOUNTS
Each person holding a Savings Account at the INSTITUTION at the time of
conversion shall retain an identical Savings Account at the INSTITUTION
following conversion in the same amount and subject to the same terms and
conditions (except as to voting and liquidation rights).
22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of 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 INSTITUTION
without the prior written consent of the OTS.
B.1. The charter of the INSTITUTION contains a provision stipulating
that no person, except the Holding Company, for a period of five years following
the date of 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 INSTITUTION, 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 Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B.2. The Certificate of Incorporation of the Holding Company 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 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, B.1.:
(i) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
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. ss.78c(a)(10).
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<PAGE>
23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The INSTITUTION 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 requirement in
Section 567.2 of the Rules and Regulations of the OTS. Otherwise, the
INSTITUTION may declare dividends or make capital distributions 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 INSTITUTION'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 INSTITUTION'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 INSTITUTION authorize the
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 INSTITUTION will be voting
to adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the INSTITUTION's
amended charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the federal stock charter for the INSTITUTION 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 INSTITUTION 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
any of the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the
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securities laws 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;
or (iii) such registration or qualification would be impracticable for reasons
of cost or otherwise.
29. EXPENSES OF CONVERSION
The INSTITUTION 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 INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the Commonwealth of Pennsylvania taxing
authorities, 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 the INSTITUTION 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
INSTITUTION shall be final, subject to the authority of the OTS.
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EXHIBIT 3(i)
<PAGE>
ARTICLES OF INCORPORATION
OF
CARNEGIE FINANCIAL CORPORATION
Article 1. Name. The name of the corporation is Carnegie Financial
Corporation (hereinafter, the "Company").
Article 2. Registered Office. The address of the initial registered
office of the Company in the Commonwealth of Pennsylvania is 17 West Mall Plaza,
Carnegie, Pennsylvania 15106.
Article 3. Nature of Business. The Company is organized under the
Business Corporation Law of 1988, as amended, of the Commonwealth of
Pennsylvania (the "BCL") for the purpose of engaging in any lawful act or
activity for which a corporation may be organized under the laws of the
Commonwealth of Pennsylvania.
Article 4. Duration. The term of the existence of the Company shall be
perpetual.
Article 5. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock that
the Company has authority to issue is 6,000,000 of which 2,000,000 shall be
serial preferred stock, no par value (hereinafter, the "Preferred Stock") and
4,000,000 shall be common stock, par value $0.10 per share (hereinafter, the
"Common Stock"). Except to the extent required by governing law, rule, or
regulation, the shares of capital stock may be issued from time to time by the
board of directors of the Company (hereinafter, the "Board of Directors")
without further approval of stockholders. The Company shall have the authority
to purchase its capital stock out of funds lawfully available therefor.
B. Common Stock. Except as provided in this Article 5 (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, with each holder
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Company. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, holders of Common Stock shall be entitled to receive
pro rata the remaining assets of the Company after the holders of any class of
stock having preference over the Common Stock have been paid in full any sums to
which they may be entitled.
<PAGE>
C. Authority of Board to Fix Terms of Preferred Stock. A description of
each class of shares and a statement of the voting rights, designations,
preferences, qualifications, privileges, limitations, options, conversion
rights, and other special rights granted to or imposed upon the shares of each
class and of the authority vested in the Board of Directors to establish series
of Preferred Stock or to determine that Preferred Stock will be issued as a
class without series and to fix and determine the voting rights, designations,
preferences, and other special rights of the Preferred Stock as a class or of
the series thereof are as follows:
Preferred Stock may be issued from time to time as a class without
series or in one or more series. Each series shall be designated in
supplementary sections or amendments to these Articles of Incorporation by the
Board of Directors so as to distinguish the shares thereof from the shares of
all other series and classes. The Board of Directors may by resolution and
amendment to these Articles of Incorporation from time to time divide shares of
Preferred Stock into series, or determine that the Preferred Stock shall be
issued as a class without series, fix and determine the number of shares in a
series and the terms and conditions of the issuance of the class or the series,
and, subject to the provisions of this Article 5, fix and determine the rights,
preferences, qualifications, privileges, limitations, and other special rights,
if any, of the class (if none of such shares of the class have been issued) or
of any series so established, including but not limited to, voting rights (which
may be limited, multiple, fractional, or non-voting rights), the rate of
dividend, if any, and whether or to what extent, if any, such dividends shall be
cumulative (including the date from which dividends shall be cumulative, if
any), the price at and the terms and conditions on which shares may be redeemed,
if any, the preference and the amounts payable on shares in the event of
voluntary or involuntary liquidation, sinking fund provisions for the redemption
or purchase of shares in the event shares of the class or of any series are
issued with sinking fund provisions, and the terms and conditions on which the
shares of the class or of any series may be converted in the event the shares of
the class or of any series are issued with the privilege of conversion.
The Board of Directors may, in its discretion, at any time or from time
to time, issue or cause to be issued all or any part of the authorized and
unissued shares of Preferred Stock for consideration of such character and value
as the Board of Directors shall from time to time fix or determine.
D. Repurchase of Shares. The Company may, from time to time, pursuant
to authorization by the Board of Directors and without action by the
stockholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Company in such manner, upon such terms, and in such
amounts as the Board of Directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Company outstanding at the time of the purchase or
acquisition in question or as are imposed by law or regulation.
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<PAGE>
Article 6. Incorporator. The name and business address of the sole
incorporator is as follows:
Name Address
-------------- ----------------------
Shirley Chiesa 17 West Mall Plaza
Carnegie, Pennsylvania 15106
Article 7. Directors. The business and affairs of the Company shall be
managed by or under the direction of the Board of Directors.
A. Number. The number of directors of the Company shall be such number,
not less than 3 nor more than 15 (exclusive of directors, if any, to be elected
by holders of Preferred Stock, voting separately as a class), as shall be
provided from time to time in accordance with the bylaws, provided that no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
eighty percent (80%) of the directors then in office shall concur in said
action.
B. Classified Board. The Board of Directors shall be divided into four
classes of directors that shall be designated Class I, Class II, Class III and
Class IV. The members of each class shall be elected for a term of four years
and until their successors are elected and qualified. Such classes shall be as
nearly equal in number as the then total number of directors constituting the
entire Board of Directors shall permit, with the term of office of Class I to
expire at the first annual meeting of stockholders, the term of office of Class
II to expire at the annual meeting of stockholders one year thereafter, the term
of office of Class III to expire at the annual meeting of stockholders two years
thereafter and the term of Class IV to expire at the annual meeting of
stockholders three years thereafter. At each annual meeting of stockholders
following such initial classification and election, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the four succeeding annual meeting of stockholders after their
election.
Should the number of directors of the Company be reduced, the
directorship(s) eliminated shall be allocated among the classes so that the
number of directors in each class is as specified in the immediately preceding
paragraph. The Board of Directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Should the number of directors of
the Company be increased, the additional directorships shall be allocated among
such classes so that the number of directors in each class is as specified in
the immediately preceding paragraph.
Whenever the holders of any one or more series of Preferred Stock of
the Company shall have the right, voting separately as a class, to elect one or
more directors of the Company, the Board of Directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article 7. Notwithstanding the foregoing, and except as otherwise
may be required by law, whenever the holders of any one or more series of
Preferred
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Stock of the Company shall have the right, voting separately as a class, to
elect one or more directors of the Company, the terms of the director or
directors elected by such holders shall expire at the next succeeding annual
meeting of stockholders.
The initial board of directors shall consist of the following
individuals divided into the following classes:
Class I Class II Class III Class IV
- ------- -------- --------- --------
Charles L. Rupprecht Shirley C. Chiesa Morry J. Miller JoAnn Narduzzi, M.D.
Lois Wholey, Esq.
C. No Cumulative Voting. Stockholders of the Company shall not be
permitted to cumulate their votes for the election of directors.
D. Vacancies. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any vacancy occurring on the Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, shall be filled by a majority vote of the directors then in
office, whether or not a quorum is present, or by a sole remaining director, and
any director so chosen shall serve until the term of the class to which such
director was appointed shall expire and until a successor is elected and
qualified. When the number of directors is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be appointed.
E. Removal. Unless otherwise required by law, a director (including
persons elected by directors to fill vacancies in the Board of Directors) may be
removed from office only for cause by an affirmative vote of not less than a
majority of the total votes eligible to be cast by stockholders. Cause for
removal by stockholders shall exist only if the director whose removal is
proposed has been either declared of unsound mind by an order of a court of
competent jurisdiction, convicted of a felony or of an offense punishable by
imprisonment for a term of more than one year by a court of competent
jurisdiction, or deemed liable by a court of competent jurisdiction for gross
negligence or misconduct in the performance of such director's duties to the
Company. At least 30 days prior to such meeting of stockholders, written notice
shall be sent to the director whose removal will be considered at the meeting.
Directors may also be removed from office in the manner provided in Sections
1726(b) and 1726(c) of the BCL, or any successors to such sections.
F. Nominations of Directors. Nominations of candidates for election as
directors at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Article 7.F shall be eligible for election
as directors at an annual meeting. Ballots bearing the names of all the
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persons who have been nominated for election as directors at an annual meeting
in accordance with the procedures set forth in this Article 7.F shall be
provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Company as set forth in this Article 7.F. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Company; provided, however, that with respect to the first scheduled annual
meeting, notice by the stockholder must be so delivered or received no later
than the close of business on the tenth day following the day on which notice of
the date of the scheduled meeting was mailed and must be delivered or received
no later than the close of business on the fifth day preceding the date of the
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address,
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Company stock
that are Beneficially Owned (as determined by Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) by such person on the date of such
stockholder notice, and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors, pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor thereto; and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Company's books, of such stockholder and any other stockholders known by such
stockholder to be supporting such nominees and (ii) the class and number of
shares of Company stock that are Beneficially Owned by such stockholder on the
date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such nominees on the
date of such stockholder notice. At the request of the Board of Directors, any
person nominated by, or at the direction of, the Board of Directors for election
as a director at an annual meeting shall furnish to the Secretary of the Company
the same information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article 7.F. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article 7.F in any material respect, the
Secretary of the Company shall notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Article 7.F in any material
respect, then the Board of Directors may reject such stockholder's nomination.
The Secretary of the Company shall notify a stockholder in writing
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whether such person's nomination has been made in accordance with the time and
informational requirements of this Article 7.F. Notwithstanding the procedures
set forth in this paragraph, if neither the Board of Directors nor such
committee makes a determination as to the validity of any nominations by a
stockholder, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination was made in accordance with
the terms of this Article 7.F. If the presiding officer determines that a
nomination was made in accordance with the terms of this Article 7.F, such
person shall so declare at the annual meeting and ballots shall be provided for
use at the meeting with respect to such nominee. If the presiding officer
determines that a nomination was not made in accordance with the terms of this
Article 7.F, such person shall so declare at the annual meeting and the
defective nomination shall be disregarded.
Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors of the
Company, the provisions of this Article 7.F shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
Article 8. Preemptive Rights. No holder of any of the shares of any
class or series of stock or of options, warrants, or other rights to purchase
shares of any class or series or of other securities of the Company shall have
any preemptive right to purchase or subscribe for any unissued stock of any
class or series, any unissued bonds, certificates of indebtedness, debentures,
or other securities convertible into or exchangeable for stock of any class or
series or carrying any right to purchase stock of any class or series, or any
shares of any class, bonds, debentures, notes, scrip, warrants, obligations,
evidences of indebtedness, or other securities of the Company purchased by the
Company pursuant to Article 5.D; but any such unissued, or issued but not
outstanding, stock, bonds, certificates of indebtedness, debentures, or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the Board of Directors to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
Article 9. Elimination of Directors' Liability. A director of the
Company shall not be personally liable, as such, for monetary damages for any
action taken unless: (i) the director has breached or failed to perform such
director's fiduciary duties, or other duties under Chapter 17, Subchapter B of
the BCL, of such director's office, and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct, or recklessness; provided,
however, that the foregoing shall not apply to (i) the responsibility or
liability of a director pursuant to any criminal statute; or (ii) the liability
of a director for the payment of taxes pursuant to federal, state, or local law.
If the laws of the Commonwealth of Pennsylvania are amended after the effective
date of these Articles of Incorporation to eliminate further or limit the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by law.
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Any repeal or modification of the foregoing paragraph by the
stockholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
Article 10. Indemnification, etc. of Officers, Directors, Employees,
and Agents.
A. Persons. The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, including actions by or in the right of
the Company, whether civil, criminal, administrative, or investigative, by
reason of the fact that such person is or was a director, officer, employee,
fiduciary, trustee, or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, fiduciary, trustee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise.
B. Extent -- Derivative Actions. In the case of a threatened, pending,
or completed action or suit by or in the right of the Company against a person
named in paragraph A by reason of such person holding a position named in
paragraph A, the Company shall indemnify such person if such person satisfies
the standard in paragraph C, for expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In the case of a threatened, pending,
or completed action or suit by or in the right of the Company, a person named in
paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is
the subject of the suit or action, and in a manner reasonably believed
to be in, or not opposed to, the best interests of the Company,
including, but not limited to, the taking of any and all actions in
connection with the Company's response to any tender offer or any offer
or proposal of another party to engage in a Business Combination (as
defined in Article 13 of these Articles) not approved by the Board of
Directors. However, such person shall not be indemnified in respect of
any claim, issue, or matter as to which such person has been adjudged
liable to the Company unless (and only to the extent that) the court of
common pleas or the court in which the suit was brought shall
determine, upon application, that despite the adjudication of liability
but in view of all the circumstances, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall
deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending, or
completed suit, action, or proceeding (whether civil, criminal, administrative,
or investigative), other than a suit by or in the right of the Company, together
hereafter referred to as a nonderivative suit, against a person named in
paragraph A by reason of such person holding a position named in
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paragraph A, the Company shall indemnify such person if such person satisfies
the standard in paragraph E, for amounts actually and reasonably incurred by
such person in connection with the defense or settlement of the nonderivative
suit, including, but not limited to (i) expenses (including attorneys' fees),
(ii) amounts paid in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise;
or
2. such person acted in good faith in the transaction that is
the subject of the nonderivative suit and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of
the Company, including, but not limited to, the taking of any and all
actions in connection with the Company's response to any tender offer
or any offer or proposal of another party to engage in a Business
Combination (as defined in Article 13 of these Articles) not approved
by the Board of Directors and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe such
person's conduct was unlawful. The termination of a nonderivative suit
by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, in itself, create a presumption
that the person failed to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. the Board of Directors by a majority vote of a quorum
consisting of directors of the Company who were not parties to the
action, suit, or proceeding;
2. if such a quorum is not obtainable or if obtainable and a
majority of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
3. the stockholders of the Company.
G. Proration. Anyone making a determination under paragraph F may
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee, or agent of the Company in defending a civil or criminal
action, suit, or proceeding described in Article 10.A may be paid by the Company
in advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such person
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to repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Company.
I. Other Rights. The indemnification and advancement of expenses
provided by or pursuant to this Article 10 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any insurance or other agreement, vote of stockholders or
directors, or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
J. Insurance. The Company shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Company would have the power to
indemnify such person against such liability under the provisions of this
Article 10.
K. Security Fund; Indemnity Agreements. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Company may
create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees, and agents for the purpose
of securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 10.
L. Modification. The duties of the Company to indemnify and to advance
expenses to any person as provided in this Article 10 shall be in the nature of
a contract between the Company and each such person, and no amendment or repeal
of any provision of this Article 10, and no amendment or termination of any
trust or other fund created pursuant to Article 10.K hereof, shall alter to the
detriment of such person the right of such person to the advancement of expenses
or indemnification related to a claim based on an act or failure to act which
took place prior to such amendment, repeal, or termination.
M. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision in this Article 10, the Company shall not indemnify a director,
officer, employee, or agent for any liability incurred in an action, suit, or
proceeding initiated by (which shall not be deemed to include counter-claims or
affirmative defenses) or participated in as an intervenor or amicus curiae by
the person seeking indemnification unless such initiation of or participation in
the action, suit, or proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors then in
office.
N. Savings Clause. If this Article 10 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each director, officer, employee, and agent
of the Company as to costs, charges, and
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expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, including an action by or in the
right of the Company to the fullest extent permitted by any applicable portion
of this Article 10 that shall not have been invalidated and to the fullest
extent permitted by applicable law.
If the laws of the Commonwealth of Pennsylvania are amended to permit
further indemnification of the directors, officers, employees, and agents of the
Company, then the Company shall indemnify such persons to the fullest extent
permitted by law. Any repeal or modification of this Article by the stockholders
of the Company shall not adversely affect any right or protection of a director,
officer, employee, or agent existing at the time of such repeal or modification.
Article 11. Meetings of Stockholders and Stockholder Proposals.
A. Special Meetings of Stockholders. Special meetings of the
stockholders of the Company may be called only by the Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in office.
B. Action Without a Meeting. Notwithstanding any other provision of
these Articles or the Bylaws of the Company, no action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Company may be taken without a meeting, and the power of stockholders to consent
in writing, without a meeting, to the taking of any action is specifically
denied.
C. Stockholder Proposals. At an annual meeting of stockholders, only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting by, or at the
direction of, (1) the Board of Directors or (2) any stockholder of the Company
who complies with all the requirements set forth in this Article 11.C.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in this Article 11.C. For stockholder proposals to
be considered at the annual meeting of stockholders, the stockholder's notice
shall be delivered to, or mailed and received at, the principal executive
offices of the Company not less than 60 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders of the Company. Such
stockholder's notice shall set forth as to each matter the stockholder proposes
to bring before the annual meeting (a) a brief description of the proposal
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as they appear on
the Company's books, of the stockholder proposing such business and, to the
extent known, any other stockholders known by such stockholder to be supporting
such proposal, (c) the class and number of shares of the Company stock that are
Beneficially Owned by the stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by
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such stockholder to be supporting such proposal on the date of such stockholder
notice, and (d) any financial interest of the stockholder in such proposal
(other than interests which all stockholders would have).
