<PAGE> 1
As filed with the Securities and Exchange Commission on May 6, 1998
Registration No. 333-47957
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
UNITED COMMUNITY FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Ohio 6036 34-1856319
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of incorporation or organization) Classification Code Number) identification number)
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275 FEDERAL PLAZA WEST
YOUNGSTOWN, OHIO 44503-1203
(330) 742-0500
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(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
DOUGLAS M. MCKAY
UNITED COMMUNITY FINANCIAL CORP.
275 FEDERAL PLAZA WEST
YOUNGSTOWN, OHIO 44503-1203
(330) 742-0500
--------------------------------
(Name, address, including Zip Code, and
telephone number, including area code,
of agent for service)
With copies to:
Terri R. Abare
Kathleen M. Molinsky
Vorys, Sater, Seymour and Pease LLP
Atrium Two, 221 East Fourth Street
Cincinnati, Ohio 45202
(513) 723-4000
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following box: [X]
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CALCULATION OF REGISTRATION FEE
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price aggregate offering Amount of
registered registered per share price(1) registration fee
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<S> <C> <C> <C> <C>
Common shares,
without par value 34,715,625 $10.00 $347,156,250 $105,199
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(1) Estimated solely for the purpose 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> 2
CROSS REFERENCE SHEET
Showing the location in the Prospectus of the Items of Form S-1
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Form S-1 Item and Caption Prospectus Heading
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.................................... Cover Page, Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.....................
PROSPECTUS SUMMARY; SELECTED FINANCIAL INFORMATION AND OTHER
DATA; RISK FACTORS
4. Use of Proceeds...................................... USE OF PROCEEDS
5. Determination of Offering Price...................... Cover Page; THE CONVERSION - Pricing and Number of
Common Shares to be Sold
6. Dilution............................................. RISK FACTORS; THE CONVERSION - Tax Considerations; COMPARISON
OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION;
PRO FORMA DATA
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Cover Page; THE CONVERSION - General;
- Subscription Offering; - Community Offering; - Public
Offering; and - Plan of Distribution
9. Description of Securities to be Registered........... DESCRIPTION OF AUTHORIZED SHARES
10. Interest of Named Experts and Counsel................ Not Applicable
11. Information with Respect to the Registrant
(a) Description of Business......................... THE BUSINESS OF THE COMPANY
(b) Description of Property......................... THE BUSINESS OF THE COMPANY - Properties
(c) Legal Proceedings............................... THE BUSINESS OF THE COMPANY - Legal Proceedings
(d) Market Price and Dividends...................... Cover Page; PROSPECTUS SUMMARY - Dividend Policy; MARKET FOR
COMMON SHARES; DIVIDEND POLICY
(e) Financial Statements............................ FINANCIAL STATEMENTS
(f) Selected Financial Data......................... SELECTED FINANCIAL INFORMATION AND OTHER DATA
(g) Supplementary Financial Information............. Not Applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................... CHANGE IN ACCOUNTANTS
(j) Directors and Executive Officers................ MANAGEMENT
(k) Executive Compensation.......................... PROSPECTUS SUMMARY; RISK FACTORS - Potential Awards of Shares
to Directors, Officers and Employees Pursuant to Benefit
Plans; MANAGEMENT - Compensation; and - Stock Benefit Plans
(l) Security Ownership of Certain Beneficial
Owners and Management......................... THE CONVERSION - Intended Purchases by Directors and
Executive Officers; - Limitations on Purchases of Common
Shares; - Restrictions on Transfer of Common Shares by
Directors and Officers
(m) Certain Relationships and Related
Transactions.................................. Not Applicable
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
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<PAGE> 3
PROSPECTUS SUPPLEMENT
UNITED COMMUNITY FINANCIAL CORP.
THE HOME SAVINGS AND LOAN COMPANY
401(k) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to
participants (the "Participants") in The Home Savings and Loan Company 401(k)
Savings Plan of participation interests and common shares, without par value, of
United Community Financial Corp. (the "Common Shares"), as set forth herein.
In connection with the proposed conversion of The Home Savings and Loan
Company of Youngstown, Ohio (the "Company" or the "Employer") from a mutual
savings and loan association to a stock savings and loan association
incorporated under Ohio law (the "Conversion"), United Community Financial
Corp., the proposed holding company for the Company (the "Holding Company"), has
been formed. The Board of Directors of the Company has adopted an amendment to
the adoption agreement of The Home Savings and Loan Company 401(k) Savings Plan
(the "Plan" or the "401(k) Plan") to permit the investment of Plan assets in
Common Shares. The Plan will permit Participants to direct the trustee of the
Plan (the "Trustees") to purchase Common Shares with amounts in the Plan
attributable to such Participants. This Prospectus Supplement relates to the
initial election of a Participant to direct the purchase of Common Shares in
connection with the Conversion. This Prospectus Supplement does not cover
reoffers or resales of the Common Shares. See "Restrictions on Resales."
The Prospectus of the Holding Company dated May __, 1998 (the
"Prospectus"), which you received with this Prospectus Supplement, includes
detailed information regarding the Conversion, the Common Shares and the
financial condition, results of operation and business of the Company and the
Holding Company. This Prospectus Supplement, which provides detailed information
regarding the Plan, should be read only in conjunction with the Prospectus.
Terms not otherwise defined in this Prospectus Supplement are defined in the
Plan or the Prospectus.
A Participant's eligibility to purchase Common Shares in connection
with the Conversion is subject to the Participant's general eligibility to
purchase Common Shares in the Conversion and the minimum and maximum purchase
limitations set forth in the Plan of Conversion. See "THE CONVERSION -
Subscription Offering; Community Offering; Public Offering and - Limitations on
Purchases of Common Shares" in the Prospectus.
AN INVESTMENT IN THE COMMON SHARES INVOLVES CERTAIN RISKS. FOR A
DISCUSSION OF SUCH RISKS AND OTHER FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS, SEE "RISK FACTORS" BEGINNING ON PAGE ___ OF THE
PROSPECTUS.
<PAGE> 4
THESE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THRIFT
SUPERVISION (THE "OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
THE DIVISION OF FINANCIAL INSTITUTIONS OF THE DEPARTMENT OF COMMERCE OF THE
STATE OF OHIO (THE "DIVISION"), OR THE SECURITIES COMMISSION OF ANY STATE, NOR
HAS THE SEC, THE OTS, THE FDIC, THE DIVISION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ____________________, 1998.
<PAGE> 5
No person has been authorized to give any information or to make any
representations other than as contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Holding Company, the Company or
the Plan. This Prospectus Supplement does not constitute an offer to sell, or
the solicitation of an offer to buy, any securities, to any person in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom delivery of this Prospectus would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached hereto and should be
retained for future reference.
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TABLE OF CONTENTS
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THE OFFERING......................................................................................................1
Securities Offered.............................................................................................1
Election to Purchase Common Shares in the Conversion...........................................................1
Value of Participation Interests...............................................................................1
Method of Directing Transfer...................................................................................1
Time for Directing Transfer....................................................................................2
Irrevocability of Transfer Direction...........................................................................2
Direction to Purchase Common Shares After the Conversion.......................................................2
Purchase Price of Common Shares................................................................................2
Nature of a Participant's Interest in the Common Shares........................................................3
Voting and Tender Rights of Common Shares......................................................................3
DESCRIPTION OF THE PLAN...........................................................................................3
Introduction...................................................................................................3
Eligibility and Participation..................................................................................4
Contributions Under the Plan...................................................................................4
Limitations on Contributions...................................................................................6
Investment of Contributions....................................................................................7
Benefits Under the Plan.......................................................................................11
Administration of the Plan....................................................................................13
Reports to Plan Participants..................................................................................13
Plan Administrator............................................................................................14
Amendment and Termination.....................................................................................14
Merger, Consolidation or Transfer.............................................................................14
Federal Income Tax Consequences...............................................................................14
ERISA and Other Qualifications................................................................................17
Restrictions on Resale........................................................................................17
SEC Reporting and Short-Swing Profit Liability................................................................18
LEGAL OPINIONS...................................................................................................19
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<PAGE> 7
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan
and up to ___________ Common Shares, at the purchase price of $10.00 per Common
Share, which may be acquired by the Plan for the accounts of employees of the
Company participating in the Plan. The Holding Company is the issuer of the
Common Shares. Information regarding the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Company and the Holding
Company is contained in the attached Prospectus. The address of the principal
office of the Company is 275 Federal Plaza West, Youngstown, Ohio 44503-1203.
The Company's telephone number is (330) 742-0500.
ELECTION TO PURCHASE COMMON SHARES IN THE CONVERSION
In connection with the Conversion, the Company has adopted the Plan
which permits each Participant to direct the Trustee of the Plan to transfer all
or part of the funds which represent his or her beneficial interest in the
assets of the Plan to an employer stock fund (the "Employer Stock Fund") and to
use such funds to purchase Common Shares. The Employer Stock Fund will consist
of investments in the Common Shares made on or after the effective date of the
Conversion. Funds not transferred to the Employer Stock Fund will remain in the
other investment funds of the Plan as directed by the Participant. A
Participant's ability to transfer funds to the Employer Stock Fund in the
Conversion is subject to the Participant's general eligibility to purchase
Common Shares in the Conversion. For information as to the ability of
Participants to purchase Common Shares in the Conversion, see "THE CONVERSION -
Subscription Offering; and - Community Offering" in the attached Prospectus.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan will be valued on an ongoing basis and each
Participant will be informed of the value of his or her beneficial interest in
the Plan on a quarterly basis. This value represents the market value of past
contributions to the Plan by the Company and by the Participants and earnings
thereon, less previous withdrawals and loans outstanding.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to
direct a transfer to the Employer Stock Fund (the "Investment Form"). If a
Participant wishes to transfer all or part of his or her beneficial interest in
the assets of the Plan to the Employer Stock Fund to purchase Common Shares in
the Conversion, he or she should indicate that election in the Investment
Elections part of the Investment Form. If a Participant does not wish to make
such an election, he or she does not need to take any action.
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<PAGE> 8
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Common Shares issued in connection with
the Conversion is ____________, 1998. The Investment Form should be returned to
the Human Resource Department Company no later than 12:00 noon, Eastern Daylight
Time, on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase Common Shares in connection with the Conversion shall be irrevocable.
Participants, however, will be able to direct the reinvestment of their accounts
under the Plan ("401(k) Accounts") after the Conversion as explained below.
DIRECTION TO PURCHASE COMMON SHARES AFTER THE CONVERSION
After the Conversion, a Participant will be able to direct that a
certain percentage of such Participant's interests in the trust assets (the
"Trust") be transferred to the Employer Stock Fund and invested in Common
Shares, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred from the
Employer Stock Fund to the other investment funds available under the Plan.
Participants will be permitted to direct that future contributions made to the
Plan by or on their behalf be invested in Common Shares. Following the initial
election, the allocation of a Participant's interest in the Employer Stock Fund
may be changed by the Participant as allowed by the Plan. Special restrictions
apply to transfers directed by those Participants who are executive officers,
directors and principal shareholders of the Holding Company who are subject to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). See "Restrictions on Resale" and "THE CONVERSION -
Restrictions on Transfer of Common Shares by Directors and Officers" in the
Prospectus.
PURCHASE PRICE OF COMMON SHARES
The funds transferred to the Employer Stock Fund for the purchase of
Common Shares in the Conversion will be used by the Trustee to purchase Common
Shares. The price paid for such Common Shares purchased in the Conversion will
be $10.00 per share, the same price paid by all other persons who purchase
Common Shares in the Conversion.
The prices paid by the Trustee for Common Shares purchased in the open
market will not exceed "adequate consideration" as defined in Section 3(18) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
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<PAGE> 9
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON SHARES
The Common Shares will be held in the name of the Trustee for the Plan,
as trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of Common Shares will not be directly attributable to the 401(k)
Account of any Participant. Net earnings or losses will be allocated to the
401(k) Account of a Participant based on the particular investment designations
of the Participants. Therefore, a Participant's 401(k) Account earnings should
not be affected by the investment designations (including investments in Common
Shares) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON SHARES
The Trustee generally will exercise voting and tender rights
attributable to all Common Shares held by the Trust as directed by the
Administrator of the Plan.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Plan has been in effect since January 1993. Effective __, 1998, the
Plan allows the employees of the Company to invest in the Common Shares through
the Plan. The Plan is a profit sharing plan with a cash or deferred arrangement
established in accordance with the requirements under Section 401(a) and Section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
The Company intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Company
will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable U.S. Treasury
regulations. The Company will submit the Plan to the IRS for a determination
that the Plan, as amended, is qualified under Section 401(a) of the Code and
that it satisfies the requirements for a qualified cash or deferred arrangement
under Section 401(k) of the Code.
The Plan is an "individual account plan" other than a "money purchase
pension plan" within the meaning of ERISA. As such, the Plan is subject to all
of the provisions of Title I (Protection of Employee Benefit Rights) and Title
II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of
ERISA, except the funding requirements contained in Part 3 of Title l of ERISA
which by their terms do not apply to an individual account plan (other than a
money purchase pension plan). The Plan is not subject to Title IV (Plan
Termination Insurance) of ERISA. Neither the funding requirements contained in
Part 3 of Title I of ERISA nor the plan termination insurance provisions
contained in Title IV of ERISA will be extended to Participants or beneficiaries
under the Plan.
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<PAGE> 10
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE COMPANY. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE COMPANY OR AFTER TERMINATION OF
EMPLOYMENT.
The following statements are summaries of certain material provisions
of the Plan. They are not complete and are qualified in their entirety by the
full text of the Plan, which has been filed as an exhibit to the registration
statement of the Holding Company filed with the SEC. Copies of the Plan are
available to all employees by filing a request with the Plan Administrator. Each
employee is urged to read carefully the full text of the Plan.
ELIGIBILITY AND PARTICIPATION
Any employee of the Company who is age 20 or older is eligible to
participate in the Plan and will become a Participant in the Plan on the first
day of the Plan year quarter immediately following the completion of six months
of service with the Company. The Plan fiscal year is the calendar year (the
"Plan Year"). Employees who are Limited Service Employees (as defined in the
Plan) or covered by a collective bargaining agreement which does not expressly
provide for their coverage under the Plan, and employees who are nonresident
aliens and who received no earned income from the Company which constitutes
income from sources within the United States, are not eligible to participate in
the Plan. Directors who are not employees of the Company are not eligible to
participate in the Plan.
As of April 30, 1998, there were approximately ___ employees eligible
to participate in the Plan, and approximately ______ employees had elected to
contribute to the Plan.
CONTRIBUTIONS UNDER THE PLAN
Participant Contributions. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (hereinafter defined) pursuant
to a salary reduction agreement by an amount not less than $5.00 per pay period
nor more than 15% and have that amount contributed to the Plan on such
Participant's behalf ("Deferred Compensation"). Such amounts are credited to the
Participant's 401(k) Account. For purposes of the Plan, "Compensation" means a
Participant's slaray as reported on their W-2 ("Basic Salary"). The annual
compensation of each Participant taken into account under the Plan is limited to
$160,000 (adjusted for cost of living as permitted by the Code). A Participant
may elect quarterly to modify the amount contributed to the Plan under such
Participant's salary reduction agreement. Deferred Compensation contributions
are generally transferred by the Company to the Trustee of the Plan monthly. A
Participant is always 100% vested in the Deferred Compensation amounts in his
401(k) Account.
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<PAGE> 11
Profit Sharing Contributions. The Company may make a discretionary
contribution to the Plan annually in an amount not to exceed 15% of the total
Compensation received by all Participants (a "Profit Sharing Contribution"). All
contributions, including Deferred Compensation amounts are counted towards the
15% maximum. The Company may choose not to make a Profit Sharing Contribution in
any given Plan Year. The total Profit Sharing Contribution made by the Company
during a Plan Year is allocated among Participants in the same proportion as
each Participant's Compensation bears to the total Compensation paid to
Participants during the Plan year. A Participant must be an employee of the
company on the last day of the Plan Year to receive an Employer contribution. A
Participant is 100% vested in the Profit Sharing Contributions to his 401(k)
Account after five years of service with the Company.
Matching Contributions. The Company may make discretionary matching
contributions ("Matching Contributions") to the Plan on behalf of Participants
who make elective deferrals to the Plan. The Company may contribute an amount to
a Participant's 401k) Account each year based on a percentage of a Participant's
Deferred Compensation amount. A Participant is 100% vested in the Matching
Contributions in his 401(k) Account after five years of service with the
Company.
Qualified Matching Contributions. The Company may make "qualified"
matching contributions ("Qualified Matching Contributions") to the Plan on
behalf of all Participants who are not Highly-Compensated Employees (hereinafter
defined) and who are not officers of the Company. The Company's discretionary
contribution will be based on a percentage of a Participant's Deferred
Compensation amount. A Participant is always 100% vested in the Qualified
Matching Contribution amounts in his 401(k) Account.
Qualified Non-Elective Contributions. The Company may make
discretionary qualified non-elective contributions ("Qualified Non-Elective
Contributions") to the Plan. Allocations of Qualified Non-Elective Contributions
are made to the 401(k) Accounts of Participants who are not Highly-Compensated
Employees or officers of the Company and are based on the ratio each
Participant's Compensation for the Plan Year bears to the total Compensation of
all Participants for the Plan Year. A Participant is always 100% vested in the
Qualified Non-Elective Contribution amounts in his 401(k) Account.
Rollover Amount from Other Plans. An employee who has received a
distribution from another plan qualified under Section 401(a) of the Code may,
in accordance with Section 402(c) of the Code and procedures approved at the
discretion of the Trustee, transfer the distribution received from the other
plan to the Trustee. Any amounts rolled over from another plan will be
contributed to the employee's "Rollover Account."
Transfers from Other Plans. An employee who has cash, or other property
representing an interest in another plan qualified under Section 401(a) of the
Code may, in accordance with Section 402(c) of the Code and procedures approved
at the discretion of the Trustee, transfer the cash or other property from the
other plan to the Trustee in a Trustee-to-Trustee, Custodian-to-
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<PAGE> 12
Trustee or Custodian-to-Custodian transfer. Any amounts transferred from another
plan will be contributed to the Participant's 401(k) Account.
LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the
requirements of the Code, the Plan provides that the amount of contributions and
forfeitures allocated to each Participant's 401(k) Account during any Plan Year
may not exceed the lesser of 25% of the Participant's "Section 415 Compensation"
for the Plan Year or $30,000 (adjusted for increases in the cost of living as
permitted by the Code). A Participant's "Section 415 Compensation" is a
Participant's Compensation, excluding any Employer contribution to the Plan or
to any other plan of deferred compensation or any distributions from a plan of
deferred compensation. In addition, annual additions shall be limited to the
extent necessary to prevent the limitations set forth in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by the
Company from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions to the Plan with respect to a
Participant, such excess will be disposed of in accordance with procedures set
forth in the Plan.
However, if the annual addition limitations are exceeded with respect
to a Participant in both the Plan and the defined benefit pension plan and
employee stock ownership plan maintained by the Company, the Participant's
annual additions under the Plan will be reduced.
Limitation on 401(k) Plan Contributions. The annual amount of Deferred
Compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax deferred annuity) may not exceed $10,000, adjusted for increases
in the cost of living as permitted by the Code. Contributions in excess of this
limitation ("Excess Deferrals") will be included in the Participant's gross
income for federal income tax purposes in the year they are made. In addition,
any such Excess Deferral will again be subject to federal income tax when
distributed by the Plan to the Participant, unless the Excess Deferral (together
with any income allocable thereto) is distributed to the Participant not later
than the first April 15th following the close of the taxable year in which the
Excess Deferral is made. Any income on the Excess Deferral that is distributed
not later than such date shall be treated, for federal income tax purposes, as
earned and received by the Participant in the taxable year in which the Excess
Deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of Deferred Compensation
that may be contributed to the Plan in any Plan Year on behalf of Highly
Compensated Employees in relation to the amount of Deferred Compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a plan year (i.e.,
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of Deferred Compensation credited to the
401(k) Account of such eligible employee by such eligible employees compensation
for the Plan Year) of the Highly Compensated Employees may not exceed the
greater of (a) 125% of the actual deferral percentage of all other eligible
employees, or (b) the lesser of (i) 200% of the actual deferral percentage of
all other
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<PAGE> 13
eligible employees, or (ii) the actual deferral percentage of all other eligible
employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who,
during the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner
(i.e., owns directly or indirectly more than 5% of the shares of the Employer or
shares possessing more than 5% of the total combined voting power of all stock
of the Employer) or (2) for the preceding year (a) received compensation from
the Employer in excess of $80,000 (as adjusted periodically under applicable
Code provisions), and (b) if the Employer elects the application of this clause
for such preceding year, was in the top-paid group of employees for such
preceding year. An employee is in the top-paid group of employees for any year
if such employee is in the group consisting of the top 20% of employees when
ranked on the basis of compensation paid during such year. Such amounts are
adjusted annually to reflect increases in the cost of living.
In order to prevent the disqualification of the Plan, any amounts
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("Excess Contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Company will be
subject to a 10% excise tax on any Excess Contributions unless such Excess
Contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first two and a half
months following the Plan Year to which such Excess Contributions related.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a
Top-Heavy Plan (hereinafter defined), then (i) the Company may be required to
make certain minimum contributions to the Plan on behalf of Non-Key Employees
(hereinafter defined), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined benefit plan or employee stock ownership plan
maintained by the Company.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any
Plan Year if, as of the last day of the preceding Plan Year, the aggregate
balance of the Accounts of Participants who are Key Employees exceeds 60% of the
aggregate balance of the Accounts of all Participants. "Key Employees" generally
include any employee who, at any time during the Plan Year or any of the four
preceding Plan Years, is (l) an officer of the Company having annual
compensation in excess of $____________ (for 1998) who is in an administrative
or policy-making capacity, (2) one of the ten employees having annual
compensation in excess of $30,000 and owning, directly or indirectly, the
largest interests in the Employer; (3) a 5% owner of the Employer, (i.e., owns
directly or indirectly more than 5% of the shares of the Employer, or shares
possessing more than 5% of the total combined voting power of all stock of the
Employer or (4) a 1% owner of the Employer having annual compensation in excess
of $______ (for 1998).
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<PAGE> 14
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held
in a custodial account (the "Custodial Account") of which McDonald & Company
Securities, Inc. is the Custodian (the "Custodian"). The Custodian is appointed
by the Trustee. The Plan provides that a Participant may direct the Trustee to
invest all or a portion of his Accounts in various managed investment
portfolios, described below. A Participant may elect to change his investment
directions regarding both past contributions and for more additions to the
Participant's accounts invested in these investment alternatives, as allowed by
the Plan.
Under the Plan, prior to the effective date of the Conversion, the
401(k) Account of a Participant held in the Trust will be invested by the
Trustee at the direction of the Participant in the following managed portfolios:
AIM Balanced Fund A The fund seeks to provide the highest
return possible consistent with
preservation of capital, by investing in
a broadly diversified portfolio of
high-yielding securities, including
common stocks, preferred stocks,
convertible securities and bonds.
Although equity securities are purchased
primarily for capital appreciation and
fixed income securities purchased
primarily for income purposes, income and
capital appreciation potential are
considered with all investments.
AIM Charter Fund A The primary investment objective of the
fund is capital appreciation; current
income is a secondary objective. The fund
invests primarily in dividend-paying
common stocks which have prospects for
both growth of capital and dividend
income.
AIM Income Fund A The fund seeks a high level of current
income consistent with reasonable concern
for safety of principal, by investing
primarily in fixed-rate corporate debt
and U.S. Government obligations. The fund
may also invest in preferred stock issues
and convertible corporate debt. The
percent of the fund's assets in various
types of securities will vary in light of
the fund's investment objective and
existing conditions. The fund may invest
up to 40% of its assets in securities
issued by foreign entities.
AIM International Equity A The investment objective is to seek to
provide long-term growth of capital by
investing in a diversified portfolio of
international equity securities
considered to have strong earnings
momentum. Any income realized by the fund
will be incidental. Under normal market
conditions the fund will invest at least
80% of its total assets in marketable
equity securities of foreign companies
which, with their predecessors, have been
in continuous
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<PAGE> 15
operation for three years or more and
which are listed on a recognized foreign
securities exchange or traded in a
foreign over-the counter market. It is
expected that the fund's portfolio will
generally be comprised of two basic
categories of foreign companies: "core"
companies, which AIM considers to have
experienced consistent long-term growth
in earnings and to have strong prospects
for outstanding future growth, and
companies that AIM believes are currently
experiencing a greater than anticipated
increase in earnings.
AIM Value Fund A AIM Value Fund seeks long-term growth of
capital. It will invest primarily in
equity securities judged to be
undervalued relative to the investment
advisor's appraisal of the current or
projected earnings of the companies
issuing the securities, or relative to
current market values of assets owned by
the companies issuing the securities, or
relative to the equity market generally.
Income is a secondary objective. The
primary thrust of AIM's search for
undervalued equity securities is in four
categories: (1) out-of-favor cyclical
growth companies; (2) established growth
companies that are undervalued; (3)
companies with evidence of improving
prospects; and (4) companies whose equity
securities are selling at prices that do
not reflect the current market value of
their assets.
AIM Money Market Fund This is a money market fund which is very
similar to a savings account. The only
source of growth is interest earned on
your balance.
A money market fund is generally regarded
as a short-term investment to be used
prior to utilizing a more long-term
investment alternative such as a stock
fund or bond fund. Additionally, a money
fund may be utilized as a small portion
of a balanced approach to investing your
account. The trust's portfolio represents
a high-quality selection of money market
instruments such as U.S. Treasury bills,
commercial paper and certificates of
deposit. Because of the very short-term
nature of these investments, this is the
most conservative investment option.
Consequently, it is also the investment
option that may provide the least
opportunity for the growth of an account.
Effective upon the Conversion, a Participant may invest all or a
portion of his Accounts in the portfolios described above and in the fund,
described below:
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<PAGE> 16
United Community Financial Employer Stock Fund which invests in
Corp. Common Stock common shares, without par value, of
United Community Financial Corp., the
holding company of the Employer, an Ohio
savings and loan association.
A Participant may elect (in amounts not less than $5.00) to have both
past and future contributions and additions to the Participant's 401(k) Account
invested either in the Employer Stock Fund or in such other managed portfolios
listed above. These elections will generally be effective the business day
coinciding with or next following the day of the plan administrator's receipt of
such investment directions. Any amounts credited to a Participant's 401(k)
Accounts for which investment directions are not given will be invested in
________________. Because investment allocations only are required to be made in
increments of 1%, Participants can invest their 401(k) Accounts in each of the
available investment funds.
The net gain (or loss) in the 401(k) Accounts from investments other
than the Employer Stock Fund (including interest payments, dividends, realized
and unrealized gains and losses on securities, and expenses paid from the Trust)
are determined daily during the Plan Year. Net gain (or loss) in the 401(k)
Account from investments (including interest, dividends, realized and unrealized
gain and expenses paid) from the Employer Stock Fund will be determined
quarterly. For purposes of such allocations, all assets of the Trust are valued
at their fair market value.
A. Funds under the Plan Prior to the Conversion.
Prior to the Conversion, contributions under the Plan were invested in
the five funds listed below. The annual percentage of returns on these funds,
calculated prior to any fees being charged to the portfolio for 1995, 1996 and
1997 were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
A. AIM Balanced Fund A 24.41% 19.25% 34.98%
B. AIM Charter Fund A 24.73 19.58 35.68
C. AIM Income Fund A 11.92 8.58 22.03
D. AIM International Equity A 5.70 18.98 16.41
E. AIM Value Fund A 23.95 14.52 34.85
</TABLE>
B. The Employer Stock Fund.
The Employer Stock Fund will consist of investments in Common Shares
made on and after the effective date of the Conversion. Any cash dividends paid
on Common Shares held in the Employer Stock Fund will be credited to a cash
dividend subaccount for each Participant investing in the Employer Stock Fund.
The Trustee will, to the extent practicable, use all amounts held by it in the
Employer Stock Fund (except the amounts credited to cash dividend subaccounts)
to purchase Common Shares. It is expected that all purchases will be made at
prevailing market prices. Under certain circumstances, the Trustee may be
required to limit the
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<PAGE> 17
daily volume of shares purchased. Pending investment in Common Shares, assets
held in the Employer Stock Fund will be placed in bank deposits and other
short-term investments.
When Common Shares are purchased or sold, the cost or net proceeds will
be charged or credited to the 401(k) Accounts of Participants affected by the
purchase or sale. The Company expects that Participants will pay any brokerage
commissions, transfer fees and other expenses incurred in the sale and purchase
of Common Shares for the Employer Stock Fund. A Participant's 401(k) Account
will be adjusted to reflect changes in the value of Common Shares resulting from
stock dividends, stock splits and similar changes.
To the extent dividends are not paid on Common Shares held in the
Employer Stock Fund, the return on any investment in the Employer Stock Fund
will consist only of the market value appreciation of the Common Shares
subsequent to their purchase. Following the Conversion, the Board of Directors
of the Holding Company may consider a policy of paying dividends on the Common
Shares, however, no decision has been made by the Board of Directors of the
Holding Company regarding the amount or timing of dividends, if any. See
"DIVIDEND POLICY" in the Prospectus.
As of the date of this Prospectus Supplement, with the exception of 100
Common Shares issued to the President of the Holding Company for incorporation
purposes, none of the Common Shares have been issued or are outstanding and
there is no established market for the Common Shares. Accordingly, there is no
record of the historical performance of the Employer Stock Fund.
Investments in the Employer Stock Fund may involve certain special
risks associated with investments in Common Shares of the Holding Company. For a
discussion of these risk factors, see "RISK FACTORS" beginning on page ___ in
the Prospectus.
BENEFITS UNDER THE PLAN
Vesting. A Participant has at all times a fully vested, nonforfeitable
interest in all of the Deferred Compensation, Qualified Matching Contributions
and Qualified Non-Elective Contributions in his 401(k) Account and Rollover
Account and the earnings thereon under the Plan. Generally a Participant is not
vested in any part of his interest in his Matching Contribution and Profit
Sharing Contributions in his 401(k) Account until after five years of service to
the Company at which time the Participant is 100% vested in these interests.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS ON
THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT UNDER
THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2 UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE COMPANY.
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<PAGE> 18
Withdrawals Prior to Termination of Employment. In certain
circumstances, a Participant may make a withdrawal from his 401(k) Account under
the Plan pursuant to the hardship distribution rules under the Plan. These rules
are intended to insure that Participants have a true financial need before a
withdrawal may be made. A Participant may also make a withdrawal of Deferred
Compensation from his 401(k) Account after the age of 59-1/2.
Loans to Participants. The Plan allows Participants to borrow money
from the Plan. No loan to any Participant can be made to the extent that such
loan, when added to the outstanding balance of all other loans to the
Participant, would exceed the lesser of (1) $50,000 reduced by the highest
outstanding balance of loans during the one-year period ending on the day before
the loan is made, or (2) one-half of the present value of the non-forfeitable
accrued benefit of the Participant's 401(k) Account. Each loan has a term of not
more than 5 years and is payable not less frequently than quarterly, unless the
purpose of the loan is the purchase of a residence which within a reasonable
period of time from the date of the loan is to be used as the Participant's
principal residence. The interest rate charged for each loan is established as
of the loan date and is the rate as may be required by applicable law and
determined by reference to the prevailing interest rates charged by commercial
lenders under similar circumstances. Required payments on the loan cannot be
deducted from a 401(k) Account and must be paid in cash, even if a Participant's
employment with the Company terminates. The Plan requires the Plan Administrator
to take legal action against a Participant if he fails to comply with the terms
of the Loan.
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment, generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an
in-kind distribution of Common Shares of the Holding Company credited to the
Participant's Account. A Participant may elect, in lieu of a lump sum payment,
to be paid in payments over a period certain in monthly, quarterly, semi-annual
or annual cash installments. Benefit payments ordinarily shall be made not later
than 60 days following the end of the Plan Year in which occurs the later of the
Participant's (i) termination of employment; (ii) attainment of age 65; or (iii)
10th anniversary of commencement of participation in the Plan; but in no event
later than the April 1, following the calendar year in which the Participant
attains age 70-1/2. However, if the vested portion of the Participant's 401(k)
Account balances exceeds $5,000, no distribution shall be made from the Plan
prior to the Participant's attaining age 65 unless the Participant consents to
an earlier distribution. Special restrictions apply to the distribution of
Common Shares of the Holding Company to those Participants who are executive
officers, directors and principal shareholders of the Holding Company who are
subject to the provisions of Section 16(b) of the Exchange Act.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date or retirement, disability or termination of employment, and
who has a surviving spouse, shall have 100% of benefits, regardless of the
number of years worked, paid to the surviving spouse in a lump sum by the end of
the fifth Plan year following the date of his death, or the surviving spouse may
elect another form of payment upon the death of the Participant. Notwithstanding
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<PAGE> 19
the foregoing, if the payment of the Participant's benefit had commenced before
his death, such payments will continue in accordance with the distribution
method in effect at death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Shares, or,
if the payment of his benefit had commenced before his death, in accordance with
the distribution method in effect at death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
bankruptcy, pledge, encumbrance, attachment charge, garnishment, execution, or
levy of any kind, either voluntary or involuntary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any rights to benefits payable under the Plan shall be
void.
ADMINISTRATION OF THE PLAN
Trustee. The Trustee with respect to the Plan is the named fiduciary of
the Plan for purposes of Section 402 of ERISA. The current trustee of the Plan
is Riggs Bank, N.A.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust assets and income therefrom. The
Trustee has the authority to invest and reinvest the Trust assets and may sell
or otherwise dispose of Trust investments at any time and may hold trust funds
uninvested. The Trustee has authority to invest the assets of the Trust in "any
type of property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the
Trust in person or by proxy, provided, however, that the Plan Administrator
shall direct the Trustee as to voting and tendering of all Common Shares held in
the Employer Stock Fund.
The Trustee is entitled to reasonable compensation for its services and
is also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Company.
The Trustee must render at least annual reports to the Company and to
the Participants in such form and containing information that the Trustee deems
necessary.
REPORTS TO PLAN PARTICIPANTS
The Custodian will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of
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<PAGE> 20
contributions allocated to such Participant's Account for that period, and (iii)
the adjustments to such Participant's Account to reflect earnings or losses (if
any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan Administrator is the Board
of Directors of the Company. The Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants, beneficiaries
and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Company may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his Account. The Company reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of the
Participants or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan had then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan or the
other plan had then terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of the material federal income
tax aspects of the Plan which are of general application under the Code and is
not intended to be a complete or definitive description of the federal income
tax consequences of participating in or receiving distributions from the Plan.
The summary is necessarily general in nature and does not purport to be
complete. Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws.
-14-
<PAGE> 21
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
The Plan will be submitted to the IRS for a determination that it is
qualified under Section 401(a) and 401(k) of the Code, and that the related
Trust is exempt from tax under Section 501(a) of the Code. A plan that is
"qualified" under these sections of the Code is afforded special tax treatment
which include the following: (l) the sponsoring employer is allowed an immediate
tax deduction for the amount contributed to the Plan each year: (2) participants
pay no current income tax on amounts contributed by the employer on their
behalf: and (3) earnings of the Plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments. The Plan will be
administered to comply in operation with the requirements of the Code as of the
applicable effective date of any change in the law.
Assuming that the Plan is administered in accordance with the
requirements of the Code and that the IRS issues a favorable determination as
described in the preceding paragraph, participation in the Plan under existing
federal income tax laws will have the following effects;
(a) Amounts contributed to a Participant's 401(k) Account and the
investment earnings on this Account are not includable in a
Participant's federal taxable income until such contributions
or earnings are actually distributed or withdrawn from the
Plan. Special tax treatment may apply to the taxable portion
of any distribution that includes Common Shares or qualifies
as a Lump Sum Distribution (hereinafter defined).
(b) Income earned on assets held by the Trust will not be taxable
to the Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59-1/2; and (iii) consists of the balance to the
credit of the Participant under the Plan and all other profit-sharing plans, if
any, maintained by the Company. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes (the "total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit-sharing plans maintained by
the Company which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, a Participant who has
completed at least five years of participation in the Plan before the taxable
year in which the distribution is made, or a beneficiary who receives a Lump Sum
Distribution on account of the Participant's death (regardless of the period of
the Participant's participation in the Plan or any other profit-sharing plan
maintained by the Employer), may elect for distributions made prior to January
1, 2000, to have the ordinary
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<PAGE> 22
income portion of such Lump Sum Distribution taxed according to a special
averaging rule ("five-year averaging"). The election of the special averaging
rules may apply only to one Lump Sum Distribution received by the Participant or
beneficiary, provided such amount is received on or after the Participant turns
59-1/2 and the recipient elects to have any other Lump Sum Distribution from a
qualified plan received in the same taxable year taxed under the special
averaging rule. Under a special grandfather rule, individuals who turned 50 by
1986 may elect to have their Lump Sum Distribution taxed under either the
five-year averaging rule or under the prior law ten-year averaging rule. Such
individuals also may elect to have that portion of the Lump Sum Distribution
attributable to the Participant's pre-1974 participation in the Plan taxed at a
flat 20% rate as gain from the sale of a capital asset.