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article 11.C. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Article 11.C in any material respect, the Secretary of the
Company shall promptly notify such stockholder of the deficiency in the notice.
The stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee determines that the additional information provided
by the stockholder, together with information previously provided, does not
satisfy the requirements of this Article 11.C in any material respect, then the
Board of Directors may reject such stockholder's proposal. The Secretary of the
Company shall notify a stockholder in writing whether such stockholder's
proposal has been made in accordance with the time and informational
requirements of this Article 11.C. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any stockholder proposal, the presiding
officer of the annual meeting shall determine and declare at the annual meeting
whether the stockholder proposal was made in accordance with the terms of this
Article 11.C. If the presiding officer determines that a stockholder proposal
was made in accordance with the terms of this Article 11.C, such person shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Article 11.C, such person shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of report of officers, directors, and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed,
and received as herein provided.
Article 12. Certain Limitations on Voting Rights
A. Limitations. Notwithstanding any other provision of these Articles,
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 of the provisions hereof in respect of Common Stock
beneficially owned by such person owning shares in excess of the Limit shall be
a number equal to the total number of votes which a single
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record owner of all Common Stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number 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.
Further, for a period of five years from the completion of the
conversion of Carnegie Savings Bank from mutual to stock form, no Person shall
directly or indirectly Offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of the Company.
B. Definitions. The following definitions shall apply to this Article
12.
1. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of this
Certificate.
2. "Beneficial Ownership" (including "Beneficially Owned")
shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (or any successor
rule or statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of this Certificate;
provided, however, that a Person shall, in any event, also be deemed
the "beneficial owner" of any Common Stock:
(a) which such Person or any of its Affiliates owns,
directly or indirectly;
or
(b) 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 (as
defined in Article 13) solely by reason of an agreement,
contract, or other arrangement with this Company to effect any
transaction which is described in Section A of Article 13) or
upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to
any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the Beneficial Owner
of any Voting Shares solely by reason of a revocable proxy
granted for a particular meeting of 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
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(c) which are 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 Company;
and provided further, however, that (1) no director or officer of this Company
(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
Company or any subsidiary of this Company, nor any trustee with respect thereto
or any Affiliate of such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to Beneficially Own any
Common Stock held under any such plan. For purposes of computing the percentage
Beneficial Ownership of Common Stock of a Person, the outstanding Common Stock
shall include shares deemed owned by such Person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Company pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and shall not
include any Common Stock which may be issuable by this Company pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options, or
otherwise.
3. The term "Offer" shall mean every written offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or invitation
for tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Company and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Company regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
4. A "Person" shall mean any individual, firm, corporation, or
other entity.
C. The board of directors shall have the power to construe and apply
the provisions of this Article 12 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 Article 12.
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D. The board of directors shall have the right to demand that any
Person who is reasonably believed to Beneficially Own Common Stock in excess of
the Limit (or holders of record of Common Stock Beneficially Owned by any Person
in excess of the Limit) supply the Company 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 Article 12 as may
reasonably be requested of such Person.
E. Except as otherwise provided by law or expressly provided in this
Article 12, the presence in person or by proxy of the holders of record of
shares of capital stock of the Company entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this Article 12) entitled to be cast by the holders of shares of capital stock
of the Company entitled to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in these Articles 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 (or
the holders thereof) then entitled to be cast in respect of such capital stock.
F. The provisions of this Article 12 shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the Company
or its subsidiaries or to the acquisition of more than 10% of any class of
equity security of the Company if such acquisition has been approved by
two-thirds of the entire Board of Directors, as described in Article 13 of this
Article; provided, however, that such approval shall only be effective if such
Directors shall have the power to construe and apply the provisions of this
Article 12 and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares Beneficially Owned by any Person, (b) whether a Person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of Beneficial Ownership, (c) the application of any other
material fact relating to the applicability or effect of this Article 12. Any
constructions, applications, or determinations made by the Directors pursuant to
this Article 12 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 Company and its stockholders.
G. In the event any provision (or portion thereof) of this Article 12
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article 12 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 Company and its stockholders that each
such remaining provision (or portion thereof) of this Article 12 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.
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<PAGE>
Article 13. Stockholder Approval of Business Combinations
A. General Requirement. The definitions and other provisions set forth
in Article 12 are also applicable to this Article 13. The affirmative vote of
the holders of not less than eighty percent (80%) of the outstanding shares of
Voting Shares (as hereinafter defined) shall be required for the approval or
authorization of any "Business Combination" as defined and set forth below:
1. Any merger, consolidation, share exchange or division of
the Company or any Subsidiary of the Company with or into (i) any Interested
Shareholder (as hereinafter defined), or (ii) with, involving or resulting in
any other corporation (whether or not itself an Interested Shareholder of the
Company) which is, or after the merger, consolidation, share exchange or
division would be, an Affiliate or Associate of the Interested Shareholder;
2. A sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or series of transactions) to or with the
Interested Shareholders or any Affiliate or Associate or such Interested
Shareholder of assets of the Company or any Subsidiary of the Company (i) Having
an aggregate Market Value (as hereinafter defined) equal to 10% or more of the
aggregate Market Value of all the assets, determined on a consolidated bases, of
such Company; (ii) having an aggregate Market Value equal to 10% or more of the
aggregate Market Value of all outstanding shares of such Company; or (iii)
representing 10% or more of the earning power or net income, determined on a
consolidated basis, of such Company.
3. The issuance or transfer by the Company or any Subsidiary
of the Company (in one or a series of transactions) of any shares of such
Company or any Subsidiary of such Company which has an aggregate Market Value
equal to 5% or more of the aggregate Market Value of all the outstanding shares
of the Company to the Interested Shareholder or any Affiliate or Associate of
such Interested Shareholder except pursuant to the exercise of option rights to
purchase shares, or pursuant to the conversion of securities having conversion
rights, offered, or a dividend or distribution paid or made, pro rata to all
shareholders of the Company.
4. The adoption at any time of any plan or proposal for the
liquidation or dissolution of the Company proposed by, or pursuant to any
agreement, arrangement or understanding with the Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder.
5. A reclassification of securities (including, without
limitation, any split of shares, dividend of shares, or other distribution of
shares in respect of shares, or any reverse split of shares), or
recapitalization of the Company, or any merger or consolidation of the Company
with any Subsidiary of the Company, or any other transaction (whether or not
with or into or otherwise involving the Interested Shareholder), proposed by, or
pursuant to any agreement, arrangement or understanding (whether or not in
writing) with, the Interested Shareholder or any Affiliate or Associate of the
Interested Shareholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
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<PAGE>
or series of Voting Shares or securities convertible into Voting Shares of the
Company or any Subsidiary of the Company which is, directly or indirectly, owned
by the Interested Shareholder or any Affiliate or Associate of the Interested
Shareholder, except as a result of immaterial changes due to fractional share
adjustments.
6. The receipt by the Interested Shareholder or any Affiliate
or Associate of the Interested Shareholder of the benefit, directly or
indirectly (except proportionately as a shareholder of the Company), of any
loans, advances, guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by or through the Company.
The affirmative vote required by this Article 13 shall be in addition
to the vote of the holders of any class or series of stock of the Company
otherwise required by law, by any other Article of these Articles of
Incorporation, as the same may be amended from time to time, by any resolution
of the Board of Directors providing for the issuance of a class or series of
stock, or by any agreement between the Company and any national securities
exchange.
B. Certain Definitions.
1. "Share Acquisition Date" means with respect to any Person
and the Company, the date that such person first became an Interested
Shareholder of the Company.
2. The "Market Value" of the common stock of the Company shall
be the highest closing sale price during the 30-day period immediately preceding
the date in question of the share of the composite tape for New York Stock
Exchange-listed shares, or, if the shares are not quoted on the composite tape
or if the shares are not listed on the exchange, on the principal United States
securities exchange registered under the exchange act, on which such shares are
listed, or, if the shares are not listed on any such exchange, the highest
closing bid quotation with respect to the share during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
quotations are available, the fair market value on the date in question of the
share as determined by the Board of Directors of the Company in good faith. In
the case of property other than cash or shares, the fair market value of the
property on the date in question as determined by the Board of Directors of the
Company in good faith.
3. The term "Interested Shareholder," means any Person (other
than the Company or any Subsidiary of the Company) that:
(i) Is the Beneficial Owner, directly or indirectly, of shares
entitling that Person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(ii) Is an Affiliate or Associate of such Company and at any
time within the five-year period immediately prior to the date in question was
the Beneficial Owner, directly or
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<PAGE>
indirectly, of shares entitling that Person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of directors of
the Company.
Exception - For the purpose of determining whether a Person is an
Interested Shareholder:
(1) The number of votes that would be entitled to be cast in
an election of directors of the Company shall be calculated by including shares
deemed to be beneficially owned by the Person through application of the
definition of "Beneficial Owner" in section 12.B, but excluding any other
unissued shares of such Company which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion or option rights or
otherwise; and
(2) There shall be excluded from the Beneficial Ownership of
the Interested Shareholder any:
Shares which were acquired pursuant to a stock split, stock dividend,
reclassification or similar recapitalization with respect to shares described
under this paragraph that have been held continuously since their issuance by
the Company by the natural Person or entity that acquired them from the Company.
For the purpose only of determining the percentage of the outstanding
shares of Voting Shares which any corporation, partnership, person, or other
entity beneficially owns, directly or indirectly, the outstanding shares of
Voting Shares will be deemed to include any shares of Voting Shares which such
corporation, partnership, person or other entity beneficially owns pursuant to
the foregoing provisions of this subsection (whether or not such shares of
Voting Shares are in fact issued or outstanding), but shall not include any
other shares of Voting Shares which may be issuable either immediately or at
some future date pursuant to any agreement, arrangement, or understanding or
upon exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
4. The term "Voting Shares" shall mean any shares of the
authorized stock of the Company entitled to vote generally in the election of
directors.
C. Exceptions. The provisions of this Article 13 shall not apply to a
Business Combination which is approved by two-thirds of those members of the
Board of Directors who were directors prior to the time when the Interested
Shareholder became an Interested Shareholder (the "Continuing Directors"). The
provisions of this Article 13 also shall not apply to a Business Combination:
(1) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of such Interested Shareholder, at a meeting
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<PAGE>
called for such purpose no earlier than three months after the Interested
Shareholder became, and if at the time of the meeting the Interested Shareholder
is, the Beneficial Owner, directly or indirectly, of shares entitling the
Interested Shareholder to cast at least 80% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(2) Approved by the affirmative vote of all of the holders of
all of the outstanding common shares.
(3) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of the Interested Shareholder, at a meeting called
for such purpose no earlier than five years after the Interested Shareholder's
Share Acquisition Date.
(4) Approved at a shareholders' meeting called for such
purpose no earlier than five years after the Interested Shareholder's Share
Acquisition Date.
D. Additional Provisions. Nothing contained in this Article 13, shall
be construed to relieve an Interested Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article 13 shall prevent
any shareholder of the Company from objecting to any Business Combination and
from demanding any appraisal rights which may be available to such shareholder.
E. Amendments. Notwithstanding any provisions of these Articles of
Incorporation or the Bylaws of the Company (and notwithstanding the fact that a
lesser percentage may be specified by laws, these Articles of Incorporation or
the Bylaws of the Company), the affirmative vote of the holders of at least 80
percent of the outstanding shares entitled to vote thereon (and, if any class or
series is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80 percent of the outstanding shares of each such class or
series) shall be required to amend or repeal this Article 13 or adopt any
provisions inconsistent with this Article.
Article 14. Evaluation of Offers. The Board of Directors of the
Company, when evaluating any offer to (A) make a tender or exchange offer for
any equity security of the Company, (B) merge or consolidate the Company with
another corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company and its stockholders, give due consideration to all
relevant factors, including, without limitation, the social and economic effect
of acceptance of such offer: on the Company's present and future customers and
employees and those of its subsidiaries; on the communities in which the Company
and its subsidiaries operate or are located; on the ability of the Company to
fulfill its corporate objectives as a financial institution holding company and
on the ability of its subsidiary financial institution to fulfill the objectives
of a federally insured financial institution under applicable statutes and
regulations.
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<PAGE>
Article 15. Stockholder Approval of Business Combinations
A. Stockholder Vote. Any merger, consolidation, liquidation, or
dissolution of the Company or any action that would result in the sale or other
disposition of all or substantially all of the assets of the Company ("Business
Combination") shall require the affirmative vote of the holders of at least
eighty percent (80%) of the outstanding shares of capital stock of the Company
eligible to vote at a legal meeting.
B. Board Approval. The provisions of Article 15.A shall not apply to a
particular Business Combination, and such Business Combination shall require
only such stockholder vote, if any, as would be required by Pennsylvania law, if
such Business Combination is approved by two-thirds of the entire Board of
Directors of the Company.
Article 16. Amendment of Articles and Bylaws.
A. Articles. The Company reserves the right to amend, alter, change, or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights conferred upon stockholders
herein are granted subject to this reservation. No amendment, addition,
alteration, change, or repeal of these Articles of Incorporation shall be made
unless such amendment addition, alteration, change, or repeal is first proposed
and approved by the Board of Directors pursuant to a resolution proposed and
adopted by the affirmative vote of a majority of the directors then in office,
and thereafter is approved by the holders of a majority (except as provided
below) of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof.
Notwithstanding anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least eighty percent (80%)
of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof,
shall be required to amend, adopt, alter, change, or repeal any provision
inconsistent with Articles 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16.
B. Bylaws. The Board of Directors or stockholders may adopt, alter,
amend, or repeal the Bylaws of the Company. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of the holders of
at least eighty percent (80%) of the shares of the Company entitled to vote
generally in an election of directors, voting together as a single class, as
well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof.
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EXHIBIT 3.(ii)
<PAGE>
BYLAWS
OF
CARNEGIE FINANCIAL CORPORATION
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of
Carnegie Fiancial Corporation (the "Company") shall be located in the
Commonwealth of Pennsylvania at such place as may be fixed from time to time by
the board of directors of the Company (the "Board" or "Board of Directors") upon
filing of such notices as may be required by law, and the registered agent shall
have a business office identical with such registered office.
1.2 Other Offices. The Company may have other offices within or outside
the Commonwealth of Pennsylvania at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETING
2.1 Meeting Place. All meetings of the stockholders shall be held at
the principal place of business of the Company, or at such other place within or
without the Commonwealth of Pennsylvania as shall be determined by the Board of
Directors and stated in the notice of such meeting.
2.2 Annual Meeting Time. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and time
as may be determined by the Board of Directors and stated in the notice of such
meeting.
2.3 Organization and Conduct. Each meeting of the stockholders shall be
presided over by the Chairman of the Board, or in the Chairman's absence by the
President, or if neither the Chairman nor the President is present, by any Vice
President. The Secretary, or in the Secretary's absence a temporary Secretary,
shall act as secretary of each meeting of the stockholders. In the absence of
the Secretary and any temporary Secretary, the chairman of the meeting may
appoint any person present to act as secretary of the meeting. The chairman of
any meeting of the stockholders, unless prescribed by law or regulation or
unless the Board of Directors has otherwise determined, shall determine the
order of the business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussions as shall be
deemed appropriate by such chairman in the chairman's sole discretion.
2.4 Notice.
(a) Notice of the date, time, and place of, and the general
business to be conducted at, an annual or special meeting of stockholders shall
be given by delivering personally, by facsimile transmission, or by mailing a
written or printed notice of the same, at least ten (10) days prior to the
meeting, to each stockholder of record entitled to vote at such meeting. When
any stockholders' meeting, either annual or special, is adjourned and a new
record date is fixed for an adjourned meeting of stockholders, 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 unless new business
<PAGE>
is to be transacted thereat or a new record date is fixed therefor, other than
an announcement at the meeting at which such adjournment is taken.
2.5 Voting Lists. The officer or agent having charge of the transfer
books for shares of the Company shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical order,
with the address of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and shall be subject
to inspection of any shareholder during the whole time of the meeting for the
purposes thereof.
2.6 Quorum. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of stockholders
shall consist of stockholders representing, either in person or by proxy, a
majority of the outstanding capital stock of the Company entitled to vote at
such meeting without regard to any shares for which a broker indicates on a
proxy that it does not have discretionary authority as to such shares to vote on
such matter ("Broker Non-votes").
(b) The votes of a majority of those present, without regard
to Broker Non-votes or votes of abstention, at any properly called meeting or
adjourned meeting of stockholders, at which a quorum as defined above is
present, shall be sufficient to transact business, unless such greater vote is
required by these Bylaws, the Articles of Incorporation, or the laws of the
Commonwealth of Pennsylvania.
2.7 Voting of Shares.
(a) Except as otherwise provided in these Bylaws or to the
extent that voting rights of the shares of any class or classes are limited or
denied by the Articles of Incorporation, each stockholder, on each matter
submitted to a vote at a meeting of stockholders, shall have one vote for each
share of capital stock registered in such person's name on the books of the
Company.
(b) Directors are to be elected by a plurality of votes cast
by the shares entitled to vote in the election of directors at a meeting at
which a quorum is present. Stockholders shall not be permitted to cumulate their
votes for the election of directors. If, at any meeting of the stockholders, due
to a vacancy or vacancies or otherwise, directors of more than one class of the
Board of Directors are to be elected, each class of directors to be elected at
the meeting shall be elected in a separate election by a plurality vote.