Common Shares Included in Lump Sum Distribution. If a Lump Sum
Distribution includes Common Shares, the distribution generally will be taxed in
the manner described above, except that the total taxable amount will be reduced
by the amount of any net unrealized appreciation with respect to such Common
Shares, i.e., the excess of the value of such Common Shares at the time of the
distribution over its cost to the Plan. The tax basis of such Common Shares to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Shares at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Shares to the extent
of the amount of net unrealized appreciation at the time of distribution will be
considered long-term capital gain regardless of the holding period of such
Common Shares. Any gain on a subsequent sale or other taxable disposition of the
Common Shares in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Shares. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. Virtually all distributions from the Plan may be rolled over to
another qualified plan or to an IRA without regard to whether the distribution
is a Lump Sum Distribution or a Partial Distribution. Participants have the
right to elect to have the Trustee transfer all or any portion of an "eligible
rollover distribution" directly to another plan qualified under Section 401(a)
of the Code or to an IRA. If the Participant does not elect to have an "eligible
rollover distribution" transferred directly to another qualified plan or to an
IRA, the distribution will be subject to a mandatory federal withholding tax
equal to 20% of the taxable distribution. An "eligible rollover distribution"
means any amount distributed from the Plan except: (l) a distribution that is
(a) one of a series of substantially equal periodic payments made (not less
frequently than annually) over the Participant's life or the joint life of the
Participant and the Participant's designated beneficiary, or (b) for a specified
period of ten years or more; (2) any amount that is required to be distributed
under the minimum distribution rules; and (3) any other distributions excepted
under applicable federal law. The tax law change described above did not modify
the special tax treatment of Lump Sum Distributions that are not rolled over or
transferred i.e., forward averaging, capital gains tax treatment and the
nonrecognition of net unrealized appreciation discussed earlier.
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<PAGE> 23
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59-1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary; (iv)
made to the Participant after separation from service after attainment of age
55; (v) made to pay medical expenses to the extent deductible for federal income
tax purposes; (vi) pursuant to a qualified domestic relations order; or (vii)
made to effect the distribution of excess contributions or excess deferrals.
ERISA AND OTHER QUALIFICATIONS
As noted above, the Plan is subject to certain provisions of ERISA and
will be submitted to the IRS for a determination that the Plan is qualified
under Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF THE MATERIAL FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Common Shares received by executive officers of the Holding Company
under the Plan will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. Any shares issued as a stock
dividend, stock split or otherwise in respect of restricted shares will be
subject to the same restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of the Holding Company or the Company, or
any of their Associates, may purchase any common shares of the Holding Company
without the prior written approval of the OTS, except through a broker-dealer
registered with the SEC. This restriction will not apply, however, to negotiated
transactions involving more than 1% of a class of outstanding common shares of
the Holding Company or shares acquired by any stock benefit plan of the Holding
Company or the Company.
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<PAGE> 24
The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Act. Accordingly, the Common Shares may
be offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received in
the Conversion under the Plan by persons who are not "affiliates" of the Holding
Company may be resold without registration. Common Shares received under the
Plan by affiliates of the Holding Company will be subject to resale
restrictions. An "affiliate" of the Holding Company, for purposes of Rule 144,
is a person who directly, or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, the Holding
Company. Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company and that sales subject to Rule 144 be
made in routine brokerage transactions or through a market maker. If the
conditions of Rule 144 are satisfied, each affiliate (or group of persons acting
in concert with one or more affiliates) is generally entitled to sell in the
public market, without registration, in any three-month period, a number of
shares which does not exceed the greater of (i) 1% of the number of outstanding
shares of the Holding Company or (ii) if the shares are admitted to trading on a
national securities exchange or reported through the automated quotation system
of a registered securities association, such as The Nasdaq SmallCap Market, the
average weekly reported volume of trading during the four weeks preceding the
sale.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Exchange Act imposes reporting and liability
requirements on executive officers, directors and persons beneficially owning
more than ten percent of public companies such as the Holding Company. Section
16(a) of the Exchange Act requires the filing of reports of beneficial
ownership. Within ten days of becoming a person subject to the reporting
requirements of Section 16(a), a Form 3 reporting initial beneficial ownership
must be filed with the SEC. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Holding Company's fiscal year. Participation in the Employer
Stock Fund of the Plan by executive officers, directors and persons beneficially
owning more than ten percent of Common Stock of the Holding Company must be
reported to the SEC annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section
16(b) of the Exchange Act provides for the recovery by the Holding Company of
profits realized by any officer, director or any person beneficially owning more
than ten percent of the Holding Company's Common Shares ("Section 16(b)
Persons") resulting from the purchase and sale or sale and purchase of the
Holding Company's Common Shares within any six-month period.
The SEC has adopted rules that provides exemption from the profit
recovery provisions of Section 16(b) for Participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon the
timing of elections to acquire or dispose of employer Securities for the
accounts of Section 16(b) Persons.
-18-
<PAGE> 25
Except for distributions of Common Shares due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order under the Plan, Section 16( b) Persons are required to hold Common Shares
distributed from the Plan for six months following such distribution and are
prohibited from directing additional purchases of units within the Employer
Stock Fund for six months after receiving such a distribution. Finally, the Plan
provides that Section 16(b) Persons who terminate their participation in the
Plan may not rejoin the Plan for six months following the date of their
termination. These Plan restrictions conform with the rules issued by the SEC to
exempt transactions in the Plan from becoming subject to the profit-recovery
rules of Section 16(b) of the Exchange Act.
LEGAL OPINIONS
Certain legal matters pertaining to the Common Shares are being passed
upon for the Holding Company by Vorys, Sater, Seymour and Pease, Cincinnati,
Ohio.
-19-
<PAGE> 26
PROSPECTUS
UNITED COMMUNITY FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO)
UP TO 28,937,500 COMMON SHARES, $10 PURCHASE PRICE PER SHARE
United Community Financial Corp., an Ohio corporation (the "Holding
Company"), is hereby offering up to 28,937,500 common shares, without par value
(the "Common Shares"), in connection with the conversion of The Home Savings and
Loan Company of Youngstown, Ohio (the "Company"), from a mutual savings and loan
association to a permanent capital stock savings and loan association
incorporated under Ohio law (the "Conversion").
Subject to the rights and restrictions established by the Company's
Amended Plan of Conversion (the "Plan"), Common Shares are offered hereby at a
price of $10 per share in a subscription offering (the "Subscription Offering")
to (a) each account holder who, at the close of business on July 31, 1996 (the
"Eligibility Record Date"), had one or more deposit accounts with deposit
balances, in the aggregate, of $50 or more (a "Qualifying Deposit") with the
Company (the "Eligible Account Holders"), (b) the United Community Financial
Corp. Employee Stock Ownership Plan (the "ESOP"), (c) each account holder who,
at the close of business on March 31, 1998 (the "Supplemental Eligibility Record
Date"), had a Qualifying Deposit with the Company (the "Supplemental Eligible
Account Holders"), (d) members of the Company eligible to vote at the Special
Meeting ("Other Eligible Members") and (e) directors, officers and employees of
the Company. ALL SUBSCRIPTION RIGHTS TO PURCHASE COMMON SHARES IN THE
SUBSCRIPTION OFFERING ARE NONTRANSFERABLE AND WILL EXPIRE AT 12:00 NOON, EASTERN
DAYLIGHT TIME, ON _____ ___, 1998 (THE "SUBSCRIPTION EXPIRATION DATE"). PERSONS
TRANSFERRING SUBSCRIPTION RIGHTS OR SUBSCRIBING FOR COMMON SHARES ON BEHALF OF
ANOTHER PERSON WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION (THE "OTS"). SEE "THE
CONVERSION - SUBSCRIPTION OFFERING."
To the extent that all of the Common Shares are not subscribed for in
the Subscription Offering, the remaining Common Shares may be offered to the
general public in a direct community offering in which preference will be given
to natural persons residing in Mahoning, Columbiana and Trumbull Counties, Ohio
(the "Community Offering"). See "THE CONVERSION - Community Offering." Shares
not subscribed for in the Subscription Offering and the Community Offering may
be offered to members of the general public in a syndicated public offering (the
"Public Offering").
(Continued on next page)
THE COMMON SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OTS, THE DIVISION OF
FINANCIAL INSTITUTIONS OF THE DEPARTMENT OF COMMERCE OF THE STATE OF OHIO (THE
"DIVISION"), OR THE SECURITIES COMMISSION OF ANY STATE, NOR HAS THE SEC, THE
OTS, THE DIVISION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE COMMON SHARES BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENT AGENCY.
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES CERTAIN
RISKS. FOR A DISCUSSION OF THE RISKS AND OTHER FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS, SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS
PROSPECTUS.
FOR INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE CONVERSION
INFORMATION CENTER AT (330) 747-1111.
<TABLE>
<CAPTION>
============================================================================================================================
Subscription Estimated Expenses and Estimated Net
Price (1) Underwriting Commissions (2) Proceeds
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share Minimum $10.00 $0.15 $9.85
Per share Mid-point $10.00 $0.14 $9.86
Per share Maximum $10.00 $0.13 $9.87
Per share Maximum, as adjusted $10.00 $0.13 $9.87
Total Minimum $212,500,000 $3,172,000 $209,328,000
Total Mid-point $250,000,000 $3,500,000 $246,500,000
Total Maximum $289,375,000 $3,845,000 $285,535,000
Total Maximum, as adjusted $334,656,250 $4,240,000 $330,416,250
============================================================================================================================
</TABLE>
(1) The aggregate Subscription Price is based on an independent appraisal of
the pro forma market value of the Holding Company and the Company, as
converted, reduced to reflect the intended contribution of up to 1,250,000
common shares to the Home Savings Charitable Foundation (the "Foundation").
As of February 24, 1998, the independent appraiser's valuation of the pro
forma value of the Company, as converted, and the Holding Company and
giving effect to the contribution to the Foundation, was $262,500,000,
resulting in a range of values from a minimum of $223,125,000 to a maximum
of $301,875,000, with an adjusted maximum, based on OTS regulations, of
$347,156,250. As a result of the contribution of shares to the Foundation,
the actual amount of the Offering ranges from a minimum of $212,500,000 to
a maximum of $289,375,000 (the "Adjusted Valuation Range"), with an
adjusted maximum of $334,656,250. See "THE CONVERSION - Pricing and Number
of Common Shares to be Sold; and - Contribution to the Foundation" and
"COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION." The
additional shares available for sale pursuant to the adjusted maximum of
the Adjusted Valuation Range may be sold without the resolicitation of
persons who subscribe for Common Shares in the Subscription Offering and
the Community Offering. The actual number of Common Shares to be sold in
connection with the Conversion will be based upon the final valuation of
the Company, as converted and the Holding Company, as determined by an
independent appraiser upon the completion of the Offering. See "THE
CONVERSION Pricing and Number of Common Shares to be Sold."
(2) Expenses of the Conversion payable by the Company and the Holding Company
include legal, accounting, appraisal, printing, mailing and miscellaneous
expenses. Such expenses also include sales commissions, estimated to be
between $1,819,250 and $2,886,896, and reimbursable expenses payable to
Trident Securities, Inc. ("Trident"), McDonald & Company Securities, Inc.
("McDonald & Company") and CIBC Oppenheimer Corp. ("Oppenheimer"). Such
sales commissions may be deemed to be underwriting fees, although Trident,
McDonald & Company and Oppenheimer will solicit subscriptions for the
Common Shares on a "best efforts" basis only and have no obligation to
purchase any of the Common Shares. See "THE CONVERSION - Plan of
Distribution." Actual expenses may vary from the estimates.
TRIDENT SECURITIES, INC.
MCDONALD & COMPANY SECURITIES, INC.
CIBC OPPENHEIMER CORP.
The date of this Prospectus is May ___, 1998.
<PAGE> 27
The Subscription Offering, the Community Offering and the Public Offering are
referred to collectively in this Prospectus as the "Offering."
The minimum number of Common Shares any person may purchase in the
Offering is 25. Each Eligible Account Holder, Supplemental Eligible Account
Holder and Other Eligible Member may purchase in the Subscription Offering not
more than 35,000 Common Shares. In connection with the exercise of subscription
rights arising from a single deposit account in which two or more persons have
an interest, however, the aggregate maximum number of Common Shares which the
persons having an interest in such account may purchase in the Subscription
Offering in relation to such account is 35,000 Common Shares. In the event
shares are available for the Community Offering or the Public Offering, each
person, together with any Associate (hereinafter defined) or other persons
Acting in Concert (hereinafter defined), may purchase in the Community Offering
and the Public Offering up to 35,000 Common Shares. Except for the ESOP, which
may purchase up to 10% of the total Common Shares sold in the Offering and
contributed to the Foundation, no person, together with his or her Associates
and other persons Acting in Concert with him or her, may purchase more than 1%
of the Common Shares sold in the Offering. Subject to OTS regulations, the
purchase limitations may be increased or decreased after the commencement of the
Offering in the sole discretion of the Boards of Directors of the Holding
Company and the Company. If the purchase limitations are increased after the
commencement of the Subscription Offering, persons who have subscribed for the
maximum amount will be given the opportunity to increase their subscriptions.
See "THE CONVERSION - Limitations on Purchases of Common Shares."
Common Shares may be subscribed for in the Offering only by returning
the accompanying Stock Order Form and Certification Form (the "Stock Order
Form"), along with full payment of the purchase price per share for all Common
Shares subscribed for, so that it is received by the Company no later than 12:00
noon, Eastern Daylight Time, on June __, 1998. Payment for Common Shares may be
made (i) in cash, if delivered in person; (ii) by check, bank draft, or money
order made payable to the Company; or (iii) by authorization of withdrawal from
deposit accounts in the Company. Once tendered, subscription orders cannot be
revoked without the consent of the Company or the Holding Company. No payments
by wire transfer will be accepted. The Holding Company is not obligated to
accept orders submitted on photocopied or telecopied Stock Order Forms. See "THE
CONVERSION - Use of Stock Order Forms; and - Payment for Common Shares."
THE COMPLETION OF THE CONVERSION IS CONTINGENT UPON (I) THE APPROVAL OF
THE PLAN AND THE ADOPTION OF AMENDED ARTICLES OF INCORPORATION AND AN AMENDED
CONSTITUTION BY THE COMPANY'S VOTING MEMBERS AT A SPECIAL MEETING OF MEMBERS OF
THE COMPANY TO BE HELD AT ___:00 __.M., EASTERN DAYLIGHT TIME, ON JUNE ___,
1998, AT _______________________, YOUNGSTOWN, OHIO (THE "SPECIAL MEETING"),
(II) THE SALE OF THE REQUISITE NUMBER OF COMMON SHARES AND (III) CERTAIN OTHER
FACTORS. SEE "THE CONVERSION."
-ii-
<PAGE> 28
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
[MAP OF STATE OF OHIO WITH COUNTIES OUTLINED ABOVE AN
ENLARGED MAP OF TRUMBULL, MAHONING AND COLUMBIANA COUNTIES
SHOWING THE LOCATIONS OF THE COMPANY'S OFFICES]
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<PAGE> 29
PROSPECTUS SUMMARY
The following information is not complete and is qualified in its
entirety by the detailed information and the financial statements and
accompanying notes appearing elsewhere in this Prospectus. The purchase of the
Common Shares is subject to certain risks. See "RISK FACTORS."
UNITED COMMUNITY FINANCIAL CORP.
The Holding Company was incorporated under Ohio law in February 1998
for the purpose of purchasing all of the capital stock of the Company to be
issued in connection with the Conversion. The Holding Company has not conducted
and will not conduct any business before the completion of the Conversion, other
than business related to the Conversion. Upon the consummation of the
Conversion, the Holding Company will be a unitary savings and loan holding
company, the principal assets of which initially will be the capital stock of
the Company, the investments made with the net proceeds retained from the sale
of Common Shares and a loan to be made by the Holding Company to the ESOP to
fund the ESOP's purchase of Common Shares in the Conversion. See "USE OF
PROCEEDS."
Following the Conversion, the Board of Directors intends to manage the
Holding Company to promote the long-term best interests of the Holding Company
and its shareholders. Following the Conversion, the Company will have capital in
excess of the level required to support its current asset size and operations.
Management believes that the holding company structure and retention of proceeds
could facilitate geographic expansion and diversification into other activities
although there are no present arrangements, agreements or understandings,
written or oral, to do so. The holding company structure will also facilitate
the repurchase of shares in the open market, subject to OTS regulations and the
discretion of the Holding Company's Board of Directors.
The office of the Holding Company is located at 275 Federal Plaza West,
Youngstown, Ohio 44503-1203, and its telephone number is (330) 742-0500.
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
The Company is a mutual savings and loan association which was
organized under Ohio law in 1889. At December 31, 1997, the Company had total
assets of approximately $1.0 billion, total deposits of $886.8 million and total
equity of $141.4 million, which represented 13.5% of total assets. For the year
ended December 31, 1997, the Company earned approximately $13.0 million, for a
return on average assets of 1.23%.
The Company is a community-oriented institution which operates from 14
offices located throughout Mahoning, Columbiana and Trumbull Counties in
Northeastern Ohio. Nine of the Company's offices are located in Mahoning County,
three are in Columbiana County and two are in Trumbull County. The Company's
home office is located in Youngstown, which is approximately 75 miles northwest
of Pittsburgh, Pennsylvania, and 75 miles southeast of Cleveland, Ohio.
Approximately 431,000 people live in the Company's primary market area, which
makes it the 7th largest metropolitan area in the State of Ohio.
Based on FDIC-published data as of June 30, 1997, the Company had the
largest deposit market share in Mahoning County, the third largest share in
Columbiana County and the eleventh largest share in Trumbull County. The Company
has customer relationships with over 47,000 households in its primary market
area, and in 1997 the Company was the leading originator of purchase money
residential mortgage loans in Mahoning County.
-1-
<PAGE> 30
The Company believes that, as competition intensifies in the financial
services industry, customers will gravitate toward quality customer service, and
a prime focus of the Company's competitive strategy is to emphasize personal
service and convenience. Highlights of the Company's strategy include the
following:
o Increasing the loan portfolio. The Company is a very traditional
savings and loan company. At December 31, 1997, one- to four-family
real estate loans represented 74.2% of total loans. While the Company
intends to remain committed to financing home ownership, it also
believes it must gradually expand the types of loan products it offers
in order to meet the needs of its market area and to improve
profitability. As a result, in 1996, the Company began to commit
substantial resources to the commercial lending area, which is headed
and staffed by individuals with very extensive commercial banking
experience. The Company is also attempting to increase the loan
portfolio by utilizing a newly developed central information file that
captures the necessary customer profile information to more effectively
cross-sell additional services to its existing customer base.
o Maintaining asset quality. The Company believes that high asset
quality is a critical component of long-term financial success and,
therefore, remains committed to a conservative credit culture. At
December 31, 1997, nonperforming assets as a percentage of total assets
were .98%, compared to 1.14% in 1993. Over the past five years this
ratio has averaged .89%. Nonperforming loans as a percentage of total
loans were 1.60% at December 31, 1997, compared to 2.04% at December
31, 1993. Over the past five years this ratio has averaged 1.54%. In
addition, total charge-offs have averaged $251,400 a year over the past
five years.
o Managing interest rate risk. Although the Company's liabilities are
more sensitive to changes in interest rates than its assets, the
Company has attempted to mitigate this risk and enhance return by
maintaining a relatively large portfolio of high quality investments.
At December 31, 1997, total cash and investments (including
mortgage-backed securities) was approximately $396.3 million, or 37.9%
of total assets. Of that amount, approximately $132.8 million consisted
of securities classified as "available for sale."
As an Ohio savings and loan association, the Company is subject to
supervision and regulation by the OTS, the Division and the FDIC. The Company is
a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati and the
deposit accounts of the Company are insured up to applicable limits by the FDIC
in the Savings Association Insurance Fund (the "SAIF"). See "REGULATION."
The main office of the Company is located at 275 Federal Plaza West,
Youngstown, Ohio 44503-1203, and its telephone number is (330) 742-0500.
THE CONVERSION
GENERAL. The Board of Directors of the Company initially adopted the
Plan on December 9, 1997, and amended it on May 6, 1998. The Plan provides for
the conversion of the Company from a mutual savings and loan association to a
permanent capital stock savings and loan association incorporated under the laws
of the State of Ohio. The OTS and the Division have approved the Plan, subject
to the approval of the Plan by the Company's voting members at the Special
Meeting, and to the satisfaction of certain other conditions. See "THE
CONVERSION - Conditions and Termination."
The Company has operated as an independent community oriented savings
association since 1889. It is the intention of the Company to continue to
operate as an independent savings association following the Conversion.
OFFERING. Pursuant to the Plan, Common Shares are hereby offered at a
price of $10 per share to (a) Eligible Account Holders, (b) the ESOP, (c)
Supplemental Eligible Account Holders, (d) Other Eligible
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<PAGE> 31
Members and (e) directors, officers and employees of the Company. See "THE
CONVERSION - Subscription Offering."
To the extent Common Shares remain available after the satisfaction of
all subscriptions received in the Subscription Offering, the Holding Company may
offer Common Shares in the Community Offering, subject to certain limitations.
Preference will be given in the Community Offering to natural persons who have a
bona fide residence in Mahoning, Columbiana and Trumbull Counties, Ohio. The
Boards of Directors of the Holding Company and the Company have the right to
reject, in whole or in part, any order for Common Shares submitted in the
Community Offering. See "THE CONVERSION - Community Offering."
If Common Shares remain available after the completion of the Community
Offering, the Holding Company may offer Common Shares in the Public Offering for
sale on a best efforts basis by a syndicate of registered broker-dealers to be
formed by Trident, McDonald & Company and Oppenheimer, subject to certain
limitations. The Board of Directors of the Holding Company and the Company have
the right to reject, in whole or in part, any order for Common Shares submitted
in the Public Offering. See "THE CONVERSION - Public Offering."
PURCHASE LIMITATIONS. The Plan authorizes the Boards of Directors of
the Holding Company and the Company to establish limits on the number of Common
Shares which may be purchased in the Offering. The minimum number of Common
Shares any person may purchase in the Offering is 25. Each Eligible Account
Holder, Supplemental Eligible Account Holder and Other Eligible Member may
purchase in the Subscription Offering not more than 35,000 Common Shares. In
connection with the exercise of subscription rights arising from a single
deposit account in which two or more persons have an interest, however, the
aggregate maximum number of Common Shares which the persons having an interest
in such account may purchase in the Subscription Offering in relation to such
account is 35,000 Common Shares. In the event shares are available for the
Community Offering or the Public Offering, each person, together with any
Associate or other persons Acting in Concert, may purchase in the Community
Offering or the Public Offering up to 35,000 Common Shares. Purchases in the
Subscription Offering, the Community Offering and the Public Offering are
subject to the additional limitation that no person, together with his or her
Associates and other persons Acting in Concert with him or her, may purchase
more than 1% of the Common Shares sold in the Offering. Such limitations do not
apply to the contribution to the Foundation or to the ESOP, which intends to
purchase up to 8% of the total Common Shares sold in the Offering and
contributed to the Foundation. Subject to applicable regulations, the purchase
limitations may be increased or decreased after the commencement of the Offering
at the sole discretion of the Boards of Directors. See "THE CONVERSION
Limitations on Purchases of Common Shares."
In addition to the purchase limitations established by the Plan, OTS
regulations impose restrictions on certain acquisitions of more than 10% of the
outstanding shares of the Company by any person or company, individually or
Acting in Concert with others. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY AND THE COMPANY AND ANTI-TAKEOVER PROVISIONS." The sale of Common Shares
in the Offering will be subject to the approval of the Plan by the voting
members of the Company at the Special Meeting, to the final valuation of the
Common Shares, as determined by the independent appraiser upon the completion of
the Offering, and to certain other conditions. See "THE CONVERSION -
Subscription Offering; - Community Offering; - Public Offering; and - Pricing
and Number of Common Shares to be Sold."
The Subscription Offering will terminate and subscription rights will
expire if not exercised by 12:00 noon, Eastern Daylight Time, on June __, 1998.
The Community Offering, if any, will be terminated on or before 12:00 noon
Eastern Daylight Time June __, 1998, unless extended. Any continuation of the
Community Offering or the Public Offering beyond __________ ___, 1998, will
require the consent of the OTS and the Division, and persons who have subscribed
for Common Shares in the Offering will be given the right to affirm, increase,
decrease or rescind their subscriptions for Common Shares. Persons who do not
affirmatively
-3-
<PAGE> 32
elect to continue their subscription or who elect to rescind their subscriptions
during any such extension will have all of their funds promptly refunded with
interest at the Conversion Rate (hereinafter defined). Persons who elect to
decrease their subscriptions will have the appropriate portion of their funds
promptly refunded with interest at the Conversion Rate. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON SHARES.
Eligible Account Holders and Supplemental Eligible Account Holders MUST LIST ON
THE STOCK ORDER FORM ALL DEPOSIT ACCOUNTS IN WHICH THEY CLAIM AN INTEREST,
giving all names on each deposit account and the account numbers at the
applicable date in order to protect their purchase priorities. Deposit accounts
include savings accounts and non-interest-bearing demand deposits. THE FAILURE
TO PROVIDE ACCURATE AND COMPLETE ACCOUNT INFORMATION ON THE STOCK ORDER FORM MAY
RESULT IN A REDUCTION OR ELIMINATION OF YOUR ORDER.
Full payment by check, cash (except by mail), money order, bank draft
or withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Stock Order Form. THE HOLDING COMPANY IS NOT OBLIGATED TO
ACCEPT AN ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED STOCK ORDER FORMS. THE
HOLDING COMPANY WILL NOT ACCEPT A STOCK ORDER FORM IF THE CERTIFICATION
APPEARING ON THE REVERSE SIDE OF THE STOCK ORDER FORM IS NOT EXECUTED. THE
HOLDING COMPANY IS NOT REQUIRED TO DELIVER A PROSPECTUS AND STOCK ORDER FORM BY
ANY MEANS OTHER THAN THE U.S. POSTAL SERVICE.
To ensure that each subscriber receives a prospectus at least 48 hours
prior to the applicable expiration date, in accordance with Rule 15C2-8 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no
prospectus will be mailed later than five days or hand delivered any later than
two days prior to the applicable expiration date. Execution of the Stock Order
Form will confirm receipt or delivery of a prospectus under Rule 15C2-8.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS. OTS and Ohio regulations
provide that subscription rights are non-transferable. OTS regulations
specifically prohibit any person from transferring or entering into any
agreement or understanding before the completion of the Conversion to transfer
the ownership of the subscription rights issued in the Conversion or the Common
Shares to be issued upon the exercise of such subscription rights. Persons found
to be selling or otherwise transferring their subscription rights or purchasing
Common Shares on behalf of another person will be subject to forfeiture of such
rights and possible further sanctions and penalties imposed by the OTS. THE
COMPANY AND THE HOLDING COMPANY WILL REFER TO THE OTS ANY SITUATIONS THEY
BELIEVE MAY INVOLVE A TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS
KNOWN BY THEM TO INVOLVE THE TRANSFER OF SUCH RIGHTS. Each person exercising
subscription rights will be required to certify that his or her purchase of
Common Shares is solely for the subscriber's own account and that there is no
agreement or understanding regarding the sale or transfer of such Common Shares.
PRICING OF THE COMMON SHARES. Keller & Company, Inc. ("Keller"), a firm
experienced in valuing thrift institutions, has prepared an independent
valuation of the estimated pro forma market value of the Company, as converted,
and the Holding Company. Keller's valuation of the estimated pro forma market
value of the Company, as converted, and the Holding Company, excluding the
shares to be contributed to the Foundation, is $250,000,000 as of February 24,
1998 (the "Pro Forma Value"). Based on the Pro Forma Value, the Adjusted
Valuation Range established in accordance with the Plan is $212,500,000 to
$289,375,000. Applicable regulations permit the Holding Company to issue up to
total of 33,465,625 Common Shares with an aggregate purchase price of
$334,656,250. The Holding Company will issue the Common Shares at a fixed price
of $10 per share. The number of Common Shares to be issued will be determined by
dividing the price per share into the aggregate pro forma value of the Company,
as converted, and the Holding Company at the close of the Offering.
If, due to changing market conditions, the final valuation is less than
$212,500,000 or more than $334,656,250, subscribers will be given written notice
of such final valuation and the right to affirm, increase,
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<PAGE> 33
decrease or rescind their subscriptions. Any person who does not affirmatively
elect to continue his subscription or elects to rescind his subscription before
the date specified in the notice will have all of his funds promptly refunded
with interest. Any person who elects to decrease his subscription will have the
appropriate portion of his funds promptly refunded. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold."
INTENDED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
intended purchases by the directors and executive officers of the Company and
the Holding Company:
<TABLE>
<CAPTION>
Name Aggregate Percent
- ---- Total shares (1) purchase price (1) of total offering (2)
------------ -------------- -----------------
<S> <C> <C> <C>
Richard M. Barrett 31,000 $310,000 .12%
James E. Bennett, Jr. 1,000 10,000 --
Charles. B. Cushwa, III 60,000 600,000 .24
William A. Holdford 10,000 100,000 .04
Donald R. Inglis 35,000 300,000 .12
Gary Keller 60,000 600,000 .24
Patrick A. Kelly 60,000 600,000 .24
Douglas M. McKay 80,000 800,000 .32
Herbert F. Schuler, Sr. 90,000 900,000 .36
Clarence R. Smith, Jr. 25,000 250,000 .10
Robert J. Steele, Jr. 10,000 100,000 .04
Donald J. Varner 60,000 600,000 .24
John F. Zimmerman, Jr. 15,000 150,000 .06
------- ---------- ----
All directors and executive 532,000 $5,320,000 2.12%
officers as a group (13 persons) ======= ========== ====
- -----------------------------
</TABLE>
(1) Includes intended purchases by Associates of directors and executive
officers, to the extent known.
(2) Assumes that 25,000,000 Common Shares, the mid-point of the Adjusted
Valuation Range, will be sold in connection with the Conversion at $10
per share and that a sufficient number of Common Shares will be
available to satisfy the intended purchases by directors and executive
officers. See "Pricing and Number of Common Shares to be Sold."
All purchases by executive officers and directors of the Company are
being made for investment purposes only and with no present intent to resell.
Directors and executive officers will pay the same $10 per share price for
Common Shares purchased in the Conversion as all other subscribers.
USE OF PROCEEDS. The net proceeds from the sale of Common Shares in the
Conversion are estimated to be $209.3 million, $246.5 million, $285.5 million
and $330.4 million at the minimum, mid-point, maximum and adjusted maximum,
respectively, of the Adjusted Valuation Range. See "PRO FORMA DATA." The Holding
Company will invest 50% of the net proceeds from the Conversion in the capital
stock to be issued by the Company in connection with the Conversion and will
make a loan to the ESOP to acquire 8% of the total Common Shares sold in the
Offering and contributed to the Foundation. The Holding Company will retain the
remaining 42% of the net proceeds and will use such funds for general corporate
purposes. See "USE OF PROCEEDS." The 50% of the net proceeds invested in the
Company by the Holding Company will initially be invested in overnight funds and
short-term investments with maturities up to three years and utilized for
general corporate purposes, including loan originations, enhanced customer
services and possible acquisitions. See "USE OF PROCEEDS."
-5-
<PAGE> 34
HOME SAVINGS CHARITABLE FOUNDATION
In 1991, the Company established the Foundation, which is an exempt
organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"). Except for 1993, each year since the Foundation was
established, the Company has made annual contributions to the Foundation in
furtherance of the Company's commitment to the communities that it serves. In
connection with the Conversion, the Company intends to contribute up to
1,250,000 common shares to the Foundation. The Company believes that the
contribution of common shares to the Foundation will benefit the long term value
of the Company's community banking franchise by enabling the communities it
serves to share in the potential growth and success of the Company and the
Holding Company over the long term. See "THE CONVERSION - Contribution to the
Foundation; and - Structure of the Foundation."
The Company proposes to contribute to the Foundation a number of shares
equal to 5% of the Common Shares issued in the Conversion, subject to the
overall limitation of 1,250,000 common shares. Such contribution would equal
1,062,500 common shares at the minimum of the Adjusted Valuation Range and
1,250,000 common shares at the mid-point, maximum and adjusted maximum of the
Adjusted Valuation Range. Such contribution, once made, will not be revocable by
the Holding Company or the Company. The Company and the Holding Company do not
anticipate making any other contributions to the Foundation during 1998 or the
first five years following the Conversion. The Company may make donations to
charitable institutions in an aggregate amount not to exceed $80,000 per year
consistent with past practice. During 1996 and 1997, the Company directly
donated approximately $57,000 and $64,000 to charitable institutions in its
community. Assuming the sale of Common Shares at the maximum of the Adjusted
Valuation Range and the contribution of 1,250,000 shares to the Foundation, the
Holding Company will have 30,187,500 shares issued and outstanding, of which the
Foundation will own 1,250,000 shares, or 4.14%. THE CONTRIBUTION OF COMMON
SHARES TO THE FOUNDATION WILL RESULT IN DILUTION OF APPROXIMATELY 4.14% TO THE
OWNERSHIP INTERESTS IN THE HOLDING COMPANY OF THE PERSONS PURCHASING SHARES IN
THE CONVERSION.
Keller, an independent appraiser of financial institutions, considered
the effect of the contribution of shares to the Foundation when determining the
pro forma market value of the Holding Company and the Company, as converted.
Keller determined that the contribution would dilute the equity and earnings of
the initial shareholders of the Holding Company and that the contribution would
result in a charge to the Company's earnings, therefore resulting in a lower pro
forma market value of the Holding Company and the Company, as converted. See
"RISK FACTORS - Contribution to the Foundation." As a result of the contribution
to the Foundation and its impact on the pro forma market value of the Holding
Company and the Company, as converted, the Holding Company will offer 2,550,000,
3,000,000, 3,262,500 and 3,564,375 fewer shares at the minimum, mid-point,
maximum and adjusted maximum of the Adjusted Valuation Range, than if such
contribution were not being made. Based on the $10 price per share, the Holding
Company will receive $25.5 million, $30.0 million, $32.6 million and $35.6
million less in gross proceeds than it would have received if the contribution
to the Foundation were not being made. See "COMPARISON OF VALUATION AND PRO
FORMA INFORMATION WITHOUT FOUNDATION." Notwithstanding the impact of the
contribution on the Offering, the Company and the Holding Company determined to
contribute common shares to the Foundation to enhance the ties between the
Company and the communities it serves by allowing the communities to share in
the growth and success of the Company and the Holding Company over the long
term.
As a result of the contribution to the Foundation, the Company will
recognize an expense for the full amount of the contribution, offset in part by
a corresponding tax benefit, during the quarter in which the contribution is
made, which is expected to be the second quarter of 1998. Such expense will
reduce earnings and have a material impact on the Company's earnings for such
quarter and for the year. For further discussion of the Foundation and its
impact on purchasers in the Conversion, see "RISK FACTORS - Contribution to the
-6-
<PAGE> 35
Foundation," "PRO FORMA DATA," "COMPARISON OF VALUATION AND PRO FORMA
INFORMATION WITHOUT THE FOUNDATION" and "THE CONVERSION - Contribution to the
Foundation -- Tax Considerations."
TAX CONSEQUENCES
The consummation of the Conversion is expressly conditioned upon the
receipt by the Holding Company and the Company of a private letter ruling from
the Internal Revenue Service (the "IRS") or an opinion of counsel to the effect
that, for federal income tax purposes, the Conversion will constitute a tax-free
reorganization as defined in Section 368(a) of the Code. The Holding Company and
the Company intend to proceed with the Conversion based upon an opinion received
from Vorys, Sater, Seymour and Pease LLP that states, in part, that (1) no gain
or loss will be recognized by the Company in connection with the Conversion or
the receipt from the Holding Company of proceeds from the sale of the Common
Shares, (2) assuming that the subscription rights received by deposit account
holders in connection with the Conversion have no ascertainable fair market
value, no gain or loss will be recognized to the deposit account holders of the
Company upon issuance to them of subscription rights or interests in the
shapeType1fFlipH0fFlipV0fFilled0lineWidth25400fShadow0Liquidation Account
(hereinafter defined) and (3) no taxable income will be realized by deposit
account holders as a result of their exercise of such subscription rights. The
Holding Company and the Company have received an opinion from Keller that the
subscription rights have no ascertainable fair market value, although such
opinion is not binding on the IRS. See "THE CONVERSION - Principal Effects of
the Conversion -- Tax Consequences."