2.8 Fixing Record Date. The Board of Directors may fix a time prior to
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall be not more than 90 days
prior to the date of the meeting of shareholders. Only shareholders of record on
the date fixed shall be so entitled notwithstanding any transfer of shares on
the books of the Company after any record date fixed as provided in this
subsection. The Board of Directors may similarly fix a record date for the
determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the Board fixes a new record date for the adjourned
meeting.
2.9 Proxies. A stockholder may vote either in person or by proxy
executed in writing by the stockholder, or such person's duly authorized
attorney-in-fact. A telegram, telex, cablegram, datagram, or similar
transmission from a shareholder or attorney-in-fact, or a photographic,
facsimile, or similar reproduction of a writing executed by a shareholder or
attorney-in-fact may be treated as properly
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<PAGE>
executed for purposes of this section and shall be so treated if it sets forth a
confidential and unique identification number or other mark furnished by the
Company to the shareholder for the purposes of a particular meeting or
transaction. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy.
2.10 Voting of Shares in the Name of Two or More Persons. Where shares
are held jointly or as tenants in common by two or more persons as fiduciaries
or otherwise, if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be deemed
to be represented for the purpose of determining a quorum and the Company shall
accept as the vote of all such shares the votes cast by such person or a
majority of them and if in any case such persons are equally divided upon the
manner of voting the shares held by them, the vote of such shares shall be
divided equally among such persons, without prejudice to the rights of such
joint owners or the beneficial owners thereof among themselves, except that, if
there shall have been filed with the Secretary of the Company a copy, certified
by an attorney-at-law to be correct, of the relevant portions of the agreements
under which such shares are held or the instrument by which the trust or estate
was created or the decree of court appointing them, or of a decree of court
directing the voting of such shares, the persons specified as having such voting
power in the latest such document so filed, and only such persons, shall be
entitled to vote such shares but only in accordance therewith.
2.11 Voting of Shares by Certain Holders. Shares standing in the name
of another corporation may be voted by an 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 such person,
either in person or by proxy, without a transfer of such shares into such
person's name. Shares standing in the name of a trustee may be voted by the
trustee, either in person or by proxy. Shares standing in the name of a receiver
may be voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed. A stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee or nominee, and thereafter the
pledgee or nominee shall be entitled to vote the shares so transferred.
2.12 Judges of Election. For each meeting of stockholders, the Board of
Directors may appoint the judges of election. If for any meeting the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board of Directors shall fail to appoint any inspector, one or more inspectors
may be appointed at the meeting by the chairman thereof. The number of
inspectors shall be one or three. Except for such duties as may be designated in
the Articles of Incorporation to another person, such inspectors determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity, and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result and do such acts as may
be proper to conduct the election or vote with fairness to all shareholders. If
there are three inspectors, the decision, act, or certificate of a majority
shall be effective in all respects as the decision, act, or certificate of all.
Inspectors need not be stockholders.
2.13 Action By Shareholders Without a Meeting. Action required to be
taken or which may be taken at any annual or special meeting of stockholders of
the Company may be taken without a meeting as set forth in the Articles of
Incorporation, which provisions are incorporated herein with the same effect as
if they were set forth herein.
3
<PAGE>
ARTICLE III. CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or the Treasurer, and may be
sealed with the seal of the Company or a facsimile thereof. The signatures of
such officers may be facsimiles if the certificate is manually signed on behalf
of a transfer agent, or registered by a registrar, other than the Company itself
or an employee of the Company. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an officer of the
Company before the certificate is issued, it may be issued by the Company with
the same effect as if the person were an officer on the date of issue. Each
certificate of stock shall state:
(a) that the Company is incorporated under the laws of the
Commonwealth of Pennsylvania;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the
series, if any, which such certificate represents;
(d) the par value of each share represented by such
certificate, or a statement that such shares are without par value; and
(e) that the Company will furnish to any shareholder upon
request and without charge, a full statement of the designations, preferences,
limitations, and relative rights of each class authorized to be issued.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock
transfer books of the Company, kept at the registered office of the Company or
at its principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificate or an assignment separate from the certificate, or by a
written power of attorney to sell, assign, and transfer the same, signed by the
holder of said certificate. No shares of stock shall be transferred on the books
of the Company until the outstanding certificates therefor have been surrendered
to the Company.
3.3 Registered Owner. Registered stockholders shall be treated by the
Company as the holders in fact of the stock standing in their respective names
and the Company shall not be bound to recognize any equitable or other claim to
or interest in any share on the part of any other person, whether or not it
shall have express or other notice thereof, except as expressly provided below
or by the laws of the Commonwealth of Pennsylvania. The Board of Directors may
adopt by resolution a procedure whereby a stockholder of the Company may certify
in writing to the Company that all or a portion of the shares registered in the
name of such stockholder are held for the account of a specified person or
persons. The resolution shall set forth:
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<PAGE>
(a) The classification of stockholders who may certify;
(b) The purpose or purposes for which the certification may be
made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or
closing of the stock transfer books, the date within which the certification
must be received by the Company; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the Company of a certification complying with a
resolution meeting the above requirements, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the stockholder making the certification.
3.4 Mutilated, Lost, or Destroyed Certificates. In case of any
mutilation, loss, or destruction of any certificate of stock, another may be
issued in its place upon receipt of proof of such mutilation, loss, or
destruction. The Board of Directors may impose conditions on such issuance and
may require the giving of a satisfactory bond or indemnity to the Company in
such sum as the Board might determine, or the Board may establish such other
procedures as it deems necessary.
3.5 Fractional Shares or Scrip. The Company may (a) issue fractions of
a share which shall entitle the holder a proportional interest to exercise
voting rights, to receive dividends thereon, and to participate in any of the
assets of the Company in the event of liquidation; (b) arrange for the
disposition of fractional interests by those entitled thereto; (c) pay in cash
the fair value of fractions of a share as of the time when those entitled to
receive such shares are determined; or (d) issue scrip in registered or bearer
form which shall entitle to holder to receive a certificate for a full share
upon the surrender of such scrip aggregating a full share.
3.6 Shares of Another Company. Shares owned by the Company in another
corporation, domestic or foreign, may be voted by such officer, agent, or proxy
as the Board of Directors may determine or, in the absence of such
determination, by the President of the Company.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Number and Powers. The management of all the affairs, property, and
interest of the Company shall be vested in a Board of Directors. The Board of
Directors shall be divided into three classes as nearly equal in number as
possible. The initial Board of Directors shall consist of five (5) persons. The
classification and term of the directors shall be as set forth in the Articles
of Incorporation, which provisions are incorporated herein with the same effect
as if they were set forth herein. Directors must own no less than twelve (12)
shares of the voting stock of the Company. Such shares shall be kept on deposit
in the vault of the Company. Any director shall cease to act when no longer
holding such shares, which fact shall be reported to the Board by the Secretary,
whereupon the Board shall declare the seat of such director vacant. Directors
need not be residents of the Commonwealth of Pennsylvania. In addition to the
powers, authorities, and duties expressly conferred upon it by these Bylaws and
the Articles of Incorporation, the Board of Directors may exercise all such
powers of the Company and do
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<PAGE>
all such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
In discharging the powers and duties of their respective positions, the
Board of Directors, committees of the Board of Directors, and individual
directors may, in considering the best interests of the Company, consider to the
extent they deem appropriate the effects of any action upon any and all groups
affected by such action, including stockholders, employees, suppliers,
customers, and creditor of the Company, and upon the communities in which
offices or other establishments of the Company are located; the short-term and
long-term interests of the Company; the resources, intent, and conduct (past,
stated, and potential) of any person seeking to acquire control of the Company;
and any and all other factors, provided however, the Board of Directors,
committees of the Board of Directors, or any individual director shall not be
required, in considering the best interests of the Company or the effects of any
action, to regard any interest or interests of any particular group affected by
the action as a dominant or controlling interest or factor.
4.2 Change of Number. The number of directors may at any time be
increased or decreased by a vote of two-thirds of the Board of Directors,
provided that no decrease shall have the effect of shortening the term of any
incumbent director except as provided in Sections 4.4 and 4.5 hereunder.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may neither be less than four nor more than 15.
4.3 Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Company addressed
to the Chairman or the President. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof by the Chairman or the
President.
4.4 Vacancies. All vacancies in the Board of Directors shall be filled
in the manner provided in the Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
4.5 Removal of Directors. Directors may be removed in the manner
provided in the Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein.
4.6 Regular Meetings. Regular meetings of the Board of Directors or any
committee thereof may be held without notice at the principal place of business
of the Company or at such other place or places, either within or without the
Commonwealth of Pennsylvania, as the Board of Directors or such committee, as
the case may be, may from time to time designate. The annual meeting of the
Board of Directors shall be held without notice immediately after the
adjournment of the annual meeting of stockholders.
4.7 Special Meetings.
(a) Special meetings of the Board of Directors may be called
at any time by the Chairman, President, or by a majority of the authorized
number of directors, to be held at the principal place of business of the
Company or at such other place or places as the Board of Directors or the person
or persons calling such meeting may from time to time designate. Notice of all
special meetings of the Board of Directors shall be given to each director at
least five (5) days prior to such meeting by telegram, telex, cablegram,
courier, facsimile, or other similar communication, by letter, or personally.
Such notice need neither specify the business to be transacted at, nor the
purpose of, the meeting.
6
<PAGE>
(b) Special meetings of any committee may be called at any
time by such person or persons and with such notice as shall be specified for
such committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special meetings
of the Board of Directors.
4.8 Quorum. A majority of the Board of Directors shall be necessary at
all meetings to constitute a quorum for the transaction of business.
4.9 Waiver of Notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before, during, or after the time stated for the
meeting, shall be equivalent to the giving of notice.
4.10 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless such director's dissent is
entered in the minutes of the meeting, or unless the director files a written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof, or unless the director delivers a dissent in
writing to the Secretary of the Company immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
4.11 Executive, Audit, and Other Committees. Standing or special
committees may be appointed by the Board of Directors from its own number from
time to time, and the Board of Directors may from time to time invest such
committees with such powers as it may see fit, subject to such conditions as may
be prescribed by the Board. An Executive Committee may be appointed by
resolution passed by a majority of the full Board of Directors. It shall have
and exercise all of the authority of the Board of Directors, except in reference
to the submission of any action requiring the approval of stockholders, the
creation or filling of vacancies on the Board of Directors, the adoption,
amendment, or repeal of these Bylaws, the amendment or repeal of any resolution
of the Board which, by its terms, is only amendable or repealable by the entire
Board, or any action on matters committed by these Bylaws or resolution of the
Board to another committee of the Board. An Audit Committee shall be appointed
by resolution passed by a majority of the full Board of Directors, and at least
a majority of the members of the Audit Committee shall be directors who are not
also officers of the Company. The Audit Committee shall review the records and
affairs of the Company to determine its financial condition, shall review the
Company's systems of internal control with management and the Company's
independent auditors, and shall monitor the Company's adherence in accounting
and financial reporting to generally accepted accounting principles, as well as
such other duties as may be assigned to it by the Board of Directors. All
committees appointed by the Board of Directors shall keep regular minutes of the
transactions of their meetings and shall cause them to be recorded in books kept
for that purpose in the office of the Company. The designation of any such
committee, and the delegation of authority thereto, shall not relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law.
4.12 Remuneration. The Board of Directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have the authority to establish reasonable
fee for all directors for services to the Company as directors, officers, or
otherwise, or to delegate such authority to any appropriate committee; provided,
that nothing herein contained shall be construed to preclude any director from
serving the Company in any other capacity and receiving compensation therefor.
Members of standing or special committees may be allowed like compensation for
attending committee meetings.
7
<PAGE>
4.13 Action by Directors Without a Meeting. Any action which may be
taken at a meeting of the directors, or of a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so taken or
to be taken, shall be signed by all of the directors, or all of the members of
the committee, as the case may be. Such consent shall have the same effect as a
unanimous vote.
4.14 Action of Directors by Communications Equipment. Any action which
may be taken at a meeting of directors, or of a committee thereof, may be taken
by means of a conference telephone or similar communications equipment by means
of which persons participating in the meeting can hear each other at the same
time. Participation in a meeting pursuant to this section shall constitute
presence in person at the meeting
ARTICLE V. OFFICERS
5.1 Designations. The officers of the Company may include the Chairman
of the Board, a President, a Secretary, and a Treasurer, as well as such Vice
Presidents (including Executive and Senior Vice Presidents), Assistant
Secretaries, and Assistant Treasurers as the Board may designate, who shall be
elected for one year by the directors at their first meeting after the annual
meeting of stockholders, and who shall hold office until their successors are
elected and qualify. Any two or more offices may be held by the same person,
except that the offices of President and Secretary and President and Treasurer
may not be held by the same person. The President and Chairman of the Board
shall be members of the Board.
5.2 Powers and Duties. The officers of the Company shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of Directors,
the officers shall have such powers and duties as generally pertain to their
respective offices.
5.3 Delegation. In the case of absence or inability to act of any
officer of the Company and of any person herein authorized to act in such
officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Other Officers. The Board may appoint such other officers and
agents as it shall deem necessary or expedient, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.7 Term - Removal. The officers of the Company shall hold office until
their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contractual rights, if any,
of the person so removed. The election or appointment of an officer or agent
shall not in itself create contractual rights.
8
<PAGE>
ARTICLE VI. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the 31st day of December of
each year. The Company shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the Board of Directors. The appointment of such accountants shall be subject to
annual ratification by the stockholders.
ARTICLE VII. DIVIDENDS AND FINANCE
7.1 Dividends. Dividends may be declared by the Board of Directors and
paid by the Company out of retained earnings of the Company subject to the
conditions and limitations imposed by the laws of the Commonwealth of
Pennsylvania.
7.2. Reserves. Before making any distribution of earned surplus, there
may be set aside out of the earned surplus of the Company such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the Company, or for any other purpose. Any earned
surplus of any year not distributed as dividends shall be deemed to have thus
been set apart until otherwise disposed of by the Board of Directors.
7.3 Depositories. The monies of the Company shall be deposited in the
name of the Company in such bank or banks or trust company or trust companies as
the Board of Directors shall designate, and shall be drawn out only by check or
other order for payment of money signed by such persons and in such manner as
may be determined by resolution of the Board of Directors.
ARTICLE VIII. NOTICES
Except as may otherwise be required by law, any notice to any
stockholder or director may be delivered personally, by mail, by telegram,
telex, or TWX (with answerback received), or by courier service or facsimile
transmission. If sent by mail, telegraph, or courier service, the notice shall
be deemed to have been given to the person when deposited in the United States
mail or with a telegraph or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched to the address of the addressee at
such persons last known address (or to such persons telex, TWX, or facsimile
number) in the records of the Company, with postage or courier or other charges
thereon prepaid.
ARTICLE IX. SEAL
The corporate seal of the Company shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Company.
9
<PAGE>
ARTICLE X. BOOKS AND RECORDS
The Company shall keep correct and complete books and records of
account and shall keep minutes and proceedings of meetings of its stockholders
and Board of Directors; and it shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its stockholders, giving the names and addresses of all stockholders and the
number and class of the shares held by each. Any books, records, and minutes may
be in written form or any other form capable of being converted into written
form within a reasonable time.
ARTICLE XI. AMENDMENTS
These Bylaws may be altered, amended or repealed only as set forth in
the Articles of Incorporation, which provisions are incorporated herein with the
same effect as if they were set forth herein.
10
EXHIBIT 4
<PAGE>
================================================================================
COMMON STOCK Carnegie Financial Corporation CUSIP
CERTIFICATE NO.
INCORPORATED UNDER THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT:
IS THE OWNER OF:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.10 PAR VALUE PER SHARE OF
Carnegie Financial Corporation
The shares represented by this certificate are transferable only on the
stock transfer books of the corporation by the holder of record hereof in
person, 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
contained in the corporation's official corporate papers filed with the
Department of State of the Commonwealth of Pennsylvania (copies of which are on
file with the Transfer Agent), to all of the provisions the holder by acceptance
hereof, assents.
This certificate is not valid unless countersigned and registered by
the Transfer Agent
and Registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
In Witness Whereof, Carnegie Financial Corporation 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:
____________________________________ ____________________________________
PRESIDENT SECRETARY
SEAL
Incorporated 1998
================================================================================
<PAGE>
CARNEGIE FINANCIAL CORPORATION
The shares represented by this certificate are subject to a limitation
contained in the articles of incorporation (the "Articles") 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. In addition, for five years from the initial sale of common stock, no
person or entity may offer to acquire or acquire more than 10% of the then
outstanding shares of any class of equity securities of the corporation.
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 in the election of directors of the corporation. The Articles also require
the approval of not less than 80% of the corporation's voting stock prior to the
corporation engaging in certain business combinations (as defined in the
Articles) with a person who is the beneficial owner of 10% or more of the
corporation's outstanding voting stock, or with an affiliate or associate of the
corporation. This restriction does not apply if certain approvals are obtained
from the Board of Directors. The affirmative vote of holders of 80% of the
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) is required to amend this and certain other provisions of the Articles.
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF TRANS MIN ACT - _______________Custodian_______________
(Cus) (Minor)
under Uniform Transfers to Minors Act
_______________________
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING 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 shares on the books of the within named corporation with
full power of substitution in the premises.