MARKET FOR THE COMMON SHARES
The Company and the Holding Company have never issued capital stock to
the public and, consequently, there is no existing market for the Common Shares.
The Holding Company has received conditional approval to have the Common Shares
quoted on The Nasdaq National Market ("Nasdaq") under the symbol "UCFC". One of
the conditions to the Nasdaq listing is the commitment of at least three
brokerage firms to make a market in the Common Shares. Trident, McDonald &
Company and Oppenheimer have informed the Holding Company that they intend to
make a market in the Common Shares and expect that additional market makers will
be identified. No assurance can be given, however, that an active or liquid
market for the Common Shares will develop after the completion of the Conversion
or, if such market does develop, that it will continue. There can be no
assurance that the Common Shares may later be resold at the price at which they
are purchased in the Conversion. See "RISK FACTORS - Absence of Established
Market for the Common Shares."
DIVIDEND POLICY
Following the completion of the Conversion, the Board of Directors of
the Holding Company intends to establish a dividend policy. The declaration and
payment of dividends or other capital distributions by the Holding Company will
be subject to the discretion of the Board of Directors of the Holding Company,
to the earnings and financial condition of the Holding Company and the Company
and to general economic conditions. The timing of the payment of dividends and
the annual rate will depend upon a determination by the Board of Directors of
the Holding Company that the net income, capital and financial condition of the
Holding Company and the general economy justify the declaration and payment of
dividends by the Holding Company. No assurance can be given, however, that
dividends will be paid or, if paid, will continue in the future. In accordance
with OTS policy, the Holding Company will not undertake an extraordinary
tax-free return of capital to its shareholders during the first year following
the completion of the Conversion. See "DIVIDEND POLICY" and "REGULATION - Office
of Thrift Supervision -- Limitations on Capital Distributions."
BENEFITS OF THE CONVERSION TO DIRECTORS, OFFICERS AND EMPLOYEES OF THE HOLDING
COMPANY AND THE COMPANY
GENERAL. In the aggregate, a number of shares equal to 22% of the total
Common Shares sold in the Offering and contributed to the Foundation may be
allocated, awarded or granted to directors, officers and employees of the
Company or the Holding Company, pursuant to the ESOP, the Stock Option Plan
-7-
<PAGE> 36
(hereinafter defined) and the RRP (hereinafter defined). Awards under the RRP
and allocations pursuant to the ESOP will be made at no cost to the recipients.
Stock options will be awarded with an exercise price at least equal to the fair
market value of the common shares of the Holding Company at the time of award.
Based on their stock ownership under these stock benefit plans, the directors
and officers of the Holding Company and the Company will have a significant
influence over the vote on any takeover attempt or proxy contest and may be able
to defeat such a proposal. See "RISK FACTORS - Anti-Takeover Provisions Which
May Discourage Sales of Common Shares For Premium Prices." The Board of
Directors has determined that the ability of the Holding Company and the Company
to utilize various types of stock benefit plans will assist the Company in
attracting and retaining qualified directors and employees. See "THE CONVERSION
- - Reasons for the Conversion."
EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the Conversion, the
Holding Company has established the ESOP, which intends to use a loan from the
Holding Company to purchase 8% of the total Common Shares sold in the Conversion
and contributed to the Foundation. The loan will have a term of up to 15 years
and an interest rate equal to the base rate on corporate loans, posted by at
least 75% of the nation's 30 largest banks, as reported in The Wall Street
Journal (the "Prime Rate") less 1/2%. Based on the Prime Rate as of May __,
1998, the ESOP rate could be 8.0%. All full-time employees of the Holding
Company and the Company who meet certain age and years of service criteria will
be eligible to participate in the ESOP. See "MANAGEMENT - Stock Benefit Plans --
Employee Stock Ownership Plan," and "RISK FACTORS Dilutive Impact of Benefit
Plans on Net Earnings and Shareholders' Equity; and - Potential Awards of Shares
to Directors, Officers and Employees Pursuant to Benefit Plans."
STOCK OPTION PLAN. After the completion of the Conversion, the Holding
Company intends to establish a stock option and incentive plan (the "Stock
Option Plan"). The Board of Directors of the Holding Company anticipates that a
number of shares equal to 10% of the Common Shares sold in the Offering and
contributed to the Foundation will be reserved for issuance upon the exercise of
options granted under the Stock Option Plan. The Stock Option Plan will be
administered by a committee comprised of not fewer than three directors of the
Company or the Holding Company (the "Stock Option Committee"). Persons eligible
for awards under the Stock Option Plan will consist of directors, officers and
employees of the Holding Company or the Company who hold positions with
significant responsibilities or whose performance or potential contribution, in
the judgment of the Stock Option Committee, will contribute to the future
success of the Holding Company or the Company. The Holding Company will receive
no monetary consideration for the granting of options under the Stock Option
Plan. Upon the exercise of options, the Holding Company will receive a payment
of cash, common shares of the Holding Company, or a combination of cash and
common shares from option recipients in exchange for shares issued. Stock
options will be awarded with an exercise price at least equal to the fair market
value of the common shares of the Holding Company at the time of award.
Under OTS regulations, no stock options may be awarded during the first
year after the completion of the Conversion unless the Stock Option Plan is
approved by the shareholders of the Holding Company at an annual or a special
meeting of shareholders held not less than six months following the completion
of the Conversion. If the Stock Option Plan is approved by the Holding Company
shareholders at such meeting and implemented during the first year after the
completion of the Conversion, the following restrictions will apply: (i) the
number of shares which may be subject to options awarded under the Stock Option
Plan to directors who are not full-time employees of the Holding Company may not
exceed 5% per person and 30% in the aggregate of the available plan shares; (ii)
the number of shares which may be subject to options awarded under the Stock
Option Plan to any individual who is a full-time employee of the Holding Company
or its subsidiaries may not exceed 25% of the available shares; (iii) stock
options must be awarded with an exercise price at least equal to the fair market
value of the common shares of the Holding Company at the time of the award; and
(iv) stock options will become exercisable at the rate of one-fifth per year
commencing no earlier than one year from the date the Stock Option Plan is
approved by the shareholders, subject to acceleration of vesting only in the
event of the death or disability of a participant. No decision has been made as
to anticipated awards under the Stock Option Plan. See "MANAGEMENT - Stock
Benefit Plans -- Stock Option Plan," and "RISK FACTORS - Dilutive Impact of
Benefit Plans on Net Earnings and Shareholders' Equity; and Potential Awards to
Directors, Officers and Employees Pursuant to Benefit Plans."
-8-
<PAGE> 37
RECOGNITION AND RETENTION PLAN. After the completion of the Conversion,
the Board of Directors of the Holding Company intends to establish a recognition
and retention plan (the "RRP") and anticipates that a number of shares equal to
4% of the total Common Shares sold in the Conversion and contributed to the
Foundation, with a total value ranging from $8.9 million at the minimum of the
Adjusted Valuation Range to $13.9 million at the adjusted maximum of the
Adjusted Valuation Range, will be purchased by, or issued to, the RRP. See "RISK
FACTORS - Dilutive Impact of Benefit Plans on Net Earnings and Shareholders'
Equity" for a discussion of the possible dilutive effects of the RRP. The RRP
shares will be awarded at no cost to the recipients. The RRP will be
administered by a committee comprised of not fewer than three directors of the
Company or the Holding Company (the "RRP Committee"). Persons eligible for
awards under the RRP will consist of directors, directors emeritus, officers and
employees of the Holding Company or the Company who hold positions with
significant responsibilities or whose performance or potential contribution, in
the judgment of the RRP Committee, will contribute to the future success of the
Holding Company or the Company. See "RISK FACTORS - Potential Awards of Shares
to Directors, Officers and Employees Pursuant to Benefit Plans."
Under OTS regulations, no RRP shares may be awarded during the first
year after the completion of the Conversion unless the RRP is approved by the
shareholders of the Holding Company at an annual or a special meeting of
shareholders held not less than six months following the completion of the
Conversion. If the RRP is approved by the Holding Company shareholders at such
meeting and implemented during the first year after the completion of the
Conversion, the following restrictions will apply: (i) the number of shares
awarded under the RRP to directors or directors emeritus who are not full-time
employees of the Holding Company may not exceed 5% per person and 30% in the
aggregate of the eligible plan shares; (ii) the number of shares awarded under
the RRP to any individual who is a full-time employee of the Holding Company or
its subsidiaries may not exceed 25% of the eligible shares; and (iii) RRP awards
will vest at the rate of one-fifth per year commencing no earlier than one year
from the date the RRP is approved by the shareholders, subject to acceleration
of vesting only in the event of the death or disability of a participant. No
decision has been made as to anticipated awards under the RRP. See "MANAGEMENT -
Stock Benefit Plans -- Recognition and Retention Plan."
EMPLOYMENT AGREEMENTS. In connection with the Conversion, the Company
will enter into employment agreements with Douglas M. McKay, the President,
Chief Executive Officer, and Chairman of the Board of the Company, Donald J.
Varner, the Secretary and Senior Vice President/Retail Banking Division of the
Company, and Patrick A. Kelly, the Treasurer, Chief Financial Officer and Senior
Vice President/Financial Division of the Company. Each employment agreement will
provide for a term of three years and will also provide for severance payments
in the event the agreement is terminated prior to the expiration of its term
upon a change in control of the Company or for any reason other than just cause,
as defined therein. See "MANAGEMENT - Employment Agreements."
INVESTMENT RISKS
An investment in the Common Shares involves certain risks, including
the possible loss of principal invested. Special attention should be given to
the matters discussed under "RISK FACTORS - Anticipated Low Return on Equity;
Interest Rate Risk; - Risks Associated with Commercial Lending; - Possible
Adverse Effects of Contribution of Shares to the Foundation; - Risks Associated
with Economic Conditions in the Company's Market Area; - Geographic
Concentration of Credit; - Competition in Primary Market Area; - Absence of
Established Market for the Common Shares; - Dilutive Impact of Benefit Plans on
Net Earnings and Shareholders' Equity; - Potential Awards of Shares to
Directors, Officers and Employees Pursuant to Benefit Plans; - Legislation and
Regulation Which May Adversely Affect Earnings and Operations; and -
Anti-Takeover Provisions Which May Discourage Sales of Common Shares for Premium
Prices."
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<PAGE> 38
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the
financial condition, earnings and other data regarding the Company at the dates
and for the periods indicated. Such information should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
Prospectus. For information concerning the Company's financial condition and
results of operations for the quarter ended March 31, 1998, see "RECENT
DEVELOPMENTS."
<TABLE>
<CAPTION>
SELECTED FINANCIAL CONDITION DATA:
At December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets $1,044,993 $1,074,736 $1,077,523 $1,018,879 $1,003,975
Cash and cash equivalents 34,497 19,668 41,813 20,601 18,174
Investment securities:
Available for sale 39,402 14,659 32,125 33,415 -
Held to maturity 4,968 27,970 30,119 34,322 68,287
Mortgage-backed securities:
Available for sale 62,423 84,466 100,005 87,935 -
Held to maturity 243,848 286,384 302,107 312,300 438,349
Loans, net 633,236 616,923 546,689 503,413 452,924
FHLB stock 11,136 10,370 9,675 9,043 8,544
Deposits 886,808 932,060 938,855 898,912 894,794
Total equity 141,353 128,131 122,294 107,209 96,152
SUMMARY OF EARNINGS:
Year ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Interest income $82,685 $81,749 $79,834 $74,639 $77,743
Interest expense 40,463 43,009 41,104 34,898 38,158
------- ------- ------- ------- -------
Net interest income 42,222 38,740 38,730 39,741 39,585
(Recovery of) provision for loan loss
allowances (1,546) - - (100) 535
------- ------- ------- ------- -------
Net interest income after recovery of
or provision for loan loss allowances 43,768 38,740 38,730 39,841 39,050
Noninterest income 1,564 1,291 1,554 1,018 2,080
Noninterest expenses (1) 25,303 30,068 21,995 20,341 19,098
------- ------- ------- ------- -------
Income before provision for
income taxes and cumulative effect
of change in accounting principle 20,029 9,963 18,289 20,518 22,032
Cumulative effect of change in
accounting principle (2) - - - - 729
Provision for income taxes 6,982 3,332 6,707 7,294 8,002
------- ------- ------- ------- -------
Net income $13,047 $ 6,631 $11,582 $13,224 $14,759
======= ======= ======= ======= =======
</TABLE>
- ------------------------------
(1) For the year ended December 31, 1996, noninterest expense included a
$5.9 million one-time assessment imposed on the Company as a result of
legislation to recapitalize the SAIF.
(2) Reflects the cumulative impact of the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," for the year ended December 31, 1993.
-10-
<PAGE> 39
<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
As or for the year ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Performance ratios:(1)
Return on average assets(2) 1.23% 0.61% 1.11% 1.30% 1.48%
Return on average equity(3) 9.68 5.28 9.98 12.77 16.14
Interest rate spread(4) 3.53 3.14 3.30 3.64 3.72
Net interest margin(5) 4.09 3.65 3.79 4.01 4.07
Noninterest expense to average assets 2.39 2.77 2.10 2.01 1.91
Efficiency ratio(6) 57.79 75.11 54.60 49.91 45.84
Average interest-earning assets to average
interest-bearing liabilities 114.26 112.82 111.93 110.58 109.06
Capital ratios:
Average equity to average assets 12.74 11.58 11.08 10.21 9.16
Equity to assets at year end 13.53 11.92 11.35 10.52 9.58
Tangible capital 13.47 11.87 11.24 10.70 9.56
Core capital 13.47 11.87 11.24 10.70 9.56
Risk-based capital 28.85 26.15 26.65 25.35 23.52
Asset quality ratios:
Nonperforming loans to total loans at year end(7) 1.60 1.59 1.11 1.34 2.04
Nonperforming assets to average assets(8) 0.96 0.91 0.59 0.82 1.15
Nonperforming assets to total assets at year end(8) 0.98 0.92 0.57 0.82 1.14
Allowance for loans losses as a percent of loans 0.94 0.81 0.93 1.01 1.18
Allowance for loans losses as a percent of
nonperforming loans(7) 59.02 51.37 84.18 75.51 58.40
Number of:
Loans 19,173 18,826 17,736 17,027 16,683
Deposits 108,663 108,793 105,987 99,541 95,991
Full-service offices(9) 15 14 14 14 14
</TABLE>
- ----------------------
(1) Performance ratios for 1996 reflect the $5.9 million one-time
assessment imposed on the Company as a result of legislation to
recapitalize the SAIF.
(2) Net income divided by average total assets. Excluding the effect of the
one-time SAIF assessment, the Company's return on average assets would
have been 0.96% for the year ended December 31, 1996.
(3) Net income divided by average total equity. Excluding the effect of one
one-time SAIF assessment, the Company's return on average equity would
have been 8.29% for the year ended December 31, 1996.
(4) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Noninterest expense divided by the sum of net interest income and
noninterest income. Excluding the effect of the one-time SAIF
assessment, the Company's efficiency ratio would have been 60.37% for
the year ended December 31, 1996.
(7) Nonperforming loans include nonaccrual loans and restructured loans.
(8) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans.
(9) On January 20, 1998, the Company closed a branch located in a
supermarket in Poland, Ohio, reducing the number of full-service
offices to 14.
-11-
<PAGE> 40
RISK FACTORS
INVESTMENT IN THE COMMON SHARES INVOLVES CERTAIN RISKS. BEFORE
INVESTING, PROSPECTIVE PURCHASERS SHOULD CONSIDER CAREFULLY THE FOLLOWING
MATTERS.
ANTICIPATED LOW RETURN ON EQUITY
During the last five years, the Company's return on equity has ranged
from a high of 16.14% for 1993 to a low of 5.28% for 1996, with an average of
10.77%. Excluding the effect of the one-time assessment to recapitalize the
SAIF, the return on equity would have been 8.29% for the year ended December 31,
1996. The increased capital resulting from the Conversion is expected to
significantly reduce the Company's return on equity for a prolonged period after
the Conversion, which may adversely affect the market value of the Common
Shares. Initially, the Conversion proceeds will be invested in short-term
investments which generally have lower yields than loans and longer term
securities, which could also adversely affect the Company's return on equity.
See "USE OF PROCEEDS." In addition, it is further anticipated that the ESOP and,
if approved by the Board of Directors and the shareholders after the Conversion,
the Stock Option Plan and the RRP will increase compensation expense
significantly, further lowering return on equity. See "Potential Impact of
Benefit Plans on Net Earnings and Shareholders' Equity."
INTEREST RATE RISK
The Company's operating results are dependent to a significant degree
on its net interest income, which is the difference between interest income from
loans and investments and interest expense on deposits and borrowings. Like most
thrift institutions, the Company's interest income and interest expense change
as interest rates fluctuate and assets and liabilities reprice. Interest rates
generally may change because of general economic conditions, the policies of
various regulatory authorities and other factors beyond the Company's control.
The interest rates on specific assets and liabilities of the Company will change
or "reprice" in accordance with the contractual terms of the asset or liability
instrument and in accordance with customer reaction to general economic trends.
See "THE BUSINESS OF THE COMPANY Lending Activities; and - Deposits and
Borrowings."
In a period of rising interest rates, the interest income earned on the
Company's assets may not increase as rapidly as the interest expense paid on the
Company's liabilities. As a result, the earnings of the Company may be adversely
affected. The degree to which such earnings will be adversely affected depends
upon the rapidity and extent of the increase in interest rates. In addition,
rising interest rates could negatively affect the Company's earnings due to
diminished loan demand. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Asset and Liability Management."
Changes in interest rates also affect the value of the Company's
interest-earning assets, particularly its one- to four-family residential
mortgage loans and mortgage-backed securities portfolio. Typically, the value of
these assets fluctuates inversely with changes in interest rates. At December
31, 1997, the Company's mortgage-backed securities portfolio totaled $306.3
million, including $62.4 million classified as available for sale, and the
Company's loan portfolio included $513.7 million in one- to four-family
residential mortgage loans. Unrealized gains and losses on securities available
for sale are reported as a separate component of equity, net of taxes. Decreases
in the fair value of securities available for sale therefore could have an
adverse effect on shareholders' equity. See "THE BUSINESS OF THE COMPANY -
Investment Activities."
RISKS ASSOCIATED WITH COMMERCIAL LENDING
During 1997 and 1996 the Company has become more active in originating
commercial loans, which amounted to $59.9 million, or 9.1% of the Company's
total loan portfolio, at December 31, 1997.
-12-
<PAGE> 41
Commercial loans are generally considered to entail significantly
greater risk than real estate lending. The repayment of commercial loans is
typically dependent on the income stream and successful operation of a business,
which can be affected by economic conditions. The collateral for commercial
loans, if any, often consists of rapidly depreciating assets. In addition,
commercial lending generally requires substantially greater underwriting and
monitoring efforts compared to residential real estate lending. At December 31,
1997, the Company had $2.1 million of nonperforming commercial loans, which
represented 3.5% of total commercial loans and 20.9% of the Company's
nonperforming assets.
Although commercial loans present greater risk than real estate loans,
they also typically have higher yields. During 1997 the Company hired two
experienced commercial lending officers, and the Company intends to increase its
volume of commercial loan originations.
POSSIBLE ADVERSE EFFECTS OF CONTRIBUTION OF SHARES TO THE FOUNDATION
DILUTION OF SHAREHOLDERS' INTERESTS. The Company proposes to contribute
to the Foundation common shares in an amount equal to 5% of the Common Shares
sold in connection with the Conversion, not to exceed 1,250,000 common shares,
subject to the approval of the contribution by the Company's members at the
Special Meeting. At the minimum of the Adjusted Valuation Range, the
contribution to the Foundation would be 1,062,500 common shares with a value of
$10,625,000, and at the mid-point, maximum and adjusted maximum of the Adjusted
Valuation Range, the contribution to the Foundation would be 1,250,000 common
shares, with a value of $12.5 million, based on the $10 purchase price per
share. Upon completion of the Conversion and the contribution of shares to the
Foundation, the Holding Company will have 30,187,500 shares issued and
outstanding at the maximum of the Adjusted Valuation Range, of which the
Foundation will own 1,250,000 shares, or 4.14%. As a result, persons purchasing
Common Shares in the Conversion will have their ownership interests in the
Holding Company diluted by 4.14%. See "PRO FORMA DATA."
IMPACT ON EARNINGS. The contribution of common shares to the Foundation
will have an adverse impact on the Company's earnings in the year in which the
contribution is made. The Company will recognize the full expense in the amount
of the contribution of common shares to the Foundation in the quarter in which
it occurs, which is expected to be the second quarter of 1998. The amount of the
contribution will range from $10.6 million to $12.5 million, based on the
Adjusted Valuation Range. The contribution expense will be partially offset by
the tax benefit related to the expense. The Company and the Holding Company have
been advised by their independent tax advisors that the contribution to the
Foundation will be tax deductible, subject to an annual limitation of 10% of the
Company's annual taxable income. Management expects that the contribution to the
Foundation will have an adverse impact on the Company's earnings for 1998.
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE CONTRIBUTION TO
THE FOUNDATION IS NOT PART OF THE CONVERSION. The intended contribution of
common shares to the Foundation was taken into account by Keller in the Adjusted
Valuation Range. Based upon these considerations, Keller determined the pro
forma value of the Company, as converted, and the Holding Company to be $250.0
million. If the contribution were not being made to the Foundation, Keller has
estimated that the estimated pro forma market value of the Company, as
converted, and the Holding Company would be $280.0 million. The amount of Common
Shares that are being offered in the Conversion at the mid-point of the Adjusted
Valuation Range is therefore approximately $30.0 million less than the estimated
amount of Common Shares that would have been offered in the Conversion without
the Foundation, based on the estimate provided by Keller. Accordingly, fewer
shares will be available for sale to persons having subscription rights, which
could result in subscribers receiving fewer shares, depending on the size of a
depositor's stock order, the amount of the depositor's qualifying deposits in
the Company and the overall level of subscriptions. See "COMPARISON OF VALUATION
AND PRO FORMA INFORMATION WITHOUT FOUNDATION." This estimate by Keller was
prepared solely for purposes of providing information with which to make an
informed decision on the Conversion.
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<PAGE> 42
POTENTIAL ANTI-TAKEOVER EFFECT. Upon completion of the Conversion, the
Foundation will own 4.14% of the total Common Shares outstanding, assuming the
sale of 28,937,500 Common Shares in the Offering and the contribution of
1,250,000 shares to the Foundation. The shares of the Holding Company held by
the Foundation will be voted by the Foundation's independent trustee (the
"Trustee"). The Company proposes to amend the trust document that governs the
Foundation to provide that the shares of the Holding Company held by the
Foundation must be voted by the Trustee on all matters submitted to a vote of
the shareholders of the Holding Company in the same proportion as votes cast by
all other shareholders of the Holding Company. Based on their stock ownership
under various stock benefit plans, the directors and officers of the Holding
Company will have a significant influence over the vote on any takeover attempt
or proxy contest and may be able to defeat such a proposal. See "RISK FACTORS -
Anti-Takeover Provisions Which May Discourage Sales of Common Shares for Premium
Prices." Pro rata voting by the Trustee will have an anti-takeover effect on the
Holding Company to the extent such voting is influenced by the voting of the
directors and officers of the Company and the Holding Company.
APPROVAL OF MEMBERS. The contribution of common shares to the
Foundation is subject to the approval of a majority of the total outstanding
votes eligible to be cast at the Special Meeting. The contribution to the
Foundation will be considered as a separate matter from approval of the Plan. If
the Company's members approve the Plan, but not the contribution to the
Foundation, the Company intends to complete the Conversion without the
contribution to the Foundation. The elimination of the contribution to the
Foundation may materially increase the pro forma market value of the Company, as
converted, and the Holding Company. See "COMPARISON OF VALUATION AND PRO FORMA
INFORMATION WITH FOUNDATION." If the pro forma market value of the Company, as
converted, and the Holding Company, without the contribution to the Foundation,
is either greater than $334,656,250 or less than $212,500,000, or if the OTS
otherwise requires a resolicitation of subscribers, the Company will establish a
new valuation range and commence a resolicitation of subscribers. Any person who
does not affirmatively elect to continue his subscription or elects to rescind
his subscription will have the appropriate portion of his funds promptly
refunded with interest at the Conversion Rate. Any change in the Adjusted
Valuation Range must be approved by the OTS. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold."
RISKS ASSOCIATED WITH ECONOMIC CONDITIONS IN THE COMPANY'S MARKET AREA
The Company's market area consists of Mahoning, Columbiana and Trumbull
Counties in Northeastern Ohio. Nine of the Company's offices are located in
Mahoning County, which includes the Company's main office in the City of
Youngstown, three offices are in Columbiana County and two offices are in
Trumbull County. With regard to several important economic factors, statistics
for the Company's primary market area in recent years have trailed both the
State of Ohio and the United States.
In 1996, the per capita annual income of $13,099 for the Company's
primary market area was lower than the $15,376 and $16,738 per capita annual
income for Ohio and the United States, respectively. The median annual household
income for the Company's primary market area was $27,404 in 1996, compared to
$32,120 for the State of Ohio and $34,530 for the United States. The
unemployment rates for the Company's market area and the City of Youngstown have
exceeded both the Ohio and national rates in the recent past. In 1997, the
unemployment rate in the Company's market area counties averaged 5.7%, compared
to 4.3% for Ohio and 4.4% for the United States. The City of Youngstown
experienced an unemployment rate of 11.0%, which was significantly higher than
the 6.3% rate for Mahoning County generally.
A decline in the local economy could result in an increase in the level
of defaults by borrowers in the repayment of existing loans and could suppress
demand for new loans. Similarly, a decline in the local economy could result in
a decline in core deposits as customers would have fewer discretionary funds for
savings. If these conditions occurred, they could adversely affect the Company's
net income. Moreover,
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<PAGE> 43
the absence of a robust local economy could limit the Company's potential for
growth in its current market area.
GEOGRAPHIC CONCENTRATION OF CREDIT
Most of the Company's loans have been made to borrowers residing in,
and most of its real estate loans are secured by property located in, Mahoning
County, northern Columbiana County and southern Trumbull County in northeast
Ohio. Events which negatively impact the local economy, such as a strike or
lay-offs at the General Motors Plant in Lordstown, Ohio, which is a major
employer in the Company's market area, could result in increased defaults
on loans made by the Company and decreases in the value of the Company's
collateral, making collection of such loans more difficult. See "Risks
Associated with Economic Conditions in the Company's Market Area."
COMPETITION IN PRIMARY MARKET AREA
Competition in the banking and financial services industry is intense.
In its market area, the Company competes with commercial banks, savings and loan
associations, finance companies, mortgage banking companies, credit unions,
mutual funds and brokerage and investment banking firms operating locally and
elsewhere. Many of these competitors have substantially greater resources than
the Company and may offer services that it does not or cannot provide. The
profitability of the Company depends upon its continued ability to successfully
compete in its market area.
ABSENCE OF ESTABLISHED MARKET FOR THE COMMON SHARES
Because the Company and the Holding Company have never issued stock to
the public before, there is no existing market for the Common Shares. The
Holding Company has received conditional approval to have the shares quoted on
Nasdaq under the symbol "UCFC." See "MARKET FOR COMMON SHARES." The development
of a public trading market depends upon the existence of willing buyers and
sellers, the presence of which is not within the control of the Company, the
Holding Company, or any market maker. No assurance can be given that an active
or liquid market for the Common Shares will develop after the completion of the
Conversion or, if such a market does develop, that it will continue. Investors
should consider, therefore, the potential long-term nature of an investment in
the Common Shares. The absence of a liquid and active trading market, or the
discontinuance thereof, may have an adverse effect on both the price and the
liquidity of the Common Shares.
The offering price of the Common Shares is based upon an independent
appraisal of the Company, as converted, and the Holding Company. The appraisal
is not a recommendation as to the advisability of purchasing Common Shares, nor
does it represent Keller's opinion as to the price at which the Common Shares
may trade. See "THE CONVERSION - Pricing and Number of Common Shares to be
Sold." There can be no assurance that the Common Shares may later be resold at
the price at which they are purchased in the Conversion.
DILUTIVE IMPACT OF BENEFIT PLANS ON NET INCOME AND SHAREHOLDERS' EQUITY
In connection with the Conversion, the Holding Company has established
the ESOP, which intends to use a loan from the Holding Company to purchase 8% of
the total Common Shares sold in the Conversion and contributed to the
Foundation. All full-time employees of the Holding Company and the Company who
meet certain age and years of service criteria will be eligible to participate
in the ESOP.
The ESOP loan will be repaid through cash contributions to the ESOP
from the Company and the use of dividends paid on the Common Shares, if any. The
Company currently anticipates that the ESOP loan will be
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<PAGE> 44
repaid over a period of up to 15 years. The amount of cash or other assets that
can be contributed to the ESOP each year is limited by certain IRS regulations.
Contribution to the ESOP in the maximum amount permitted by IRS regulations
could result in repayment of the ESOP loan in fewer than 15 years. A shorter
repayment period could result in increased compensation expense during the years
in which payments are made on the ESOP loan, which would adversely impact the
Holding Company's earnings.
Statement of Position ("SOP") No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans," published by the American Institute of
Certified Public Accountants (the "AICPA"), requires an employer to record
compensation expense in an amount equal to the fair value of shares committed to
be released to employees from the ESOP as the loan is repaid. See "PRO FORMA
DATA" for pro forma information regarding the effects of SOP 93-6 on net
earnings and shareholders' equity. If the Common Shares acquired by the ESOP
appreciate in value over time, or if the loan is repaid in fewer than 15 years,
the Holding Company may incur increased compensation expense relating to the
ESOP which would adversely affect the Holding Company's net earnings.
The ESOP may purchase Common Shares on the open market or may purchase
authorized but unissued shares from the Holding Company. If the ESOP purchases
authorized but unissued shares from the Holding Company, such purchases could
have a dilutive effect on the interests of the Holding Company's shareholders.
Following the consummation of the Conversion, the Holding Company
intends to adopt the Stock Option Plan and the RRP. The Holding Company will
incur compensation expense for RRP shares based on the market value of the
shares at each vesting date. Such expense will reduce the Holding Company's net
income for the years in which awards vest.
The shares issued to participants under the RRP could be newly issued
shares or shares purchased in the market. In the event the shares issued under
the RRP consist of newly issued common shares, the interests of existing
shareholders will be diluted. Shares issued pursuant to the exercise of options
under the Stock Option Plan will be authorized but unissued shares, unless the
Holding Company has treasury shares at the time of exercise and elects to use
the treasury shares. At the adjusted maximum of the Adjusted Valuation Range, if
all shares under these plans were newly issued and the exercise price for the
option shares was equal to the $10 per share purchase price in the Conversion,
the pro forma book value per share of the outstanding common shares at December
31, 1997, would decrease from $12.52 to $11.37. See "PRO FORMA DATA" and
"MANAGEMENT - Stock Benefit Plans."
POTENTIAL AWARDS OF SHARES TO DIRECTORS, OFFICERS AND EMPLOYEES PURSUANT TO
BENEFIT PLANS
In the aggregate, a number of shares equal to 22% of the total Common
Shares sold in the Offering and contributed to the Foundation may be allocated,
awarded or granted to directors, officers and employees of the Company or the
Holding Company pursuant to the ESOP, the Stock Option Plan and the RRP. The
ESOP intends to purchase 8% of the total Common Shares sold in the Offering and
contributed to the Foundation. The ESOP shares will be allocated to management
and employees at no cost to the recipients and may be voted by the recipients
upon allocation. After the completion of the Conversion, but not sooner than six
months thereafter, the Holding Company intends to submit the Stock Option Plan
and the RRP for approval by its shareholders. It is anticipated that a number of
shares equal to 10% of the total Common Shares sold in the Offering and
contributed to the Foundation will be reserved out of authorized but unissued
shares for issuance to the directors, officers and employees of the Holding
Company and the Company pursuant to the Stock Option Plan. Stock options will be
awarded with an exercise price at least equal to the fair market value of the
common shares of the Holding Company at the time of award. In addition, a number
of shares equal to 4% of the total Common Shares sold in the Offering and
contributed to the Foundation will be purchased by the RRP in the open market or
directly from the Holding Company for awards to directors, officers and
employees of the Holding Company and the Company under the RRP. Based on the
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<PAGE> 45
$10 per share price in the Offering, the total value of the shares which may be
available for awards under the RRP, at no cost to the recipients of such awards,
ranges from $8.9 million at the minimum of the Adjusted Valuation Range to $13.9
million at the adjusted maximum of the Adjusted Valuation Range. Awards of
shares under the RRP will not occur until at least six months after completion
of the Conversion. As a result, the value of such shares at the time of such
awards, or at the time awarded shares are distributed to recipients, cannot be
estimated. See "THE CONVERSION Reasons for the Conversion," and "MANAGEMENT -
Stock Benefit Plans." Based on their stock ownership under these stock benefit
plans, the directors and officers of the Holding Company and the Company will
have a significant influence over the vote on any takeover attempt or proxy
contest and may be able to defeat such a proposal. See "RISK FACTORS -
Anti-Takeover Provisions Which May Discourage Sales of Common Shares For Premium
Prices."
LEGISLATION AND REGULATION WHICH MAY ADVERSELY AFFECT EARNINGS AND OPERATIONS
The Company is subject to extensive regulation by the OTS, the Division
and the FDIC and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. The Holding Company will also
be subject to regulation and examination by the OTS. Such supervision and
regulation of the Company and the Holding Company are primarily for the
protection of the federal deposit insurance fund and not for the maximization of
shareholder value and may limit the ability of the Company and the Holding
Company to engage in various business activities. See "REGULATION."
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations. Such legislation, if enacted, could eliminate the OTS, which would
likely subject the Company to more regulation by the FDIC. In addition, the
Holding Company might become subject to new or different holding company
regulations, including separate capital requirements and stringent limitations
on activities. Although the Holding Company cannot predict when or whether
Congress may pass legislation regarding the Holding Company's and the Company's
regulatory requirements or charter, it is not anticipated that the current
business activities of the Holding Company or the Company will be materially
affected by such legislation.
ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE SALES OF COMMON SHARES
FOR PREMIUM PRICES
The Articles of Incorporation and Code of Regulations of the Holding
Company and the Amended Articles of Incorporation of the Company contain certain
provisions that could deter or prohibit non-negotiated changes in the control of
the Holding Company and the Company. Such provisions include (1) a restriction
on the direct or indirect acquisition of more than 10% of the outstanding shares
of the Company by any person during the five-year period following the effective
date of the Conversion, (2) the ability to issue additional common shares
without shareholder approval, and (3) the requirement of a 80% supermajority
voting requirement for the approval of certain matters, including mergers,
acquisitions of a majority of the shares of the Holding Company or the transfer
of substantially all of the assets of the Holding Company, if the Board of
Directors recommends against the approval of any such matter. See "DESCRIPTION
OF AUTHORIZED SHARES" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
AND THE COMPANY AND ANTI-TAKEOVER PROVISIONS."
The executive officers and directors of the Holding Company and their
Associates are expected to purchase approximately 2.13% of the shares issued in
connection with the Conversion, assuming the sale of 25,000,000 Common Shares at
the midpoint of the Adjusted Valuation Range. In addition, executive officers of
the Holding Company will be able to vote shares allocated to their accounts
under the ESOP, which intends to purchase approximately 8% of the total common
shares sold in the Conversion and contributed to the Foundation. The RRP
trustees, who are expected to be directors of the Company, will vote shares
awarded but not distributed under the RRP in their discretion. In view of the
various provisions of the Articles of Incorporation and the stock benefit plans
of the Holding Company and the Company, the ESOP trustee, the RRP
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<PAGE> 46
Committee and the directors and officers of the Holding Company and the Company
will have a significant influence over the vote on any takeover attempt or proxy
contest and may be able to defeat such a proposal. The Boards of Directors of
the Holding Company and the Company believe that such provisions will be in the
best interests of shareholders by encouraging prospective acquirers to negotiate
a proposed acquisition with the directors. Such provisions could, however,
adversely affect the market value of the Common Shares or restrict or eliminate
the opportunity for shareholders to sell their shares for premium prices.
Federal and Ohio law also restrict the acquisition of control of the
Holding Company and the Company, and regulations of the OTS restrict the ability
of any person to acquire the beneficial ownership of more than 10% of any class
of voting equity security of the Company or the Holding Company. Any or all of
these provisions may facilitate the perpetuation of current management and
discourage proxy contests or takeover attempts not first negotiated with the
Board of Directors. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND
THE COMPANY AND ANTI-TAKEOVER PROVISIONS."