Dated _____________________ X___________________________________
X___________________________________
NOTICE: The signatures to this assignment must correspond with the
name(s) as written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
SIGNATURE(S) 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>
Countersigned and Registered:
Transfer Agent and Registrar
By: _
Authorized Signature
EXHIBIT 5.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
[FORM OF STATE TAX OPINION]
______________, 1998
Board of Directors
Carnegie Financial Corporation
17 West Mall Plaza
Carnegie, Pennsylvania 15106
Re: Registration Statement Under the Securities Act of 1933
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 238,050 shares of
common stock, par value $0.10 per share (the "Common Stock"), of Carnegie
Financial Corporation (the "Company"), including shares to be issued to certain
employee benefit plans of the Company and its subsidiary. The Common Stock is
proposed to be issued pursuant to the Plan of Conversion (the "Plan") of
Carnegie Savings Bank, (the "Savings Bank") in connection with the Savings
Bank's conversion from a mutual savings bank form of organization to a stock
savings bank form of organization and reorganization into a wholly-owned
subsidiary of the Company (the "Conversion"). As special counsel to the Savings
Bank and the Company, we have reviewed the corporate proceedings relating to the
Plan and the Conversion and such other legal matters as we have deemed
appropriate for the purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable shares of Common Stock of the
Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
<PAGE>
Board of Directors
____________, 1998
Page Two
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the headings "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
Carnegie Savings Bank - Tax Effects" and "Legal and Tax Matters." We also
consent to any references to our legal opinion referred to under the
aforementioned headings in the Prospectus.
Very truly yours,
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 5.2
<PAGE>
March 24, 1998
Board of Directors
Carnegie Savings Bank
17 West Mall Plaza
Carnegie, Pennsylvania 15106
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion adopted by the Board of Directors of
Carnegie Savings Bank (the "Bank"), whereby the Bank will convert from a
federally chartered mutual savings bank to a federally chartered stock savings
bank and issue all of the Banks's stock to Carnegie Financial Corporation (the
"Holding Company"). Simultaneously, the Holding Company will issue shares of
common stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of the Bank's Common Stock in the Holding Company are
to be issued to (i) Eligible Account Holders, (ii) the ESOP, (iii) Supplemental
Eligible Account Holders, and (iv) Other Members. Based solely on our
observation that the Subscription Rights will be available to such Recipients
without cost, will be legally non-transferable and of short duration, and will
afford such parties the right only to purchase shares of Common Stock at the
same price as will be paid by members of the general public in the Community
Offering, but without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with respect to this
issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value;
and
(2) the price at which the Subscription Rights are excercisable will
not be more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Bank's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the Conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/Kenneth G. Emerson
------------------------------------
Kenneth G. Emerson, CPA
Director
EXHIBIT 8.1
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
[FORM OF FEDERAL TAX OPINION]
_______________, 1998
Board of Directors
Carnegie Savings Bank
17 West Mall Plaza
Carnegie, Pennsylvania 15106
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of
Carnegie Savings Bank from a Federally-Chartered Mutual Savings
Bank to a Federally-Chartered Stock Savings Bank Pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended
-----------------------------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the proposed
conversion (the "Conversion") of Carnegie Savings Bank (the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered capital stock
savings bank (the "Stock Bank"), and formation of a parent holding company (the
"Holding Company") which will simultaneously acquire all of the outstanding
stock of Stock Bank. As proposed, the Conversion will be implemented pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code").
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for this opinion. In
such examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Bank's Plan of Conversion adopted on December 15, 1997,
as amended (the "Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such
information as the Bank has provided to us (which we have not attempted to
verify in any respect), and in reliance upon such documents and information, we
understand the relevant facts with respect to the Conversion to be as follows:
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 2
The Bank is a federally-chartered mutual savings bank. As a mutual
savings bank, the Bank has no authorized capital stock. Instead, the Bank, in
mutual form, has a unique equity structure. A savings depositor of the Bank is
entitled to interest income on his or her account balance as declared and paid
by the Bank. A savings depositor has no right to a distribution of any earnings
of the Bank, but rather these amounts become retained earnings of the Bank.
However, a savings depositor has a right to share pro rata, with respect to the
withdrawal value of his or her respective savings account, in any liquidation
proceeds distributed in the event the Bank is ever liquidated. Voting rights in
the Bank are held by its members. Each member is entitled to cast one vote for
each $100 or a fraction thereof of the withdrawal value of the member's account
and each borrower member is entitled to one vote. Each member shall have a
maximum of 1,000 votes. All of the interests held by a savings depositor in the
Bank cease when such depositor closes his or her account(s) with the Bank.
The Board of Directors of the Bank has decided that in order to promote
the growth and expansion of the Bank through the raising of additional capital,
it would be advantageous for the Bank to: (i) convert from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank, and
(ii) arrange for the Holding Company to simultaneously acquire all of the Stock
Bank's stock. The Bank's Board of Directors has determined that in order to
provide greater flexibility in future operations of the Bank, including
diversification of business opportunities and acquisitions, it is advantageous
to have the Stock Bank's stock held by the Holding Company. Pursuant to the Plan
of Conversion, the Bank's certificate of incorporation to operate as a mutual
savings bank will be amended and a new certificate of incorporation will be
acquired to allow it to continue its operations in the form of a
federally-chartered capital stock savings bank. The Plan of Conversion provides
for the conversion of the Bank from mutual-to-stock form, and an appraisal of
the pro forma market value of the stock of the Stock Bank, which will be owned
solely by the Holding Company. The Plan of Conversion must be approved by the
Office of Thrift Supervision ("OTS"), and by an affirmative vote of at least a
majority of the total votes eligible to be cast at a special meeting of the
Bank's members called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the Commonwealth
of Pennsylvania for the purpose of the proposed transaction described herein, to
engage in business as a savings and loan holding company and to hold all of the
stock of the Stock Bank. The Holding Company will issue shares of its voting
common stock ("Holding Company Stock") upon completion of the Conversion, as
described below, to persons purchasing such shares through a Subscription
Offering and to the general public in a Public Offering.
Following appropriate regulatory approval, the Plan of Conversion
provides for the issuance of shares of Holding Company Stock to eligible
depositors and borrowers of the Bank and others as described below and set forth
in the Plan of Conversion. The aggregate purchase price at which all shares of
Holding Company Stock will be offered and sold pursuant to the
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 3
Plan of Conversion will be equal to the estimated pro forma market value of the
Bank at the time of the Conversion as held as a subsidiary of the Holding
Company. The estimated pro forma market value will be determined by an
independent appraiser. Pursuant to the Plan of Conversion, all such shares of
Holding Company Stock will be issued and sold at a uniform price per share. The
Conversion and the sale of newly issued shares of the Stock Bank's stock to the
Holding Company will be deemed effective concurrently with the closing of the
sale of Holding Company Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, provided that the aggregate purchase price
does not exceed $500. The Bank has established various preference categories
under which shares of Holding Company Stock may be purchased and a public
offering category for the sale of shares not purchased under the preference
categories. If the third preference category is determined to be inappropriate
to the Conversion, then there will only be three preference categories
consisting of the first, second, and fourth preference categories set forth
below, and all references herein to Supplemental Eligible Account Holder and the
Supplemental Eligibility Record Date shall not be applicable to the Conversion.
The first preference category is reserved for the Bank's Eligible
Account Holders. The Plan of Conversion defines "Eligible Account Holder" as any
person holding a Qualifying Deposit. The Plan of Conversion defines "Qualifying
Deposit" as the aggregate balance of all savings accounts of an Eligible Account
Holder in the Bank at the close of business on November 30, 1996, which is at
least equal to $50.00. If a savings account holder of the Bank qualifies as an
Eligible Account Holder, he or she will receive, without payment,
non-transferable subscription rights to purchase Holding Company Stock. The
number of shares that each Eligible Account Holder may subscribe to is equal to
the greater of (a) the maximum purchase limitation established for the Public
Offering; (b) one tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Holding Company 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 the
Qualifying Deposits of all Eligible Account Holders. If there is an
oversubscription, shares will be allocated among subscribing Eligible Account
Holders so as to permit each account holder, to the extent possible, to purchase
a number of shares sufficient to make his or her total allocation equal to 100
shares. Any shares not then allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis, related to the amounts of their
respective deposits as compared to the total deposits of Eligible Account
Holders on the Eligibility Record Date. Non-transferable subscription rights to
purchase Holding Company Stock received by officers and directors of the Bank
and their associates based on their increased deposits in the Bank in the one
year period
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 4
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of nontransferable subscription rights to
purchase shares of Holding Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Stock Bank. The Plan of Conversion defines "tax
qualified employee stock benefit plans" as 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 Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan of Conversion defines "Supplemental Eligible
Account Holder" as any person (other than officers or directors of the Bank and
their associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan of Conversion by the OTS
("Supplemental Eligibility Record Date"). This third preference category will
only be used in the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application for Approval
of Conversion on Form AC filed prior to approval by the OTS. The third
preference category provides that each Supplemental Eligible Account Holder will
receive, without payment, nontransferable subscription rights to purchase
Holding Company Stock to the extent that such shares of Holding Company Stock
are available after satisfying subscriptions for shares in the first and second
preference categories above. The number of shares to which a Supplemental
Eligible Account Holder may subscribe to is the greater of (a) the maximum
purchase limitation established for the Community Offering; (b) one-tenth of one
percent of the total offering of shares; or (c) fifteen times the product
(rounded down to the next whole number) obtained by multiplying the total number
of the shares of Holding Company Stock to be issued by a fraction of which the
numerator is the amount of the deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Subscription rights received pursuant to the third preference category
shall be subordinated to all rights under the first and second preference
categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In the
event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription, whichever is less. Any shares
not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 5
on an equitable basis related to the amount of their respective deposits as
compared to the total deposits of Supplemental Eligible Account Holders on the
Supplemental Eligibility Record Date.
If there is no oversubscription of the Holding Company Stock in the
first, second, and third preference categories, the fourth preference category
becomes operable. In the fourth preference category, members of the Bank
entitled to vote at the special meeting of members to approve the Plan of
Conversion who are not Eligible Account Holders or Supplemental Eligible Account
Holders ("Other Members") will receive, without payment, non-transferable
subscription rights entitling them to purchase Holding Company Stock. Other
Members shall each receive subscription rights to purchase up to the maximum
purchase limitation established for the Public Offering or one-tenth of one
percent of the total offering of shares, to the extent that Holding Company
Stock is available. In the event of an oversubscription by Other Members,
Holding Company Stock will be allocated pro rata according to the number of
shares subscribed for by each Other Member.
The Plan of Conversion further provides for limitations upon purchases
of Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $75,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding Company Stock issued. Subject to any
required regulatory approval and the requirements of applicable laws and
regulations, the Bank may increase or decrease any of the purchase limitations
set forth herein at any time. The Board of Directors of the Bank may, in its
sole discretion, increase the maximum purchase limitation up to 5.0%. Requests
to purchase additional shares of Holding Company Stock under this provision will
be allocated by the Board of Directors on a pro rata basis giving priority in
accordance with the priority rights set forth in the Plan of Conversion.
Officers and directors of the Bank and their associates may not purchase in the
aggregate more than 35% of the Holding Company Stock issued pursuant to the
Conversion. Directors of the Bank will not be deemed associates or a group
acting in concert solely as a result of their membership on the board of
directors of the Bank. All of the shares of Holding Company Stock purchased by
officers and directors will be subject to certain restrictions on sale for a
period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding Company Stock if
such person resides in a foreign country or in a state of the United States with
respect to which all of the following apply: (a) a small number of persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Bank or the Holding
Company under the securities law of such state to register as a broker or dealer
or to register or otherwise qualify its securities for
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 6
sale in such state; and (c) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a
Liquidation Account by the Stock Bank for the benefit of all Eligible Account
Holders and Supplemental Eligible Account Holders (if applicable). The
Liquidation Account will be equal in amount to the net worth of Bank as of the
time of the Conversion. The establishment of the Liquidation Account will not
operate to restrict the use or application of any of the net worth accounts of
the Stock Bank, except that the Stock Bank will not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. The Liquidation Account will be for the benefit of the Bank's Eligible
Account Holders and Supplemental Eligible Account Holders who maintain accounts
in the Bank at the time of the Conversion. All such account holders, including
those not entitled to subscription rights for reasons of foreign or out-of-state
residency (as described above), will have an interest in the Liquidation
Account. The interest an Eligible Account Holder and Supplemental Eligible
Account Holder will have a right to receive, in the event of a complete
liquidation of the Stock Bank, is a distribution from the Liquidation Account in
the amount of the then current adjusted subaccount balances for savings accounts
then held, which will be made prior to any liquidation distribution with respect
to the capital stock of the Stock Bank.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in the
Stock Bank. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the savings account at the close
of business on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date, or (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
The net proceeds from the sale of the shares of Holding Company Stock
will become the permanent capital of Holding Company, and the Holding Company
will in turn purchase 100%
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 7
of the stock issued by Stock Bank, in exchange for up to 50% of the Holding
Company's stock offering net proceeds or such other percentage as is approved by
the Board of Directors with the concurrence of the OTS.
Following the Conversion, voting rights in Stock Bank will rest
exclusively in the Holding Company. Voting rights in the Holding Company will
rest exclusively in the stockholders of the Holding Company. The Conversion will
not interrupt the business of the Bank, and its business will continue as usual
under the Stock Bank. Each depositor will retain a withdrawable savings account
or accounts equal in amount to the withdrawable account or accounts at the time
of the Conversion. Mortgage loans of the Bank will remain unchanged and retain
their same characteristics in the Stock Bank after the Conversion. The Stock
Bank will continue membership in the Federal Home Loan Bank System, and will
remain subject to the regulatory authority of the OTS. Deposits in Stock Bank
will continue to be insured by the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation up to applicable
limits of insurance coverage.
Immediately prior to the Conversion, the Bank will have a positive net
worth in accordance with generally accepted accounting principles. The savings
account holders of the Bank will pay expenses of the Conversion solely
attributable to them, if any. Further, the Bank will pay its own expenses of the
Conversion and will not pay any expenses solely attributable to the Bank's
savings account holders or to the purchasers of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the Bank:
1. The Conversion will be implemented in accordance with the terms of
the Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Bank plus the interest in the residual equity of the
Bank surrendered in exchange therefor. All proprietary rights in the Bank form
an integral part of the withdrawable savings accounts being surrendered in the
Conversion.
3. The Holding Company and the Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Stock issued
in the proposed transaction.
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 8
4. To the best of the knowledge of the management of the Bank, there is
not now nor will there be at the time of the Conversion, any plan or intention,
on the part of the depositors in the Bank to withdraw their deposits following
the Conversion. Deposits withdrawn immediately prior to or immediately
subsequent to the Conversion (other than maturing deposits) are considered in
making these assumptions. 00
5. Immediately following the consummation of the proposed transaction,
the Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to the Holding Company (except for assets
used to pay expenses in the Conversion). Assets used to pay expenses of the
Conversion (without reference to the expenses of the Subscription Offering and
the Public Offering) and all distributions (except for regular normal interest
payments made by the Bank immediately preceding the transaction) will in the
aggregate constitute less than one percent (1%) of the assets of the Bank, net
of liabilities associated with such assets, and will be paid by the Bank and the
Holding Company from the proceeds of the Subscription Offering and Public
Offering.
6. Following the Conversion, the Stock Bank will continue to engage in
its business in substantially the same manner as engaged in by the Bank prior to
the Conversion. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. No cash or property will be given to any member of the Bank in lieu
of subscription rights or an interest in the Liquidation Account of the Stock
Bank.
8. None of the compensation to be received by any deposit account
holder-employees of the Bank or the Holding Company will be separate
consideration for, or allocable to, any of their deposits in the Bank. No
interest in the Liquidation Account of the Stock Bank will be received by any
deposit account holder-employees as separate consideration for, or will
otherwise be allocable to, any employment agreement, and the compensation paid
to each deposit account holder-employee, during the twelve month period
preceding or subsequent to the Conversion, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. No shares of Holding Company Stock will be
issued to or purchased by any deposit account holder-employee of the Bank or the
Holding Company at a discount or as compensation in the Conversion.
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 9
exceeded 99% of the aggregate fair market value of all savings accounts
(including those accounts of less than $50.00) in the Bank as of the close of
business on such date.
10. There is no plan or intention for the Stock Bank to be liquidated
or merged with another corporation following the consummation of the Conversion.
11. The Bank and the Stock Bank are corporations within the meaning of
Section 7701(a)(3) of the Code.
12. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
13. Both the Stock Bank and the Holding Company have no plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of common stock following the proposed transaction, other than
shares that may be issued to employees or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
14. At the time of the proposed transaction, the fair market value of
the assets of the Bank on a going concern basis (including intangibles) will
equal or exceed the amount of its li0abilities plus the amount of liability to
which such assets are subject. The Bank will have a positive regulatory net
worth at the time of the Conversion.
15. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 or 593 of the Code applies.
16. The Bank's savings depositors will pay expenses of the Conversion
solely attributable to them, if any. The Holding Company, the Stock Bank, and
the Bank will pay their own expenses of the Conversion and will not pay any
expenses solely attributable to the savings depositors or to the Holding Company
stockholders.
17. The liabilities of the Bank assumed by the Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by the Bank in the ordinary course of its business and are associated with the
assets transferred.
18. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Holding Company Stock in the Conversion.
19. Neither the Bank nor the Stock Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 10
20. No creditors of the Bank have taken any steps to enforce their
claims against the Bank by instituting bankruptcy or other legal proceedings, in
either a court or appropriate regulatory agency, that would eliminate the
proprietary interests of the members of the Bank prior to the Conversion.