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from
the sale of the Common Shares, based on the Adjusted Valuation Range:
<TABLE>
<CAPTION>
Maximum,
Minimum Mid-point Maximum as adjusted
------- --------- ------- -----------
<S> <C> <C> <C> <C>
Gross proceeds $212,500,000 $250,000,000 $289,375,000 $334,656,250
Less estimated expenses 3,172,000 3,500,000 3,845,000 4,240,000
------------ ------------ ------------ ------------
Total net proceeds $209,328,000 $246,500,000 $285,535,000 $330,416,250
============ ============ ============ ============
</TABLE>
The net proceeds from the sale of the Common Shares may vary depending
upon financial and market conditions at the time of the completion of the
Offering. See "THE CONVERSION - Pricing and Number of Common Shares to be Sold."
The expenses detailed above are estimated. Actual expenses may be more than or
less than estimated. See "THE CONVERSION Plan of Distribution."
The Holding Company will retain up to 50% of the net proceeds from the
sale of the Common Shares, or approximately $165.2 million at the adjusted
maximum of the Adjusted Valuation Range. Such proceeds will be used to make a
loan to the ESOP to acquire 8% of the total Common Shares sold in the Offering
and contributed to the Foundation. Based upon the issuance of 33,465,625 shares
at the adjusted maximum of the Adjusted Valuation Range, the loan to the ESOP
would be $26.8 million. See "MANAGEMENT - Stock Benefit Plans -- Employee Stock
Ownership Plan." The loan to the ESOP will have a term of up to 15 years and an
interest rate equal to the Prime Rate less 1/2%, which is currently 8.0%. The
balance of the net proceeds may be invested initially in investment securities,
mortgage-backed securities, U.S. Government and federal agency securities of
various maturities, deposits in either the Company or other financial
institutions, or a combination thereof.
Ultimately the proceeds retained by the Holding Company may be used for
general corporate purposes, which may include acquisitions of other financial
institutions, other financial services companies or other businesses which a
savings and loan holding company is permitted to own, the payment of dividends,
a tax-free return of capital, repurchases of Common Shares and funding of the
RRP. The Holding Company and the Company, however, will not take any action that
would further the payment of
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<PAGE> 47
a tax-free return of capital to the Holding Company shareholders during the
first year following the completion of the Conversion.
The Holding Company currently has no specific plan to repurchase any of
the Common Shares. In the future, the Board of Directors of the Holding Company
will make decisions on the repurchase of the Common Shares based on its view of
the appropriateness of the price of the Common Shares as well as the Holding
Company's and the Company's investment opportunities and capital needs. OTS
regulations generally prohibit the Holding Company from repurchasing any of its
capital stock for three years following the date of completion of the
Conversion, except as part of an open-market stock repurchase program during the
second and third years following the Conversion involving no more than 5% of the
outstanding capital stock during a twelve-month period. The OTS may permit a
repurchase during the first year following the completion of the Conversion or
may permit the Holding Company to exceed the 5% limits in the second and third
years if exceptional circumstances are established. In addition, after any
repurchase during the three years following the completion of the Conversion,
the Company's regulatory capital must equal or exceed all regulatory capital
requirements. See "THE CONVERSION - Restrictions on Repurchase of Common
Shares."
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $165.2 million at the adjusted maximum of the Adjusted
Valuation Range, will be invested by the Holding Company in the capital stock to
be issued by the Company to the Holding Company. The resulting increase in the
regulatory capital of the Company will permit the Company to expand its lending
and investment activities and to enhance customer services. The Company
anticipates that the portion of the net proceeds received by the Company will
initially be invested in overnight funds and short-term investments with
maturities of up to three years and eventually utilized for general corporate
purposes, including increased loan origination activity and a modest increase in
investments in corporate notes and U.S. Government and federal agency
securities. During the next three years, the Company intends to concentrate on
increasing its consumer and commercial loan portfolios, but during the first
year following the Conversion, the Company anticipates an increase in
construction and one- to four-family loans. The Company may also use such funds
for the expansion of its facilities, and, although no such transactions are
specifically being considered at this time, to expand operations through
acquisitions of other financial institutions, branch offices or other financial
services companies or the establishment of de novo branch offices or loan
origination facilities.
MARKET FOR COMMON SHARES
Neither the Holding Company nor the Company has ever issued capital
stock to the public and, consequently, there is currently no established market
for the Common Shares. The Holding Company has received conditional approval to
have the Common Shares quoted on Nasdaq under the symbol "UCFC."
One of the conditions to the Nasdaq listing is the commitment of at
least three brokerage firms to make a market in the Common Shares. Trident,
McDonald & Company and Oppenheimer have informed the Holding Company that they
intend to make a market in the Common Shares, and expect that additional market
makers will be identified. A public trading market for the stock of any issuer,
including the Holding Company, depends upon the presence of both willing buyers
and willing sellers at any given time. Accordingly, the number of active buyers
and sellers of the Common Shares at any particular time may be limited. No
assurance can be given that an active or liquid market for the Common Shares
will develop after the completion of the Conversion or, if such a market does
develop, that it will continue. Investors should consider, therefore, the
potentially long-term nature of an investment in the Common Shares. See "RISK
FACTORS - Absence of Established Market for the Common Shares."
The appraisal of the pro forma market value of the Common Shares is not
a recommendation as to the advisability of purchasing Common Shares, nor does it
represent Keller's opinion as to the price at which the
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<PAGE> 48
Common Shares may trade. There can be no assurance that the Common Shares may
later be resold at the price at which they are purchased in the Conversion.
DIVIDEND POLICY
Following the completion of the Conversion, the Board of Directors of
the Holding Company intends to establish a dividend policy. The declaration and
payment of dividends or other distributions by the Holding Company will be
subject to the discretion of the Board of Directors of the Holding Company, to
the earnings and financial condition of the Holding Company and to general
economic conditions. The timing of payments of dividends or other distributions
and the amount will depend upon a determination by the Board of Directors of the
Holding Company, in the exercise of its discretion, that the net income, capital
and consolidated financial condition of the Holding Company and the general
economy justify the declaration and payment of dividends or other distributions
by the Holding Company, subject to the limitation under Ohio law that a
corporation may pay dividends or other distributions only out of surplus. There
can be no assurance that dividends will be paid on the Common Shares or, if
paid, that such dividends or other distributions will continue to be paid in the
future. In addition, the Holding Company and the Company will not take any
action that would further the payment of a tax-free return of capital to the
Holding Company shareholders during the first year following the completion of
the Conversion.
Other than earnings on the investment of the proceeds retained by the
Holding Company and interest earned on the loan to the ESOP, the principal
source of income of the Holding Company will be dividends periodically declared
and paid by the Board of Directors of the Company on the common shares of the
Company held by the Holding Company. The declaration and payment of dividends by
the Company to the Holding Company will be subject to the discretion of the
Board of Directors of the Company, to the earnings and financial condition of
the Company, to general economic conditions and to federal and state
restrictions on the payment of dividends by thrift institutions. Under
regulations of the OTS applicable to converted associations, the Company will
not be permitted to pay a cash dividend on its capital stock after the
Conversion if its regulatory capital would, as a result of the payment of such
dividend, be reduced below the amount required for the Liquidation Account or
the applicable regulatory capital requirement prescribed by the OTS. See "THE
CONVERSION - Principal Effects of the Conversion -- Liquidation Account" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources." The Company may not pay a
dividend unless such dividend also complies with an OTS regulation limiting
capital distributions by savings and loan associations. Capital distributions,
for purposes of such regulation, include, without limitation, payments of cash
dividends, repurchases, and certain other acquisitions by an association of its
shares and payments to stockholders of another association in an acquisition of
such other association. See "REGULATION - Office of Thrift Supervision --
Limitations on Capital Distributions."
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<PAGE> 49
REGULATORY CAPITAL COMPLIANCE
The following table sets forth the historical regulatory capital of the
Company at December 31, 1997, and the pro forma regulatory capital of the
Company at such date based on the receipt of 50% of the net proceeds for the
number of Common Shares indicated.
<TABLE>
<CAPTION>
Pro forma capital at December 31, 1997, assuming the sale of:
----------------------------------------------------------------------------
21,250,000 25,000,000 28,937,500 33,465,625
Common Shares Common Shares Common Shares Common Shares
Historical at (offering price (offering price (offering price (offering price
December 31, 1997 of $10 per share) of $10 per share) of $10 per share) of $10 per share)
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ --------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital: (2) $141,353 $219,242 $233,103 $247,893 $264,903
======== ======== ======== ======== ========
Tangible capital: (3)
Capital level $140,636 13.47% $218,525 19.48% $232,386 20.46% $247,176 21.48% $264,186 22.63%
Requirement 15,661 1.50 16,829 1.50 17,037 1.50 17,259 1.50 17,514 1.50
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess $124,975 11.97% $201,696 17.98% $215,349 18.96% $229,917 19.98% $ 46,671 21.13%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Core capital: (3)
Capital level $140,636 13.47% $218,525 19.48% $232,386 20.46% $247,176 21.48% $264,186 22.63%
Requirement (4) 31,322 3.00 33,659 3.00 34,075 3.00 34,518 3.00 35,029 3.00
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess $109,314 10.47% $184,866 16.48% $198,311 17.46% $212,658 18.48% $229,157 19.63%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Risk-based capital: (5)
Capital level $146,461 28.85% $224,350 41.04% $238,211 43.03% $253,001 45.10% $270,011 47.41%
Requirement 40,619 8.00 43,734 8.00 44,289 8.00 44,880 8.00 45,561 8.00
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess $105,842 20.85% $180,616 33.04% $193,922 35.03% $208,121 37.10% $224,450 39.41%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- -------------------------
(1) Based upon total adjusted assets of $1.04 billion at December 31, 1997,
and $1.12 billion, $1.14 billion, $1.15 billion and $1.17 billion, at
the minimum, mid-point, maximum and adjusted maximum of the Adjusted
Valuation Range, respectively, for purposes of tangible and core
capital requirements, and upon risk-weighted assets of $507.7 million
at December 31, 1997, and $546.7 million, $553.6 million, $561.1
million and $569.5 million at the minimum, midpoint, maximum and
adjusted maximum of the Adjusted Valuation Range, respectively, for
purposes of the risk-based capital requirement.
(2) The difference between GAAP capital and each of tangible capital and
core capital is the unrealized gain on securities available for sale,
net of taxes.
(3) Tangible and core capital levels are shown as a percentage of adjusted
total assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(4) The current OTS core capital requirement for savings associations is 3%
of total adjusted assets. The OTS has proposed core capital
requirements which would require a core capital ratio of 3% of total
adjusted assets for thrifts that receive the highest supervisory rating
for safety and soundness and a core capital ratio of 4% to 5% for all
other thrifts.
(5) Assumes reinvestment of net proceeds in 50% risk-weighted assets.
Includes $5.8 million of general valuation allowances, all of which
qualify as supplementary capital. See "REGULATION - Regulatory Capital
Requirements."
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<PAGE> 50
CAPITALIZATION
Set forth below is the historical capitalization of the Company at
December 31, 1997, and the pro forma consolidated capitalization of the Holding
Company at such date, as adjusted to give effect to the sale of Common Shares
based on the Adjusted Valuation Range and estimated expenses. See "USE OF
PROCEEDS" and "THE CONVERSION - Pricing and Number of Common Shares to be Sold."
A change in the number of Common Shares to be issued in the Conversion may
materially affect the pro forma consolidated capitalization of the Holding
Company.
<TABLE>
<CAPTION>
Pro forma capitalization of the Holding Company
at December 31, 1997, assuming the sale of:
---------------------------------------------------------------------
21,250,000 25,000,000 28,937,500 33,465,625
Historical Common Common Common Common
capitalization Shares Shares Shares Shares
of the Company at (Offering (Offering (Offering (Offering
December 31, price of price of price of price of
1997 $10 per share) $10 per share) $10 per share) $10 per share)
------------ -------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1) $886,808 $886,808 $886,808 $886,808 $886,808
======== ======== ======== ======== ========
Capital and retained earnings:
Preferred shares, no par value;
authorized ___________- none
outstanding $ - $ - $ - $ - $ -
Common shares, no par value per
share: authorized - __________;
assumed outstanding - as shown(2) - 1 1 1 1
Additional paid-in capital - 209,327 246,499 285,529 330,415
Shares issued to Foundation(3) - 10,625 12,500 12,500 12,500
Less expense of contribution to
Foundation, net - (6,906) (8,125) (8,125) (8,125)
Less Common Shares acquired by
the ESOP(4) - (17,850) (21,000) (24,150) (27,772)
Less Common Shares acquired by
the RRP(5) - (8,925) (10,500) (12,075) (13,886)
Retained earnings, net,
substantially restricted(6) 140,636 140,636 140,636 140,636 140,636
Unrealized gain on available for
sale securities, net 717 717 717 717 717
-------- -------- -------- -------- --------
Total capital and retained earnings $141,353 $327,625 $360,728 $395,033 $434,486
======== ======== ======== ======== ========
</TABLE>
- ------------------------------------
(1) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Shares in the Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) The number of Common Shares to be issued will be determined on the
basis of the final valuation of the Company. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold." The number of Common
Shares assumed outstanding does not reflect the issuance of any common
shares which may be reserved for issuance under the Stock Option Plan.
See "MANAGEMENT - Stock Benefit Plans -- Stock Option Plan." Reflects
receipt of the proceeds from the sale of the Common Shares, net of
estimated expenses.
(3) Reflects shares to be contributed to the Foundation at an assumed value
of $10 per share.
(4) Assumes that 8% of the total Common Shares sold in the Conversion and
contributed to the Foundation will be acquired by the ESOP with funds
borrowed by the ESOP from the Holding Company for a term of 15 years at
the Prime Rate less 1/2%, which is currently 8.0%. The ESOP loan will
be secured solely by the Common Shares purchased by the ESOP. The
Company has agreed, however, to use its best efforts to fund the ESOP
based on future earnings, which would reduce the Company's total
capital and retained earnings, as reflected in the table. If the ESOP
purchases authorized but unissued shares from the Holding Company, such
purchases would have a dilutive effect of approximately 7.4% on the
voting interests of the Holding Company's shareholders. See "MANAGEMENT
- Stock Benefit Plans -- Employee Stock Ownership Plan."
(5) Assumes that a number of shares equal to 4% of the total Common Shares
sold in the Conversion and contributed to the Foundation will be
acquired in the open market by the RRP after the Conversion at a price
of $10 per share. There can be no assurance that a sufficient number of
shares will be available for purchase by the RRP, or that shares could
be purchased at a price of $10 per share. A higher price per share,
assuming the purchase of the entire 4% of the shares, would reduce
retained earnings. The RRP may purchase shares in the open market or
may purchase authorized but unissued shares from the Holding Company.
If authorized but unissued shares are purchased, the voting interests
of existing shareholders would be diluted approximately 3.9%. See
"MANAGEMENT Stock Benefit Plans -- Recognition and Retention Plan."
(6) Retained earnings include restricted and unrestricted retained
earnings. See "THE CONVERSION - Principal Effects of the Conversion --
Liquidation Account" for information concerning the liquidation account
to be established in connection with the Conversion and "TAXATION -
Federal Taxation" for information concerning restricted retained
earnings for federal tax purposes.
-22-
<PAGE> 51
PRO FORMA DATA
Set forth below are the pro forma consolidated net earnings of the
Holding Company for the year ended December 31, 1997, and the pro forma
consolidated shareholders' equity of the Holding Company at December 31, 1997,
along with the related pro forma earnings per share amounts, giving effect to
the sale of the Common Shares based on the Adjusted Valuation Range. See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold." The pro forma data
is based on the following assumptions: (i) the sale of the Common Shares
occurred at the beginning of the period and yielded the net proceeds indicated;
(ii) such net proceeds were invested at the beginning of the period to yield
annualized after-tax net returns of 3.46%; and (iii) no withdrawals from
existing deposit accounts were made to purchase the Common Shares. The assumed
returns are based on the one-year U.S. Treasury bill yield of 5.32% as of
December 31, 1997. This rate was used as an alternative to the arithmetic
average of the Company's interest-earning assets and interest-bearing deposits.
In calculating pro forma net earnings, a statutory federal income tax rate of
35% has been assumed for all periods. In the opinion of management, the assumed
after-tax yield does not differ materially from the estimated after-tax yield
which will be obtained on the initial investment of the cash proceeds and is
viewed as being more relevant in the current low interest rate environment than
the use of an arithmetic average of the fiscal year 1997 weighted average yield
on interest-earning assets and weighted average rates paid on deposits during
such period. Actual yields may differ, however, from the assumed returns. The
pro forma consolidated net earnings amounts derived from the assumptions set
forth herein should not be considered indicative of the actual results of
operations of the Holding Company that would have been attained for any period
if the Conversion had been actually consummated at the beginning of such period.
As the table demonstrates, pro forma consolidated earnings per share
and pro forma consolidated shareholders' equity per share decrease as the amount
of Common Shares sold moves from the minimum of the Adjusted Valuation Range to
the adjusted maximum of the Adjusted Valuation Range. In addition, the offering
price as a multiple of pro forma earnings per share and as a percent of pro
forma shareholders' equity per share increases as the amount of Common Shares
sold moves from the minimum of the Adjusted Valuation Range to the adjusted
maximum of the Adjusted Valuation Range.
THE PRO FORMA DATA AND ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. NO
ASSURANCE CAN BE PROVIDED THAT THE ASSUMED YIELDS WILL BE ACHIEVED ON THE
INVESTMENT OF THE CONVERSION PROCEEDS. THE PRO FORMA DATA DOES NOT PURPORT TO
REPRESENT WHAT THE HOLDING COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS
ACTUALLY WOULD HAVE BEEN HAD THE CONVERSION BEEN COMPLETED AS OF THE DATE OR AT
THE BEGINNING OF THE PERIODS INDICATED, OR TO PROJECT THE HOLDING COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS AT ANY FUTURE DATE OR FOR ANY FUTURE
PERIOD.
-23-
<PAGE> 52
<TABLE>
<CAPTION>
Year ended December 31, 1997, assuming the sale of:
-------------------------------------------------------------------------------
21,250,000 25,000,000 28,937,500 33,465,625
Common Shares Common Shares Common Shares Common Shares
(Offering price of (Offering price of (Offering price of (Offering price of
$10 per share) $10 per share) $10 per share) $10 per share)
------------------ ------------------ ------------------ ------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Pro forma market capitalization $223,125 $262,500 $301,875 $347,156
Less shares contributed to the
Foundation 10,625 12,500 12,500 12,500
-------- -------- -------- --------
Gross proceeds 212,500 250,000 289,375 334,656
Estimated expenses (3,172) (3,500) (3,845) (4,240)
-------- -------- -------- --------
Estimated net proceeds 209,328 246,500 285,530 330,416
Less Common Shares acquired by the
ESOP(1) (17,850) (21,000) (24,150) (27,772)
Less Common Shares acquired by the
RRP(2) (8,925) (10,500) (12,075) (13,886)
-------- -------- -------- --------
Net cash proceeds $182,553 $215,000 $249,305 $288,758
======== ======== ======== ========
Net income:
Historical $ 13,047 $ 13,047 $ 13,047 $ 13,047
Pro forma income on net proceeds 6,313 7,435 8,621 9,985
Pro forma adjustment for the ESOP(1) (774) (910) (1,047) (1,203)
Pro forma adjustment for the RRP(2) (1,160) (1,365) (1,570) (1,805)
-------- -------- -------- --------
Pro forma net income $ 17,426 $ 18,207 $ 19,051 $ 20,024
======== ======== ======== ========
Earnings per share (3)(4):
Historical $ 0.63 $ 0.54 $ 0.47 $ 0.41
Pro forma income on net proceeds 0.31 0.31 0.31 0.31
Pro forma adjustment for the ESOP(1) (0.04) (0.04) (0.04) (0.04)
Pro forma adjustment for the RRP(2) (0.06) (0.06) (0.06) (0.06)
------ ------ ------ ------
Pro forma net earnings per share $ 0.84 $ 0.75 $ 0.68 $ 0.62
====== ====== ====== ======
Number of shares used in calculating
earnings per share(4) 20,646,500 24,290,000 27,933,500 32,123,502
Shareholders' equity (book value) (5):
Historical $141,353 $141,353 $141,353 $141,353
Estimated net Conversion proceeds 209,328 246,500 285,530 330,416
Plus shares contributed to the 10,625 12,500 12,500 12,500
Foundation
Less after tax cost of Foundation (6,906) (8,125) (8,125) (8,125)
Less Common Shares acquired by
the ESOP (17,850) (21,000) (24,150) (27,772)
Less Common Shares acquired by
the RRP (8,925) (10,500) (12,075) (13,886)
-------- -------- -------- --------
Pro-forma $327,625 $360,728 $395,033 $434,486
======== ======== ======== ========
Shareholders' equity per share(3)(5):
Historical $ 6.34 $ 5.28 $ 4.68 $ 4.07
Estimated net Conversion proceeds 9.38 9.39 9.46 9.52
Plus shares contributed to the
Foundation 0.48 0.48 0.41 0.36
Less after tax cost of Foundation (0.31) (0.31) (0.27) (0.23)
Less Common Shares acquired by
the ESOP (0.80) (0.80) (0.80) (0.80)
Less Common Shares acquired by
the RRP (0.40) (0.40) (0.40) (0.40)
------ ------ ------ ------
Pro-forma $14.69 $13.74 $13.08 $12.52
====== ====== ====== ======
Ratio of offering price to pro forma
shareholders' equity per share(3) 68.07% 72.78% 78.45% 79.87%
Offering price as a multiple of pro
forma earnings per share(3) 11.90x 13.33x 14.71x 16.13x
</TABLE>
- ------------------------------------
(Footnotes on next page)
-24-
<PAGE> 53
(1) Assumes that 8.0% of the Common Shares sold in the Conversion and
contributed to the Foundation are purchased by the ESOP and that the
funds used to purchase such shares are borrowed from the Holding
Company. The approximate amount expected to be borrowed by the ESOP is
not reflected as a liability, but is reflected as a reduction of
capital. The Company intends to make annual contributions to the ESOP
over a period of up to 15 years in an amount at least equal to the
principal and interest requirement of the debt. The pro forma net
income assumes that: (i) 119,000, 140,000, 161,000 and 185,150 shares
at the minimum, mid-point, maximum, and adjusted maximum of the
Adjusted Valuation Range, respectively, were committed to be released
during the year at an average fair value of $10 per share in accordance
with SOP 93-6; (ii) the effective tax rate was 35% for such periods;
and (iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the per share net earnings. The pro forma
shareholders' equity per share calculations assume all ESOP shares were
outstanding, regardless of whether such shares would have been
released. Because the Holding Company will loan to the ESOP the funds
necessary to purchase the Common Shares, only principal payments on the
ESOP loan are reflected as employee compensation and benefits expense.
To the extent the value of the Common Shares appreciates over time,
compensation expense related to the ESOP will increase in accordance
with SOP 93-6. See Note 4 below. See "MANAGEMENT - Stock Benefit Plans
-- Employee Stock Ownership Plan."
(2) Assumes that 4% of the total Common Shares sold in the Conversion and
contributed to the Foundation will be purchased by the RRP after the
Conversion at a price of $10 per share and that one-fifth of the
purchase price of the RRP shares will be expensed in each of the first
five years after the Conversion. If the RRP is implemented in the first
year after the completion of the Conversion, it will be subject to
various OTS requirements, including the requirement that the RRP be
approved by the shareholders of the Holding Company. There can be no
assurance that the RRP will be approved by the shareholders, that a
sufficient number of shares will be available for purchase by the RRP
or that the shares could be purchased at $10 per share. A higher per
share price, assuming the purchase of the entire 4% of the shares,
would reduce pro forma net earnings and pro forma shareholders' equity.
If an insufficient number of shares is available in the open market to
fund the RRP at the desired level, the Holding Company may issue
additional authorized shares. The issuance of authorized but unissued
shares in an amount equal to 4% of the Common Shares issued in the
Conversion would result in a 3.9% dilution in existing shareholders'
voting interests. If the RRP purchases authorized but unissued shares,
pro forma net earnings per share would be $0.88, $0.79, $0.72 and $0.67
for the year ended December 31, 1997, at the minimum, mid-point,
maximum and adjusted maximum of the Adjusted Valuation Range,
respectively. In such circumstance, pro forma shareholders' equity per
share would be $14.50, $13.60, $12.97 and $12.42 at December 31, 1997,
at the minimum, mid-point, maximum and adjusted maximum of the Adjusted
Valuation Range, respectively. See "MANAGEMENT - Stock Benefit Plans --
Recognition and Retention Plan."
(3) No effect has been given to shares reserved for issuance upon the
exercise of stock options pursuant to the Stock Option Plan. See
"MANAGEMENT - Stock Benefit Plans -- Stock Option Plan."
(4) The pro forma net earnings per share calculations are determined by
adding the number of shares assumed to be sold in the Conversion at the
minimum, the mid-point, the maximum and the adjusted maximum of the
Adjusted Valuation Range, as well as the number of shares contributed
to the Foundation, which is 1,062,500 common shares at the minimum of
the Adjusted Valuation Range and 1,250,000 common shares at the
mid-point, the maximum and the adjusted maximum of the Adjusted
Valuation Range and, in accordance with SOP 93-6, excluding ESOP shares
which would not have been released during the period. Accordingly, for
the year ended December 31, 1997, 1,666,000, 1,960,000, 2,254,000 and
2,595,098 shares have been subtracted from the shares assumed to be
sold at the minimum, mid-point, maximum, and adjusted maximum of the
Adjusted Valuation Range. See Note 1 above.
(5) Pro forma shareholders' equity represents the excess of the carrying
value of the assets of the Holding Company over its liabilities. The
per share 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 federal income tax consequences of the potential
restoration to income of the bad debt reserves for income tax purposes,
which would be required in the event of liquidation. The amounts shown
also do not reflect the amounts required to be distributed in the event
of liquidation to Eligible Account Holders and Supplemental Eligible
Account Holders from the Liquidation Account which will be established
upon the consummation of the Conversion. Pro forma shareholders' equity
information is not intended to represent the fair market value of the
Common Shares, the current value of the Company's assets or
liabilities, or the amounts, if any, that would be available for
distribution to shareholders in the event of liquidation. The pro forma
data may be materially affected by a change in the number of Common
Shares to be sold in the Conversion and by other factors. See "TAXATION
- Federal Taxation."
-25-
<PAGE> 54
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION
If the contribution were not being made to the Foundation as part of
the Conversion, Keller has estimated that the pro forma aggregate market
capitalization of the Holding Company would be approximately $280.0 million at
the mid-point of the Adjusted Valuation Range, which is approximately $30.0
million greater than the pro forma market capitalization of the Holding Company
when the contribution to the Foundation is included, and would result in an
increase of 3,000,000 in the amount of Common Shares offered for sale in the
Conversion. The pro forma shareholders' equity per share, the pro forma earnings
per share, the pro forma price to book ratio and the pro forma price to earnings
ratio would be substantially the same with or without the contribution to the
Foundation. There can be no assurance that, if the contribution to the
Foundation were not made, the appraisal prepared at that time would conclude
that the pro forma market capitalization of the Holding Company would be the
same as that estimated herein. Any appraisals prepared at that time would be
based on the facts and circumstances existing at that time, including, among
other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, mid-point, maximum and
adjusted maximum of the Adjusted Valuation Range, assuming the Conversion had
been completed at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997,
----------------------------------------------------------------------------------------------------
At the minimum At the mid-point At the maximum At the adjusted maximum
(offering (offering (offering (offering
price of $10 per share) price of $10 per share) price of $10 per share) price of $10 per share)
----------------------- ----------------------- ----------------------- -----------------------
With Without With Without With Without With Without
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross proceeds $ 212,500 $ 238,000 $ 250,000 $ 280,000 $ 289,375 $ 322,000 $ 334,656 $ 370,300
Pro forma market
capitalization 223,125 238,000 262,500 280,000 301,875 322,000 347,156 370,300
Total assets 1,227,520 1,250,951 1,259,965 1,287,659 1,294,341 1,324,219 1,333,597 1,366,373
Total liabilities 899,895 903,562 899,237 903,679 899,308 903,647 899,111 903,719
Pro forma shareholders'
equity 327,625 347,389 360,728 383,980 395,033 420,572 434,486 462,654
Pro forma consolidated net
earnings 17,426 18,109 18,207 19,010 19,051 19,912 20,024 20,948
Pro forma shareholders'
equity per share 14.69 14.60 13.74 13.71 13.08 13.06 12.52 12.49
Pro forma consolidated net
earnings per share 0.84 0.82 0.75 0.73 0.68 0.67 0.62 0.61
Pro forma pricing ratios:
Price to net earnings
per share 11.90x 12.20x 13.33x 13.70x 14.71x 14.93x 15.87x 16.39x
Price to book value
per shar 68.07% 68.49% 72.78% 72.94% 76.45% 76.57% 79.87% 80.06%
Price to net assets
per share 18.18% 19.02% 20.83% 21.75% 23.32% 24.32% 26.03% 27.10%
Pro forma financial ratios:
Return on assets 1.42% 1.45% 1.45% 1.48% 1.47% 1.50% 1.50% 1.53%
Return on shareholders'
equity 5.32% 5.21% 5.05% 4.95% 4.82% 4.73% 4.61% 4.53%
Shareholders' equity
to assets 26.69% 27.77% 28.62% 29.82% 30.52% 31.76% 32.58% 33.86%
</TABLE>
-26-
<PAGE> 55
RECENT DEVELOPMENTS
The following tables set forth selected financial condition data for
the Company at March 31, 1998, and December 31, 1997, and selected earnings data
for the Company for the three months ended March 31, 1998 and 1997. Financial
data as of and for the three months ended March 31, 1998, and March 31, 1997, is
derived from unaudited information. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the results have been made. The results of operations presented
below are not necessarily indicative of the results that may be expected for any
other period. This information should be read in conjunction with the financial
statements and notes thereto included herein.
<TABLE>
<CAPTION>
SELECTED FINANCIAL CONDITION DATA: At March 31, 1998 At December 31, 1997
----------------- --------------------
(In thousands)
<S> <C> <C>
Total assets $1,049,459 $1,044,993
Cash and cash equivalents 25,611 34,497
Investment securities 56,290 44,370
Mortgage-backed securities 298,715 306,271
Loans, net 635,295 633,236
FHLB stock 11,335 11,136
Deposits 888,471 886,808
Total equity 144,120 141,353
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------
SUMMARY OF EARNINGS: 1998 1997
---- ----
(In thousands)
<S> <C> <C>
Interest income $19,678 $20,001
Interest expense 9,556 10,211
------- -------
Net interest income 10,122 9,790
Provision for loan loss allowances 250 -
------- -------
Net interest income after provision for loan loss
allowances 9,872 9,790
Noninterest income 378 298
Noninterest expense 6,095 6,005
------- -------
Income before provision for income taxes 4,155 4,083
Provision for income taxes 1,454 1,360
------- -------
Net income $ 2,701 $ 2,723
======= =======
</TABLE>
-27-
<PAGE> 56
<TABLE>
<CAPTION>
At or for the three months ended
March 31,
---------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 1998 1997
---- ----
<S> <C> <C>
Performance ratios:
Return on average assets (2) 1.03% 1.02%
Return on average equity (3) 7.59 8.48
Interest rate spread (4) 3.38 3.23
Net interest margin (5) 3.96 3.74
Noninterest expense to average assets 2.33 2.25
Efficiency ratio (6) 58.05 59.53
Average interest-earning assets to average
interest-bearing liabilities 115.50 113.32
Capital ratios:
Average equity to average assets 13.60 12.01
Equity to assets, end of period 13.73 12.23
Tangible capital 13.67 12.25
Core capital 13.67 12.25
Risk-based capital 28.24 27.13
Asset quality ratios:
Nonperforming loans to total loans at end of period (7) 1.39 1.44
Nonperforming assets to average assets (8) 0.84 0.83
Nonperforming assets to total assets at end of
period (8) 0.84 0.84
Allowance for loan losses as a percent of loans 0.96 0.79
Allowance for loan losses as a percent of nonperforming
loans (7) 70.14 55.02
Number of:
Loans 19,231 18,812
Deposits 109,556 108,882
Full service offices 14 14
</TABLE>
- -------------------
(1) Ratios for the three-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Noninterest expense divided by the sum of net interest income and
noninterest income.
(7) Nonperforming loans include nonaccrual loans and restructured loans.
(8) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER 31, 1997
Total assets increased $4.4 million, or .4%, from December 31, 1997, to
March 31, 1998. The primary reason for the increase was that loans increased
$2.0 million mostly due to increased originations.
-28-
<PAGE> 57
Total liabilities increased $1.7 million, or .2%, primarily as a result
of an increase in deposits of approximately $1.7 million. The Company had no
borrowings at March 31, 1998.
Total equity increased $2.7 million, or 2.0%, to $144.1 million at
March 31, 1998, from $141.4 million at December 31, 1997, due mainly to net
income of $2.7 million.
Nonaccrual and restructured loans decreased approximately $1.3 million
to $8.8 million at March 31, 1998, from $10.1 million at December 31, 1997.
Nonaccrual one- to four-family mortgage loans, construction loans and commercial
loans decreased $596,000, $317,000 and $268,000, respectively. At March 31,
1998, total nonaccrual and restructured loans accounted for 1.39% of net loans
receivable, compared to 1.60% at December 31, 1997. Total non-performing assets
were .84% of total assets, a decrease of .14% from .98% at December 31, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
MARCH 31, 1997
NET INCOME. Net income decreased $22,000, or .8%, to $2.7 million for
the three months ended March 31, 1998 from $2.7 million for the three months
ended March 31, 1997. The slight decrease was due to increased provisions for
loan loss allowances and income taxes, which offset the increase in net interest
income.
NET INTEREST INCOME. Net interest income increased $332,000, or 3.4%,
for the first quarter of 1998 compared to the first quarter of 1997, primarily
due to a more rapid rate of decrease in the cost of deposits than in the yield
on interest-earning assets.
PROVISION FOR LOAN LOSSES. The provision for loan loss allowances
increased $250,000 in the first quarter of 1998, as a result of an increase in
the total loan portfolio, particularly in commercial and consumer loans that
generally have greater inherent risk than residential first mortgage loans.
During the three months ended March 31, 1998, the Company had charge-offs of
$60,000 and recoveries of $4,000. At March 31, 1998, the Company's allowance for
loan losses totaled $6.2 million, which was .96% of total loans.
NONINTEREST INCOME. Noninterest income increased $80,000, or 26.8%, to
$378,000 for the three months ended March 31, 1998, from $298,000 for the three
months ended March 31, 1997. The increase was primarily due to increases in
service charges and miscellaneous fees.
NONINTEREST EXPENSE. Total noninterest expense increased $90,000, or
1.5%, for the first quarter of 1998 compared to the first quarter of 1997,
primarily as a result of increases in compensation and related benefits
expenses.
FEDERAL INCOME TAXES. The provision for federal income taxes increased
$94,000, or 6.9%, for the first quarter of 1998 compared to the first quarter of
1997, due to an increase in pre-tax income.
-29-
<PAGE> 58
CONDENSED STATEMENTS OF INCOME
The following are condensed statements of income of the Company for
each of the years in the three year period ended December 31, 1997.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Interest and dividend income $ 82,685 $81,749 $79,834
Interest expense-deposits 40,463 43,009 41,104
-------- ------- -------
Net interest income 42,222 38,740 38,730
Recovery of loan loss allowances (1,546) -- --
-------- ------- -------
Net interest income after recovery of loan
loss allowances 43,768 38,740 38,730
-------- ------- -------
Noninterest income 1,564 1,291 1,554
Noninterest expenses (1) 25,303 30,068 21,995
-------- ------- -------
Income before income taxes 20,029 9,963 18,289
Income taxes 6,982 3,332 6,707
-------- ------- -------
Net income $ 13,047 $ 6,631 $11,582
======== ======= =======
</TABLE>
(1) For the year ended December 31, 1996, noninterest expenses include the
$5.9 million one-time assessment imposed on the Company as a result of
legislation to recapitalize the SAIF.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's net income generally depends upon its net interest
income, which is the difference between the interest and dividend income earned
on its loans and investments and the interest expense on its deposits. The
Company's net interest income is significantly affected by general economic
conditions and policies of regulatory authorities, and unusual events can have
significant, non-recurring effects on net income. Such events may include
regulatory actions, changes in accounting methods and transitional activities in
financial instruments such as asset sales.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND AT DECEMBER 31, 1996
Total assets were $1.0 billion at December 31, 1997, a $29.7 million
decrease compared to December 31, 1996. The decline in total assets was
primarily due to the funding of deposit outflows through principal repayments of
mortgage-backed securities.
Net loans increased $16.3 million, or 2.6%, to $633.2 million at
December 31, 1997, compared to $616.9 million at December 31, 1996. The most
significant increase was in commercial loans, which increased $13.2 million, and
loans secured by one- to four-family residences, which increased $7.6 million
compared to the prior year. These increases were offset by decreases of $1.8
million in nonresidential real estate loans and $3.6 million in one- to
four-family construction loans.