21. The proposed transaction does not involve the payment to the Stock
Bank or the Bank of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
22. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Bank arise solely by virtue of the fact
that they are account holders in the Bank.
23. At the time of the Conversion, the Bank will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire an equity interest in the Holding
Company or the Stock Bank.
24. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of the assets of the Bank acquired in the transaction (except for
dispositions, including deposit withdrawals, made in the ordinary course of
business).
25. On a per share basis, the purchase price of the Holding Company
Stock in the Conversion will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
26. The Bank has received or will receive an opinion from FinPro, Inc.
("Appraiser's Opinion"), which concludes that subscription rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders, and other
eligible subscribers do not have any ascertainable fair market value, because
they are acquired by the recipients without cost, are non-transferable, exist
for such a short duration, and merely afford the recipients a right only to
purchase Holding Company Stock at a price equal to its estimated fair market
value, which will be the same price used in the Public Offering for unsubscribed
shares of Holding Company Stock.
27. The Bank will not have any net operating losses, capital loss
carryovers, or built-in losses at the time of the Conversion.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents, and the Appraiser's
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 11
Opinion, and provided the Conversion is undertaken in accordance with the above
assumptions, we render the following opinion of counsel:
1. The change in the form of operation of the Bank from a
federally-chartered mutual savings bank to a federally chartered capital stock
savings bank, as described above, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized to either the Bank or to the Stock Bank as a result of such
Conversion. (See Rev. Rul. 80-105, 1980-1 C.B. 78). The Bank and the Stock Bank
will each be a party to a reorganization within the meaning of Section 368(b) of
the Code. (Rev. Rul. 72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money in exchange for shares of Stock Bank stock. (Section 1032(a) of the
Code).
3. The Holding Company will recognize no gain or loss upon its receipt
of money in exchange for shares of Holding Company Stock. (Section 1032(a) of
the Code).
4. The assets of the Bank will have the same basis in the hands of the
Stock Bank as in the hands of the Bank immediately prior to the Conversion.
(Section 362(b) of the Code).
5. The holding period of the assets of the Bank to be received by the
Stock Bank will include the period during which the assets were held by the Bank
prior to the Conversion.
(Section 1223(2) of the Code).
6. Depositors will realize gain, if any, upon the issuance to them of
(i) withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock Bank. Any gain resulting therefrom will be recognized, but
only in an amount not in excess of the fair market value of the Liquidation
Accounts and/or subscription rights received. The Liquidation Accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no value at the time of distribution or
exercise, no gain or loss will be required to be recognized by depositors upon
receipt or distribution of subscription rights. (Section 1001 of the Code).
See Paulsen v. Commissioner, 469 U.S. 131, 139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion
reached in the Appraiser's Opinion, and our reliance thereon, we give the
following opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of the Bank upon dis00tribution to them of
subscription rights or upon the exercise or lapse of the subscription rights to
acquire Holding Company Stock at fair market value; (b) no taxable income will
be realized by the depositors of the Bank as a result of the exercise or lapse
of the subscription
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 12
rights to purchase Holding Company Stock at fair market value (Rev. Rul. 56-572,
1956-2 C.B. 182); and (c) no taxable income will be realized by the Bank, the
Stock Bank, or the Holding Company on the issuance or distribution of
subscription rights to depositors of the Bank to purchase shares of Holding
Company Stock at fair market value (Section 311 of the Code).
Notwithstanding the Appraiser's Opinion, if the subscription rights are
subsequently found to have a fair market value greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock Bank may be taxable on the distribution of the subscription rights.
(Section 311 of the Code). In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
7. The basis of the savings accounts in the Stock Bank received by the
account holders of the Bank will be the same as the basis of their savings
accounts in the Bank surrendered in exchange therefor (Section 358(a)(1)). The
basis of the interests in the Liquidation Account of the Stock Bank received by
the Eligible Account Holders and Supplemental Eligible Account Holders will be
zero, that being the cost of such property. (Paulsen v. Commissioner, 469 U.S.
131, 139 (1985)). The basis of the non-transferable subscription rights will be
zero, provided that such subscription rights are not deemed to have a fair
market value and that the subscription price of such stock issuable upon
exercise of such rights is equal to the fair market value of such stock. The
basis of the Holding Company Stock to its stockholders will be the purchase
price thereof, increased by the basis, if any, of the subscription rights
exercised (Section 1012 of the Code). The holding period of Holding Company
Stock will commence upon the effective date of exercise of the subscription
rights (Section 1223(6) of the Code). The holding period for the Holding Company
Stock purchased pursuant to the direct community offering, public offering or
under other purchase arrangements will commence on the date following the date
on which such stock is purchased. (Rev. Rul. 70- 598, 1970-2 C.B. 168).
8. The part of the taxable year of the Bank before the Conversion and
the part of the taxable year of the Stock Bank after the Conversion will
constitute a single taxable year of the Stock Bank. (See Rev. Rul. 57-276,
1957-1 C.B. 126). Consequently, the Bank will not be required to file a federal
income tax return for any portion of such taxable year (Section 1.381(b)-1(a)(2)
of the Treasury Regulations).
9. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Treasury Regulations, the Stock Bank will succeed to and
take into account the earnings and profits or deficit in earnings and profits of
the Bank as of the date or dates of transfer.
10. Regardless of book entries made for the creation of the Liquidation
Account, the Conversion, as described above, will not diminish the accumulated
earnings and profits of the
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 13
Stock Bank available for the subsequent distribution of dividends within the
meaning of Section 316 of the Code. (Section 1.312-11(b) and (c) of the Treasury
Regulations).
11. For purposes of Section 381 of the Code, the Stock Bank will be
treated the same as the Bank would have been had there been no reorganization.
Accordingly, the taxable year of the Bank will not end on the effective date of
the proposed transaction merely because of the transfer of assets of the Bank to
the Stock Bank and the tax attributes of the Bank enumerated in Section 381(c)
will be taken into account by the Stock Bank as if there had been no
reorganization (Section 1.381(b)-1(a)(2)) of the Treasury Regulations).
No opinion is expressed as to the tax treatment of the Conversion under
the provisions of any of the other sections of the Code and Treasury Regulations
which may also be applicable thereto, or under federal law, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transactions which are not specifically covered by the items set forth
above. Notwithstanding any reference to Section 381 above, no opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Bank or its successor, the Stock
Bank, under the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Bank filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form SB-2 of the Holding Company filed under the
Securities Act of 1933, as amended, and to the reference of our firm in the
prospectus related to this opinion.
Very truly yours,
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.2
<PAGE>
[FORM OF LEGAL OPINION]
______________, 1998
Board of Directors
Carnegie Savings Bank
17 West Mall Plaza
Carnegie, Pennsylvania 15106
Board Members:
You have requested our opinion regarding certain Pennsylvania tax
consequences to Carnegie Savings Bank (the "Bank") and its depositors under the
laws of the Commonwealth of Pennsylvania of the proposed conversion (the
"Conversion") under which the Bank will be changed from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank (the
"Stock Bank"), the simultaneous formation of a parent holding company
incorporated in Pennsylvania (the "Holding Company") that will acquire all of
the outstanding stock of the Stock Bank (the "Acquisition"), and the offering of
the stock of the Holding Company to the public (the "Offering"), pursuant to a
Plan of Conversion adopted by the Board of Directors of the Bank on December 15,
1997, as amended (the "Plan").
We have provided the Bank an opinion of this firm regarding certain
federal income tax consequences of the Conversion, the Acquisition, and the
Offering (the "Federal Tax Opinion"). Based upon the facts stated in the Federal
Tax Opinion, including certain representations of the Bank, the Federal Tax
Opinion concludes, among other things, that the Conversion qualifies as a
tax-free reorganization under ss. 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended, and that the Bank, the Stock Bank, and the Holding Company and
the depositors of the Bank will not recognize income, gain, or loss for federal
income tax purposes upon the implementation of the Conversion, the Acquisition,
and the Offering.
Based upon (1) the facts and circumstances attendant to the Conversion,
the Acquisition, and the Offering, including the representations of the Bank, as
described in the Federal Tax Opinion, (2) current provisions of Pennsylvania
law, as reflected in Pennsylvania statutes, administrative regulations and
rulings thereunder, and court decisions, (3) the Federal Tax Opinion, and (4)
the assumption that the Conversion, the Acquisition, and the Offering will not
result in the recognition of any gain or income on the books of the Bank, the
Stock Bank, or the Holding Company under generally accepted accounting
principles, it is our opinion that under the laws of the Commonwealth of
Pennsylvania, the implementation of the Conversion, the
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 2
Acquisition and the Offering will not cause any tax liability to be incurred (a)
by the Bank or by the Stock Bank under the Pennsylvania Mutual Thrift
Institutions Tax ("MTIT"), 72 P.S. ss.8501 et seq., (b) by the depositors of the
Bank under the Pennsylvania Personal Income Tax ("PIT"), 72 P.S. ss.7301 et
seq., and (c) by the Holding Company under the Pennsylvania Corporate Net Income
Tax ("CNIT"), 72 P.S. ss.7401 et seq.
Our opinions herein are expressly limited to those taxes specified in
the immediately preceding paragraph and specifically do not include any opinions
with respect to the consequences to depositors of the implementation of the
Conversion, the Acquisition, or the Offering under any other taxes imposed by
the Commonwealth of Pennsylvania or any other subdivision thereof, or imposed by
states other than Pennsylvania and local jurisdictions of such states. In
addition, the opinions herein specifically do not include (1) an opinion with
respect to the consequences to the Bank, the Stock Bank, and the Holding Company
of the implementation of the Conversion, the Acquisition, or the Offering under
any local taxes imposed by any political subdivision of the Commonwealth of
Pennsylvania, and under any state or local realty or other transfer tax, or (2)
an opinion with respect to tax liabilities under the MTIT, the PIT, or the CNIT
attributable to events after the Conversion, the Acquisition and the Offering or
to any assets held or acquired by the Holding Company other than stock of the
Stock Bank.
Our opinion is based on the facts and conditions as stated herein,
whether directly or by reference to the Federal Tax Opinion. If any of the facts
and conditions are not entirely complete or accurate, it is imperative that we
be informed immediately, as the inaccuracy or incompleteness could have a
material effect on our conclusions. In rendering our opinion, we are relying
upon the relevant provisions of the Code, the laws of the Commonwealth of
Pennsylvania, as amended, the regulations and rules thereunder and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We undertake no responsibility to update or supplement our opinion. Our
opinion is not binding on the Internal Revenue Service or the Commonwealth of
Pennsylvania, nor can any assurance be given that any of the foregoing parties
will not take a contrary position or that our opinion will be upheld if
challenged by such parties.
Finally, we hereby consent to the filing of this opinion as an exhibit
to the Application for Conversion on Form AC ("Form AC") or similar filings of
the Bank filed with the Office of Thrift Supervision, the filing of this opinion
as an exhibit to the Application H-(e)(1)S of the Holding Company to be filed
with the Office of Thrift Supervision, and the filing of this opinion
<PAGE>
Board of Directors
Carnegie Savings Bank
___________, 1998
Page 3
as an exhibit to the Holding Company's Registration Statement on Form SB-2
("Form SB-2") to be filed with the Securities and Exchange Commission, and to
reference to our firm in the offering circular contained in the Form AC, Form
SB-2 and related documents related to this opinion.
Very truly yours,
Malizia, Spidi, Sloane & Fisch, P.C.
EXHIBIT 10.1
<PAGE>
[FORM OF]
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this 1st day of January 1998,
("Effective Date") by and between Carnegie Savings Bank (the "Savings Bank") and
Shirley Chiesa (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings Bank
as the President and is experienced in all phases of the business of the Savings
Bank; and
WHEREAS, the Savings Bank desires to be ensured of the Executive's
continued active participation in the business of the Savings Bank; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Savings Bank and in consideration of the Executive's agreeing to remain in
the employ of the Savings Bank, the parties desire to specify the continuing
employment relationship between the Savings Bank and the Executive;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. Employment. The Savings Bank hereby employs the Executive in the
capacity of President. The Executive hereby accepts said employment and agrees
to render such administrative and management services to the Savings Bank and to
any to-be-formed parent holding company ("Parent") as are currently rendered and
as are customarily performed by persons situated in a similar executive
capacity. The Executive shall promote the business of the Savings Bank and
Parent. The Executive's other duties shall be such as the Board of Directors for
the Savings Bank (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Savings Bank.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) months thereafter ("Term"). Additionally, on, or before, each
annual anniversary date from the Effective Date, the Term of employment under
this Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Bank shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$75,000 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to
participate in an equitable manner with all other senior management employees of
the Savings Bank in discretionary bonuses that may be authorized and declared by
the Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive
shall be entitled to participate in and receive the benefits of any plan of the
Savings Bank which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Bank, to the extent commensurate with his then duties
and responsibilities, as fixed by the Board of Directors of the Savings Bank.
(d) Participation in Medical Plans and Insurance Policies. The
Executive shall be entitled to participate in and receive the benefits of any
plan or policy of the Savings Bank which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Bank or Parent with
the cost of such premiums paid by the Savings Bank.
(e) Vacations and Sick Leave. The Executive shall be entitled to
paid annual vacation leave in accordance with the policies as established from
time to time by the Board of Directors, which shall in no event be less than
four weeks per annum. The Executive shall also be entitled to an annual sick
leave benefit as established by the Board for senior management employees of the
Savings Bank. The Executive shall not be entitled to receive any additional
compensation from the Savings Bank for failure to take a vacation or sick leave,
nor shall he be able to accumulate unused vacation or sick leave from one year
to the next, except to the extent authorized by the Board of Directors.
(f) Expenses. The Savings Bank shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance of, or in connection with the business of the Savings
Bank, including, but not by way of limitation,
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automobile and traveling expenses, and all reasonable entertainment expenses,
subject to such reasonable documentation and other limitations as may be
established by the Board of Directors of the Savings Bank. If such expenses are
paid in the first instance by the Executive, the Savings Bank shall reimburse
the Executive therefor.
(g) Changes in Benefits. The Savings Bank shall not make any
changes in such plans, benefits or privileges previously described in Section
3(c), (d) and (e) which would adversely affect the Executive's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executive officers of the Savings Bank and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings Bank.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of the salary payable
to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Bank or Parent.
(b) Nothing contained in this Section 4 shall be deemed to
prevent or limit the right of Executive to invest in the capital stock or other
securities of any business dissimilar from that of the Savings Bank or Parent,
or, solely as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under
this Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement,
in which event the Executive's estate shall be entitled to receive the
compensation due the Executive through the last day of the calendar month in
which Executive's death shall have occurred.
(b) The Board of Directors may terminate the Executive's
employment at any time, but any termination by the Board of Directors other than
termination for Just Cause, shall not prejudice the Executive's right to
compensation or other benefits under the Agreement. The Executive shall have no
right to receive compensation or other benefits for any period after termination
for Just Cause. The Board may within its sole discretion, acting in good faith,
terminate the Executive for Just Cause and shall notify such Executive
accordingly. Termination
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<PAGE>
for "Just Cause" shall include termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Bank shall be obligated to continue to
pay the Executive the salary provided pursuant to Section 3(a) herein, up to the
date of termination of the remaining Term of this Agreement, but in no event for
a period of less than twelve months, and the cost of Executive obtaining all
health, life, disability, and other benefits which the Executive would be
eligible to participate in through such date based upon the benefit levels
substantially equal to those being provided Executive at the date of termination
of employment.
(d) The voluntary termination by the Executive during the term of
this Agreement with the delivery of no less than 60 days written notice to the
Board of Directors, other than pursuant to Section 9(b), in which case the
Executive shall be entitled to receive only the compensation, vested rights, and
all employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)),
the Savings Bank's obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Savings Bank may within its discretion (i) pay the
Executive all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate, as of the effective date of the order, but the
vested rights of the parties shall not be affected.
(c) If the Savings Bank is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Savings Bank: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") enters
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into an agreement to provide assistance to or on behalf of the Savings Bank
under the authority contained in Section 13(c) of FDIA; or (ii) by the Director
of the OTS, or his or her designee, at the time that the Director of the OTS, or
his or her designee approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Director of the OTS 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.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Executive pursuant to the Agreement, or otherwise, shall be subject to
and conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Savings Bank
employees. Thereafter, Executive shall be eligible to receive benefits provided
by the Savings Bank under the provisions of disability insurance coverage in
effect for Savings Bank employees. Upon returning to active full-time
employment, the Executive's full compensation as set forth in this Agreement
shall be reinstated as of the date of commencement of such activities. In the
event that the Executive returns to active employment on other than a full-time
basis, then his compensation (as set forth in Section 3(a) of this Agreement)
shall be reduced in proportion to the time spent in said employment, or as shall
otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the
event of the involuntary termination of Executive's employment during the term
of this Agreement following any Change in Control of the Savings Bank or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.999 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination of service or in
periodic payments over the next 36 months or the remaining term of this
Agreement, whichever is less, as if Executive's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Executive would be otherwise entitled to receive under Section 6 of
this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall
be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Executive by
the Savings Bank or the Parent shall be deemed an "excess parachute payment"
5
<PAGE>
in accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "Change in Control" shall
refer to (i) the control of voting proxies whether related to stockholders or
mutual members by any person, other than the Board of Directors of the Savings
Bank, to direct more than 25% of the outstanding votes of the Savings Bank, the
control of the election of a majority of the Savings Bank's directors, or the
exercise of a controlling influence over the management or policies of the
Savings Bank by any person or by persons acting as a group within the meaning of
Section 13(d) of the Exchange Act, (ii) an event whereby the OTS, FDIC or any
other department, agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Bank, a change in the corporate
structure or organization of the Savings Bank; (iii) an event whereby the OTS,
FDIC or any other agency or quasi-agency of the federal government cause or
bring about, without the consent of the Savings Bank, a taxation or involuntary
distribution of retained earnings or proceeds from the sale of securities to
depositors, borrowers, any government agency or organization or civic or
charitable organization; or (iv) a merger or other business combination between
the Savings Bank and another corporate entity whereby the Savings Bank is not
the surviving entity. In the event that the Savings Bank shall convert in the
future from mutual-to-stock form, the term "Change in Control" shall also refer
to: (i) the sale of all, or a material portion, of the assets of the Savings
Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or
the Parent whereby the Savings Bank or the Parent is not the surviving entity;
(iii) a change in control of the Savings Bank or the Parent, as otherwise
defined or determined by the Office of Thrift Supervision or regulations
promulgated by it; or (iv) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder) of twenty-five percent (25%) or more of the outstanding
voting securities of the Savings Bank or the Parent by any person, trust, entity
or group. The term "person" means an individual other than the Executive, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Executive may voluntarily terminate his employment during the term of
this Agreement following a Change in Control of the Savings Bank or Parent, or
within twenty-four months following such Change in Control, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Savings Bank, Executive would be required to
report to a person or persons other than the Board of Directors of the Savings
Bank; (iii) if the Savings Bank should fail to maintain Executive's base
compensation in effect as of the date of the Change in Control and the existing
employee benefits plans, including material fringe benefit, stock option and
retirement plans; (iv) if Executive would be assigned duties and
responsibilities other than those normally associated with his position as
referenced at Section 1, herein; (v) if Executive's responsibilities or
authority
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<PAGE>
have in any way been materially diminished or reduced; or (vi) if Executive
would not be reelected to the Board of Directors of the Savings Bank.
10. Withholding. All payments required to be made by the Savings Bank
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Savings Bank may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Savings Bank or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings Bank
or Parent.
(b) Since the Savings Bank is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Savings Bank.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Bank to sign on
its behalf. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of
Pennsylvania.
14. Nature of Obligations. Nothing contained herein shall create or
require the Savings Bank to create a trust of any kind to fund any benefits
which may be payable hereunder, and to the extent that the Executive acquires a
right to receive benefits from the Savings Bank hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings Bank.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
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17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except to the extent that the parties may otherwise reach
a mutual settlement of such issue. Further, the settlement of the dispute to be
approved by the Board of the Savings Bank may include a provision for the
reimbursement by the Savings Bank to the Executive for all reasonable costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, or the Board of the Savings Bank or the Parent may
authorize such reimbursement of such reasonable costs and expenses by separate
action upon a written action and determination of the Board following settlement
of the dispute. Such reimbursement shall be paid within ten (10) days of
Executive furnishing to the Savings Bank or Parent evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his
or her employment he or she will learn and have access to confidential
information regarding the Savings Bank and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Bank or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Bank, the Parent, or
any subsidiaries or affiliates, or to any of the businesses operated by them,
and the Executive confirms that such information constitutes the exclusive
property of the Savings Bank and the Parent. The Executive shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the Savings
Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which
is inimical or contrary to the interests of the Savings Bank or the Parent.
Executive acknowledges and agrees that the existence of this Agreement and its
terms and conditions constitutes Confidential Information of the Savings Bank,
and the Executive agrees not to disclose the Agreement or its contents without
the prior written consent of the Savings Bank. Notwithstanding the foregoing,
the Savings Bank reserves the right in its sole discretion to make disclosure of
this Agreement as it deems necessary or appropriate in compliance with its
regulatory reporting requirements. Notwithstanding anything herein to the
contrary, failure by the Executive to comply with the provisions of this Section
may result in the immediate termination of the Agreement within the sole
discretion of the Savings Bank, disciplinary action against the Executive taken
by the Savings Bank, including but not limited to the termination of employment
of the Executive for breach of the Agreement and the provisions of this Section,
and other remedies that may be available in law or in equity.
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
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EXHIBIT 10.2
<PAGE>
CARNEGIE SAVINGS BANK
SUPPLEMENTAL RETIREMENT PLAN
FOR THE BENEFIT OF SHIRLEY CHIESA
WHEREAS, Carnegie Savings Bank ("Bank") wishes to reward the years of
prior service provided by Shirley Chiesa, President ("Participant") and to
continue to retain and to motivate his performance and dedication to the Bank
and its Board of Directors, and
WHEREAS, it is deemed advisable and in the best interests of the Bank
to offer such Participant with additional financial incentives in the form of
deferred compensation to encourage such continued employment service to the
Bank.
NOW THEREFORE, BE IT RESOLVED that the Carnegie Savings Bank
Supplemental Retirement Plan for the Benefit of Shirley Chiesa ("Plan"), be
adopted and implemented effective December 15, 1997, as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose
of this Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content, as follows:
1.1 "Bank" or "Savings Bank" means Carnegie Savings Bank, Carnegie,
Pennsylvania, or any successor thereto.
1.2 "Beneficiary" shall mean the Participant's surviving spouse, if
any. If there shall be no surviving spouse, then all benefits payable in
accordance with the Plan shall be payable to the Participant's estate.
1.3 "Board" means the Board of Directors of the Bank, as constituted
from time to time and successors thereto.
1.4 "Change in Control" means : (i) the ownership, holding, or power to
vote more than 25% of the Savings Bank's (or any parent holding company's)
outstanding voting stock by any person; (ii) the control of the election of a
majority of the Savings Bank's (or its parent holding company's) directors; or
(iii) the exercise of a controlling influence over the management or policies of
the Savings Bank by any person or by persons acting as a group within the
meaning of Section 13(d) of the Exchange Act. Change in Control shall also mean:
(i) the sale of all, or a material portion, of the assets of the Savings Bank;
(ii) the merger or recapitalization of the Savings Bank or any merger or
recapitalization whereby the Savings Bank is not the surviving entity; (iii) a
change in control of the Savings Bank, as otherwise defined or determined by the
applicable federal banking regulator having supervisory jurisdiction over the
Savings Bank, or regulations promulgated by it; or (iv) the acquisition,
directly or indirectly,
<PAGE>
of the beneficial ownership (within the meaning of that term as it is used in
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Savings Bank by any person, trust, entity or group. This
limitation shall not apply to the purchase of shares by underwriters in
connection with a public offering of the Savings Bank stock (or its parent
holding company's stock), or the purchase of shares of up to twenty-five percent
(25%) of any class of securities of the Savings Bank by a tax-qualified employee
stock benefit plan. The term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding. However, a change in
control shall not be deemed to have occurred as a result of a holding company
reorganization of the Savings Bank and simultaneous acquisition of more than 50%
of the Savings Bank's stock (following the Savings Bank's conversion to stock
form) by a parent savings and loan holding company or bank holding company.
1.5 "Committee" means the Board or the administrative committee as
appointed by the Board pursuant to Section 8.11 herein.
1.6 "Director" means a member of the Board of the Bank.
1.7 "Disability" (total and permanent disability) means a mental or
physical disability which prevents the Participant from performing the normal
duties of his or her position with the Bank. Such disability must have prevented
the Participant from performing his or her duties for at least six months, and a
physician satisfactory to both the Participant and the Bank must certify that
the Participant is disabled from performing his or her normal duties with the
Bank.
1.8 "Effective Date" means December 15, 1997.
1.9 "Participant" means Shirley Chiesa, President of the Bank. Such
participation shall continue as long as such Participant fulfills all
requirements for participation subject to the right of termination, amendment
and modification of the Plan hereinafter set forth.
1.10 "Pension Plan" means any tax-qualified defined benefit plan
sponsored by the Bank for the benefit of the Bank's employees in effect as of
the Effective Date or thereafter.
Pension Plan.
1.11 "Plan" means the Carnegie Savings Bank Supplemental Retirement
Plan for the Benefit of Shirley Chiesa, as herein set forth, as may be amended
from time to time.
1.12 "Retirement Date" means the first day of the calendar month
following attainment of age 65 of the Participant or thereafter whereby the
Participant retires as an employee of the Bank and has completed not less than
25 years of Service as of such date.
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1.13 "Service" means all years of service as an employee of the Bank
and all predecessor and successor entities. Years of service need not be
continuous. All years of service prior to the Effective Date shall be recognized
for benefits determination.
1.14 "Trust" shall mean any trust agreement entered into on behalf of
the Plan by the Bank for the purpose of holding assets of the Bank in order to
promote the efficient administration of the Plan.
ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's termination from service as an
employee of the Bank on or after the Retirement Date, the Bank shall pay to the
participant a benefit in an amount approved by the Board and set forth herein at
Article II, Section 2.4, commencing on the first business day of the calendar
month commencing on or after the Retirement Date. Except as provided at Article
II, Section 2.2, 2.3 and 2.5 herein, upon a Participant's termination from
service as an employee of the Bank prior to the Retirement Date, the Bank shall
have no financial obligations to the Participant under the Plan.
2.2 Disability. In the event of the Disability of the Participant, the
Participant will be entitled to a benefit equal to 100% of the amount specified
at Article II, Section 2.4, payable on the first day of the month following
certification of such Disability; provided that, upon Disability, such
Participant shall be presumed to have attained not less than age 65 and
completed not less than 25 years of service as of such date of Disability.
2.3 Change in Control. All benefits payable, or that would become
payable if the Participant were to retire prior to such Change in Control, shall
remain payable thereafter. Upon termination of service following a Change in
Control, all benefits shall be deemed payable immediately in accordance with
Article II, Section 2.4; provided that if the Participant is not yet age 65 as
of such date of termination of service and has not yet completed at least 25
Years of Service with the Bank, such Participant shall nevertheless be deemed to
be not less than age 65 and completed not less than 25 years of service as of
the date of such termination. Further, that in order to calculate benefits
payable hereunder, actual Years of Service for benefits calculation purposes
following a Change in Control shall include all years of service remaining under
any employment agreement between the Participant and the Bank. Upon a Change in
Control, all future benefits payable pursuant to Sections 2.1, 2.2, 2.3, and 2.5
of the Plan, shall at the election of the Participant be made in a lump sum
payment equal to the present value of all future benefits payable to such
Participant. The interest rate in effect for a two year U.S. Treasury Note on
the date of the lump sum payment shall be used for purposes of calculating the
present value of amounts payable in accordance with Section 2.4.
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2.4 Benefit Payments. In accordance with Sections 2.1, 2.2, 2.3 and 2.5
of the Plan, the Participant shall be eligible to receive benefit payments under
the Plan, as follows:
a. The Participant shall be eligible to receive retirement payments
equal to the sum of $3,236 per month for a period of 120 months.
b. Benefits payable hereunder are exclusive of any benefits received
under the Pension Plan, if applicable.
2.5 Benefit Payments Following Death. A Participant receiving benefits
in accordance with Article II, Sections 2.1, 2.2 or 2.3 shall, upon death,
continue to have the balance of any such payments due be paid to the Beneficiary
for the remainder of the payments due as specified at Section 2.4.
2.6 Notice of Retirement. A Participant electing to retire in
accordance with the Plan shall deliver written notice ("Notice") to the Board
not less than ninety (90) days prior to the actual Retirement Date. A
Participant who terminates service upon death, Disability, or a Change in
Control shall not be required to deliver such Notice in order to be entitled to
receive benefits under the Plan.
2.7 Alternative Forms Of Benefit Payment. The Committee may at any time
distribute the benefits payable with respect to all future benefits payable
pursuant to Sections 2.1, 2.2, 2.3, and 2.5 of the Plan, in a lump sum payment
equal to the present value of all future benefits payable to such Participant.
The interest rate in effect for a 2 year U.S. Treasury Note on the date of the
lump sum payment shall be used for purposes of calculating the present value of
amounts payable in accordance with Section 2.4.
ARTICLE III
INSURANCE
3.1 Ownership of Insurance. The Bank, in its sole discretion, may elect
to purchase one or more life insurance policies on the lives of Participants in
order to provide funds to the Bank to pay part or all of the benefits accrued
under this Plan. All rights and incidents of ownership in any life insurance
policy that the Bank may purchase insuring the life of the Participant
(including any right to proceeds payable thereunder) shall belong exclusively to
the Bank or its designated Trust, and neither the Participant, nor any
beneficiary or other person claiming under or through him or her shall have any
rights, title or interest in or to any such insurance policy. The Participant
shall not have any power to transfer, assign, hypothecate or otherwise encumber
in advance any of the benefits payable thereunder, nor shall any benefits be
subject to seizure for the benefit of any debts or judgments, or be transferable
by operation of law in the event of bankruptcy, insolvency or otherwise. Any
life insurance policy purchased
4
<PAGE>
pursuant hereto and any proceeds payable thereunder shall remain subject to the
claims of the Bank's general creditors.
3.2 Physical Examination. As a condition of becoming or remaining
covered under this Plan, the Participant, as may be requested by the Bank from
time to time shall take a physical examination by a physician approved by an
insurance carrier. The cost of the examination shall not be borne by the
Participant. The report of such examination shall be transmitted directly from
the physician to the insurance carrier designated by the Bank to establish
certain costs associated with obtaining insurance coverages as may be deemed
necessary under this Plan. Such examination shall remain confidential among the
Participant, the physician and the insurance carrier and shall not be made
available to the Bank in any form or manner.
3.3 Death of Participant. Upon the death of the Participant, the
proceeds derived from any such insurance policy held by the Bank or any related
Trust, if any, shall be paid to the Bank or its designated Trust.
ARTICLE IV
TRUST / NON-FUNDED STATUS
4.1 Trust. Except as may be specifically provided, nothing contained in
this Plan and no action taken pursuant to the provisions of this Plan shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Bank and the Participant or any other person. Any funds
which may be invested under the provisions of this Plan shall continue for all
purposes to be a part of the general funds of the Bank. No person other than the
Bank shall by virtue of the provisions of this Plan have any interest in such
funds. The Bank shall not be under any obligation to use such funds solely to
provide benefits hereunder, and no representations have been made to a
Participant that such funds can or will be used only to provide benefits
hereunder. To the extent that any person acquires a right to receive payments
from the Bank under the Plan, such rights shall be no greater than the right of
any unsecured general creditor of the Bank.
In order to facilitate the accumulation of funds necessary to meet the
costs of the Bank under this Plan (including the provision of funds necessary to
pay premiums with respect to any life insurance policies purchase pursuant to
Article III above and to pay benefits to the extent that the cash value and/or
proceeds of any such policies are not adequate to make payments to a Participant
or his or her beneficiary as and when the same are due under the Plan), the Bank
may enter into a Trust Agreement. The Bank, in its discretion, may elect to
place any life insurance policies purchased pursuant to Article III above into
the Trust. In addition, such sums shall be placed in said Trust as may from time
to time be approved by the Board of Directors, in its sole discretion. To the
extent that the assets of said Trust and/or the proceeds of any life insurance
policy purchased pursuant to Article III are not sufficient to pay benefits
accrued under this Plan, such payments shall be made from the general assets of
the Bank.
5
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ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to the Retirement Date. All benefits payable hereunder shall
be deemed 100% earned and non- forfeitable by the Participant and his or her
Beneficiary as of the Retirement Date. Notwithstanding the foregoing, all
benefits payable hereunder shall be deemed 100% earned and non-forfeitable by
the Participant and his or her Beneficiary upon the death or the Disability of
the Participant, or upon termination of employment following a Change in Control
of the Bank. No benefits shall be deemed payable hereunder for any time period
prior to termination of employment prior to the Retirement Date, except in the
event of death, Disability or termination of employment following a Change in
Control of the Bank, in which case such benefits shall be immediately payable as
of such date of termination of employment.
ARTICLE VI
TERMINATION
6.1 Termination. All rights of the Participant hereunder shall
terminate immediately upon the Participant ceasing to be in the active service
of the Bank prior to the time that the benefits payable under the Plan shall be
deemed to be 100% earned and non-forfeitable. A leave of absence approved by the
Board shall not constitute a cessation of service within the meaning of this
paragraph, within the sole discretion of the Committee.
ARTICLE VII
FORFEITURE OR SUSPENSION OF BENEFITS
7.1 Forfeiture or Suspension of Benefits. Notwithstanding any other
provision of this Plan to the contrary, benefits shall be forfeited or suspended
during any period of paid service with the Bank following the commencement of
benefit payments, within the sole discretion of the Committee.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Other Benefits. Nothing in this Plan shall diminish or impair the
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Bank now or
hereinafter in effect.
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8.2 No Effect on Employment. This Plan shall not be deemed to give any
Participant or other person in the employ or service of the Bank any right to be
retained in the employment or service of the Bank, or to interfere with the
right of the Bank to terminate any Participant or such other person at any time
and to treat him or her without regard to the effect which such treatment mights
have upon him or her as a Participant in this Plan.
8.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Bank and binding
upon the Bank, its successors and assigns.
8.4 Modification. The Bank, by action of the Board, reserves the
exclusive right to amend, modify, or terminate this Plan. Any such termination,
modification or amendment shall not terminate or diminish any rights or benefits
accrued by any Participant prior thereto. The Bank shall give thirty (30) days'
notice in writing to any Participant prior to the effective date of any such
amendment, modification or termination of this Plan. Notwithstanding the
foregoing, in no event shall such benefits payable to a Participant under the
Plan be reduced below those provided for in Section 2.4 herein. In the event
that the Plan benefits payable under Section 2.4 of the Plan are reduced or the
Plan is terminated, a Participant shall be immediately 100% vested in all
benefits calculated in accordance with Section 2.4 as of the date of such Plan
amendment or Plan termination without regard to such Plan amendment or Plan
termination.