Funds not utilized in lending programs or for operations are held in
investment securities or mortgage-backed securities. Investment securities
increased $1.7 million, or 4.1%, from December 31, 1996, and totaled $44.4
million at December 31, 1997. Investment securities available for sale increased
from $14.7 million to $39.4 million at December 31, 1997, whereas investment
securities held to maturity declined from $28.0 million
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<PAGE> 59
to $5.0 million from 1996 to 1997. The shift to available for sale investment
securities and the $13.9 million increase in federal funds sold provide the
Company with a larger source of funds to utilize in periods of increased loan
origination activity. Mortgage-backed securities decreased $64.6 million, or
17.4%, to $306.3 million at December 31, 1997. Proceeds from maturities and
repayments of mortgage-backed securities were primarily used to fund loan growth
and deposit outflows.
Total non-earning assets increased by $2.1 million, or 7.6%, from
December 31, 1996, and totaled $30.1 million at December 31, 1997. This increase
was primarily due to an increase of $1.3 million in premises and equipment due
to capital expenditures for the construction of a branch office and an increase
of $932,000 in vault cash.
Total deposits decreased by $45.3 million, or 4.9%, from December 31,
1996, primarily as a result of disintermediation, and totaled $886.8 million at
December 31, 1997. The decrease was primarily due to a $28.4 million decrease in
certificate accounts, a $12.5 million decrease in savings accounts, a $3.5
million decrease in checking and demand accounts, and a $7.9 million decrease in
money market accounts.
Total equity increased $13.2 million, or 10.3%, at December 31, 1997,
compared to December 31, 1996, primarily due to net income of $13.0 million
during the year and a $175,000 increase in the net unrealized gain on securities
available for sale, net of taxes.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
NET INCOME. Net income increased $6.4 million, or 96.8%, to $13.0
million for the year ended December 31, 1997, compared to $6.6 million for the
year ended December 31, 1996. The results for 1996 reflect the payment of a $5.9
million one-time assessment to recapitalize the SAIF. Other factors accounting
for the increase in net income from 1996 to 1997 were a $3.5 million increase in
net interest income, a $1.5 million loan loss recovery and a decrease in deposit
insurance premiums, which were partially offset by a $2.0 million increase in
salaries and employee benefits and a $3.7 million increase in federal income
taxes.
NET INTEREST INCOME. Net interest income increased $3.5 million, or
9.0%, to $42.2 million in 1997 from $38.7 million for 1996. The Company's
interest rate spread increased 39 basis points to 3.53% for 1997 from 3.14% for
1996 as the Company experienced a 30 basis point increase in the yield on its
interest-earning assets and a nine basis point decrease in the cost of its
interest-bearing liabilities. The interest rate spread was favorably impacted by
the recovery of delinquent interest on several large loans, discussed below.
Total interest income increased $936,000, or 1.1%, in 1997 from 1996.
Interest income on loans receivable increased $5.6 million, primarily as a
result of an increase of $33.4 million, or 5.7%, in the average balance of net
loans and a recovery of $3.3 million of interest on three previously delinquent
loans. The increase in average loan balances was primarily in higher yielding
commercial loans, although one- to four-family loans also increased year to
year. The Company has emphasized growth in loans, particularly commercial and
consumer loans, in order to achieve a higher net yield and to increase the loan
to deposit ratio. The growth in interest income on loans was partially offset by
a reduction in interest income on mortgage-backed securities, as the Company
reduced the average balance of these lower-yielding investments. The reduction
in the average balance of mortgage-backed securities has resulted from the
repayments and maturities of mortgage-backed securities, the proceeds of which
have been used primarily to fund deposit outflows and the increase in net loan
balances. The average yield on the Company's interest-earning assets, including
the effects of the recovery of delinquent interest discussed below, increased to
8.01% from 7.71%.
Total interest income for 1997 was affected by recoveries of
approximately $3.3 million of interest on three loans that had been nonaccruing
for a significant period of time. Without this recovery of delinquent interest,
the Company's total interest income for 1997 would have been $79.3 million,
resulting in a $2.4 million,
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<PAGE> 60
or 2.9%, decrease in total interest income compared to 1996. The resulting
average yield on interest-earning assets would have been 7.68% for 1997,
approximately 33 basis points below the yield achieved as a result of the
interest recovery and three basis points below the yield for 1996. Similarly,
the Company's interest rate spread would have been 3.20% for 1997 compared to
3.14% for 1996.
Total interest expense decreased $2.5 million, or 5.9%, from 1996 to
1997. The average balance of interest-bearing liabilities decreased $36.4
million, or 3.9%, and the average rate paid decreased to 4.48% in 1997 from
4.57% in 1996. Deposits, primarily certificate of deposits, declined year to
year, primarily as a result of maturing certificates being reinvested in
alternative investments, such as mutual funds. See "-Liquidity and Capital
Resources."
PROVISION FOR LOAN LOSSES. Provisions or recoveries for loan losses are
charged or credited to operations to bring the total allowance for loan losses
to a level considered by management to be adequate to provide for estimated
losses based on management's evaluation of such factors as the delinquency
status of loans, current economic conditions, the net realizable value of the
underlying collateral, changes in the composition of the loan portfolio,
particularly in commercial loans, and prior loan loss experience. See "THE
BUSINESS OF THE COMPANY - Lending Activities -- Allowance for Loan Losses." A
net recovery of $1.5 million was credited to operations in 1997, and no amounts
were recorded as provisions or recoveries in 1996. The recovery recorded in 1997
was due to the significant settlement on several large loans which also affected
the Company's total interest income for 1997. See "Net Interest Income." In
1997, the Company recovered $2.9 million that had been charged off in prior
years. Approximately $2.8 million of the recovery related to a $4.3 million
loan.
At December 31, 1997, the Company's allowance for loan losses totaled
$6.0 million, which equaled .9% of total loans. Although management uses the
best information available in assessing the adequacy of the allowance, future
adjustments to the allowance may be necessary due to changes in the economic,
operating, regulatory and other conditions affecting the Company. While the
Company maintains its allowance for loan losses at a level which it considers to
be adequate to provide for estimated losses, there can be no assurance that
further additions will not be made to the allowance for loan losses and that
actual losses will not exceed the estimated amounts.
NONINTEREST INCOME. Noninterest income increased $273,000, or 21.1%, to
$1.6 million for 1997 from $1.3 million for 1996. Substantially all of the
Company's other income is derived from service fees and other charges which
totaled $1.1 million for 1997 compared to $755,000 for 1996. Service fees,
primarily service fees on deposit accounts, increased during the year due to an
increase in service charge fee schedules based on current market conditions.
NONINTEREST EXPENSE. Noninterest expense decreased $4.8 million, or
15.8%, to $25.3 million for 1997 from $30.1 million in 1996. This decrease was
primarily attributable to the $5.9 million one-time SAIF assessment in 1996.
Excluding the SAIF one-time assessment, noninterest expense was $24.2 million
for 1996. As a result of the recapitalization of the SAIF, the FDIC
substantially reduced deposit insurance premiums. Since January 1, 1997, the
Company has paid deposit insurance premiums at the rate of $.063 per $100 of
deposits. Prior to the recapitalization of the SAIF, deposit insurance premiums
were $.23 per $100 of deposits.
Salaries and employee benefits costs increased $2.0 million, or 15.5%,
as a result of normal wage increases and an increase in benefits costs for
health care and postretirement health benefits. The Company anticipates that
other operating expenses will increase following the Conversion as a result of
increased costs associated with operating as a public company and increased
compensation expense as a result of adoption of the ESOP and the RRP. See
"MANAGEMENT Stock Benefit Plans -- Employee Stock Ownership Plan, and --
Recognition and Retention Plan."
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<PAGE> 61
FEDERAL INCOME TAXES. Federal income taxes totaled $7.0 million for
1997, an increase of $3.7 million, or 109.5%, compared to $3.3 million in 1996.
Income taxes in 1996 were lower because of the one-time SAIF assessment,
resulting in decreased pre-tax income.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
NET INCOME. Net income decreased $5.0 million, or 42.7%, to $6.6
million for the year ended December 31, 1996, compared to $11.6 million for the
year ended December 31, 1995. The results of 1996 include the payment of the
$5.9 million one-time SAIF assessment.
NET INTEREST INCOME. Net interest income did not change significantly
in 1996 compared to 1995. The Company's interest rate spread decreased 16 basis
points to 3.14% for 1996 from 3.30% in 1995, as the Company experienced a nine
basis point decrease in the average yield on its interest-earning assets and a
seven basis point increase in the cost of its interest-bearing liabilities.
Total interest income increased $1.9 million, or 2.4%, in 1996 compared
to 1995. Interest income on net loans increased $5.5 million, primarily as a
result of an increase of $64.4 million, or 12.2%, in the average balance of net
loans. The Company achieved growth in most categories of loans, although the
most significant increase occurred in one- to four-family real estate loans.
This growth was based on targeted retail programs and provided the Company with
higher yields than could be obtained on mortgage-backed securities. The
Company's average yield on net loans increased three basis points to 8.23% in
1996, and the net yield on mortgage-backed securities decreased, dropping 43
basis points, from 7.61% for 1995 to 7.18% for 1996. The average yield on the
Company's interest-earning assets decreased from 7.80% to 7.71% as a result of
lower yields on investment and mortgage-backed securities.
Total interest expense increased $1.9 million, or 4.6%, from 1995 to
1996. The average balance of interest-bearing liabilities increased $26.3
million, or 2.9%, and the average rate paid increased from 4.50% to 4.57%.
Interest expense increased as certificate of deposit average balances increased
due to competitive pricing.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses in
1996 or 1995 as the Company's evaluation of the allowance for loan losses
indicated that it had an adequate reserve for the loan balance in accordance
with generally accepted accounting principles ("GAAP") and the Company's
internal policies.
NONINTEREST INCOME. Noninterest income decreased $263,000, or 16.9%, to
$1.3 million for 1996 from $1.6 million for 1995, primarily as a result of gains
on sales of securities in 1995 of $395,000 which did not recur in 1996. Service
fees and other charges totaled $755,000 for 1996 compared with $681,000 for
1995.
NONINTEREST EXPENSE. Noninterest expense increased $8.1 million, or
36.7%, to $30.1 million for 1996 from $22.0 million in 1995. This increase was
primarily attributable to a one-time SAIF assessment of $5.9 million and an
increase of $1.6 million in computer system conversion-related expenses.
Excluding the one-time SAIF assessment, noninterest expense was $24.2 million
for 1996.
FEDERAL INCOME TAXES. Federal income taxes totaled $3.3 million for
1996, a decrease of $3.4 million, or 50.3%, compared to $6.7 million in 1995,
primarily due to lower pre-tax income as a result of the one-time SAIF
assessment.
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<PAGE> 62
YEAR 2000 ISSUE
The Company's operations, like those of most financial institutions,
depend almost entirely on computer systems. See "BUSINESS OF THE COMPANY - Year
2000 Considerations." The Company is addressing the potential problems
associated with the possibility that the computers which control or operate the
Company's operating systems, facilities and infrastructure may not be programmed
to read four-digit date codes and, upon arrival of the year 2000, may recognize
the two-digit code "00" as the year 1900, causing systems to fail to function or
to generate erroneous data. The Company is working with the companies that
supply or service its computer-operated or -dependent systems to identify and
remedy any year-2000 related problems. The Company has established a December
31, 1998 deadline for its third-party data service bureau to be year-2000
compliant. The OTS recently completed an examination of the Company's year 2000
policies and plans and found the Company's actions to be satisfactory.
The Board of Directors reviews the Company's progress in addressing
year-2000 issues quarterly. At this time, the Company has not identified any
specific expenses which are reasonably likely to be incurred by the Company in
connection with year-2000 issues and the Company does not expect to incur
significant expense to implement corrective measures. No assurance can be given
at this time, however, that significant expense will not be incurred in future
periods. In the event that the Company is ultimately required to purchase
replacement computer systems, programs and equipment, or that substantial
expense must be incurred to make the Company's current systems, programs and
equipment year-2000 compliant, the Company's net income and financial condition
could be adversely affected. While the Company is endeavoring to ensure that its
computer-dependent operations are year-2000 compliant, no assurance can be given
that some year-2000 problems will not occur.
In addition to possible expense related to its own systems, the Company
could incur losses if year-2000 issues adversely affect the Company's depositors
or borrowers. Such problems could include delayed loan payments due to year-2000
problems affecting any of the Company's significant borrowers or impairing the
payroll systems of large employers in the Company's primary market area. Because
the Company's loan portfolio is diversified with regard to individual borrowers
and types of businesses and the Company's primary market area is not
significantly dependent upon one employer or industry, the Company does not
expect any significant or prolonged year-2000 related difficulties that will
affect net earnings or cash flow. See "THE BUSINESS OF THE COMPANY - Loans to
One Borrower Limits, and - Primary Market Area."
YIELDS EARNED AND RATES PAID
The following table sets forth certain information relating to the
Company's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing income or
expense by the average balances of interest-earning assets or interest-bearing
liabilities, respectively, for the periods presented. Average balances are
derived from daily balances. Nonaccruing loans have been included in the table
as loans carrying a zero yield. The average balance for securities available for
sale is computed using the carrying value and the average yield on securities
available for sale has been computed using the historical amortized cost average
balance.
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<PAGE> 63
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
----------- -------- ------ ----------- ------- ------ ----------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1) $ 623,546 $54,148 8.68% $ 590,128 $48,586 8.23% $ 525,766 $43,093 8.20%
Mortgage-backed
securities:
Available for sale 73,053 5,122 7.01 96,229 6,871 7.14 90,840 6,969 7.67
Held to maturity 267,242 19,024 7.12 305,583 21,988 7.20 313,667 23,827 7.60
Investment securities:
Available for sale 33,883 2,169 6.40 17,903 1,226 6.85 32,358 2,253 6.96
Held to maturity 13,333 843 6.32 29,944 1,780 5.94 36,361 2,185 6.01
Other interest-earning
assets 21,716 1,379 6.35 21,034 1,298 6.17 24,002 1,507 6.28
---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Total interest-earning
assets 1,032,773 82,685 8.01 1,060,821 81,749 7.71 1,022,994 79,834 7.80
Noninterest earning assets 24,985 23,809 23,708
---------- ---------- ----------
Total assets $1,057,758 $1,084,630 $1,046,702
========== ========== ==========
Interest-bearing liabilities:
Deposits:
Checking and
demand accounts $ 120,962 2,906 2.40 $ 122,993 3,248 2.64 $ 125,466 3,365 2.68
Savings accounts 248,914 7,387 2.97 257,806 7,879 3.06 266,462 8,123 3.05
Certificates of deposit 534,038 30,170 5.65 559,485 31,882 5.70 522,024 29,616 5.67
---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Total deposits 903,914 40,463 4.48 940,284 43,009 4.57 913,952 41,104 4.50
Total interest-bearing
liabilities 903,914 40,463 4.48 940,284 43,009 4.57 913,952 41,104 4.50
---------- -------- ---- ---------- ------- ---- ---------- ------- ----
Noninterest-bearing
liabilities 19,109 18,744 16,718
---------- ---------- ----------
Total liabilities 923,023 959,028 930,670
Equity 134,735 125,602 116,012
---------- ---------- ----------
Total liabilities and $1,057,758 $1,084,630 $1,046,682
========== ========== ==========
equity
Net interest income and
interest rate spread $ 42,222 3.53% $38,740 3.14% $38,730 3.30%
======== ==== ======= ==== ======= ====
Net yield on interest
earning assets 4.09% 3.65% 3.79%
==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities 114.26% 112.82% 111.93%
====== ====== ======
</TABLE>
- -------------------
(1) Nonaccrual loans are included in the average balance.
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<PAGE> 64
The following table sets forth, at the date indicated, the weighted
average yields earned on the Company's interest-earning assets, the weighted
average interest rates paid on interest-bearing liabilities and the interest
rate spread between the weighted average yields and rates at the date presented.
At December 31,
1997
---------------
Weighted average yield on loans 7.85%
Weighted average yield on investment securities 6.32
Weighted average yield on mortgage-backed securities 7.08
Weighted average yield on FHLB stock 7.25
Weighted average yield on interest-bearing deposits 5.50
Weighted average yield on all interest-earning assets 7.50
Weighted average rate paid on deposits 4.56
Interest rate spread 2.94
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior period rate), (ii)
changes in rate (change in rate multiplied by prior period volume) and (iii)
total changes in rate and volume. The combined effects of changes in both volume
and rate, which cannot be separately identified, have been allocated in
proportion to the changes due to volume and rate:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------------- ---------------------------------
Increase Increase
(decrease) due to Total (decrease) due to Total
------------------ increase ------------------ increase
Rate Volume (decrease) Rate Volume (decrease)
---- ------ ---------- ---- ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $2,734 $ 2,828 $ 5,562 $ 193 $5,300 $ 5,493
Mortgage-backed securities:
Available for sale (122) (1,627) (1,749) (682) 584 (98)
Held to maturity (232) (2,732) (2,964) (1,236) (603) (1,839)
Investment securities:
Available for sale (74) 1,017 943 (37) (990) (1,027)
Held to maturity 121 (1,058) (937) (23) (382) (405)
Other interest-earning assets 38 43 81 (25) (184) (209)
------ ------- ------- ------- ------ -------
Total interest-earning assets $2,465 $(1,529) 936 $(1,810) $3,725 $ 1,915
====== ======= ------- ======= ====== -------
Interest-bearing liabilities:
Savings accounts (225) (267) (492) 21 (265) (244)
Checking accounts (289) (53) (342) (51) (66) (117)
Certificates of deposit (271) (1,441) (1,712) 132 2,134 2,266
------ ------- ------- ------- ------ -------
Total interest-bearing liabilities $ (785) $(1,761) (2,546) $ 102 $1,803 1,905
====== ======= ------- ======= ====== -------
Change in net interest income $ 3,482 $ 10
======= =======
</TABLE>
ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
QUALITATIVE ASPECTS OF MARKET RISK. The principal market risk affecting
the Company is interest rate risk. The Company does not maintain a trading
account for any class of financial instrument, and the Company
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<PAGE> 65
is not affected by foreign currency exchange rate risk or commodity price risk.
Because the Company does not hold any equity securities other than stock in the
FHLB of Cincinnati, the Company is not subject to equity price risk.
The Company, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. Interest rate risk is defined as the
sensitivity of an institution's earnings and net asset values to changes in
interest rates. As part of its efforts to monitor and manage the interest rate
risk of the Company, the Board of Directors has adopted an interest rate risk
policy which charges the Board to review quarterly reports related to interest
rate risk and to set exposure limits for the Company as a guide to senior
management in setting and implementing day to day operating strategies.
QUANTITATIVE ASPECTS OF MARKET RISK. As part of its interest rate risk
analysis, the Company uses the "net portfolio value" ("NPV") methodology adopted
by the OTS as part of its capital regulations and also considers the OTS
methodology in light of the rate shock estimates contained in the quarterly rate
shock risk reports prepared by an outside consulting firm that specializes in
interest rate risk assessments as well as the sensitivity of earnings to changes
in interest rates and the corresponding impact on net interest income.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV and net
interest income that would result from various levels of theoretical basis point
changes in market interest rates.
The Company uses a net portfolio value and earnings simulation model
prepared by a third party as its primary method to identify and manage its
interest rate risk profile. The model is based on actual cash flows and
repricing characteristics for all financial instruments and incorporates
market-based assumptions regarding the impact of changing interest rates on
future volumes and the prepayment rate of applicable financial instruments.
Assumptions based on the historical behavior of deposit rates and balances in
relation to changes in interest rates are also incorporated into the model.
These assumptions are inherently uncertain and, as a result, the model cannot
precisely measure NPV or net interest income or precisely predict the impact of
fluctuations in interest rates on net interest rate changes as well as changes
in market conditions and management strategies.
Presented below, as of December 31, 1997, is an analysis of the
Company's interest rate risk as measured by changes in NPV and net interest
income for instantaneous and sustained parallel shifts of 100 basis point
increments in market interest rates. The percentage changes fall within the
policy limits set by the Board of Directors of the Company as the maximum change
in NPV that the Board of Directors deems advisable in the event of various
changes in interest rates.
<TABLE>
<CAPTION>
NPV as % of portfolio Next 12 months
Change Net portfolio value value of assets Net interest income
in rates ------------------------------------- --------------------------- ----------------------
(Basis points) $ Amount $ Change % Change NPV Ratio Change in % $ Change % Change
-------------- -------- -------- -------- --------- ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
+400 $121,906 $(67,382) (35.60)% 12.97% (4.95)% $(4,373) (12.37)%
+300 137,047 (52,241) (27.60) 14.17 (3.75) (3,225) (9.12)
+200 154,571 (34,717) (18.34) 15.51 (2.41) (2,064) (5.84)
+100 172,673 (16,615) (8.78) 16.82 (1.10) (961) (2.72)
Static 189,288 - - 17.92 - - -
(100) 196,124 6,836 3.61 18.23 0.31 290 0.82
(200) 192,844 3,557 1.88 17.76 (0.16) (444) (1.26)
(300) 192,561 3,273 1.73 17.52 (0.40) (1,145) (3.24)
(400) 195,076 5,788 3.06 17.48 (0.44) (1,357) (3.84)
</TABLE>
As illustrated in the table, the Company's NPV is more sensitive to
increases in interest rates than to decreases. The Company's sensitivity to
increases in rates occurs principally because, as rates increase,
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<PAGE> 66
borrowers become less likely to prepay fixed-rate loans than when interest rates
are declining, and the majority of the Company's loans have fixed rates of
interest. See "THE BUSINESS OF THE COMPANY - Lending Activities." In addition,
loan demand is adversely affected by increases in interest rates. Thus, in a
rising interest rate environment, the amount of interest the Company would
receive on its loans would increase relatively slowly as loans are slowly
prepaid and new loans at higher rates are made, while the interest the Company
would pay on its deposits would increase rapidly because deposits generally have
shorter periods to repricing than loans.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the NPV approach. For example, although certain
assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Further, in the event of a change in
interest rates, expected rates of prepayment on loans and early withdrawal
levels from certificates of deposit may deviate significantly from those assumed
in making risk calculations.
The Board of Directors and management of the Company believe that
certain factors afford the Company the ability to operate successfully despite
its exposure to interest rate risk. The Company manages its interest rate risk
by maintaining capital well in excess of regulatory requirements. See "THE
BUSINESS OF THE COMPANY - Investment Activities." For the quarter ended December
31, 1997, the Company's tangible capital was 13.47% of total assets and its
liquidity ratio was 11.48%. See " - Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, primarily represented by cash and cash
equivalents, is a result of its operating, investing and financing activities.
These activities are summarized below for the years ended December 31, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net income $13,047 $ 6,631 $ 11,582
Adjustments to reconcile net income to net cash from
operating activities 136 (683) 959
------- -------- --------
Net cash from operating activities 13,183 5,948 12,541
Net cash from investing activities 47,035 (20,532) (31,814)
Net cash from financing activities (45,389) (7,562) 40,485
------- -------- --------
Net change in cash and cash equivalents 14,829 (22,146) 21,212
Cash and cash equivalents at beginning of period 19,668 41,814 20,602
------- -------- --------
Cash and cash equivalents at end of period $34,497 $ 19,668 $ 41,814
======= ======== ========
</TABLE>
The Company's principal sources of funds are deposits, loan repayments,
maturities of securities, and other funds provided by operations. The Company
also has the ability to borrow from the FHLB. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and early
loan prepayments are more influenced by interest rates, general economic
conditions and competition. The Company maintains investments in liquid assets
based upon management's assessment of (1) need for funds, (2) expected deposit
flows, (3) yields available on short-term liquid assets and (4) objectives of
the Company's asset and liability management program. At December 31, 1997,
approximately $350.0 million of the Company's certificates of deposit were
expected to mature within one year. Based on past experience and the Company's
prevailing pricing strategies, management believes that a substantial percentage
of such certificates will be renewed with the Company at maturity, although
there can be no assurance that this will occur.
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<PAGE> 67
OTS regulations presently require the Company to maintain an average
daily balance of investments in United States Treasury, federal agency
obligations and other investments in an amount equal to 4% of the sum of the
Company's average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement is intended to
provide a source of relatively liquid funds upon which the Company may rely, if
necessary, to fund loan originations, deposit withdrawals or other short-term
funding needs. On December 31, 1997, the Company had commitments to originate
mortgage loans totaling $7.7 million. Loan commitments are generally for 30
days. The Company considers its liquidity and capital reserves sufficient to
meet its outstanding short- and long-term needs.
The Company is required by OTS regulations to meet certain minimum
capital requirements, which must be generally as stringent as the requirements
established for banks. Current capital requirements call for tangible capital of
1.5% of adjusted total assets, core capital (which for the Company consists
solely of tangible capital) of 3.0% of adjusted total assets and risk-based
capital (which for the Company consists of core capital and general valuation
allowances) of 8% of risk-weighted assets (assets are weighted at percentage
levels ranging from 0% to 100% depending on their relative risk). The OTS has
proposed to amend the core capital requirement so that those banks that do not
have the highest examination rating and an acceptable level of risk will be
required to maintain core capital of from 4% to 5%, depending on the
institution's examination rating and overall risk. The Company does not
anticipate that it will be adversely affected if the core capital requirements
are amended as proposed.
The following table summarizes the Company's regulatory capital
requirements and actual capital at December 31, 1997.
<TABLE>
<CAPTION>
Excess of actual capital
Actual capital Current requirement over current requirement Applicable
------------------------ ---------------------- ---------------------- asset
Amount Percent Amount Percent Amount Percent total
----- ------- ------ ------- ------ ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $140,636 13.47% $15,661 1.50% $124,975 11.97% $1,044,069
Core capital 140,636 13.47 31,322 3.00 109,314 10.47 1,044,069
Risk-based capital 146,461 28.85 40,619 8.00 105,842 20.85 507,736
</TABLE>
At December 31, 1997, the Company had no material commitments for
capital expenditures.
IMPACT OF RECENT ACCOUNTING STANDARDS
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure compensation cost of all employee
stock compensation plans based on the estimated fair value of the award at the
date it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting
method are required to disclose in a footnote to the financial statements pro
forma net income and, if presented, earnings per share, as if this statement had
been adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995;
however, companies are required to disclose information for awards granted in
their first fiscal year beginning after December 15, 1994. Management of the
Company has not completed an analysis of the potential effects of SFAS No. 123
on its financial condition or results of operations, but expects to use the
intrinsic value method upon consummation of the Conversion.
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<PAGE> 68
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. SFAS No. 125 applies prospectively to
transactions occurring after December 31, 1996, and establishes new standards
that focus on control whereas, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The adoption of SFAS No. 125 did
not have a material impact on the Company's results of operations or financial
position.
DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF SFAS NO. 125.
In December 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125." SFAS No. 127 defers for one year the effective date of portions of
SFAS No. 125 that address secured borrowings and collateral for all
transactions. Additionally, SFAS No. 127 defers for one year the effective date
of transfers of financial assets that are part of repurchase agreements,
securities lending and similar transactions.
EARNINGS PER SHARE. SFAS No. 128, "Earnings Per Share," standardizes
the international calculation for earnings per share and requires companies with
complex capital structures that have publicly held common stock or potential
common stock to present both basic and diluted earnings per share on the face of
the income statement. SFAS No. 128 became effective for periods ending after
December 15, 1997.
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify terms of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassifications of financial statements for earlier periods provided for
comprehensive purposes is required.
SEGMENT INFORMATION. SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" establishes standards for the way public
business enterprises report information about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Information required to be disclosed includes segment
profit or loss, certain specific revenue and expense items, segment assets and
certain other information. SFAS No. 131 is effective for the Holding Company for
financial statements issued for the fiscal year ending December 31, 1998.
PENSION AND POSTRETIREMENT DISCLOSURES. In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 132 standardizes the disclosures for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer as useful as they were when SFAS No. 87, "Employers' Accounting
for Pensions," SFAS No. 88, "Employers' Accounting for the Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
SFAS No. 106, "Employers Accounting for Postretirement benefits Other than
Pensions," were issued. SFAS No. 132 suggests combined formats for presentation
of pension and other postretirement benefit disclosures. SFAS No. 132 does not
change
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<PAGE> 69
the measurement or recognition of those plans. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. Restatements of disclosures for
earlier periods provided for comparative purposes is required. Management does
not believe the adoption of SFAS No. 132 will have a material impact on the
Company's financial condition and results on operations.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and notes included herein have been prepared
in accordance with GAAP. GAAP requires the Company to measure financial position
and operating results primarily in terms of historic dollars. Changes in the
relative value of money due to inflation or recession are generally not
considered.
In management's opinion, changes in interest rates affect the financial
condition of the Company to a far greater degree than changes in the inflation
rate. While interest rates are greatly influenced by changes in the inflation
rate, they do not change at the same rate or in the same magnitude as the
inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
THE BUSINESS OF THE COMPANY
GENERAL
The Company is a mutual savings and loan association which was
organized under Ohio law in 1889 as "The Home Building and Loan." In 1897, the
name of the Company was changed to "The Home Savings and Loan Company of
Youngstown, Ohio." As an Ohio savings and loan association, the Company is
subject to supervision and regulation by the OTS, the Division and the FDIC. The
Company is a member of the FHLB of Cincinnati, and the deposits of the Company
are insured up to applicable limits by the FDIC in the SAIF. See "REGULATION."
The Company conducts business from its main office located in
Youngstown, Ohio and 13 full-service branches, located in the Northern Ohio
communities of Austintown, Boardman, Canfield, Columbiana, East Palestine,
Liberty, Lisbon, Niles, Poland, Salem and Struthers. The principal business of
the Company is the origination of mortgage loans on one- to four-family
residential real estate located in the Company's primary market area, which
consists of northern Columbiana County, Mahoning County and southern Trumbull
County. The Company also originates loans secured by nonresidential real estate
in its primary market area. In addition to real estate lending, the Company
originates commercial loans and various types of consumer loans, including home
equity loans, education loans, loans secured by savings accounts and motor
vehicles and unsecured loans. See "Lending Activities." The Company invests in
interest-bearing deposits in other financial institutions, federal funds and
U.S. Treasury and agency securities. See "Investment Activities." Funds for
lending and other investment activities are obtained primarily from savings
deposits, which are insured up to applicable limits by the FDIC in the SAIF,
principal repayments of loans and maturities of securities. See "Deposits and
Borrowings."
Interest on loans and other investments is the Company's primary source
of income. The Company's principal expense is interest paid on deposit accounts.
Operating results are dependent to a significant degree on the net interest
income of the Company, which is the difference between interest earned on loans
and other investments and interest paid on deposits. Like most thrift
institutions, the Company's interest income and interest expense are
significantly affected by general economic conditions and by the policies of
various regulatory authorities. See "RISK FACTORS - Interest Rate Risk" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Asset and Liability Management."
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<PAGE> 70
PRIMARY MARKET AREA
The Company's primary market area for lending and deposits is Mahoning
County, Ohio, and adjacent areas in southern Trumbull County and northern
Columbiana County. The Company operates nine full service offices in Mahoning
County, three full service offices in northern Columbiana County and two full
service offices in southern Trumbull County. The Company's main office is
located in Youngstown, Ohio, which is the county seat of Mahoning County.
Youngstown is approximately 75 miles northwest of Pittsburgh, Pennsylvania and
75 miles southeast of Cleveland, Ohio.
Mahoning, Columbiana and Trumbull Counties have higher unemployment
rates than either Ohio or the United States. Mahoning County's unemployment rate
declined, however, from 6.1% in 1995 to 5.8% in 1996, compared to 4.3% for the
state and 5% for the United States, and was 5.8% through the first 11 months of
1997. The unemployment rates for Columbiana and Trumbull Counties were 5.2% and
5.1%, respectively, through the first 11 months of 1997. The population of the
counties in the Company's primary market area decreased 0.3% from 432,851 in
1990 to 431,488 in 1996, while the population of Mahoning County decreased 1.3%
from 264,806 to 261,277. Median household income in the Company's primary market
area and Mahoning County rose approximately 7.5% and 10.2%, respectively, from
1990 to 1996, but still trailed the Ohio median by approximately $4,700 and
$6,400, respectively, in 1996. According to the Youngstown/Warren Regional
Chamber of Commerce, major employers in the Company's primary market area
include Delphi Packard Electric Systems, General Motors and HM Health Services.
The Company faces intense competition from many financial institutions
for deposits and loan originations. See "- Competition" and "RISK FACTORS -
Competition in Primary Market Area."
LENDING ACTIVITIES
GENERAL. The Company's principal lending activity is the origination of
conventional real estate loans secured by one- to four-family residences located
in the Company's primary market area. The Company also originates loans secured
by multifamily and nonresidential real estate and originates loans for the
construction of one- to four-family residences, multifamily properties and
nonresidential real estate projects. In addition to real estate lending, the
Company originates various types of consumer credits, including home equity
loans, education loans, loans secured by savings accounts, motor vehicles, boats
and recreational vehicles, unsecured loans and loans for commercial business
purposes.
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<PAGE> 71
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information regarding the composition of the Company's loan portfolio at the
dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Percent of Percent of Percent of
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Permanent
One- to four-family $489,677 74.19% $482,089 75.23% $428,213 75.39%
Multifamily 8,944 1.36 8,778 1.37 16,042 2.82
Nonresidential 33,479 5.07 35,315 5.51 36,845 6.48
Land 285 0.04 195 0.03 1,280 0.23
-------- ------ -------- ------ -------- ------
Total permanent 532,385 80.66 526,377 82.14 482,380 84.92
Construction loans:
One- to four-family 24,044 3.64 27,610 4.31 19,804 3.49
Multifamily 325 0.05 490 0.08 597 0.11
-------- ------ -------- ------ -------- ------
Total construction 24,369 3.69 28,100 4.39 20,401 3.60
-------- ------ -------- ------ -------- ------
Total real estate loans 556,754 84.35 554,477 86.53 502,781 88.52
Consumer loans
Home equity 17,097 2.59 14,581 2.28 11,439 2.01
Auto 2,457 0.37 3,486 0.54 4,582 0.81
Education 3,479 0.53 2,701 0.42 2,788 0.49
Other (1) 20,355 3.08 18,837 2.94 17,384 3.06
-------- ------ -------- ------ -------- ------
Total consumer 43,388 6.57 39,605 6.18 36,193 6.37
Commercial loans 59,897 9.08 46,742 7.29 29,043 5.11
-------- ------ -------- ------ -------- ------
Total loans 660,039 100.00% 640,824 100.00% 568,017 100.00%
====== ====== ======
Less net items 26,803 23,901 21,328
-------- -------- --------
Total loans, net $633,236 $616,923 $546,689
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1994 1993
---- ----
Percent of Percent of
Amount total loans Amount total loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Real estate loans:
Permanent
One- to four-family $386,663 73.72% $346,183 73.12%
Multifamily 14,838 2.83 17,067 3.60
Nonresidential 43,235 8.24 47,482 10.03
Land 1,666 0.32 1,208 0.26
-------- ------ -------- ------
Total permanent 446,402 85.11 411,940 87.01
Construction loans:
One- to four-family 18,200 3.47 15,286 3.23
Multifamily 994 0.19 56 0.01
-------- ------ -------- ------
Total construction 19,194 3.66 15,342 3.24
-------- ------ -------- ------
Total real estate loans 465,596 88.77 427,282 90.25
Consumer loans
Home equity 11,265 2.15 11,613 2.45
Auto 2,339 0.45 1,931 0.41
Education 2,217 0.42 2,130 0.45
Other (1) 15,907 3.03 12,002 2.54
-------- ------ -------- ------
Total consumer 31,728 6.05 27,676 5.85
Commercial loans 27,165 5.18 18,476 3.90
-------- ------ -------- ------
Total loans 524,489 100.00% 473,434 100.00%
====== ======
Less net items 21,076 20,510
-------- --------
Total loans, net $503,413 $452,924
======== ========
</TABLE>
- ----------------------------
(1) Consists of overdraft protection loans and loans to individuals secured
by demand accounts, deposits, automobiles and one- to four-family
residences.
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<PAGE> 72
LOAN MATURITY. The following table sets forth certain information as of
December 31, 1997, regarding the dollar amount of loans maturing in the
Company's portfolio based on their contractual terms to maturity. Demand loans
and other loans having no stated schedule of repayments or no stated maturity
are reported as due in one year or less. Mortgage loans originated by the
Company generally include due-on-sale clauses that provide the Company with the
contractual right to deem the loan immediately due and payable in the event the
borrower transfers the ownership of the property without the Company's consent.
The table does not include the effects of possible prepayments or scheduled
repayments.