8.5 Arbitration. Any controversy or claim arising out of or relating to
any contract or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association ("AAA") unless otherwise mutually agreed to by the
Participant and the Bank, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
8.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. Rights of Participants hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant or a Beneficiary.
Such rights are not subject to the debts, contracts, liabilities, engagements,
or torts of any Participant or his or her Beneficiary. No Participant shall have
any right under this Plan or any Trust referred to in Article IV or against any
assets held or acquired pursuant thereto other than the rights of a general,
unsecured creditor of the Bank pursuant to the unsecured promise of the Bank to
pay the benefits accrued hereunder in accordance with the terms of this Plan.
The Bank has no obligation under this Plan to fund or otherwise secure its
obligations to render payments hereunder to Participants. No Participant shall
have any voice in the use, disposition, or investment of any asset acquired or
set aside by the Bank to provide benefits under this Plan.
7
<PAGE>
8.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither
an "employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant or a Beneficiary prior to the actual receipt of a payment under the
Plan for purposes of the Internal Revenue Code of 1986, as amended ("IRC"). No
representation is made to any Participant to the effect that any insurance
policies purchased by the Bank or assets of any Trust established pursuant to
this Plan will be used solely to provide benefits under this Plan or in any way
shall constitute security for the payment of such benefits. Benefits payable
under this Plan are not in any way limited to or governed by the proceeds of any
such insurance policies or the assets of any such Trust. No Participant in the
Plan has any preferred claim against the proceeds of any such insurance policies
or the assets of any such Trust.
8.8 Conduct of Participants. Notwithstanding anything contained to the
contrary, no payment of any then unpaid benefits shall be made and all rights
under the Plan payable to a Participant, or any other person, to receive
payments thereof shall be forfeited if the Participant shall engage in any
activity or conduct which in the opinion the Board of the Bank is inimical to
the best interests of the Bank.
8.9 Incompetency. If the Bank shall find that any person to whom any
payment is payable under the Plan is deemed unable to care for his or her
personal affairs because of illness or accident, or is a minor, any payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian, committee or other legal representative) may be paid to the spouse, a
child, a parent, or a brother or sister, or to any person deemed by the Bank to
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Committee, in its sole discretion, may determine.
Any such payments shall constitute a complete discharge of the liabilities of
the Bank under the Plan.
8.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and construction thereof, and actions thereunder, shall be binding and
conclusive on all persons for all purposes. Directors of the Bank and members of
the Committee shall not be liable to any person for any action taken or omitted
in connection with the interpretation and administration of this Plan unless
attributable to his or her own willful, gross misconduct or intentional lack of
good faith.
8.11 Plan Administration. The Board of the Bank shall administer the
Plan; provided, however, that the Board may appoint an administrative committee
("Committee") to provide administrative services or perform duties required by
this Plan. The Committee shall have only the authority granted to it by the
Board.
8.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the State of Pennsylvania, except to the extent that
Federal law shall be deemed to apply. No payments of benefits shall be made
hereunder if the Board of the Bank, or counsel
8
<PAGE>
retained thereby, shall determine that such payments shall be in violation of
applicable regulations, or likely result in imposition of regulatory action, by
the Office of Thrift Supervision, the Federal Deposit Insurance Corporation or
other appropriate banking regulatory agencies.
8.13 Regulatory Matters.
(a) The Participant or Beneficiary shall have no right to receive
compensation or other benefits in accordance with the Plan for any period after
termination of service for Just Cause. Termination for "Just Cause" shall
include termination because of the Participant's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of the Plan.
(b) Notwithstanding anything herein to the contrary, any payments made
to a Participant or Beneficiary pursuant to the Plan shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
8.14 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Bank, and unless clearly inapplicable, reference
herein to the Bank shall be deemed to include any successor or successors of the
Bank.
8.15 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Bank and any Participants and Beneficiaries hereto with respect to
the subject matter hereof.
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EXHIBIT 10.3
<PAGE>
CARNEGIE SAVINGS BANK
CARNEGIE, PENNSYLVANIA
DIRECTORS CONSULTATION AND RETIREMENT PLAN
WHEREAS, Carnegie Savings Bank, Carnegie, Pennsylvania (the "Savings
Bank") wishes to reward the years of extensive service provided by the current
members of the Board of Directors and to continue to attract and to retain the
best talent available to serve on its Board of Directors; and
WHEREAS, it is deemed advisable and in the best interests of the
Savings Bank to offer to its members of the Board of Directors additional
financial incentives in the form of deferred compensation, to encourage such
participation and service to the Savings Bank, as directors, and following
retirement as a director to encourage such individuals to continue to serve the
Savings Bank as a consulting director for a period of time thereafter; and
WHEREAS, at its meeting held on December 15, 1997, the Board of
Directors of the Savings Bank has authorized and adopted the Carnegie Savings
Bank Directors Consultation and Retirement Plan (the "Plan"), effective December
15, 1997.
NOW THEREFORE, BE IT RESOLVED that the Plan shall be implemented
effective December 15, 1997 as follows:
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall, for the purpose
of the Plan and any subsequent amendment thereof, have the following meanings
unless a different meaning is plainly required by the content:
1.1 "Beneficiary" means the surviving spouse of the Participant (if
any) as of the date of death of such Participant, or in the alternative, the
estate of the Participant. The term Beneficiary shall include the estate of the
surviving spouse.
1.2 "Board" means the Board of Directors of the Savings Bank, as
constituted from time to time, and successors thereto.
1.3 "Change in Control" shall mean: (i) a change in the power to
control proxies by any person, other than the Board of Directors of the Savings
Bank, to direct more than 25% of the outstanding votes of the Savings Bank; (ii)
a change in the control of the election of a majority of the Savings Bank's
directors; or (iii) a change in the exercise of a controlling influence over the
management or policies of the Savings Bank by any person or by persons acting as
a group within the meaning of Section 13(d) of the Securities Exchange Act of
1934,
<PAGE>
as amended, (the "Exchange Act"). In the event the Savings Bank converts in the
future from mutual-to-stock form, the term "control" shall refer to (i) the
ownership, holding, or power to vote more than 25% of the Savings Bank's (or its
parent holding company's) outstanding voting stock by any person; (ii) the
control of the election of a majority of the Savings Bank's (or its parent
holding company's) directors; or (iii) the exercise of a controlling influence
over the management or policies of the Savings Bank by any person or by persons
acting as a group within the meaning of Section 13(d) of the Exchange Act.
Change in Control shall also mean: (i) the execution of an agreement for the
sale of all, or a material portion, of the assets of the Savings Bank; (ii) the
execution of an agreement for a merger or recapitalization of the Savings Bank
or any merger or recapitalization whereby the Savings Bank is not the surviving
entity; (iii) a change in control of the Savings Bank, as otherwise defined or
determined by the applicable state or federal banking regulator having
supervisory jurisdiction over the Savings Bank, or regulations promulgated by
it; (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder) of twenty-five percent
(25%) or more of the outstanding voting securities of the Savings Bank by any
person, trust, entity or group; (v) an event whereby the Pennsylvania Department
of Banking ("Department"), the FDIC or any other department, agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Savings Bank, a change in the corporate structure or organization of the
Savings Bank; or (vi) an event whereby the Department, the FDIC or any other
agency or quasi-agency of the federal government cause or bring about, without
the consent of the Savings Bank, a taxation or involuntary distribution of
retained earnings or proceeds from the sale of securities to depositors,
borrowers, any government agency or organization or civic or charitable
organization. This limitation shall not apply to the purchase of shares by
underwriters in connection with a public offering of the Savings Bank stock (or
its parent holding company's stock), or the purchase of shares of up to
twenty-five percent (25%) of any class of securities of the Savings Bank by a
tax-qualified employee stock benefit plan. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein. The decision of the Committee as
to whether a change in control has occurred shall be conclusive and binding.
However, a change in control shall not be deemed to have occurred as a result of
a holding company reorganization of the Savings Bank and simultaneous
acquisition of more than 50% of the Savings Bank's stock (following the Savings
Bank's conversion to stock form) by a parent savings and loan holding company or
bank holding company.
1.4 "Committee" means the Board or the administrative committee as
appointed by the Board pursuant to Section 7.11 herein.
1.5 "Director" means a member of the Board of Directors of the Savings
Bank.
1.6 "Disability" means a mental or physical disability which prevents
the Director from performing the normal duties of his or her position with the
Savings Bank. The disability must have prevented the Director from performing
his or her duties for at least three months, and a physician satisfactory to
both the Director and the Savings Bank must certify that the Director is
disabled from performing his or her normal duties with the Savings Bank
thereafter.
2
<PAGE>
1.7 "Effective Date" means December 15, 1997.
1.8 "Participant" means a Director serving on or after the Effective
Date and electing to participate in the Plan. A Director's participation in the
Plan shall continue as long as he or she fulfills all the requirements for
participation subject to the right of termination, amendment, and modification
of the Plan set forth herein.
1.9 "Plan" means the Carnegie Savings Bank Directors Consultation and
Retirement Plan as set forth herein, and as may be amended from time to time by
the Board.
1.10 "Retirement Benefit Amount" means the benefit payable under the
Plan in accordance Section 2.4 herein.
1.11 "Retirement Date" means the date of termination of service as a
Director following a Participant's completion of not less than ten (10) years of
service as a Director on or after attainment of not less than age 60. Upon death
or Disability, a Director shall be deemed to have terminated service as of such
Retirement Date.
1.12 "Savings Bank" means Carnegie Savings Bank, Carnegie,
Pennsylvania, or any
successor thereto.
1.13 "Service" means all years of service as a Director of the Savings
Bank and all predecessor (or successor) entities of the Savings Bank. Years of
service as a Director need not be continuous. All years of service prior to the
Effective Date shall be recognized for benefits determination.
1.14 "Trust" shall mean any trust agreement entered into on behalf of
the Plan by the Savings Bank for the purpose of holding assets of the Savings
Bank in order to promote the efficient administration of the Plan.
ARTICLE II
BENEFITS
2.1 Retirement. Upon a Participant's termination from service as a
Director on or after his or her Retirement Date, the Savings Bank shall pay to
the Participant the Retirement Benefit Amount, as described and in the amount
set forth at Article II, Section 2.4. Payment of such Retirement Benefit Amount
shall begin on the first business day of the calendar month immediately
following a Participant's Retirement Date or such later date as specified in the
agreement contained at Schedule A hereto and approved by the Committee. The
payments will continue to be paid on the first business day of each subsequent
calendar month until all scheduled payments are made to the Participant. Except
as provided at Article II, Sections 2.2, 2.3, and 2.5 herein, upon a
Participant's termination from service as a Director of the Savings Bank prior
to his or her Retirement Date, the Savings Bank shall have no financial
obligations to the Participant under the Plan.
3
<PAGE>
2.2 Change in Control.
(a) Benefits payable to a Participant that has
terminated from service as a Director prior to the date of a
Change in Control of the Savings Bank shall nevertheless
remain payable thereafter without regard to such Change in
Control. However, upon a Change in Control, all future
benefits payable pursuant to Sections 2.1, 2.2, 2.3, and 2.5
of the Plan, shall at the election of the Participant be made
in a lump sum payment equal to the present value of all future
benefits payable to such Participant. The interest rate in
effect for a two (2) year U.S. Treasury Note on the date of
the lump sum payment shall be used for purposes of calculating
the present value of amounts payable in accordance with
Section 2.4.
(b) A Participant that has not terminated from
service as a Director prior to the date of Change in Control
of the Savings Bank shall, as of the date of a Change in
Control, be presumed to have completed not less than ten (10)
years of service and attained not less than age 60, and such
Participant shall be eligible to receive the Retirement
Benefit Amount set forth herein at Article II, Section 2.4
immediately upon termination of service as a Director
following the date of a Change in Control without regard to
the actual years of service or age of such Participant, if
less than that provided herein. Such Retirement Benefit Amount
shall be paid at the election of the Participant in the form
of a lump sum payment equal to the present value of the
Retirement Benefit Amount payable under Section 2.4 discounted
as provided at Section 2.2(a). Payment of the lump sum amount
shall be made to the Participant as soon as practicable after
the Participant's termination from service following a Change
in Control.
2.3 Total and Permanent Disability. In the event of the Disability of a
Participant, such Participant will be paid the Retirement Benefit Amount
specified at Article II, Section 2.4; and that such Participant shall be
presumed to have attained the Retirement Date. Payment of such benefits shall
begin on the first business day of the calendar month immediately following the
Savings Bank's receipt of a certification of such Participant's Disability.
2.4 Level of Benefit Payments. A Participant who retires as a Director
on or after his or her Retirement Date and who enters into an agreement with the
Savings Bank to be a consulting director of the Savings Bank (in a form similar
to that contained at Schedule A hereto) shall receive the Retirement Benefit
Amount for a period of 120 monthly payments. Such Retirement Benefit Amount
shall be equal to 80% of the monthly Board fee in effect as of the Retirement
Date.
2.5 Continuation of Payments Upon Death of Participant. Upon the death
of a Participant who is receiving benefit payments under the Plan prior to his
or her death, the remaining payments to be made under the Plan (if any) shall
thereafter be payable to the Beneficiary until all payments have been made. Upon
the death of a Participant who is not receiving benefit payments under the Plan
prior to his or her death, the Beneficiary shall immediately thereafter commence
receipt of the Retirement Benefit Amount specified at Section 2.4.
4
<PAGE>
2.6 Notice of Retirement. A director electing to participate in the
Plan shall deliver written notice ("Notice") to the Board not less than thirty
(30) days prior to the actual Retirement Date that such Director elects to
participate in the Plan. Such Notice, in a form similar to that contained at
Schedule A hereto, shall specify the date of such retirement from the Board as a
Director and the Participant's availability as a Consulting Director. A
Participant who terminates service as a Director upon death, Disability, or a
Change in Control shall not be required to deliver such Notice in order to be
entitled to receive benefits under the Plan.
2.7 Alternative Forms Of Benefit Payment. The Committee may at any time
distribute the Retirement Benefit Amount with respect to all future benefits
payable pursuant to Sections 2.1, 2.2, 2.3, and 2.5 of the Plan, in a lump sum
payment equal to the present value of all future benefits payable to such
Participant. The interest rate in effect for a two (2) year U.S. Treasury Note
on the date of the lump sum payment shall be used for purposes of calculating
the present value of amounts payable in accordance with Section 2.4.
ARTICLE III
INSURANCE/OTHER INVESTMENTS
3.1 Ownership of Insurance. The Savings Bank, in its sole discretion,
may elect to purchase one or more life insurance policies on the lives of
Participants in order to provide funds to the Savings Bank to pay part or all of
the benefits accrued under this Plan. All rights and incidents of ownership in
any life insurance policy that the Savings Bank may purchase insuring the life
of the Participant (including any right to proceeds payable thereunder) shall
belong exclusively to the Savings Bank or its designated Trust, and neither the
Participant, nor any heir, beneficiary or other person claiming under or through
him or her shall have any rights, title or interest in or to any such insurance
policy. The Participant shall not have any power to transfer, assign,
hypothecate or otherwise encumber in advance any of the benefits payable
thereunder, nor shall any benefits be subject to seizure for the benefit of any
debts or judgments, or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. Any life insurance policy purchased
pursuant hereto and any proceeds payable thereunder shall remain subject to the
claims of the Savings Bank's general creditors.
3.2 Physical Examination. As a condition of becoming or remaining
covered under this Plan, each Participant, as may be requested by the Savings
Bank from time to time shall take a physical examination by a physician approved
by an insurance carrier. The cost of the examination shall not be borne by the
Participant. The report of such examination shall be transmitted directly from
the physician to the insurance carrier designated by the Savings Bank to
establish certain costs associated with obtaining insurance coverages as may be
deemed necessary under this Plan. Such examination shall remain confidential
among the Participant, the physician and the insurance carrier and shall not be
made available to the Savings Bank in any form or manner.
3.3 Death of Participant. On death of the Participant, the proceeds
derived from such insurance policy, if any, shall be paid to the Savings Bank or
its designated Trust.
5
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ARTICLE IV
TRUST/NON-FUNDED STATUS OF PLAN
4.1 Trust/Non-Funded Status of Plan. Except as may be specifically
provided, nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Savings Bank and the Participant
or any other person. Any funds which may be invested under the provisions of
this Plan shall continue for all purposes to be a part of the general funds of
the Savings Bank. No person other than the Savings Bank shall by virtue of the
provisions of this Plan have any interest in such funds. The Savings Bank shall
not be under any obligation to use such funds solely to provide benefits
hereunder, and no representations have been made to any Participant that such
funds can or will be used only to provide benefits hereunder. To the extent that
any person acquires a right to receive payments from the Savings Bank under the
Plan, such rights shall be no greater than the right of any unsecured general
creditor of the Savings Bank.
In order to facilitate the accumulation of funds necessary to meet the
costs of the Savings Bank under this Plan (including the provision of funds
necessary to pay premiums with respect to any life insurance policies purchased
pursuant to Article III, and to pay benefits to the extent that the cash value
and/or proceeds of any insurance policies are not adequate to make payments to a
Participant when such payments shall become due under the Plan), the Savings
Bank may enter into a Trust Agreement. The Savings Bank, in its discretion, may
elect to place any life insurance policies purchased pursuant to Article III
into a Trust. In addition, the Board may (in its sole discretion) place in said
Trust such additional amounts as it deems appropriate from time to time. To the
extent that the assets of said Trust and/or the proceeds of any life insurance
policy purchased pursuant to Article III are not sufficient to pay benefits
accrued under this Plan, such payments shall be made from the general assets of
the Savings Bank.
ARTICLE V
VESTING
5.1 Vesting. All benefits under this Plan are deemed non-vested and
forfeitable prior to a Participant meeting the requirements set forth at
Sections 2.1, 2.2, 2.3 and 2.5 herein. All benefits payable hereunder shall be
deemed 100% vested and non-forfeitable by the Participant upon his or her
meeting the requirements set forth at Sections 2.1, 2.2, 2.3 or 2.5 herein. No
benefits shall be deemed payable hereunder for any period prior to the time that
such benefits shall be deemed 100% vested and non-forfeitable.
ARTICLE VI
TERMINATION OF BENEFITS
6.1 Termination of Benefits Rights. All the rights of a Participant
shall terminate immediately upon the Participant ceasing to be in the active
service of the Savings Bank prior
6
<PAGE>
to the time that benefits payable under the Plan shall be deemed to be 100%
vested and non- forfeitable in accordance with Article V. A leave of absence
approved by the Board shall not constitute a cessation of service within the
meaning of this Section 5.1.
ARTICLE VII
GENERAL PROVISIONS
7.1 Other Benefits. Nothing in this Plan shall diminish or impair a
Participant's eligibility, participation or benefit entitlement under any other
benefit, insurance or compensation plan or agreement of the Savings Bank now or
hereinafter in effect.
7.2 No Effect on Employment or Service. This Plan shall not be deemed
to give any Participant or other person in the employ or service of the Savings
Bank any right to be retained in the employment or service of the Savings Bank,
or to interfere with the right of the Savings Bank to terminate any Participant
or such other person at any time and to treat him or her without regard to the
effect which such treatment might have upon him or her as a Participant in this
Plan.
7.3 Legally Binding. The rights, privileges, benefits and obligations
under this Plan are intended to be legal obligations of the Savings Bank and
binding upon the Savings Bank, its successors and assigns.
7.4 Modification. The Savings Bank, by action of the Board of
Directors, reserves the exclusive right to amend, modify, or terminate this
Plan. Any such termination, modification or amendment shall not terminate or
diminish any rights or benefits accrued by any Participant prior thereto without
regard to whether such rights or benefits shall be deemed vested as of such
date. The Savings Bank shall give thirty (30) days notice in writing to any
Participant prior to the effective date of any amendment, modification or
termination of this Plan.
7.5 Arbitration. Any controversy or claim arising out of or relating to
the Plan or the breach thereof shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
with such arbitration hearing to be held at the offices of the American
Arbitration Association ("AAA") nearest to the home office of the Savings Bank,
unless otherwise mutually agreed to by the Participant and the Savings Bank, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
7.6 Limitation. No rights of any Participant are assignable by any
Participant, in whole or in part, either by voluntary or involuntary act or by
operation of law. The rights of a Participant hereunder are not subject to
anticipation, alienation, sale, transfer, assignment, pledge, hypothecation,
encumbrance or garnishment by creditors of the Participant. Further, a
Participant's rights under the Plan are not subject to the debts, contracts,
liabilities, engagements, or torts of any Participant. No Participant shall have
any right under this Plan or right against any assets held or acquired pursuant
thereto other than the rights of a general, unsecured creditor of the Savings
Bank pursuant to the unsecured promise of the Savings Bank
7
<PAGE>
to pay the benefits accrued hereunder in accordance with the terms of this Plan.
The Savings Bank has no obligation under this Plan to fund or otherwise secure
its obligations to render payments hereunder to a Participant. No Participant
shall have any discretion in the use, disposition, or investment of any asset
acquired or set aside by the Savings Bank to provide benefits under this Plan.
7.7 ERISA and IRC Disclaimer. It is intended that the Plan be neither
an "employee welfare benefit plan" nor an "employee pension benefit plan" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Further, it is intended that the Plan will not cause the interest of
a Participant under the Plan to be includable in the gross income of such
Participant prior to the actual receipt of a payment under the Plan for purposes
of the Internal Revenue Code of 1986, as amended ("IRC").
7.8 Regulatory Matters.
(a) The Participant shall have no right to receive compensation or
other benefits in accordance with the Plan for any period after termination of
service for Just Cause. Termination for "Just Cause" shall include termination
because of the Participant's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of the Plan.
(b) Notwithstanding anything herein to the contrary, any payments made
to a Participant pursuant to the Plan shall be subject to and conditioned upon
compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder.
7.9 Incompetency. If the Savings Bank shall find that any person to
whom any payment is payable under the Plan is deemed unable to care for his or
her personal affairs because of illness or accident, any payment due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Savings Bank to
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Board may determine in its sole discretion. Any
such payments shall constitute a complete discharge of the liabilities of the
Savings Bank under the Plan.
7.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and construction thereof, and actions thereunder, shall be binding and
conclusive on all persons for all purposes. Directors of the Savings Bank shall
not be liable to any person for any action taken or omitted in connection with
the interpretation and administration of this Plan unless attributable to his or
her own willful, gross misconduct or lack of good faith.
7.11 Plan Administration. The Board shall administer the Plan;
provided, however, that the Board may appoint an administrative committee (i.e.,
the Committee) to provide administrative services or perform duties required by
this Plan. The Committee shall have only the authority granted to it by the
Board.
8
<PAGE>
7.12 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania ("State"), except to
the extent that federal law shall be deemed to apply.
7.13 Successors and Assigns. The Plan shall be binding upon any
successor or successors of the Savings Bank, and unless clearly inapplicable,
reference herein to the Savings Bank shall be deemed to include any successor or
successors of the Savings Bank.
7.14 Sole Agreement. The Plan expresses, embodies, and supersedes all
previous agreements, understandings, and commitments, whether written or oral,
between the Savings Bank and any Participants hereto with respect to the subject
matter hereof.
9
EXHIBIT 23.2
<PAGE>
[GOFF ELLENBOGEN BACKA & ALFERA, LLC LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to use in this Registration Statement on Form SB-2 and on Form
AC of our report dated February 17, 1998, relating to the financial statements
of Carnegie Savings Bank, and to the references to our Firm under the term
"Experts", and elsewhere in the Prospectus.
/s/ Goff Ellenbogen Backa & Alfera, LLC
GOFF ELLENBOGEN BACKA & ALFERA, LLC
Pittsburgh, Pennsylvania
March 25, 1998
EXHIBIT 23.3
<PAGE>
March 24, 1998
Board of Directors
Carnegie Savings Bank
17 West Mall Plaza
Carnegie, Pennsylvania 15106
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form AC Application for Conversion of Carnegie Savings Bank, Carnegie,
Pennsylvania, and any amendments thereto, in the Form SB-2 Registration
Statement of Carnegie Financial Corporation and any amendments thereto, and in
the Application H-(e)l-S for Carnegie Financial Corporation. We also hereby
consent to the use of our firm's name and the inclusion of, summary of, and
references to our Appraisal Report and our opinion concerning subscription
rights in such filings including the Prospectus of Carnegie Financial
Corporation.
Very Truly Yours,
/s/Kenneth G. Emerson
Kenneth G. Emerson, CPA
Liberty Corner, New Jersey
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
ANNUAL REPORT ON FORM S-B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 851
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,020
<INVESTMENTS-CARRYING> 3,138
<INVESTMENTS-MARKET> 0
<LOANS> 9,700
<ALLOWANCE> 115
<TOTAL-ASSETS> 16,723
<DEPOSITS> 15,177
<SHORT-TERM> 0
<LIABILITIES-OTHER> 376
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 1,170
<TOTAL-LIABILITIES-AND-EQUITY> 16,723
<INTEREST-LOAN> 859
<INTEREST-INVEST> 336
<INTEREST-OTHER> 27
<INTEREST-TOTAL> 1,222
<INTEREST-DEPOSIT> 671
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 551
<LOAN-LOSSES> 73
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 649
<INCOME-PRETAX> (108)
<INCOME-PRE-EXTRAORDINARY> (54)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.51
<LOANS-NON> 42
<LOANS-PAST> 181
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11
<ALLOWANCE-OPEN> 39
<CHARGE-OFFS> 0
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 115
<ALLOWANCE-DOMESTIC> 73
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 73
</TABLE>
EXHIBIT 99.1
<PAGE>
[LOGO]
STOCK ORDER FORM
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DEADLINE --------------------------------------------------------------
- -------- Total
This order form, properly executed and with the full payment must Number of Purchase Total
and will be deemed received upon the date and the time of delivery Shares Price Amount
of the form to one of our offices. Please submit your order using
the enclosed postage-paid envelope or hand-delivering the order X $10.00 = $
form to Carnegie Savings Bank. -------- ----------- --------
--------------------------------------------------------------
NUMBER OF SHARES
- ----------------
Fill in the number of shares you wish to purchase and the total --------------------------------------------------------------
amount due. No fractional shares will be issued. The minimum
order is 25 shares. With the exception of the ESOP, no person (or [ ] Enclosed is a check or money order payable
persons who have subscription rights through a single account) to Carnegie Financial Corporation for
may purchase in the Offerings more than 5,000 shares of Common $
Stock and no person (or persons who have subscription rights --------.
through a single account), together with associates of persons
acting in concert with such person, may purchase in the aggregate [ ] I authorize withdrawal from the following
more than 7,500 shares of Common Stock. See the Prospectus for Carnegie Savings Bank account(s):
a description of purchase limitations, including how to determine
whether your purchases will be aggregated with any associates or Account Number(s) Amount
persons acting in concert. $
------------------------------------ ---------
METHOD OF PAYMENT $
- ----------------- ------------------------------------ ---------
$
Check the appropriate box(es). You may pay by cash, check, or ------------------------------------ ---------
money order. If paying by check or money order, please make it Total Withdrawal $
payable to Carnegie Financial Corporation. If paying by cash, ---------
please hand-deliver your order form. Your funds will earn interest
at the interest rate paid on passbook savings accounts from the date No penalty for early withdrawal
of receipt until the offering is completed. You may also wish to
pay by authorizing withdrawal from your Carnegie Savings Bank -------------------------------------------------------
savings or certificate account(s). If paying by withdrawal, please
list the appropriate account number(s); these designated funds will
continue to earn interest at the contractual rate, but cannot be
withdrawn by you. -------------------------------------------------------
--------------------------------------------------
STOCK REGISTRATION Name(s) in which stock is to be registered.
- ------------------
Print the name(s) in which you want the stock registered. If you --------------------------------------------------
are a voting member, to protect your priority over other purchasers Name(s) in which stock is to be registered.
as described in the Prospectus, you must take ownership in at least
one of the account holders' names.
--------------------------------------------------
Enter the Social Security Number (or Tax I.D. Number) of a Address
registered owner. Only one number is required.
Indicate the manner in which you wish to take ownership by --------------------------------------------------
checking the appropriate box. If necessary, check "Other" and City County
note ownership such as corporation, estate or trust. If stock is
purchased for a trust, the date of the trust agreement and trust title
must be included. See the reverse side of this form for registration --------------------------------------------------
guidelines. State Zip Code
--------------------------------------------------
Social Security # or Tax ID #
[ ] Individual [ ]Joint Tenants [ ]Tenants in Common
[ ] Uniform Transfer to Minors
[ ] Other
---------------------------------------
----------------------------------------------------
</TABLE>
<PAGE>
Carnegie Financial Corporation
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stockholder registrations which we will utilize in the
issuance of your Carnegie Financial Corporation stock certificate(s). If you
have any questions, please consult your legal advisor. Stock ownership must be
registered in one of the following manners:
- --------------------------------------------------------------------------------
INDIVIDUAL Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as "special
account," "single man," "personal property," etc.
- --------------------------------------------------------------------------------
JOINT Joint ownership of stock by two or more persons shall be inscribed on
the certificate with one of the following types of joint ownership.
Names should be joined by "and," do not connect with "or". Omit titles
such as "Mrs.," "Dr.," etc. JOINT TENANTS Joint Tenancy with Right of
Survivorship and not as Tenants in Common may be specified to identify
two or more owners where ownership is intended to pass automatically
to the surviving tenant(s). TENANTS IN COMMON Tenants in common may be
specified to identify two or more owners. When stock is held in a
tenancy in common, upon the death of one co-tenant, ownership of the
stock will be held by the surviving co-tenant(s) and by the heirs of
the deceased co-tenant. All parties must agree to the transfer or sale
of shares held in this form of ownership.
- --------------------------------------------------------------------------------
UNIFORM Stock may be held in the name of a custodian for a minor under the
TRANSFER Uniform Gifts to Minors laws of the individual states. There may be
TO MINORS only one custodian and one minor designated on a stock certificate.
The standard abbreviation of custodian is "CUST," while the
description "Uniform Gifts to Minors Act" is abbreviated "UNIF GIFT
MIN ACT." Standard U.S. Postal Service state abbreviations should be
used to describe the appropriate state. For example, stock held by
John P. Jones under the Delaware Uniform Gifts to Minors Act will be
abbreviated.
JOHN P. JONES CUST SUSAN A. JONES
UNIF GIFT MIN ACT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FIDUCIARIES Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary --
* If an individual, list the first given name, middle initial, and last name.
* If a corporation, list the corporate title.
* If an individual and a corporation, list the corporation's title before the initial.
2. The fiduciary capacity --
* Administrator
* Conservator
* Committee
* Executor
* Trustee
* Personal Representative
* Custodian
3. The type of document governing the fiduciary relationship. Generally, such relationships are either under a
form of living trust agreement or pursuant to a court order. Without a document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
4. The date of document governing the relationship. The date of the document need not be used in the description
of a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator
or
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED ___/___/97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NASD AFFILIATIONS
- -----------------
Please refer to the National Association of Securities Dealers, Inc., [ ] Check here and initial below if you are a member
("NASD") affiliation section and check the box, if applicable. The of the NASD or a person associated with an NASD
NASD Interpretation With Respect to Free-Riding and Withholding member or a partner with a securities brokerage firm
(the "Interpretation") restricts the sale of a "hot issue" (securities or a partner with a securities brokerage firm or a
that trade at a premium in the aftermarket) to NASD members, member of the immediate family of any such person to
persons associated with NASD members (i.e., an owner, director, whose support such person contributes directly or
officer, partner, employee, or agent of a NASD member) and indirectly or if you have an account in which a NASD
certain members of their families. Such persons are requested to member or a person associated with a NASD member has
indicate that they will comply with certain conditions required for a beneficial interest. I agree (i) not to sell,
an exemption from the restrictions. transfer or hypothecate the stock for a period of
three months following issuance, and (ii) to report
this stock purchase in writing to the applicable
NASD member I am associated with within one day of
TELEPHONE INFORMATION the payment for the stock. (Initials)
- --------------------- -------------
Please enter both a daytime and an evening telephone number Daytime Phone ( )
where you may be reached in the event we cannot execute your ---------------
order as given. Please include your area code. Evening Phone ( )
---------------
ACKNOWLEDGMENT
--------------
Sign and date the order form. When purchasing as a custodian, I (we understand that, after receipt by Carnegie
corporate officer, etc., add your full title to your signature. An Financial Corporation this order may not be modified
additional signature is required only when payment is by or withdrawn without the consent of Carnegie
withdrawal from an account that requires more than one signature Financial Corporation or Carnegie Savings Bank.
to withdraw funds. Your order will be filled according to the Further, I (we) certify that my (our) purchase does
provisions of the Plan of Conversion as described in the not conflict with the purchase limitations in the
Prospectus. Plan of Conversion and that the shares being
purchased are for my (our) account only and that
I (WE) ACKNOWLEDGE THAT THIS SECURITY IS NOT there is no present agreement or understanding
A SAVINGS ACCOUNT OR DEPOSIT AND IS NOT regarding any subsequent sale or transfer of such
FEDERALLY INSURED AND IS NOT GUARANTEED BY shares. Under penalties of perjury, I (we) certify
CARNEGIE SAVINGS BANK OR THE FEDERAL that: (1) the Social Security Number or Tax
GOVERNMENT. Identification Number given above is correct; and
(2) I (we) am (are) not subject to backup
I (we) further certify that I (we) received a Prospectus prior to withholding. INSTRUCTIONS: YOU MUST CROSS OUT #2
purchasing the Common Stock of Carnegie Financial Corporation ABOVE IF YOU HAVE BEEN NOTIFIED BY THE INTERNAL
and acknowledge the terms and conditions described therein. The REVENUE SERVICE THAT YOU ARE SUBJECT TO WITHHOLDING
Prospectus that I (we) received contains disclosure concerning the BECAUSE OF UNDER REPORTING INTEREST OR DIVIDENDS ON
nature of the security being offered and describes the risks YOUR TAX RETURN.
involved in the investment. These include, among others, (i) lack
of active market for common stock; (ii) potential impact of changes
in interest rates and the current interest rate environment; (iii) asset
quality; (iv) decreased return on equity and increased expenses
immediately after conversion; (v) anti-takeover provisions and ----------------------------------------------------
statutory provisions that could discourage hostile acquisitions of Signature Date
control; (vi) possible voting control by directors and officers; (vii)
possible dilutive effect of RSP and stock options; (viii) financial
institution regulation and future of the thrift industry, and (ix)
restrictions on repurchases of shares.
If anyone asserts that this security is federally insured or ----------------------------------------------------
guaranteed, or is as safe as an insured deposit, I (we) should call Additional Signature (if required) Date
the Office of Thrift Supervision Regional Director for the
Northeast Region, at (201) 413-1000.
</TABLE>
THIS ORDER NOT VALIDATED UNLESS SIGNED
FOR ASSISTANCE, PLEASE CALL OUR STOCK CENTER AT
(412) 276-0535 (CARNEGIE FINANCIAL CORPORATION)
FROM 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