<TABLE>
<CAPTION>
Principal repayments contractually due in the years ended December 31,
2001 - 2003 - 2008 - 2013 and
1998 1999 2000 2002 2007 2012 thereafter Total
---- ---- ---- ------ ------ ------ ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans (1) $52,422 $24,915 $26,051 $54,552 $145,315 $90,749 $129,271 $523,275
Nonresidential real estate
loans 2,078 2,217 2,038 4,301 14,649 8,088 108 33,479
Commercial loans 16,380 5,360 3,886 6,598 12,883 11,967 2,823 59,897
Consumer loans 8,505 5,237 4,137 6,935 16,454 1,132 988 43,388
------- ------- ------- ------- -------- -------- -------- --------
Totals $79,385 $37,729 $36,112 $72,386 $189,301 $111,936 $133,190 $660,039
======= ======= ======= ======= ======== ======== ======== ========
</TABLE>
- -------------------
(1) Includes permanent and construction loans for one- to four-family and
multi-family properties and land loans.
The next table sets forth the dollar amount of all loans due after
December 31, 1998, which have predetermined interest rates and have floating or
adjustable interest rates:
Due after December 31, 1998
---------------------------
(In thousands)
Fixed rate of interest $423,877
Adjustable rate of interest 156,777
--------
$580,654
========
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. The principal lending
activity of the Company is the origination of conventional loans secured by
first mortgages on one- to four-family residences, primarily single-family
homes, located within the Company's primary market area. At December 31, 1997,
the Company's one- to four-family residential real estate loans totaled
approximately $489.7 million, or 74.2% of total loans. At December 31, 1997,
$5.5 million of the Company's one- to four-family loans were nonperforming.
OTS regulations and Ohio law limit the amount which the Company may
lend in relationship to the appraised value of the real estate and improvements
which will secure the loan at the time of loan origination. In accordance with
such regulations, the Company makes loans on one- to four-family residences of
up to 90% of the value of the real estate and improvements thereon (the "LTV"),
though the majority of such loans have LTVs of 80% or less. Loans on
single-family, owner-occupied residences located in low-to-moderate income
census track locations are granted up to 95% LTV; although the Company
self-insures the portion of the principal amount that exceeds 80% of the
appraised value of the property securing the loan. The City of Youngstown and
Columbiana County have been designated as low- to-moderate income census tracks.
The Company currently offers fixed-rate mortgage loans and
adjustable-rate mortgage loans ("ARMs") for terms of up to 30 years. Although
the Company's loan portfolio includes a significant amount of 30-year fixed-rate
loans, most loans currently originated by the Company are 15-year fixed-rate
loans. The interest rate
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<PAGE> 73
adjustment periods on ARMs are typically one or three years. The maximum
interest rate adjustment on most of the ARMs is 2% on any adjustment date and a
total of 6% over the life of the loan. The interest rate adjustments on one-year
and three-year ARMs presently offered by the Company are indexed to the weekly
average rate on the one-year and three-year U.S. Treasury securities,
respectively. Rate adjustments are computed by adding a stated margin, typically
2.75%, to the index. The Company does not offer ARMs to borrowers on one- to
four-family residences with LTVs of 95%.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. Based upon
current market conditions, the Company estimates that as much as 90% of recent
loan originations consisted of fixed-rate loans.
The Company issues standby loan origination commitments to qualified
borrowers primarily for the purchase of single-family residential real estate.
Such commitments are made on specified terms and conditions and are made for
periods of up to 60 days, during which time the interest rate is locked in.
The Company has purchased interests in loans at times when there was
low demand in the Company's primary market area; however, the Company has not
purchased interests in one- to four-family loans during the past 10 years. The
Company's loan portfolio includes 252 participation interests in several groups
of single-family loans located within and outside of the Company's primary
lending area. At December 31, 1997, the outstanding balance of participation
loans purchased, which is included in the one- to four-family loan portfolio,
was $4.9 million, or 1.0% of the Company's total one- to four-family loan
portfolio.
LOANS SECURED BY MULTIFAMILY RESIDENCES. The Company originates loans
secured by multifamily properties which contain more than four units, although
this is not a significant aspect of the Company's lending activities.
Multifamily loans are offered with adjustable rates of interest, which adjust
according to their index, and typically have terms ranging from five to ten
years and LTVs of up to 75%.
Multifamily lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower. The Company attempts to reduce the risk associated with
multifamily lending by evaluating the creditworthiness of the borrower and the
projected income from the project and by obtaining personal guarantees on loans
made to corporations and partnerships. The Company requires borrowers to agree
to submit financial statements annually to enable the Company to monitor the
loan and requires an assignment of rents.
At December 31, 1997, loans secured by multifamily properties totaled
approximately $8.9 million, or 1.4% of total loans. The largest loan had a
principal balance of $1.5 million and was secured by a first mortgage on an
apartment building and real estate.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE. The Company originates
loans for the purchase of nonresidential real estate. The Company's
nonresidential real estate loans have adjustable rates, terms of up to 20 years
and generally LTVs of up to 80%. Rate adjustments on ARMs secured by
nonresidential real estate are determined by adding 3.5% to the current one-,
three- and five-year U.S. Treasury indexes. Among the properties securing the
Company's nonresidential real estate loans are shopping centers, hotels, motels
and freezer warehouses. The majority of such properties are located outside of
the Company's primary lending area. The Company has been involved for over 20
years in freezer warehouse financing through a Youngstown area real estate
developer who specializes in the construction of freezer facilities.
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<PAGE> 74
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Company has endeavored to reduce
such risk by requiring personal guarantees and evaluating the credit history of
the borrower, the location of the real estate, the financial condition of the
borrower, the quality and characteristics of the income stream generated by the
property and the appraisals supporting the property's valuation. At December 31,
1997, the Company's largest loan secured by nonresidential real estate was a
participation with a $7.1 million balance and such loan was performing according
to its terms.
At December 31, 1997, approximately $33.4 million, or 5.1%, of the
Company's total loans were secured by mortgages on nonresidential real estate.
CONSTRUCTION LOANS. The Company makes loans for the construction of
one- to four-family residences, multifamily properties and nonresidential real
estate projects. Residential construction loans are made to both owner-occupants
and to builders on a speculative or not pre-sold basis. Construction loans to
owner-occupants are structured as permanent loans with fixed or adjustable rates
of interest and terms of up to 30 years. During the first year, while the
residence is being constructed, the borrower is required to pay interest only at
a fixed rate. Construction loans for one- to four-family residences have LTVs of
up to 80%, and construction loans for commercial, multifamily and nonresidential
properties have LTVs of up to 75%, with the value of the land included as part
of the owner's equity. At December 31, 1997, the Company had approximately $24.7
million, or 3.7% of its total loans, invested in construction and land loans,
including $24.0 million in one- to four-family residential construction and
approximately $600,000 in multifamily construction and land loans. No commercial
construction loans were outstanding at that date.
Approximately 50% of the Company's construction loans to builders are
made on a speculative (unsold) basis. The Company, however, generally limits
speculative loans to builders with whom the Company has a long-standing
relationship and limits the number of outstanding loans on unsold homes under
construction within a specific area.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties because
construction loans are more difficult to appraise and to monitor. Loan funds are
advanced upon the security of the project under construction, which is more
difficult to value before the completion of construction. Moreover, because of
the uncertainties inherent in estimating construction costs, it is not always
possible to evaluate accurately the LTVs and the total loan funds required to
complete a project. In the event a default on a construction loan occurs and
foreclosure follows, the Company must take control of the project and attempt
either to arrange for completion of construction or dispose of the unfinished
project.
The Company also originates a limited number of loans secured by vacant
land for the construction of single-family houses. The Company's land loans are
generally fixed-rate loans for terms up to five years and require an LTV of 75%
or less. At December 31, 1997, approximately $285,000, or .04%, of the Company's
total loans were secured by land loans made to developers and to individuals
intending to construct and occupy single-family residences on the properties.
COMMERCIAL LOANS. The Company makes commercial loans to businesses in
its primary market area, including traditional lines of credit, revolving lines
of credit, term loans and acquisition and development loans. The LTV ratios for
commercial loans depend upon the nature of the underlying collateral, but
generally commercial loans are made with LTVs of 70 to 75% and have adjustable
interest rates. Lines of credit and revolving credits are generally priced on an
adjustable rate basis, which is tied to the Prime Rate or U.S. Treasury bill
rate. Term and time loans are usually adjustable, but can have fixed rates of
interest and terms from one to five years.
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<PAGE> 75
At December 31, 1997, the Company had approximately $59.9 million, or
9.1% of total loans, invested in commercial loans. The majority of these loans
are secured by a security interest in inventory, accounts receivable, machinery,
investment property, vehicles or other assets of the borrower. The Company also
originates unsecured commercial loans, including lines of credit for periods of
less than 12 months, short-term loans and, occasionally, term loans for periods
of up to 36 months. These loans are underwritten based on the credit-worthiness
of the borrowers and the guarantors. As a result of the addition of experienced
loan personnel and the implementation of enhanced underwriting procedures, the
Company intends to increase its unsecured commercial loan volume in the future.
Commercial loans are generally deemed to entail significantly greater
risk than real estate lending. The repayment of commercial loans is typically
dependent on the income stream and successful operation of a business, which can
be affected by economic conditions. The collateral for commercial loans, if any,
often consists of rapidly depreciating assets. At December 31, 1997, $2.1
million of the Company's commercial loans were nonperforming.
During 1997, the Company hired two commercial loan officers with
extensive experience in the origination of commercial loans. As a result, the
Company anticipates an increase in its commercial loan portfolio in the future.
CONSUMER LOANS. The Company originates various types of consumer credit
loans, including home equity loans, education loans, loans secured by savings
accounts and motor vehicles and unsecured loans. Consumer loans are made at
fixed and adjustable rates of interest and for varying terms based on the type
of loan. Consumer loans secured by a deposit or savings account are made for up
to 90% of the principal balance of the account and generally have adjustable
rates which adjust based on the weekly average yield on U.S. Treasury securities
plus a margin.
For new automobiles, loans are originated for up to 90% of the value of
the car with terms of up to five years, and for used automobiles, loans are made
for up to the average value of the car model and a term of three years. All
automobile loans are originated directly by the Company. At December 31, 1997,
automobile loans amounted to $2.5 million, or 5.7%, of the Company's consumer
loan portfolio.
The Company makes closed-end home equity loans in an amount which, when
added to the prior indebtedness secured by the real estate, does not exceed 90%
of the estimated value of the real estate. Home equity loans are typically
secured by a second mortgage on the real estate. The Company frequently holds
the first mortgage, although the Company will make home equity loans in cases
where another lender holds the first mortgage. The Company also offers home
equity loans with a line of credit feature. Home equity loans are made with
adjustable and fixed rates of interest. Fixed-rate home equity loans have terms
of ten years but can be called after five years. Rate adjustments on adjustable
home equity loans are determined by adding a 3% margin for loans on one- to
four-family residences of up to 80% LTV or by adding a 4% margin for loans on
one- to four-family residences of up to 90% LTV to the one-year U.S. Treasury
index. At December 31, 1997, approximately $17.1 million, or 39.4%, of the
Company's consumer loan portfolio consisted of home equity loans.
Consumer loans may entail greater credit risk than do residential
mortgage loans. The risk of default on consumer loans increases during periods
of recession, high unemployment, and other adverse economic conditions. Although
the Company has not had significant delinquencies on consumer loans, no
assurance can be provided that delinquencies will not increase. At December 31,
1997, $404,000 of the Company's consumer loans were nonperforming.
-47-
<PAGE> 76
At December 31, 1997, the Company had approximately $43.4 million, or
6.6% of its total loans, invested in consumer loans. The Company anticipates a
moderate increase in its consumer loan portfolio in the future as a result of
increased cross-selling efforts to existing customers.
LOAN SOLICITATION AND PROCESSING. The lending activities of the Company
are subject to the written, non-discriminatory underwriting standards and loan
origination procedures established by the Company's Board of Directors. Loan
originations are generally obtained from existing customers and members of the
local community and from referrals from real estate brokers, lawyers,
accountants, and current and former customers. The Company also advertises in
the local print media, radio and television.
Each of the Company's 14 offices has loan personnel who can accept loan
applications, which are then forwarded to the Company's Underwriting Department
for processing and approval. In underwriting real estate loans, the Company
typically obtains a credit report, verification of employment and other
documentation concerning the creditworthiness of the borrower. An appraisal of
the fair market value of the real estate that will be given as security for the
loan is prepared by one of the Company's in-house licensed appraisers or an
approved fee appraiser. For certain large nonresidential real estate loans, the
appraisal will be conducted by an outside fee appraiser whose report is reviewed
by the Company's chief appraiser. Upon the completion of the appraisal and the
receipt of information on the credit history of the borrower, the application
for a loan is submitted for review to the appropriate persons. Loans up to
$100,000 require two approvals, and loans up to $200,000 require three
approvals, from members of the Company's underwriting staff, the Senior Loan
Officer, the Lending Operations Officer or any other senior officer of the
Company. Commercial loans up to $200,000 may be approved by one of the Company's
commercial loan officers. Loans of $200,000 or more but less than $1.0 million
must be approved by two members of the Underwriting Department, the Senior Loan
Officer or the Lending Operations Officer and any two of the following officers:
the President, the Chief Financial Officer, the Senior Vice President of Retail
Banking or the Vice President of Facilities Management. In addition to the
approval by the officers described above, loans for over $1.0 million require
the prior approval of a majority of the outside directors of the Company.
Borrowers are required to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name the Company as an
insured mortgagee. The Company generally obtains an attorney's opinion of title,
although title insurance may be obtained on larger nonresidential real estate
loans.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. The
Company also evaluates the feasibility of the proposed construction project and
the experience and record of the builder. Once approved, the construction loan
is disbursed in installments based upon periodic inspections of construction
progress.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan, and the value of the collateral, if any.
LOAN ORIGINATIONS AND PURCHASES. Historically, the Company has
originated substantially all of the loans in its portfolio and has held them
until maturity. Nevertheless, the Company's residential loans are generally made
on terms and conditions and documentation which conform to the secondary market
guidelines for sale to the Federal Home Loan Mortgage Corporation (the "FHLMC")
and other institutional investors in the secondary market. Education loans are
sold, once the borrower has graduated, to the Student Loan Marketing
Association. The Company does not originate first mortgage loans insured by the
Federal Housing Authority or guaranteed by the Veterans Administration, but it
has purchased such loans as well as participation interests in such loans.
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<PAGE> 77
The Company has not sold any loans during the years ended December 31,
1997, 1996 and 1995. The following table presents the Company's total loan
origination and repayment activity for the years indicated:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans originated:
Real estate:
Permanent:
One- to four-family $ 68,303 $129,074 $ 89,869
Multifamily - 225 90
Nonresidential 218 136 312
-------- -------- --------
Total permanent 68,521 129,435 90,271
Construction:
One- to four-family 25,440 26,545 23,698
Multifamily 1,390 740 1,220
Nonresidential - - -
-------- -------- --------
Total construction 26,830 27,285 24,918
-------- -------- --------
Total real estate loans originated 95,351 156,720 115,189
Consumer 17,038 16,199 16,037
Commercial 20,968 21,731 11,553
-------- -------- --------
Total loans originated 133,357 194,650 142,779
Loans purchased 116 24 4,024
-------- -------- --------
Total loans originated and purchased 133,473 194,674 146,803
Principal repayments 119,120 125,550 105,413
-------- -------- --------
Increase in loan originations before net items $ 14,353 $ 69,124 $ 41,390
======== ======== ========
</TABLE>
At December 31, 1997, the Company had $7.7 million of outstanding
commitments to originate loans and $19.1 million available to borrowers under
consumer and commercial lines of credit. At December 31, 1997, the Company had
$8.2 million in undisbursed funds related to construction loans in process.
LOAN ORIGINATION AND OTHER FEES. The Company realizes loan origination
fees and other fee income from its lending activities. A fee of two percent of
the loan amount, up to $1,000, is charged for fixed-rate residential real estate
loans and the Company charges an origination fee of two percent of the loan
amount, up to $850, for adjustable-rate residential real estate loans. Loan
origination fees for nonresidential real estate loans and commercial loans are
negotiated on an individual basis. In addition, the Company realizes income from
late payment charges and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91 as
an adjustment to yield for the life of the related loan.
LOANS TO ONE BORROWER LIMITS. OTS regulations generally limit the
aggregate amount that a savings association may lend to any one borrower to an
amount equal to 15% of the Company's unimpaired capital and unimpaired surplus
(the "Lending Limit Capital"). A savings association may lend to one borrower an
additional amount not to exceed 10% of the Company's Lending Limit Capital if
the additional amount is fully secured by certain forms of "readily marketable
collateral." Real estate is not considered "readily marketable collateral." In
applying this limit, the regulations require that loans to certain related or
affiliated borrowers be aggregated.
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<PAGE> 78
Based on such limits, the Company could lend approximately $21.0
million to any one borrower at December 31, 1997. The largest amount the Company
had outstanding to one borrower at December 31, 1997, was $15.2 million, which
consisted of four loans, secured by first mortgage liens on freezer warehouses.
At December 31, 1997, such loans were performing in accordance with their terms.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. The
Company attempts to maintain a high level of asset quality through sound
underwriting policies and aggressive collection practices.
At the beginning of each month, the Collections Department of the
Company receives a report on all delinquent loans, and Company personnel
telephone the delinquent borrowers and mail delinquency notices. When a loan
payment has not been made by the fifteenth of the month, a late notice is sent
and a penalty of five percent of the payment due is assessed. Once a loan is 60
days delinquent, a second notice is sent and the Collections Department contacts
the borrower by telephone. The Collections Department will generally continue to
attempt to bring the loan current through telephone calls or personal visits
until the loan has been delinquent 90 to 120 days. If the loan has not been
brought current by the 120th day, a member of the Collections Department will
present the loan to the Company's Pre-Foreclosure Committee which meets weekly.
If the Pre-Foreclosure Committee agrees to recommend the commencement of
foreclosure proceedings, the loan is presented to the Executive Committee of the
Board, which normally refers the loan to the Company's in-house legal staff. A
decision as to whether and when to initiate foreclosure proceedings is based on
such factors as the amount of the outstanding balance in relation to the
original indebtedness, the extent of the delinquency, the borrower's ability and
willingness to cooperate in curing the delinquency and any environmental issues
that may need to be addressed.
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1997 1996
------------------------------------ ----------------------------------
Percent of Percent of
total total
Number Amount loans Number Amount loans
------ ------ ---------- ------ ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 242 $ 6,895 1.09% 228 $ 7,269 1.18%
60-89 days 132 4,415 .70 117 2,760 .45
90 days or over 298 9,491 1.50 326 9,114 1.48
--- ------- ---- --- ------- ----
Total delinquent loans 672 $20,801 3.29% 671 $19,143 3.11%
=== ======= ==== === ======= ====
</TABLE>
Nonperforming assets include nonaccruing loans, restructured loans,
real estate acquired by foreclosure or by deed-in-lieu thereof, in-substance
foreclosures and repossessed assets.
Loans are reviewed through monthly reports to the Board or weekly
reports to senior management and are placed on nonaccrual status when collection
in full is considered doubtful by management. Interest accrued and unpaid at the
time a loan is placed on nonaccrual status is charged against interest income.
Subsequent cash payments are generally applied to interest income unless, in the
opinion of management, the collection of principal and interest is doubtful. In
those cases, subsequent cash payments would be applied to principal.
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<PAGE> 79
The following table sets forth information with respect to the
Company's nonperforming loans and other assets at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans
Real estate loans:
One- to four-family $ 5,540 $5,343 $3,542 $3,491 $ 3,842
Multifamily and nonresidential 649 704 1,082 104 73
Construction (net of LIP) and land 769 491 7 - -
------- ------ ------ ------ -------
Total real estate loans 6,958 6,538 4,631 3,595 3,915
Consumer 404 517 298 274 311
Commercial 2,129 2,059 260 219 317
------- ------ ------ ------ -------
Total nonaccrual loans 9,491 9,114 5,189 4,088 4,543
Restructured real estate loans 644 698 891 2,681 4,698
------- ------ ------ ------ -------
Total nonperforming loans 10,135 9,812 6,080 6,769 9,241
Real estate acquired through foreclosure and other
repossessed assets 55 29 46 1,570 2,245
------- ------ ------ ------ -------
Total nonperforming assets $10,190 $9,841 $6,126 $8,339 $11,486
======= ====== ====== ====== =======
Nonperforming loans as a percent of total loans 1.60% 1.59% 1.11% 1.34% 2.04%
Nonperforming assets as a percent of total assets 0.98 0.92 0.57 0.82 1.14
Allowance for loan losses as a percent of
nonperforming loans 59.02 51.37 84.18 75.51 58.40
Allowance for loan losses as a percent of total loans
before allowance 0.94 0.81 0.93 1.01 1.18
</TABLE>
For 1997, approximately $585,000 in interest income would have been
recorded had nonaccruing and restructured loans been accruing pursuant to
contractual terms. During 1997 interest collected on such loans and included in
net income was approximately $544,000.
Between 1995 and 1996, the Company experienced an increase of $3.9
million in nonaccrual loans. Approximately $1.9 million of the increase occurred
in the real estate loan portfolio, particularly one- to four-family loans and
construction loans, and $1.8 million occurred in the commercial loan portfolio.
The increase in nonaccrual loans is partly attributable to growth in the one- to
four-family, construction and commercial segments of the Company's loan
portfolio. Another factor contributing to the increase in nonaccrual real estate
loans was a change in the Company's data processing systems, which resulted in a
new methodology in identifying delinquent loans. Due to timing differences in
interpreting data under the Company's old data processing system, loans which
became 90 days delinquent during the month were, in many cases, not included in
the 90 day category of delinquency reports until the end of the subsequent
month, resulting in an underreporting of delinquent loans prior to 1996. The
increase in nonaccrual commercial loans relates to five loans, the largest of
which had a principal balance of $800,000. Because repayment in full is
anticipated on all of the nonaccrual commercial loans, no write-downs have been
charged against the loans. Nonaccrual loans stabilized substantially from 1996
to 1997.
Real estate acquired in settlement of loans is classified separately on
the balance sheet at fair value as of the date of acquisition. After
foreclosure, the loan is written down to the value of the underlying collateral
by a charge to the allowance for loan losses, if necessary. Any subsequent
write-downs are charged against operating expenses. Operating expenses of such
properties, net of related income or loss on disposition, are included in other
expenses. At December 31, 1997, the carrying value of real estate acquired in
settlement of loans was $55,213, and consisted of four single-family properties.
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<PAGE> 80
The Company classifies its assets, excluding loans in its commercial
loan portfolio, in accordance with federal regulations. Problem assets are
classified as "special mention", "substandard," "doubtful" or "loss."
"Substandard" assets have one or more defined weaknesses and are characterized
by the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected. "Doubtful" assets have the same weaknesses as
"substandard" assets, with the additional characteristics that (i) the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values, questionable and (ii) there is a high
possibility of loss. An asset classified "loss" is considered uncollectible and
of such little value that its continuance as an asset of the Company is not
warranted. Federal regulations also contain a "special mention" category,
consisting of assets which do not currently expose an institution to a
sufficient degree of risk to warrant classification but which possess credit
deficiencies or potential weaknesses deserving management's close attention.
The Company classifies its commercial loans on a periodic basis, not
less often than quarterly, according to a nine-level risk rating system that
includes, in addition to the "substandard," "doubtful" and "loss," categories
discussed above, further classifications of "prime," "good," "satisfactory,"
"fair," "watch" and "uncertain."
Commercial loans that are classified "prime," "good," "satisfactory" or
"fair" possess levels of risk, if any, which are generally acceptable to the
Company. "Watch" assets are the equivalent of "special mention" assets discussed
above and a loan which is classified as "unknown" represents a loan for which
there is insufficient current information on the borrower to evaluate the
primary source of payment. A loan may only be maintained as "unknown" for 90
days while additional information is obtained, subject to one 90-day extension
by the Commercial Loan Manager or a higher level officer.
The aggregate amounts of the Company's classified assets at the dates
indicated were as follows:
At December 31,
--------------------------
1997 1996
---- ----
(In thousands)
Classified assets:
Substandard $9,188 $9,205
Doubtful - -
Loss 151 251
------- -------
Total classified assets $9,339 $9,456
====== ======
The Company analyzes each classified asset on a quarterly basis to
determine whether changes in the classifications are appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of, and the reasons for, any delinquency, the use of the real estate
securing the loan, the financial condition of the borrower, and the appraised
value of the real estate. As such factors change, the classification of the
asset will change accordingly.
The Company establishes a general allowance for loan losses for any
loan classified as special mention, substandard or doubtful. If an asset, or
portion thereof, is classified as loss, the Company establishes a specific
allowance for loss in the amount of 100% of the portion of the asset classified
loss or charges off the portion of any real estate loan deemed to be
uncollectible.
ALLOWANCE FOR LOAN LOSSES. Management reviews on a quarterly basis the
allowance for loan losses as it relates to a number of relevant factors,
including, but not limited to, growth and changes in the composition of the loan
portfolio, trends in the level of delinquent and problem loans, current and
anticipated economic conditions in the primary lending area, past loss
experience, and possible losses arising from specific problem assets.
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<PAGE> 81
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net income could be significantly affected if
circumstances differ substantially from the assumptions used in making the final
determination. In addition, the Company's determination as to the amount of its
allowance for loan losses is subject to review by the OTS, as part of its
examination process, which may result in the establishment of an additional
allowance based upon the judgment of the OTS after a review of the information
available at the time of the OTS examination.
The following table sets forth an analysis of the Company's allowance
for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 5,040 $5,118 $5,111 $5,397 $4,797
(Recovery of) provision for loan loss
allowances (1,546) - - (100) 535
Charge-offs:
Real estate (403) (28) (373) (170) (43)
Consumer (43) (57) (21) (16) (43)
Commercial - - - (60) -
------- ------ ------ ------ ------
Total charge-offs (446) (85) (394) ( 246) (86)
------- ------ ------ ------ ------
Recoveries:
Real estate 2,930 4 365 52 146
Consumer 4 3 10 8 5
Commercial - - 26 - -
------- ------ ------ ------ ------
Total recoveries 2,934 7 401 60 151
------- ------ ------ ------ ------
Net recoveries (charge-offs) 2,488 (78) 7 (186) 65
------- ------ ------ ------ ------
Balance at end of year $ 5,982 $5,040 $5,118 $5,111 $5,397
======= ====== ====== ====== ======
Ratio of net recoveries (charge-offs)
to average net loans 0.40% (0.01)% 0.00% (0.04)% 0.02%
Ratio of net recoveries (charge-offs) to
(recovery of) provision for loan loss
allowances 160.93% N/A N/A (186.00)% 12.15%
</TABLE>
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<PAGE> 82
The following table sets forth the allocation of the allowance for loan
losses by category. The allocations are based on management's assessment of the
risk characteristics of each of the components of the total loan portfolio and
is subject to changes as and when the risk factors of each such component
change. The allocation is not indicative of either the specific amounts or the
loan categories in which future charge-offs may be taken, nor should it be taken
as an indicator of future loss trends. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------- ---------------------- --------------------- ---------------------- ---------------------
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
each each each each each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
loans $4,242 84.35% $4,561 86.53% $4,585 88.52% $4,593 88.77% $4,711 90.25%
Consumer loans 673 6.57 322 6.18 376 6.37 349 6.05 457 5.85
Commercial loans 1,067 9.08 157 7.29 157 5.11 169 5.18 229 3.90
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $5,982 100.00% $5,040 100.00% $5,118 100.00% $5,111 100.00% $5,397 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
INVESTMENT ACTIVITIES
Federal regulations and Ohio law permit the Company to invest in
various types of investment securities, including interest-bearing deposits in
other financial institutions, federal funds, U.S. Treasury and agency
obligations, mortgage-backed securities, and certain other specified
investments. The Board of Directors of the Company has adopted an investment
policy which authorizes management to make investments in U.S. Treasury
obligations, U.S. Federal agency and federally-sponsored corporation
obligations, investment-grade municipal obligations, creditworthy, unrated
securities issued by municipalities in which an office of the Company is
located, investment-grade corporate debt securities, investment-grade
asset-backed securities, certificates of deposit that are fully-insured by the
FDIC, bankers' acceptances, federal funds and interest-bearing time deposits
with other financial institutions. The Company's investment policy is designed
primarily to provide and maintain liquidity within regulatory guidelines, to
maintain a balance of high quality investments to minimize risk, and to maximize
return without sacrificing liquidity and safety. See "REGULATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Analysis of Financial Condition; and - Liquidity and Capital
Resources." The investment activities of the Company are supervised by the
Company's Investment Committee and investment purchases are monitored weekly by
the Executive Committee of the Company.
The Company maintains a significant portfolio of mortgage-backed
securities in the form of Federal National Mortgage Association (the "FNMA"),
Government National Mortgage Association (the "GNMA") and the FHLMC
participation certificates. Mortgage-backed securities generally entitle the
Company to receive a portion of the cash flows from an identified pool of
mortgages. GNMA securities are guaranteed by the Federal government as to the
timely payment of principal and interest. FNMA securities and a majority of the
Company's FHLMC securities are guaranteed by the issuing agency as to timely
payment of principal and interest. The balance of the Company's FHLMC securities
are guaranteed as to timely payment of interest and eventual payment of
principal.
The Company purchases mortgage-backed securities primarily as an
alternative to originating loans for its portfolio. In recent years, the
Company's funds available for investment have exceeded the volume of loan
originations based on loan demand in the Company's primary market area.
Purchases of mortgage-backed securities enable the Company to generate positive
interest rate spreads with minimal administrative expense and reduced credit
risk due to the guarantees provided by the issuer. Mortgage-backed securities
classified as available for sale also provide the Company with an additional
source of liquid funds. The Company also invests generally in short maturity
medium-term corporate notes of investment grade. The notes, which
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<PAGE> 83
include debentures and collateralized notes, generally provide a spread above
the risk-free rate afforded by comparable maturity U.S. Treasury securities. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Asset/Liability Management."
Although the Company's mortgage-backed securities are generally
guaranteed as to repayment of principal and interest, the Company is exposed to
prepayment risk and reinvestment risk to the extent that the issuer redeems the
security or that actual prepayments on the underlying mortgages are greater than
estimated over the life of the security. Although prepayments of underlying
mortgages depend on many factors, the difference between the interest rates on
the underlying mortgages and the prevailing mortgage interest rates generally is
the most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related security.
Prepayments may require the Company to make adjustments to the amortization of
any premium or accretion of any discount relating to the securities, thereby
changing the net yield on such securities. The Company reviews prepayment
estimates for mortgage-backed securities at purchase to ensure that prepayment
assumptions are reasonable considering the underlying collateral for the
securities at issue and current interest rates and to determine the yield and
estimated maturity of the mortgage-backed security portfolio.
To the extent that the Company's mortgage-backed securities prepay
faster than anticipated in a declining rate environment, the Company may not be
able to reinvest the proceeds of such prepayments at a comparable rate of
return, which could adversely affect net interest income. Conversely, in a
rising interest rate environment, prepayments may occur at a slower than
projected pace, thereby extending the estimated life of the security and
depriving the Company of the ability to reinvest cash flows at higher rates of
interest. In addition, the market value of such securities may be adversely
affected by changes in interest rates. As discussed below, a decline in the
market value of securities classified as available for sale may adversely affect
the Company's retained earnings.
Investment and mortgage-backed securities are classified upon
acquisition as available for sale or held to maturity. Securities classified as
available for sale are carried at estimated fair value with the unrealized
holding gain or loss, net of taxes, reflected as a component of equity.
Securities classified as held to maturity are carried at amortized cost. The
Company recognizes premiums and discounts in interest income over the period to
maturity by the level yield method and realized gains or losses on the sale of
debt securities based on the amortized cost of the specific securities sold.
Security sales are recorded on a trade date basis.
-55-
<PAGE> 84
The following table sets forth the amortized cost and fair value of the
Company's short-term investments, FHLB stock, investment securities and
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31
-----------------------------------------------------------------------------------
1997 1996
------------------------------------------ ----------------------------------------
Amortized % of Fair % of Amortized % of Fair % of
Cost Total Value Total Cost Total Value Total
--------- ----- ----- ----- --------- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Short-term investments:
Federal funds $ 19,879 5.22% $ 19,879 5.15% $ 5,982 1.39% $ 5,982 1.39%
Overnight repurchase agreement - - - - - - - -
FHLB stock 11,136 2.93 11,136 2.89 10,370 2.42 10,370 2.40
Investment securities:
U.S. treasury obligations 20,072 5.27 20,224 5.24 12,517 2.92 12,613 2.92
U.S. government agency obligations 5,000 1.31 5,038 1.31 - - - -
Corporate notes 14,019 3.68 14,140 3.66 2,026 0.47 2,046 0.47
Mortgage-backed securities
FHLMC 54,039 14.20 54,827 14.21 73,748 17.19 74,420 17.23
FNMA 5,265 1.39 5,345 1.39 7,489 1.75 7,613 1.76
Private issues 2,329 0.62 2,251 0.58 2,513 0.58 2,433 0.57
-------- ------ -------- ------ -------- ------ -------- -----
Total available for sale 131,739 34.62 132,840 34.43 114,645 26.72 115,477 26.74
-------- ------ -------- ------ -------- ------ -------- -----
Held to maturity:
Investment securities:
U.S. treasury obligations 4,968 1.31 5,013 1.30 14,967 3.49 15,051 3.49
Corporate notes - - - - 13,003 3.03 13,057 3.02
Mortgage-backed securities:
GNMA 9,077 2.39 9,492 2.46 11,163 2.60 11,627 2.69
FHLMC 156,988 41.25 158,939 41.19 184,363 42.98 184,838 42.81
FNMA 77,783 20.43 79,555 20.62 90,858 21.18 91,754 21.25
-------- ------ -------- ------ -------- ------ -------- -----
Total held to maturity 248,816 65.38 252,999 65.57 314,354 73.28 316,327 73.26
-------- ------ ------- ------ -------- ------ ------- -----
Total investment portfolio $380,555 100.00% $385,839 100.00% $428,999 100.00% $431,804 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31
----------------------------------------
1995
----------------------------------------
Amortized % of Fair % of
Cost Total Value Total
--------- ----- ----- -----
<S> <C> <C> <C> <C>
Available for sale:
Short-term investments:
Federal funds $ 6,412 1.29% $ 6,412 1.26%
Overnight repurchase agreement 20,194 4.05 20,194 3.98
FHLB stock 9,675 1.94 9,675 1.91
Investment securities:
U.S. treasury obligations 26,883 5.39 27,382 5.40
U.S. government agency obligations - - - -
Corporate notes 4,678 0.94 4,743 0.94
Mortgage-backed securities
FHLMC 84,768 17.00 86,071 16.97
FNMA 9,204 1.85 9,390 1.85
Private issues 4,544 0.91 4,544 0.90
-------- ------ -------- ------
Total available for sale 166,358 33.37 168,411 33.21
-------- ------ -------- ------
Held to maturity:
Investment securities:
U.S. treasury obligations 14,991 3.01 15,220 3.00
Corporate notes 15,128 3.03 15,209 3.00
Mortgage-backed securities:
GNMA 13,534 2.71 14,166 2.79
FHLMC 183,767 36.86 186,943 36.86
FNMA 104,806 21.02 107,231 21.14
------- ----- ------- -----
Total held to maturity 332,226 66.63 338,769 66.79
------- ----- ------- -----
Total investment portfolio $498,584 100.00% $507,180 100.00%
======== ====== ======== ======
</TABLE>
-56-
<PAGE> 85
The maturities of the Company's short-term investments and securities
at December 31, 1997, excluding FHLB stock, are indicated in the following
table:
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------------------------------------------------
After one through
One year or less five years After five years Total
-------------------------------------------------------------------------------------------------
Amortized Average Amortized Average Amortized Average Amortized Fair Average
cost yield cost yield cost yield cost value yield
--------- ------- --------- ------- --------- ------- --------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments:
Federal funds $19,879 5.50% $ - -% $ - -% $ 19,879 $ 19,879 5.50%
Investment securities:
Available for sale 5,004 5.78 29,087 6.32 5,000 6.53 39,091 39,402 6.28
Held to maturity - 4,968 6.49 - 4,968 5,013 6.49
------- ---- -------- ---- -------- ---- -------- -------- ----
Total investment securities 5,004 5.78 34,055 6.34 5,000 6.53 44,059 44,415 6.30
Mortgage-backed securities:
Available for sale 10,153 6.93 31,035 7.11 20,445 7.56 61,633 62,423 7.22
Held to maturity 27,009 7.16 78,566 7.16 138,273 7.08 243,848 247,986 7.11
------- ---- -------- ---- -------- ---- -------- -------- ----
Total mortgage-backed 37,162 7.09 109,601 7.13 158,718 7.14 305,481 310,409 7.13
securities ------- ---- -------- ---- -------- ---- -------- -------- ----
Total interest-earning assets $62,045 6.47% $143,656 6.94% $163,718 7.12% $369,419 $374,703 6.94%
======= ==== ======== ==== ======== ==== ======== ======== ====
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of the
Company's funds for use in lending and other investment activities. In addition
to deposits, the Company derives funds from interest payments and principal
repayments on loans and income on earning assets. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate in response to general interest rates and money market conditions. The
Company may also borrow from the FHLB as a source of funds.
DEPOSITS. Deposits are attracted principally from within the Company's
primary market area through the offering of a selection of deposit instruments,
including regular passbook savings accounts, demand deposits, individual
retirement accounts ("IRAs"), NOW accounts, money market accounts, and
certificates of deposit. Interest rates paid, maturity terms, service fees, and
withdrawal penalties for the various types of accounts are monitored weekly by
the Company's Executive Committee. The Company does not use brokers to attract
deposits. The amount of deposits from outside the Company's primary market area
is not significant.
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<PAGE> 86
The following table sets forth the dollar amount of deposits in the
various types of accounts offered by the Company at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------
1997 1996
---------------------------------------- ----------------------------------------
Percent Weighted Percent Weighted
of total average of total average
Amount deposits rate Amount deposits rate
------ -------- -------- ------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Checking accounts:
Interest-bearing $ 58,707 6.62% 2.03% $ 56,347 6.05% 2.34%
Noninterest-bearing 5,387 0.61 - 4,201 0.45 -
Savings accounts 243,588 27.47 2.99 256,081 27.47 3.08
Money market accounts 56,727 6.40 2.99 64,622 6.93 3.08
-------- ------ -------- ------
Total transaction accounts 364,409 41.10 381,251 40.90
Certificates of deposit:
4.00% or less 448 0.05 745 0.08
4.01% - 6.00% 415,045 46.80 421,302 45.20
6.01% - 8.00% 106,835 12.04 128,697 13.81
8.01% - 10.00% 71 0.01 65 0.01
-------- ------ -------- ------
Certificates of deposit 522,399 58.90 5.78 550,809 59.10 5.74
-------- ------ -------- ------
Total deposits $886,808 100.00% 4.56% $932,060 100.00% 4.60%
======== ====== ======== ======
</TABLE>
Total deposits decreased by $45.3 million, or 4.9%, from December 31,
1996, to December 31, 1997, primarily due to disintermediation.
The following table shows rate and maturity information for the
Company's certificates of deposit at December 31, 1997:
<TABLE>
<CAPTION>
At December 31, 1997
------------------------------------------------------------------
Over Over
Up to 1 year to 2 years to
Rate one year 2 years 3 years Thereafter Total
---- -------- --------- --------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
4.00% or less $ 437 $ - $ - $ 11 $ 448
4.01% to 6.00% 304,184 74,609 27,938 8,314 415,045
6.01% to 8.00% 44,908 7,921 23,302 30,704 106,835
8.01% to 10.00% 71 - - - 71
-------- ------- ------- ------- --------
Total certificates of deposit $349,600 $82,530 $51,240 $39,029 $522,399
======== ======= ======= ======= ========
Percent of total certificates
of deposit 66.92% 15.80% 9.81% 7.47% 100.00%
</TABLE>
At December 31, 1997, approximately $350.0 million of the Company's
certificates of deposit were expected to mature within one year. Based on past
experience and the Company's prevailing pricing strategies, management believes
that a substantial percentage of such certificates will be renewed with the
Company at maturity, although there can be no assurance that this will occur.
If, however, the Company is unable to renew the maturing certificates for any
reason, borrowings of up to $222.7 million are available from the FHLB of
-58-
<PAGE> 87
Cincinnati. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Liquidity and Capital Resources."
The following table presents the amount of the Company's certificates
of deposit of $100,000 or more by the time remaining until maturity at December
31, 1997:
Maturity Amount
(In thousands)
Three months or less $14,294
Over 3 months to 6 months 8,810
Over 6 months to 12 months 9,894
Over 12 months 15,717
-------
Total $48,715
=======
Management believes that a substantial percentage of the above certificates will
be renewed with the Company at maturity.
The following table sets forth the Company's deposit account balance
activity for the periods indicated:
Year ended December 31,
---------------------------------
1997 1996
---- ----
(Dollars in thousands)
Beginning balance $932,060 $938,855
Net decrease in deposits (85,868) (49,819)
-------- --------
Net deposits before interest
credited 846,192 889,036
Interest credited 40,616 43,024
-------- --------
Ending balance $886,808 $932,060
======== ========
Net decrease $(45,252) $ (6,795)
======== ========
Percent decrease (4.86)% (0.72)%
BORROWINGS. The FHLB system functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions. See "REGULATION - Federal Home Loan Banks." As a member in good
standing of the FHLB of Cincinnati, the Company is authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Under current regulations, an association must
meet certain qualifications to be eligible for FHLB advances. The extent to
which an association is eligible for such advances will depend upon whether it
meets the Qualified Thrift Lender (the "QTL") test. See "REGULATION - Office of
Thrift Supervision -- Qualified Thrift Lender Test." If an association meets the
QTL test, the Company will be eligible for 100% of the advances it would
otherwise be eligible to receive. If an association does not meet the QTL test,
the association will be eligible for such advances only to the extent it holds
specified QTL test assets. At December 31, 1997, the Company was in compliance
with the QTL test, but had no outstanding advances from the FHLB.
Borrowings of up to $222.7 million are available to the Company from the FHLB of
Cincinnati.
COMPETITION
The Company faces competition for deposits and loans from other savings
and loan associations, credit unions, banks and mortgage originators in the
Company's primary market area. The primary factors in
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<PAGE> 88
competition for deposits are customer service, convenience of office location
and interest rates. The Company competes for loan originations primarily through
the interest rates and loan fees it charges and through the efficiency and
quality of services it provides to borrowers. Competition is affected by, among
other things, the general availability of lendable funds, general and local
economic conditions, current interest rate levels and other factors which are
not readily predictable. The Company does not offer all of the products and
services offered by some of its competitors, particularly commercial banks.
PROPERTIES
The following table sets forth certain information at December 31,
1997, regarding the properties on which the main office and the branch offices
of the Company are located:
<TABLE>
<CAPTION>
Owned or Year Net book
Location leased opened value Deposits
- -------- -------- ------ -------- --------
(In thousands)
<S> <C> <C> <C> <C>
275 Federal Plaza West Owned 1919 $1,037 $85,507
Youngstown, Ohio
32 State Street Owned 1916 315 94,633
Struthers, Ohio
4005 Hillman Way Owned 1958 473 114,927
Boardman, Ohio
650 East State Street Owned 1925 185 69,168
Salem, Ohio
6000 Mahoning Avenue Leased 1959 9 78,568
Austintown, Ohio
7525 Market Street Owned 1971 542 104,678
Boardman, Ohio
4259 Kirk Road Owned 1975 603 85,226
Austintown, Ohio
202 South Main Street Owned 1975 236 68,342
Poland, Ohio
3500 Belmont Avenue Owned 1976 331 66,433
Youngstown, Ohio
29 North Broad Street Owned 1977 311 35,058
Canfield, Ohio
980 Great East Plaza Leased 1980 14 22,792
Niles, Ohio
127 North Market Street Owned 1987 140 31,012
East Palestine, Ohio
210 West Lincoln Way Owned 1987 331 16,734
Lisbon, Ohio
148725 South Avenue Ext. Owned 1997 833 2,214
Columbiana, Ohio
1140 Boardman - Poland Road (1) Leased 1986
Poland, Ohio
</TABLE>
- ----------------------------
(1) Closed in January 1998.
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<PAGE> 89
EMPLOYEES
At December 31, 1997, the Company had 391 full-time equivalent
employees and 91 part-time employees. The Company believes that relations with
its employees are excellent. The Company offers health, life and disability
benefits to all employees and has a defined benefit pension plan, a 401(k) plan
and a postretirement health plan for its eligible employees. None of the
employees of the Company is represented by a collective bargaining unit.
LEGAL PROCEEDINGS
The Company is not presently involved in any material legal
proceedings. From time to time, the Company is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Company.
YEAR 2000 CONSIDERATIONS
The Company's lending and deposit activities are almost entirely
dependent upon computer systems which process and record transactions, although
the Company can effectively operate for brief periods when its electronic
systems malfunction or cannot be accessed. The Company utilizes the services of
a third-party data processing service bureau. In addition to its basic operating
activities, the Company's facilities and infrastructure, such as security
systems and communications equipment, are dependent to varying degrees upon
computer systems.
The Company is aware of the potential year-2000 related problems that
may affect the computers which control or operate the Company's operating
systems, facilities and infrastructure. In 1997, the Company began the process
of identifying any year-2000 related problems that may be experienced by its
computer-operated or -dependent systems. The Board of Directors reviews the
Company's progress in addressing year-2000 issues quarterly. The Company has
contacted the companies that supply or service the Company's computer-operated
or -dependent systems to obtain confirmation that each such system that is
material to the operations of the Company is either currently year-2000
compliant or is expected to be year-2000 compliant. With respect to systems that
cannot presently be confirmed as year-2000 compliant, the Company will continue
to work with the appropriate supplier or servicer to ensure that all such
systems will be rendered compliant in a timely manner, with minimal expense to
the Company or disruption of the Company's operations. The Company has
established a December 31, 1998 deadline for its third-party data service bureau
to be year-2000 compliant. If, by the end of 1998, any of the Company's
suppliers or servicers is unable to certify year-2000 compliance with respect to
any systems the failure of which would have a material adverse effect on the
Company's operations, financial condition or results, the Company would then
have sufficient time to identify and contract with suppliers and servicers who
are able to certify year-2000 compliance. The expense of such a change in
suppliers or servicers is not expected to be material to the Company. The OTS
recently completed an examination of the Company's Year 2000 policies and plans
and found the Company's actions to be satisfactory.
In addition to possible expense related to its own systems, the Company
could incur losses if loan payments are delayed due to year-2000 problems
affecting any of the Company's significant borrowers or impairing the payroll
systems of large employers in the Bank's primary market area. Because the
Company's loan portfolio is diversified with regard to individual borrowers and
types of businesses and the Company's primary market area is not significantly
dependent upon one employer or industry, the Company does not expect any
significant or prolonged year-2000 related difficulties that will affect net
earnings or cash flow. See "Loans to One Borrower Limits," and "Primary Market
Area." At this time, however, the expense that may be incurred by the Company in
connection with year-2000 issues cannot be determined. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Year
2000 Issue."
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<PAGE> 90
CHANGE IN ACCOUNTANTS
As a result of the Company's decision to convert from a mutual savings
and loan association to a permanent capital stock savings and loan association,
the Company decided on November 20, 1997, to replace Packer, Thomas & Co. and to
engage Deloitte & Touche LLP as independent auditors. Packer, Thomas & Co.
served as the Company's independent auditors from the fiscal year ended December
31, 1993 through the fiscal year ended December 31, 1996. The decision to change
independent auditors was approved by the Board of Directors upon recommendation
by the Audit Committee of the Board of Directors.
The reports of Packer, Thomas & Co. on the financial statements of the
Company for the fiscal years ended December 31, 1996 and 1995, did not contain
any adverse opinion or disclaimer of opinion, was not qualified or modified as
to audit scope or accounting principles and did not include an explanatory
paragraph for material uncertainties. There has not been any disagreement
between the Company and Packer, Thomas & Co. for the years ended December 31,
1996 and 1995 and through November 20, 1997, or with Deloitte & Touche LLP for
the year ended December 31, 1997, on any matter of accounting principles or
practices, financial statement disclosure or audit scope or procedure.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
THE HOLDING COMPANY. The Board of Directors of the Holding Company
currently consists of nine members divided into three classes. All of the
directors of the Holding Company were initially elected to the Board of
Directors at the time the Holding Company was formed in 1998. The terms of
Richard M. Barrett, Charles B. Cushwa, III and John F. Zimmerman, Jr. will
expire in 1999; the terms of Donald R. Inglis, Gary Keller and Herbert F.
Schuler, Sr. will expire in 2000; and the terms of James E. Bennett, Jr.,
Douglas M. McKay and Clarence R. Smith, Jr. will expire in 2001. The following
persons are officers of the Holding Company: Douglas M. McKay, President and
Chairman of the Board; Patrick A. Kelly, Treasurer; and Donald J. Varner,
Secretary.
THE COMPANY. The Amended Constitution of the Company provides for a
Board of Directors consisting of not less than five directors. The Board of
Directors of the Company currently consists of 11 directors. Each director
serves for a three-year term. The Board of Directors met 16 times during the
year ended December 31, 1997, for regular and special meetings. Mr. Smith
attended fewer than 75% of the aggregate of such meetings and all meetings of
committees of which he was a member due to surgery.
-62-
<PAGE> 91
The following table presents certain information with respect to the
present directors and the executive officers of the Company:
<TABLE>
<CAPTION>
Year of
commencement Term
Name Age (1) Position(s) with the Company of directorship expires
- ---- --- ---------------------------- ----------------- -------
<S> <C> <C> <C> <C>
Richard M. Barrett 58 Director 1976 1999
James E. Bennett, Jr. 79 Director 1964 2001
Charles B. Cushwa, III 63 Director 1975 1999
William A. Holdford 49 Vice President/Loan Administration -
Donald R. Inglis 69 Director 1978 2000
Gary Keller 56 Director 1982 2000
Patrick A. Kelly 39 Director, Treasurer, CFO and Senior Vice 1996 1999
President
Douglas M. McKay 49 Director, Chairman of the Board and 1995 2001
President
Herbert F. Schuler, Sr. 57 Director 1977 2000
Clarence R. Smith, Jr. 69 Director 1976 2001
Robert J. Steele, Jr. 39 Vice President/Savings Administration -
Donald J. Varner 66 Director, Secretary and Senior Vice 1986
President/ Retail Banking 2000
John F. Zimmerman, Jr. 49 Director 1991 1999
</TABLE>
- ----------------------------
(1) As of December 31, 1997.
RICHARD M. BARRETT. Prior to his retirement in 1995, Mr. Barrett was
the President of Barrett Cadillac, Inc., an automobile dealership located in
Youngstown, Ohio.
JAMES E. BENNETT, JR. Mr. Bennett is an attorney and, since 1985, has
served as of counsel to the Youngstown, Ohio law firm of Manchester, Bennett,
Powers and Ullman, a Legal Professional Association.
CHARLES B. CUSHWA, III. Mr. Cushwa is a director of the Cushwa Center
for Entrepreneurship at Youngstown State University, a position he has held
since 1988.
WILLIAM A. HOLDFORD. Mr. Holdford is the Vice President of Loan
Administration of the Company, a position he has held since March, 1990.
DONALD R. INGLIS. Mr. Inglis retired from private practice as a
Certified Public Accountant in 1988.
GARY KELLER. Mr. Keller is the Chairman, President and Chief Executive
Officer of the Salem China Company and Urfric, Inc., which manufacture, import
and distribute ceramic products and solid brass decorative hardware. Mr. Keller
is also the President and Chief Executive Officer of Sebring Industries, Inc.,
an import business located in Salem, Ohio.
PATRICK A. KELLY. Mr. Kelly was appointed Treasurer of the Company in
April 1992 and named Senior Vice President of the Company in November 1995. Mr.
Kelly has been employed by the Company since February 1983.
DOUGLAS M. MCKAY. Mr. McKay joined the Company in 1973 as a loan
officer. Since 1995, Mr. McKay has served as Chief Executive Officer and
Chairman of the Board of Directors of the Company and
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<PAGE> 92
additionally, as President of the Company since 1996. From 1991 to 1995, Mr.
McKay was employed as Executive Vice President of the Company.
HERBERT F. SCHULER, SR. Mr. Schuler is the President and Chief
Executive Officer of General Extrusions, Inc., an aluminum parts manufacturer,
and the President and Treasurer of Genex Tool & Die, Inc., a tool and die
company. Mr. Schuler has been employed by each company since the 1960s.
CLARENCE R. SMITH, JR. Mr. Smith is the Chairman of the Board of S-P
Company and subsidiaries, and Diamond Steel Construction-Youngstown.
ROBERT J. STEELE, JR. Mr. Steele was a branch administrator for the
Company from January 1993 to April 1996 and has served as Vice President of
Savings Administration for the Company since April 1996.
DONALD J. VARNER. Mr. Varner, an attorney, has worked for the Company
for the past 41 years, and from 1976 to 1995, he served the Company as Vice
President and Corporate Counsel. Mr. Varner is currently the Corporate Secretary
of the Company and Senior Vice President of the Company's Retail Banking
Division.
JOHN F. ZIMMERMAN, JR. Mr. Zimmerman, an attorney, is a member of the
law firm of Manchester, Bennett, Powers and Ullman, a Legal Professional
Association, located in Youngstown, Ohio, and has been associated with the firm
since 1974.
COMMITTEES OF DIRECTORS
The Board of Directors of the Company has Executive, Salary, Planning,
Investment, Asset Liability, Benefit, Distribution and Audit Committees.
The Executive Committee is composed of Mr. Kelly, Mr. McKay, Mr. Varner
and one non-employee director of the Company who alternates monthly. The
functions of the Executive Committee include loan approval and review of the
Company's investment activity, although the Executive Committee is authorized to
act on other matters. The Executive Committee met 52 times during the year ended
December 31, 1997.
The Salary Committee is comprised of Mr. Barrett, Mr. Bennett, Mr.
Cushwa, Mr. Inglis, Mr. Keller, Mr. Schuler, Mr. Smith and Mr. Zimmerman. The
functions of the Salary Committee are to determine compensation for the
Company's three senior officers and to make decisions regarding employee
benefits and related matters. The Salary Committee met once during the year
ended December 31, 1997.
The Audit Committee is comprised of Mr. Schuler, Mr. Cushwa and Mr.
Inglis. The Audit Committee reviews audit reports and related matters to ensure
effective compliance with regulatory and internal policies and procedure. The
Audit Committee met seven times during the year ended December 31, 1997. Upon
completion of the Conversion, the Audit Committee will become a committee of the
Holding Company in accordance with the requirements of Nasdaq.
The Board of Directors of the Holding Company does not currently have
any committees, but will establish appropriate committees upon the completion of
the Conversion.
COMPENSATION
Each director of the Company currently receives a retainer of $10,000
per year and $400 per meeting of the full Board attended. Non-employee directors
receive an additional fee of $400 per committee meeting attended. The Chairmen
of the Audit and Salary Committees receive an additional fee of $200 per
committee meeting. Director compensation is approved by the members of the
Company at the annual meeting of members.
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<PAGE> 93
The following table presents certain information regarding the annual
compensation received by executive officers of the Company who received
compensation exceeding $100,000 for 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------------------------
Annual compensation (1) Other compensation
- ------------------------------------------------------------------------------------------------------
Name and principal position Year Salary Bonus
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas M. McKay 1997 $239,934 $120,614 $28,455 (2)
President
- ------------------------------------------------------------------------------------------------------
Donald J. Varner 1997 $126,588 $ 56,418 $24,823 (3)
Secretary
- ------------------------------------------------------------------------------------------------------
Patrick A. Kelly 1997 $115,184 $ 54,859 $24,412 (4)
Treasurer
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include amounts attributable to other miscellaneous benefits
received by executive officers. The cost to the Company of providing
such benefits to each named executive officer was less than 10% of his
cash compensation.
(2) Consists of directors' fees of $16,000 and matching contributions of
$2,375 and $7,220 and a discretionary contribution of $2,860 paid by
the Company to Mr. McKay's account in The Home Savings and Loan Company
of Youngstown, Ohio 401(k) Savings Plan (the "401(k) Plan").
(3) Consists of directors' fees of $15,600 and matching contributions of
$1,466 and $6,311 and a discretionary contribution of $1,446 paid by
the Company to Mr. Varner's account in the 401(k) Plan.
(4) Consists of directors' fees of $16,000 and matching contributions of
$1,266 and $5,861 and a discretionary contribution of $1,285 paid by
the Company to Mr. Kelly's account in the 401(k) Plan.
PENSION PLAN
The Company maintains and administers a defined benefit retirement plan
(the "Pension Plan"). Employees become eligible to participate in the Pension
Plan on the first day of the year coincident with or next following the later of
the date the employee (i) attains age 20, or (ii) completes six months of
continuous employment with the Company. Participants become 100% vested in the
Pension Plan upon completion of five years of service. Upon retirement at age 65
or after five years of service, vested participants are entitled to annual
benefits equal to the sum of: (i) .95% multiplied by the number of years for
which the employee was a participant in the Pension Plan, not to exceed 35
years, multiplied by the average of the highest five consecutive years of the
participant's annual salary during the final 10 years of the participant's
employment prior to retirement (the "Final Average Compensation"); (ii) .65%
multiplied by the number of years for which the employee was a participant in
the Pension Plan, not to exceed 35 years, multiplied by the amount of the Final
Average Compensation in excess of the average of Social Security taxable wage
basis for the 35-year period ending with the year of the employee's Social
Security Retirement Age (the "Covered Compensation"); and (iii) 1.5% multiplied
by the Final Average Compensation multiplied by the number of years for which
the employee was a participant in the Pension Plan in excess of 35 years, but
not to exceed five years. The Pension Plan permits early retirement after age 60
with 15 or more years of service at a reduced benefit level.
-65-
<PAGE> 94
The Company's funding policy is to contribute amounts to the Pension
Plan sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional amounts as
the Company may determine to be appropriate from time to time. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future.
The following table indicates the annual retirement benefit that would
be payable under the Pension Plan upon retirement at age 65 to a participant
electing to receive his retirement benefit in the standard form of benefit:
<TABLE>
<CAPTION>
Years of credited service
Average compensation ---------------------------------------------------------------
(highest 5 years)(1) 15 20 25 30 35
-------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
20,000 $ 2,545 $ 3,393 $ 4,242 $ 5,090 $ 5,938
35,000 3,818 5,090 6,363 7,635 8,908
40,000 5,538 7,384 9,230 11,076 12,922
50,000 7,681 10,242 12,802 15,363 17,923
60,000 9,824 13,099 16,374 19,649 22,924
70,000 11,968 15,957 19,946 23,935 27,925
100,000 18,398 24,530 30,663 36,795 42,928
150,000 29,114 38,818 48,523 58,227 67,932
</TABLE>
- ----------------
(1) The maximum amount of annual compensation which can be considered in
computing benefits under Section 401(a)(17) of the Code is $160,000.
Mr. McKay, Mr. Kelly and Mr. Varner have approximately 25, 15 and 41
years of credited service under the Pension Plan, respectively. Their base
salary and bonuses are reported above in the Summary Compensation Table.
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO 401(K) SAVINGS PLAN
The Company maintains the 401(k) Plan for all of its employees who are
age 20 or older and who have completed at least six months of service with the
Company. Pursuant to the 401(k) Plan, participants may elect to contribute up to
15% of their annual compensation on a tax-deferred basis. In addition, in its
sole discretion, the Company may make annual profit sharing contributions and
matching contributions to the 401(k) Plan for the benefit of participants. The
Company's 401(k) Plan expenses, including employer contributions, if any, for
the years ended December 31, 1997 and 1996, were $468,000 and $513,000,
respectively.
In connection with the Conversion, the Board of Directors of the
Company has amended the 401(k) Plan to allow participants to invest in the
Common Shares through the 401(k) Plan.
POSTRETIREMENT BENEFIT PLANS
In addition to the Company's retirement plans, the Company sponsors a
defined benefit health care plan (the "Postretirement Health Plan") that
provides postretirement medical benefits to full-time employees who have worked
15 years and attained age 60, or worked 5 years and attained age 65, while in
service with the Company. The Postretirement Health Plan is contributory and
contains minor cost-sharing features such as deductibles and coinsurance. In
addition, postretirement life insurance coverage is provided for employees who
were participants prior to December 10, 1976. The life insurance plan is
non-contributory. The Company's policy is to pay premiums monthly, with no
pre-funding.
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STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. The Holding Company intends to establish
the ESOP for the benefit of employees of the Holding Company and its
subsidiaries, including the Company, who are age 20 or older and who have
completed at least six months of service with the Holding Company and its
subsidiaries. The Board of Directors of the Holding Company believes that the
ESOP will be in the best interests of the Holding Company and its shareholders.
The ESOP trust intends to borrow funds from the Holding Company with
which to acquire up to 8% of the total Common Shares sold in connection with the
Conversion and contributed to the Foundation. Such loan will be secured by the
Common Shares purchased with the proceeds from the loan and will be repaid by
the ESOP over a period of approximately 15 years with contributions to the ESOP
and earnings on ESOP assets. The interest rate paid on the loan will be the
Prime Rate less 1/2%, which is currently 8.0%. Common Shares purchased with such
loan proceeds will be held in a suspense account for allocation among ESOP
participants as the loan is repaid.
The amount of cash or other assets that can be contributed to the ESOP
each year is limited by certain IRS regulations. The Company may make the
contribution to the ESOP, to the extent permitted by such regulations, to prepay
the ESOP loan in fewer than 15 years. A shorter repayment period could result in
increased compensation expense during the years in which payments are made on
the ESOP loan. See "PRO FORMA DATA."
Contributions to the ESOP and shares released from the suspense account
will be allocated pro rata to participants on the basis of compensation. Except
for participants who retire, become disabled, or die during the plan year, all
other participants must have completed at least 1,000 hours of service during a
plan year in order to receive an allocation. Benefits become fully vested after
five years of service. Vesting will be accelerated upon retirement or at age 65,
death, disability, termination of the ESOP, or change in control of the Holding
Company or the Company. Shares allocated to the account of a participant whose
employment by the Company terminates prior to such participant having satisfied
the vesting requirement will be forfeited. Forfeitures will be reallocated among
remaining participating employees. Benefits may be paid either in the Holding
Company common shares or in cash. Benefits may be payable upon retirement,
death, disability, or separation from service. Benefits payable under the ESOP
cannot be estimated.
A committee appointed by the Board of Directors of the Holding Company
will administer the ESOP. The Common Shares and other ESOP funds will be held by
a trustee selected and appointed by the Holding Company (the "ESOP Trustee").
The ESOP Committee may instruct the ESOP Trustee regarding investments of funds
contributed to the ESOP. The ESOP Trustee must vote all common shares of the
Holding Company held in the ESOP that are allocated to the accounts of ESOP
participants in accordance with the instructions of such participants. Common
shares held by the ESOP that are not allocated to participants' accounts and
allocated shares for which voting instructions are not received will be voted by
the ESOP Trustee in its sole discretion.
The tax-qualified status of the ESOP and its purchase of the Common
Shares of the Holding Company are subject to the subsequent approval of the
Commissioner of the IRS (the "Commissioner"). The Holding Company will submit to
the Commissioner an application for approval of the ESOP. Although no assurances
can be given, the Holding Company expects that the ESOP will be approved by the
Commissioner.
STOCK OPTION PLAN. After the completion of the Conversion, the Board of
Directors of the Holding Company intends to adopt the Stock Option Plan, subject
to approval by the shareholders of the Holding Company. The purposes of the
Stock Option Plan include retaining and providing incentives to the directors,
officers, and employees of the Holding Company and its subsidiaries by
facilitating their purchase of a stock interest in the Holding Company.
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Options granted to the officers and employees under the Stock Option
Plan may be "incentive stock options" within the meaning of Section 422 of the
Code ("ISOs"). Options granted under the Stock Option Plan to directors who are
not full-time employees of the Holding Company or the Company will not qualify
under the Code and thus will not be ISOs ("Non-qualified Options"). Although any
eligible director, officer, or employee of the Holding Company or the Company
may receive Non-qualified Options, it is anticipated that the non-employee
directors will receive Non-qualified Options and other eligible participants
will receive ISOs.
The option exercise price will be determined by the Stock Option
Committee at the time of grant; provided, however, that the exercise price for
an ISO, or for any option if the Stock Option Plan is implemented by the Holding
Company during the first year following completion of the Conversion, must not
be less than 100% of the fair market value of the shares on the date of the
grant. No stock option will be exercisable after the expiration of ten years
from the date of grant, except that in the case of an ISO granted to an employee
who owns more than 10% of the Holding Company's outstanding common shares at the
time such ISO is granted under the Stock Option Plan, the exercise price of the
ISO may not be less than 110% of the fair market value of the shares on the date
of the grant and the ISO may not be exercisable after the expiration of five
years from the date of grant.
An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. "Termination
for cause," as defined in the Stock Option Plan, will result in the termination
of any outstanding options.
The Holding Company will receive no monetary consideration for the
granting of options under the Stock Option Plan. Upon the exercise of options,
the Holding Company will receive a payment of cash, common shares of the Holding
Company, or a combination of cash and common shares from option recipients in
exchange for shares issued.
A number of shares equal to 10% of the total Common Shares sold in the
Conversion and contributed to the Foundation is expected to be reserved for
issuance by the Holding Company upon the exercise of options to be granted to
certain directors, officers, and employees of the Holding Company and its
subsidiaries from time to time under the Stock Option Plan. No determination has
been made regarding the recipients of awards under the Stock Option Plan or the
number of shares to be awarded to individual recipients. The Stock Option
Committee may grant options under the Stock Option Plan to the directors,
officers, and employees of the Holding Company and the Company at such times as
they deem most beneficial to the Holding Company on the basis of the individual
participant's responsibility, tenure, and future potential.
Under OTS regulations, no stock options may be awarded during the first
year after the completion of the Conversion unless the Stock Option Plan is
approved by the shareholders of the Holding Company at an annual or a special
meeting of shareholders held not less than six months following the completion
of the Conversion. If the Stock Option Plan is approved by the Holding Company
shareholders at such meeting and implemented during the first year after the
completion of the Conversion, the following restrictions will apply: (i) the
number of shares which may be subject to options awarded under the Stock Option
Plan to directors who are not full-time employees of the Holding Company may not
exceed 5% per person and 30% in the aggregate of the available shares; (ii) the
number of shares which may be subject to options awarded under the Stock Option
Plan to any individual who is a full-time employee of the Holding Company or its
subsidiaries may not exceed 25% of the available shares; (iii) stock options
must be awarded with an exercise price at least equal to the fair market value
of the common shares of the Holding Company at the time of the award; and (iv)
stock options will become exercisable at the rate of one-fifth per year
commencing no earlier than one year from the date of the award, subject to
acceleration of vesting only in the event of the death or disability of a
participant. The ultimate value of any option granted at fair market value will
depend on future appreciation in the fair market value of the
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shares to which the option relates. No decision has been made as to anticipated
awards under the Stock Option Plan.
RECOGNITION AND RETENTION PLAN. After the completion of the Conversion,
the Company intends to adopt the RRP. The purpose of the RRP is to provide
directors, directors emeritus, officers, and certain key employees of the
Company with an ownership interest in the Holding Company in a manner designed
to compensate such directors, directors emeritus, officers, and key employees
for services to the Company. The Company expects to contribute sufficient funds
to enable the RRP to purchase up to 4% of the total Common Shares sold in the
Offering and contributed to the Foundation. The Company will receive no monetary
consideration from the recipients for the awards of shares under the RRP.
The RRP Committee will administer the RRP and determine the number of
shares to be granted to eligible participants. Each participant granted shares
under the RRP will be entitled to the benefit of any dividends or other
distributions paid on such shares prior to the shares being earned, although
dividends or other distributions on shares held in the RRP Trust will not be
distributed to the participant until the shares are distributed to the
participant. Compensation expense in the amount of the fair market value of the
RRP shares will be recognized as the shares are earned.
No determination has been made regarding recipients of RRP awards or
the number of shares to be awarded to individual recipients. Under OTS
regulations, no RRP shares may be awarded during the first year after the
completion of the Conversion unless the RRP is approved by the shareholders of
the Holding Company at an annual meeting or a special meeting of shareholders
held not less than six months following the completion of the Conversion. If the
RRP is approved by the Holding Company shareholders at such meeting and
implemented during the first year after the completion of the Conversion, the
following restrictions will apply: (i) the number of shares which may be subject
to awards under the RRP to directors or directors emeritus who are not full-time
employees of the Holding Company or its subsidiaries may not exceed 5% per
person and 30% in the aggregate of the eligible shares; (ii) the number of
shares which may be subject to awards under the RRP to any individual who is a
full-time employee of the Holding Company or its subsidiaries may not exceed 25%
of the eligible shares; and (iii) RRP awards will be earned at the rate of
one-fifth per year commencing no earlier than one year from the date of the
award subject to acceleration of vesting only in the event of the death or the
disability of the participant.
EMPLOYMENT AGREEMENTS
The Company currently has no employment agreements with any of its
officers. The Company intends to enter into employment agreements with Douglas
M. McKay, Donald J. Varner and Patrick A. Kelly (collectively, the "Employment
Agreements"). Each of the Employment Agreements will provide for a term of three
years and performance reviews by the Board of Directors not less often than
annually at which time the Employment Agreement may be extended for a period of
one year. The Employment Agreements will also provide for the inclusion of the
officers in any formally established employee benefit, bonus, pension, and
profit-sharing plans for which senior management personnel are eligible and for
vacation and sick leave in accordance with the Company's prevailing policies.
The Employment Agreements will be terminable by the Company at any
time. In the event of termination by the Company for "just cause," as defined in
the Employment Agreements, the employee will have no right to receive any
compensation or other benefits for any period after such termination. In the
event of termination by the Company other than for just cause or in connection
with a "change of control," as defined in the Employment Agreements, the
employee will be entitled to a continuation of salary payments for a period of
time equal to the remaining term of an Employment Agreement and a continuation
of benefits substantially equal to those being provided at the date of
termination of his employment until the earliest to occur of the end of the
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term of the Employment Agreement or the date on which the employee becomes
employed full-time by another employer.
Each Employment Agreement also will contain provisions with respect to
the occurrence within one year of a "change of control" of (1) the termination
of the employee's employment for any reason other than just cause, retirement,
or termination at the end of the term of the agreement, or (2) a constructive
termination resulting from change in the capacity or circumstances in which the
employee is employed or a material reduction in his responsibilities, authority,
compensation, or other benefits provided under the Employment Agreement without
the employee's written consent. In the event of any such occurrence, the
employee will be entitled to payment of an amount equal to three times the
employee's annual compensation immediately preceding the termination of his
employment. In addition, the employee will be entitled to continued coverage
under all benefit plans until the earliest of the end of the term of his
Employment Agreement or the date on which he is included in another employer's
benefit plans as a full-time employee. The maximum which the employee may
receive, however, is limited to an amount which will not result in the
imposition of a penalty tax pursuant to Section 280G(b)(3) of the Code.
"Control," as defined in the Employment Agreements, generally refers to the
acquisition by any person or entity of the ownership or power to vote 10% or
more of the voting stock of the Company or the Holding Company, the control of
the election of a majority of the directors of the Company or the Holding
Company, or the exercise of a controlling influence over the management or
policies of the Company or the Holding Company.
The aggregate payments that would have been made to Messrs. McKay,
Varner and Kelly pursuant to the Employment Agreements, assuming their
termination at December 31, 1997, following a change of control, would have been
approximately $720,000, $380,000 and $346,000, respectively.
In recent years, the Company has paid annual bonuses to members of
management on a discretionary basis as determined by the non-employee directors
of the Company. Following the completion of the Conversion, the Board of
Directors of the Company anticipates establishing a formalized bonus plan that
provides for bonus payments to management based on performance-related criteria.
At this time, the Board has not determined such criteria.
CERTAIN TRANSACTIONS WITH THE COMPANY
In accordance with regulations of the OTS and the State of Ohio, the
Company makes loans to executive officers and directors of the Company in the
ordinary course of business and on the same terms and conditions, including
interest rates and collateral, as those generally available to the Company's
customers. All outstanding loans to executive officers and directors comply with
such policy, do not involve more than the normal risk of collectibility or
present other unfavorable features and are current in their payments. Loans to
directors and executive officers of the Company and their related interests
totaled $1.3 million at December 31, 1997.
REGULATION
GENERAL
As a savings and loan association incorporated under the laws of Ohio,
the Company is subject to regulation, examination and oversight by the OTS and
the Superintendent of the Division (the "Ohio Superintendent"). Because the
Company's deposits are insured by the FDIC, the Company also is subject to
general oversight by the FDIC. The Company must file periodic reports with the
OTS, the Ohio Superintendent and the FDIC concerning its activities and
financial condition. Examinations are conducted periodically by federal and
state regulators to determine whether the Company is in compliance with various
regulatory
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requirements and is operating in a safe and sound manner. The Company is a
member of the FHLB of Cincinnati.
The Holding Company will be a savings and loan holding company within
the meaning of the Home Owners Loan Act, as amended (the "HOLA"). Consequently,
the Holding Company will be subject to regulation, examination, and oversight by
the OTS and will be required to submit periodic reports to the OTS. Because the
Holding Company and the Company are corporations organized under Ohio law, they
are also subject to the provisions of the Ohio Revised Code applicable to
corporations generally.
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations and the Department of the Treasury is preparing a report for
Congress on the development of a common charter for all financial institutions.
Pursuant to such legislation, Congress may eliminate the OTS and the Company may
be regulated under federal law as a bank or be required to change its charter.
Such change in regulation or charter would likely change the range of activities
in which the Company may engage and would probably subject the Company to more
regulation by the FDIC. In addition, the Holding Company might become subject to
different holding company regulations, including separate capital requirements.
At this time, the Holding Company cannot predict when or whether Congress may
actually pass legislation regarding the Holding Company's and the Company's
regulatory requirements or charter. Although such legislation may change the
activities in which either the Holding Company and the Company may engage, it is
not anticipated that the current activities of the Holding Company or the
Company will be materially affected by those activity limits.
OHIO SAVINGS AND LOAN LAW
The Ohio Superintendent is responsible for the regulation and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio. Ohio law prescribes the permissible investments and
activities of Ohio savings and loan associations, including the types of lending
that such associations may engage in and the investments in real estate,
subsidiaries, and corporate or government securities that such associations may
make. The ability of Ohio associations to engage in these state-authorized
investments and activities is subject to oversight and approval by the FDIC, if
such investments or activities are not permissible for a federally chartered
savings and loan association.
The Ohio Superintendent also has approval authority over any mergers
involving or acquisitions of control of Ohio savings and loan associations. The
Ohio Superintendent may initiate certain supervisory measures or formal
enforcement actions against Ohio associations. Ultimately, if the grounds
provided by law exist, the Ohio Superintendent may place an Ohio association in
conservatorship or receivership.
The Ohio Superintendent conducts regular examinations of the Company
approximately once every eighteen months. Such examinations are usually
conducted jointly with one or both federal regulators. The Ohio Superintendent
imposes assessments on Ohio associations based on their asset size to cover the
cost of supervision and examination.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all federally chartered
savings and loan associations and all other savings and loan associations the
deposits of which are insured by the FDIC. The OTS issues regulations governing
the operation of savings and loan associations, regularly examines such
associations and imposes assessments on savings associations based on their
asset size to cover the costs of this supervision and examination. The OTS also
may initiate enforcement actions against savings and loan associations and
certain persons affiliated with them for
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violations of laws or regulations or for engaging in unsafe or unsound
practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings and loan association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area. The Company has received
a "satisfactory" examination rating under those regulations.
REGULATORY CAPITAL REQUIREMENTS. The Company is required by OTS
regulations to meet certain minimum capital requirements. For information
regarding the Company's regulatory capital at December 31, 1997, and pro forma
regulatory capital after giving effect to the Conversion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources" and "REGULATORY CAPITAL COMPLIANCE."
Current capital requirements call for tangible capital of 1.5% of
adjusted total assets, core capital (which for the Company consists solely of
tangible capital) of 3.0% of adjusted total assets and risk-based capital (which
for the Company consists of core capital and general valuation allowances) of
8.0% of risk-weighted assets (assets, including certain off-balance sheet items,
are weighted at percentage levels ranging from 0% to 100% depending on the
relative risk).
The OTS has proposed to amend the core capital requirement so that
those associations that do not have the highest examination rating and an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the Company's examination rating and overall risk. The Company
does not anticipate that it will be adversely affected if the core capital
requirement regulation is amended as proposed.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio as determined under the methodology of the OTS. If
the measured interest rate risk is above the level deemed normal under the
regulation, the Company will be required to deduct one-half of such excess
exposure from its total capital when determining its risk-based capital. Pending
implementation of the interest rate risk component, the OTS has the authority to
impose a higher individualized capital requirement on any savings association it
deems to have excess interest rate risk. The OTS also may adjust the risk-based
capital requirement on an individualized basis to take into account risks due to
concentrations of credit and non-traditional activities. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Asset
and Liability Management."
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings and
loan associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. The OTS has defined
these capital levels as follows: (i) well-capitalized associations must have
total risk-based capital of at least 10%, core risk-based capital (consisting
only of items that qualify for inclusion in core capital) of at least 6% and
core capital of at least 5%; (ii) adequately capitalized associations are those
that meet the regulatory minimum of total risk-based capital of 8%, core
risk-based capital of 4%, and core capital of 4% (except for associations
receiving the highest examination rating, in which case the level is 3%) but are
not well-capitalized; (iii) undercapitalized associations are those that do not
meet regulatory limits, but that are not significantly undercapitalized; (iv)
significantly undercapitalized associations have total risk-based capital of
less
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than 6%, core risk-based capital of less than 3% or core capital of less than
3%; and (v) critically undercapitalized associations are those with core capital
of less than 2% of total assets. In addition, the OTS generally can downgrade an
association's capital category, notwithstanding its capital level, if, after
notice and opportunity for hearing, the association is deemed to be engaging in
an unsafe or unsound practice because it has not corrected deficiencies that
resulted in it receiving a less than satisfactory examination rating on matters
other than capital or it is deemed to be in an unsafe or unsound condition. An
undercapitalized association must submit a capital restoration plan to the OTS
within 45 days after it becomes undercapitalized. Undercapitalized associations
will be subject to increased monitoring and asset growth restrictions and will
be required to obtain prior approval for acquisitions, branching and engaging in
new lines of business. Critically undercapitalized institutions must be placed
in conservatorship or receivership within 90 days of reaching that
capitalization level, except under limited circumstances. The Company's capital
at December 31, 1997, meets the standards for a well-capitalized institution.
Federal law prohibits a savings and loan association from making a
capital distribution to anyone or paying management fees to any person having
control of the association if, after such distribution or payment, the
association would be undercapitalized. In addition, each company controlling an
undercapitalized association must guarantee that the association will comply
with its capital plan until the association has been adequately capitalized on
an average during each of four preceding calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (i) an amount equal to 5% of the
association's total assets at the time the association became undercapitalized
or (ii) the amount that is necessary to bring the association into compliance
with all capital standards applicable to such association at the time the
association fails to comply with its capital restoration plan.
LIQUIDITY. OTS regulations require that savings associations maintain
an average daily balance of liquid assets (cash, certain time deposits,
association's acceptances, and specified United States Government, state or
federal agency obligations) equal to a monthly average of not less than 4% of
its net withdrawable savings deposits plus borrowings payable in one year or
less. Monetary penalties may be imposed upon member institutions failing to meet
liquidity requirements. The eligible liquidity of the Company at December 31,
1997, was approximately $101.7 million, or 11.48%, which exceeded the applicable
4% liquidity requirement by approximately $66.2 million. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources."
QUALIFIED THRIFT LENDER TEST. Prior to September 30, 1996, the QTL test
required savings associations to maintain a specified level of investments in
assets that are designated as qualifying thrift investments ("QTI"), which are
generally related to domestic residential real estate and manufactured housing
and include stock issued by any FHLB, the FHLMC or the FNMA. Under this test 65%
of an institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business, and 20% of liquid assets) must
consist of QTI on a monthly average basis in 9 out of every 12 months. Congress
created a second QTL test, effective September 30, 1996, pursuant to which a
savings association may also qualify as a QTL thrift if at least 60% of the
institution's assets (on a tax basis) consist of specified assets (generally
loans secured by residential real estate or deposits, educational loans, cash,
and certain governmental obligations). The OTS may grant exceptions to the QTL
test under certain circumstances. If a savings association fails to meet the QTL
test, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
the QTL test will not be eligible for new FHLB advances. At December 31, 1997,
the Company met the QTL test.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower or group of related
borrowers to an amount equal to 15% of the association's Lending Limit Capital.
A savings association may lend to one borrower an additional amount not to
exceed 10% of the association's Lending Limit Capital, if the additional amount
is fully secured by certain forms of "readily marketable collateral." Real
estate is not considered "readily marketable collateral." Certain types of loans
are
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not subject to this limit. In applying this limit, the regulations require that
loans to certain related borrowers be aggregated. An exception to this limit
permits loans of any type to one borrower up to $500,000.
Based on such limits, the Company was able to lend approximately $21.0
million to one borrower at December 31, 1997. The largest amount the Company had
outstanding to one borrower at December 31, 1997, was $15.2 million, which
consisted of four loans secured by first mortgage liens on freezer warehouses.
At December 31, 1997, such loans were performing in accordance with their terms.
See "THE BUSINESS OF THE COMPANY - Lending Activities -- Loan to One Borrower
Limits."
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors, and principal shareholders and their related interests must conform
to the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders, and their related
interests cannot exceed the Company's Lending Limit Capital (or 200% of Lending
Limit Capital for qualifying institutions with less than $100 million in
assets). Most loans to directors, executive officers, and principal shareholders
must be approved in advance by a majority of the "disinterested" members of the
board of directors of the Company with any "interested" director not
participating. All loans to directors, executive officers, and principal
shareholders must be made on terms substantially the same as offered in
comparable transactions with the general public or as offered to all employees
in a company-wide benefit program, and loans to executive officers are subject
to additional limitations. The Company was in compliance with such restrictions
at December 31, 1997.
All transactions between a savings association and its affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with, the savings association. The
Holding Company will be an affiliate of the Company. Generally, Sections 23A and
23B of the FRA (i) limit the extent to which a savings association or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, (ii) limit
the aggregate of all such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus, and (iii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
association, as those provided in transactions with a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee, and other similar types of transactions. In addition to the
limits in Sections 23A and 23B, a savings association may not make any loan or
other extension of credit to an affiliate unless the affiliate is engaged only
in activities permissible for a bank holding company and may not purchase or
invest in securities of any affiliate except shares of a subsidiary. The Company
was in compliance with these requirements and restrictions at December 31, 1997.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions, according to ratings of associations based on their capital level
and supervisory condition. Capital distributions, for purposes of such
regulation, include, without limitation, payments of cash dividends,
repurchases, and certain other acquisitions by an association of its shares and
payments to stockholders of another association in an acquisition of such other
association.
For purposes of the capital distribution regulations, each institution
is categorized in one of three tiers. Tier 1 consists of associations that,
before and after the proposed capital distribution, meet their fully phased-in
capital requirement. Associations in this category may make capital
distributions during any calendar year equal to the greater of 100% of their net
income, current year-to-date, plus 50% of the amount by which the lesser of such
association's tangible, core or risk-based capital exceeds its fully phased-in
capital requirement for such capital component, as measured at the beginning of
the calendar year, or the amount authorized for a tier 2 association. A tier 2
association meets its current minimum, but not fully phased-in capital
requirement before and after a proposed capital distribution. An association in
this category may make capital distributions up to 75% of its net income over
the most recent four quarters. A Tier 3 association is one which does not meet
its current minimum capital requirement and must obtain OTS approval of any
capital distribution. A tier 1
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association deemed to be in need of more than normal supervision by the OTS may
be downgraded to a tier 2 or tier 3 association. The Company meets the
requirements for a tier 1 association and has not been notified of any need for
more than normal supervision.
The Company will also be prohibited from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the net worth
of the Company would be reduced below the amount required to be maintained for
the liquidation account established in connection with the Conversion. See "THE
CONVERSION Principal Effects of the Conversion - Liquidation Account." In
addition, as a subsidiary of the Holding Company, the Company will also be
required to give the OTS 30 days' notice prior to declaring any dividend on its
stock. The OTS may object to the dividend during that 30-day period based on
safety and soundness concerns. Moreover, the OTS may prohibit any capital
distribution otherwise permitted by regulation if the OTS determines that such
distribution would constitute an unsafe or unsound practice. Pursuant to OTS
policy, as a condition to approval of the Conversion, the Company will be
required to state that it will not undertake a tax-free return of capital for a
period of one year following completion of the Conversion.
In December 1994, the OTS issued a proposal to amend the capital
distributions limits. Under that proposal, an association which is not owned by
a holding company and which has an examination rating of 1 or 2 could make a
capital distribution without notice to the OTS, if it remains adequately
capitalized, as described above, after the distribution is made. Any other
association seeking to make a capital distribution that would not cause the
association to fall below the capital levels to qualify as adequately
capitalized or better, would have to provide notice to the OTS. Except under
limited circumstances and with OTS approval, no capital distributions would be
permitted if it caused the association to become undercapitalized.
HOLDING COMPANY REGULATION. After the Conversion, the Holding Company
will be a savings and loan holding company within the meaning of the HOLA. As
such, the Holding Company will register with the OTS and will be subject to OTS
regulations, examination, supervision, and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings and loan association or savings and loan holding
company, without prior approval of the OTS, or from acquiring or retaining more
than 5% of the voting shares of a savings and loan association or holding
company thereof, which is not a subsidiary. Under certain circumstances, a
savings and loan holding company is permitted to acquire, with the approval of
the OTS, up to 15% of the previously unissued voting shares of an
undercapitalized savings and loan association for cash without being deemed to
control the association. Except with the prior approval of the OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's stock may also acquire
control of any savings institution, other than a subsidiary institution, or any
other savings and loan holding company.
The Holding Company will be a unitary savings and loan holding company.
Under current law, there are generally no restrictions on the activities of
unitary savings and loan holding companies and such companies are the only
financial institution holding companies which may engage in commercial,
securities, and insurance activities without limitation. The broad latitude
under current law can be restricted if the OTS determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness, or stability of its subsidiary savings and loan association. The OTS
may impose such restrictions as deemed necessary to address such risk, including
limiting (i) payment of dividends by the savings and loan association; (ii)
transactions between the savings and loan association and its affiliates; and
(iii) any activities of the savings and loan association that might create a
serious risk that the liabilities of the holding company and its affiliates may
be imposed on the savings and loan association. Notwithstanding the foregoing
rules as to permissible business activities of a unitary savings and loan
holding company, if the savings and loan association subsidiary of a holding
company fails to meet the QTL, then such unitary holding company would become
subject to the activities restrictions applicable to
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multiple holding companies. At December 31, 1997, the Company met the QTL. See
"Qualified Thrift Lender Test."
Congress is considering legislation which may limit the Holding
Company's ability to engage in these activities and the Holding Company cannot
predict if and in what form these proposals might become law. However, such
limits would not impact the Holding Company's initial activity of holding stock
of the Company.
If the Holding Company were to acquire control of another savings
institution, other than through a merger or other business combination with the
Company, the Holding Company would become a multiple savings and loan holding
company. Unless the acquisition is an emergency thrift acquisition and each
subsidiary savings and loan association meets the QTL, the activities of the
Holding Company and any of its subsidiaries (other than the Company or other
subsidiary savings and loan associations) would thereafter be subject to
activity restrictions. The HOLA provides that, among other things, no multiple
savings and loan holding company or subsidiary thereof that is not a savings
institution shall commence or continue for a limited period of time after
becoming a multiple savings and loan holding company or subsidiary thereof, any
business activity other than (i) furnishing or performing management services
for a subsidiary savings institution; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing or liquidating assets owned by or
acquired from a subsidiary savings institution; (iv) holding or managing
properties used or occupied by a subsidiary savings institution; (v) acting as
trustee under deeds of trust; (vi) those activities previously directly
authorized by federal regulation as of March 5, 1987, to be engaged in by
multiple holding companies; or (vii) those activities authorized by the FRB as
permissible for bank holding companies, unless the OTS by regulation prohibits
or limits such activities for savings and loan holding companies, and which have
been approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve an acquisition resulting in the formation of a
multiple savings and loan holding company that controls savings and loan
associations in more than one state only if the multiple savings and loan
holding company involved controls a savings and loan association that operated a
home or branch office in the state of the Company to be acquired as of March 5,
1987, or if the laws of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions). As under prior law, the OTS may approve
an acquisition resulting in a multiple savings and loan holding company
controlling savings and loan associations in more than one state in the case of
certain emergency thrift acquisitions. Bank holding companies have had more
expansive authority to make interstate acquisitions than savings and loan
holding companies since August 1995.
FDIC REGULATIONS
DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and thrifts and safeguards the safety and soundness of the banking and
thrift industries. The FDIC administers two separate insurance funds, the Bank
Insurance Fund (the "BIF") for commercial banks and state savings banks and the
SAIF for savings associations. The FDIC is required to maintain designated
levels of reserves in each fund. The Company's deposit accounts are insured by
the FDIC in the SAIF up to the prescribed limits. The FDIC has examination
authority over all insured depository institutions, including the Company, and
has authority to initiate enforcement actions against federally insured savings
associations if the FDIC does not believe the OTS has taken appropriate action
to safeguard safety and soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. 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 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
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vary based on the risk the institution poses to its deposit insurance fund. The
risk level is determined based on the institution's capital level and the FDIC's
level of supervisory concern about the institution.
Federal legislation which was effective September 30, 1996, provided for
the recapitalization of the SAIF by means of a special assessment of $.657 per
$100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves
to the level required by law. In addition, the cost of prior thrift failures,
which had previously been paid only by SAIF members, will also be paid by BIF
members. As a result, SAIF assessments for healthy institutions in 1997 were
$.064 per $100 in deposits.
The Company had $904.4 million in deposits at March 31, 1995. The
Company paid a special assessment of approximately $5.9 million in November
1996, which was accounted for and recorded as of September 30, 1996. This
assessment was tax-deductible but reduced earnings for the year ended December
31, 1996.
FRB REGULATIONS
FRB regulations currently require savings associations to maintain
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $47.8
million (subject to an exemption of up to $4.7 million), and of 10% of net
transaction accounts over $47.8 million. At December 31, 1997, the Company was
in compliance with this reserve requirement.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances. See
"THE BUSINESS OF THE COMPANY - Deposits and Borrowings." The Company is a member
of the FHLB of Cincinnati and must maintain an investment in the capital stock
of the FHLB of Cincinnati in an amount equal to the greater of 1% of the
aggregate outstanding principal amount of the Company's residential mortgage
loans, home purchase contracts, and similar obligations at the beginning of each
year, and 5% of its advances from the FHLB. The Company is in compliance with
this requirement with an investment in stock of the FHLB of Cincinnati of $11.1
million at December 31, 1997.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
U.S. Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the applicable FHLB, if such collateral has a readily ascertainable value and
the FHLB can perfect its security interest in the collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance.
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TAXATION
FEDERAL TAXATION
The Holding Company and the Company are each subject to the federal tax
laws and regulations which apply to corporations generally. In addition to the
regular income tax, the Holding Company and the Company may be subject to an
alternative minimum tax. An alternative minimum tax is imposed at a minimum tax
rate of 20% on "alternative minimum taxable income" (which is the sum of a
corporation's regular taxable income, with certain adjustments, and tax
preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its alternative minimum taxable income computed without regard to this
preference item and prior to reduction by net operating losses, is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years. The Taxpayer Relief Act of 1997 repealed the
alternative minimum tax for certain "small corporations" for tax years beginning
after December 31, 1997. A corporation initially qualifies as a small
corporation if it had average gross receipts of $5,000,000 or less for the three
tax years ending with its first tax year beginning after December 31, 1997. Once
a corporation is recognized as a small corporation, it will continue to be
exempt from the alternative minimum tax for as long as its average gross
receipts for the prior three-year period do not exceed $7,500,000. In
determining if a corporation meets this requirement, the first year that it
achieved small corporation status is not taken into consideration.
Based on the Company's average gross receipts of approximately $82.9
million for the three tax years ending on December 31, 1997, the Company would
not qualify as a small corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Small Business Act"), which was signed into law on August 21, 1996, certain
thrift institutions, were allowed deductions for bad debts under methods more
favorable than those granted to other taxpayers. Qualified thrift institutions
could compute deductions for bad debts using either the specific charge off
method of Section 166 of the Code, or one of the two reserve methods of Section
593 of the Code. The reserve methods under Section 593 of the Code permitted a
thrift institution annually to elect to deduct bad debts under either (i) the
"percentage of taxable income" method applicable only to thrift institutions, or
(ii) the "experience" method that also was available to small banks. Under the
"percentage of taxable income" method, a thrift institution generally was
allowed a deduction for an addition to its bad debt reserve equal to 8% of its
taxable income (determined without regard to this deduction and with additional
adjustments). Under the experience method, a thrift institution was generally
allowed a deduction for an addition to its bad debt reserve equal to the greater
of (i) an amount based on its actual average experience for losses in the
current and five preceding taxable years, or (ii) an amount necessary to restore
the reserve to its balance as of the close of the base year. A thrift
institution could elect annually to compute its allowable addition to bad debt
reserves for qualifying loans either under the experience method or the
percentage of taxable income method.
The Small Business Act eliminated the percentage of taxable income
reserve method of accounting for bad debts by thrift institutions, effective for
taxable years beginning after December 31, 1995. Thrift institutions that would
be treated as small banks are allowed to utilize the experience method
applicable to such institutions, while thrift institutions that are treated as
large banks are required to use only the specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debts will treat such change as a change in the method of
accounting, initiated by the taxpayer, and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured
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with respect to such change. Generally, the amounts to be recaptured will be
determined solely with respect to the "applicable excess reserves" of the
taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift institution that becomes a large bank, the amount
of the institution's applicable excess reserves generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
becomes a small bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans and its reserve for losses on nonqualifying loans
as of the close of its last taxable year beginning before January 1, 1996, over
(ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the
thrift's reserves would have been at the close of its last year beginning before
January 1, 1996, had the thrift always used the experience method.
For taxable years that begin on or after January 1, 1996, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential origination loan requirement if, for
the tax year, the principal origination amount of residential loans made by the
thrift during the year is not less than its base amount. The "base amount"
generally is the average of the principal origination amounts of the residential
loans made by the thrift during the six most recent tax years beginning before
January 1, 1996. A residential loan is a loan as described in Section
7701(a)(19)(C)(v) (generally a loan secured by residential real and church
property and certain mobile homes), but only to the extent that the loan is made
to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e) as modified by the Small Business Act which require recapture in
the case of certain excessive distributions to shareholders. The pre-1988
reserves may not be utilized for payment of cash dividends or other
distributions to a shareholder (including distributions in dissolution or
liquidation) or for any other purpose (excess to absorb bad debt losses).
Distribution of a cash dividend by a thrift institution to a shareholder is
treated as made: first, out of the institution's post-1951 accumulated earnings
and profits; second, out of the pre-1988 reserves; and third, out of such other
accounts as may be proper. To the extent a distribution by the Company to the
Holding Company is deemed paid out of its pre-1988 reserves under these rules,
the pre-1988 reserves would be reduced and the Company's gross income for tax
purposes would be increased by the amount which, when reduced by the income tax,
if any, attributable to the inclusion of such amount in its gross income, equals
the amount deemed paid out of the pre-1988 reserves. As of December 31, 1997,
the Company's pre-1988 reserves for tax purposes totaled approximately $14.4
million. The Company believes it had approximately $140.0 million of accumulated
earnings and profits for tax purposes as of December 31, 1997, which would be
available for dividend distributions, provided regulatory restrictions
applicable to the payment of dividends are met. See "REGULATION - Office of
Thrift Supervision -- Limitations on Capital Distributions." No representation
can be made as to whether the Company will have current or accumulated earnings
and profits in subsequent years.
The tax returns of the Company have been audited or closed without
audit through fiscal year 1994. In the opinion of management, any examination of
open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Company.
OHIO TAXATION
The Holding Company is subject to the Ohio corporation franchise tax,
which, as applied to the Holding Company, is a tax measured by both net earnings
and net worth. The rate of tax is the greater of (i) 5.1% on the first $50,000
of computed Ohio taxable income and 8.9% of computed Ohio taxable income in
excess of $50,000
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and (ii) 0.582% times taxable net worth. Under these alternative measures of
computing tax liability, the states to which a taxpayer's adjusted total net
income and adjusted total net worth are apportioned or allocated are determined
by complex formulas. The minimum tax is $50 per year.
A special litter tax is also applicable to all corporations, including
the Holding Company, subject to the Ohio corporation franchise tax other than
"financial institutions." If the franchise tax is paid on the net income basis,
the litter tax is equal to .11% of the first $50,000 of computed Ohio taxable
income and .22% of computed Ohio taxable income in excess of $50,000. If the
franchise tax is paid on the net worth basis, the litter tax is equal to .014%
times taxable net worth.
Ohio corporation franchise tax law is scheduled to change markedly as a
consequence of legislative reforms enacted July 1, 1997. Tax liability, however,
continues to be measured by both net income and net worth. In general, tax
liability will be the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 or
(ii) 0.40% of taxable net worth. Under these alternative measures of computing
tax liability, the states to which total net income and total net worth will be
apportioned or allocated will continue to be determined by complex formulas, but
the formulas change. The minimum tax will still be $50 per year and maximum tax
liability as measured by net worth will be limited to $150,000 per year. The
special litter taxes remain in effect. Various other changes in the tax law may
affect the Holding Company.
The Company is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of the
Company's apportioned book net worth, determined in accordance with GAAP, less
any statutory deduction. This rate of tax is scheduled to decrease in each of
the years 1999 and 2000. As a "financial institution," the Company is not
subject to any tax based upon net income or net profits imposed by the State of
Ohio.
THE CONVERSION
THE OTS AND THE DIVISION HAVE APPROVED THE PLAN, SUBJECT TO THE
APPROVAL OF THE PLAN BY THE MEMBERS OF THE COMPANY ENTITLED TO VOTE ON THE PLAN
AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS
AND THE DIVISION. OTS AND DIVISION APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE PLAN.
GENERAL
On December 9, 1997, the Board of Directors of the Company unanimously
adopted the Plan and recommended that the voting members of the Company approve
the Plan at the Special Meeting. During and upon completion of the Conversion,
the Company will continue to provide the services presently offered to
depositors and borrowers, will maintain its existing offices, and will retain
its existing management and employees.
Based on the current Adjusted Valuation Range, between 21,250,000 and
28,937,500 Common Shares are expected to be offered in the Subscription Offering
and the Community Offering at a price of $10 per share. Applicable regulations
permit the Holding Company to issue up to 33,465,625 Common Shares with an
aggregate purchase price of $334,656,250. Federal regulations require, with
certain exceptions, that shares offered in connection with the Conversion must
be sold up to at least the minimum point of the Adjusted Valuation Range in
order for the Conversion to become effective. The actual number of Common Shares
sold in connection with the Conversion will be determined upon completion of the
Offering based on the final valuation
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of the Company, as converted, and the Holding Company. See "Pricing and Number
of Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering to the
ESOP and certain present and former depositors of the Company. Any Common Shares
not subscribed for in the Subscription Offering will be offered to the general
public in the Community Offering in a manner which will seek to achieve the
widest distribution of the Common Shares, but which will give preference to
natural persons who maintain a bona fide residence in Columbiana, Mahoning or
Trumbull, Counties, Ohio. Under OTS regulations, the Community Offering must be
completed within 45 days after completion of the Subscription Offering, unless
such period is extended by the Company with the approval of the OTS and the
Division. Shares not subscribed for in the Subscription Offering or the
Community Offering will be offered to the general public in the Public Offering.
If the Community Offering and the Public Offering are determined not to be
feasible, an occurrence that is not currently anticipated, the Boards of
Directors of the Holding Company and the Company will consult with the OTS and
the Division to determine an appropriate alternative method of selling
unsubscribed Common Shares up to the minimum of the Adjusted Valuation Range. No
alternative sales methods are currently planned.
OTS and Ohio regulations require the completion of the Conversion
within 24 months after the date of the approval of the Plan by the voting
members of the Company. The commencement and completion of the Conversion will
be subject to market conditions and other factors beyond the Company's control.
Due to changing economic and market conditions, no assurance can be given as to
the length of time that will be required to complete the sale of the Common
Shares. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Company. In such circumstances, the
Company may also incur substantial additional printing, legal and accounting
expenses in completing the Conversion. In the event the Conversion is not
successfully completed, the Company will be required to charge all Conversion
expenses against current earnings.
REASONS FOR THE CONVERSION
The principal factors considered by the Company's Board of Directors in
reaching the decision to pursue a mutual-to-stock conversion were the numerous
competitive advantages which the stock form of organization offers, including
growth opportunities, employee retention through the use of stock-based benefit
plans, and increased capital levels.
If the Company is to continue to grow and prosper, the mutual form of
organization is the least desirable form from a competitive standpoint. The
opportunities for a mutual to expand through mutual-to-mutual mergers or
acquisitions are limited. Although the Company does not have any specific
acquisitions planned at this time, the Conversion will position the Company to
take advantage of any acquisition opportunities which may present themselves.
Because a conversion to stock form is a time-consuming and complex process, the
Company cannot wait until an acquisition is imminent to embark on the conversion
process.
As an increasing number of the Company's competitors convert to stock
form and acquire the ability to use stock-based compensation programs, the
Company, in mutual form, would be at a disadvantage when it comes to attracting
and retaining qualified management. The Company believes that the ESOP, the
Stock Option Plan and the RRP are important tools in achieving such goals. See
"MANAGEMENT - Stock Benefit Plans."
CONTRIBUTION TO THE FOUNDATION
GENERAL. The Plan provides that the Holding Company and the Company may
contribute common shares to the Foundation. The Company believes that the
contribution to the Foundation will benefit the long-term value of the Company's
community banking franchise by enhancing the Company's visibility and reputation
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in the communities that it serves. The Foundation is dedicated to charitable
purposes within the communities served by the Company, including community
development activities.
PURPOSE OF THE FOUNDATION. The Foundation was formed in 1991 to augment
the Company's community activities. The Foundation is dedicated exclusively to
community activities and the promotion of charitable causes. The Board of
Directors believes that the contribution of common shares to the Foundation is
consistent with the Company's commitment to community service and to the
Company's CRA responsibilities. The contribution of Common Shares to the
Foundation will enable the communities served by the Company to share in the
growth and success of the Company and the Holding Company long after completion
of the Conversion. The Foundation enables the Company and the Holding Company to
utilize a unified charitable donation strategy with centralized responsibility
for administration and allocation of corporate charitable funds and enables the
Company to provide community support in future years, regardless of the
Company's earnings. The contribution to the Foundation will not take the place
of the Company's traditional community lending activities.
STRUCTURE OF THE FOUNDATION. The Foundation is a charitable trust
established exclusively for charitable purposes, including community
development, as set forth in Section 501(c)(3) of the Code. The trust agreement
provides that no part of the net earnings of the Foundation will inure to the
benefit of any private shareholder or individual.
The business of the Foundation is conducted by an independent trustee,
which is currently National City Bank, Northeast, located at 20 Federal Plaza,
Youngstown, Ohio 44503. The Company has the power to direct the trustee with
respect to distributions by the Foundation, consistent with the purposes for
which the Foundation was established, through a distribution committee of the
Company. The committee consists of Douglas M. McKay, the Chairman of the Board,
President and Chief Executive Officer of the Company, Donald J. Varner, the
Secretary, Senior Vice President of Retail Banking and a director of the Company
and Patrick A. Kelly, the Chief Financial Officer, Treasurer, Senior Vice
President and a director of the Company. In connection with the Conversion,
Messrs. McKay, Varner and Kelly have indicated an intent to purchase, together
with their Associates, 80,000, 60,000 and 60,000 shares, respectively, or .32%,
.24% and .24%, respectively, of the total number of shares sold in the
Conversion, assuming the sale of 25,000,000 Common Shares at the mid-point of
the Adjusted Valuation Range. See "Intended Purchase by Directors and Executive
Officers." Each director, officer and employee of the Company, as well as any
person who has the power to direct the management or policies of the Company or
any other person who owes a fiduciary duty to the Company, must comply with the
regulations of the OTS regarding conflicts of interest if such person is also a
trustee of the Foundation, a member of the distribution committee or an employee
of the Foundation.
The Company proposes to contribute to the Foundation immediately
following the Conversion a number of shares equal to 5% of the Common Shares
sold in the Conversion, subject to the overall limitation of 1,250,000 common
shares. The contribution to the Foundation would equal 1,062,500 common shares
at the minimum of the Adjusted Valuation Range and 1,250,000 common shares at
the mid-point, maximum and adjusted maximum of the Adjusted Valuation Range,
which would have a market value of $10,625,000 and $12,500,000, respectively,
based on the purchase price of $10 per share. Keller, an independent appraiser
of financial institutions, considered the effect of the contribution of shares
to the Foundation when determining the pro forma market value of the Holding
Company and the Company, as converted. Keller determined that the contribution
would dilute the equity and earnings of the initial shareholders of the Holding
Company and that the contribution would result in a charge to the Company's
earnings, therefore resulting in a lower pro forma market value of the Holding
Company and the Company, as converted. See "RISK FACTORS - Contribution to the
Foundation." As a result of the contribution to the Foundation and its impact on
the pro forma market value of the Holding Company and the Company, as converted,
the Holding Company will offer 2,550,000, 3,000,000, 3,262,500 and 3,564,375
fewer shares at the
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minimum, mid-point, maximum and adjusted maximum of the Adjusted Valuation
Range, than if it had not made such contribution. Based on the $10 price per
share, the Holding Company will receive $25.5 million, $30.0 million, $32.6
million and $35.6 million less in gross proceeds than it would have if the
contribution to the Foundation were not made. See "COMPARISON OF VALUATION AND
PRO FORMA INFORMATION WITHOUT FOUNDATION."
Notwithstanding the impact of the contribution on the Offering, the
Company and the Holding Company determined to fund the Foundation with common
shares to enhance the ties between the Company and the communities it serves by
allowing the communities to share in the growth and success of the Company and
the Holding Company over the long term. The funding of the Foundation with
Common Shares also provides the Foundation with a potentially larger endowment
than a cash contribution since, as a shareholder, the Foundation will share in
the growth and success of the Company and the Holding Company. The contribution
of Common Shares to the Foundation has the potential to provide a
self-sustaining funding mechanism to enable the Company to maintain a consistent
level of charitable grants and donations regardless of the Company's income.
The Foundation will receive income from any dividends that may be paid
on the Common Shares in the future. Subject to applicable federal and state
laws, the Foundation may also obtain funds through loans collateralized by the
Common Shares or from the proceeds of the sale of any of the Common Shares in
the open market from time to time to provide the Foundation with additional
liquidity. As a private foundation under Section 501(c)(3) of the Code, the
Foundation will be required to distribute annually in grants or donations, a
minimum of 5% of the average fair market value of its net investment assets.
Upon completion of the Conversion and the contribution of shares to the
Foundation, the Holding Company would have 22,312,500, 26,250,000, 30,187,500
and 34,715,265 shares issued and outstanding at the minimum, mid-point, maximum
and adjusted maximum of the Adjusted Valuation Range, respectively. Because the
Holding Company will have an increased number of shares outstanding, the voting
and ownership interests of shareholders in the Holding Company's Common Shares
would be diluted as compared to their interests in the Holding Company if the
Foundation were not established. Assuming the sale of Common Shares at the
maximum of the Adjusted Valuation Range and the contribution of 1,250,000 common
shares to the Foundation, there will be a dilution of approximately 4.14% to the
ownership interests in the Holding Company of the persons purchasing Common
Shares in the Conversion. For additional discussion of the dilutive effect, see
"PRO FORMA DATA."
TAX CONSIDERATIONS. The Foundation qualifies as a Section 501(c)(3)
exempt organization under the Code, and is classified as a private foundation.
Under the Code, the Company is generally allowed a deduction for
charitable contributions made to qualifying donees within the taxable year of up
to 10% of its taxable income (with certain modifications) for such year.
Charitable contributions made in excess of the annual deductible amount will be
deductible over each of the five succeeding taxable years, subject to certain
limitations. The Company and the Holding Company believe that the Conversion
presents a unique opportunity to increase the funding of the Foundation given
the substantial amount of additional capital being raised in the Conversion. In
making such a determination, the Company and the Holding Company considered the
dilutive impact of the contribution of Common Shares to the Foundation on the
amount of Common Shares available to be offered for sale in the Conversion.
Based on such consideration, the Company and Holding Company believe that the
contribution to the Foundation is justified given the Company's capital position
and its earnings, the substantial additional capital being raised in the
Conversion and the potential benefits of the Foundation to the communities
served by the Company. In this regard, assuming the sale of the Common Shares at
the mid-point of the Adjusted Valuation Range, the Holding Company would have
pro forma shareholders' equity of $360.7 million, or 28.6% of pro forma
consolidated assets, and the Company's pro forma tangible, core and total
risk-based capital ratios would be 18.78%, 18.78% and 39.62%, respectively. See
"REGULATORY CAPITAL COMPLIANCE," "CAPITALIZATION," AND "COMPARISON OF VALUATION
AND PRO FORMA INFORMATION WITH
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NO FOUNDATION." The amount of the contribution will not adversely impact the
financial condition of the Company and the Holding Company, and the Company and
the Holding Company therefore believe that the amount of the charitable
contribution is reasonable and is safe and sound given the Company's and the
Holding Company's pro forma capital positions.
The Company and the Holding Company have received an opinion of their
independent tax advisors that the Company's contribution of shares to the
Foundation would not constitute an act of self-dealing, and that the Company
will be entitled to a deduction in the amount of the fair market value of the
shares at the time of the contribution, subject to the annual deduction
limitation described above. The Company, however, will be able to carry forward
any unused portion of the deduction for five years following the contribution,
subject to certain limitations. The Company's independent tax advisors, however,
have not rendered advice as to the fair market value for purposes of determining
the amount of the tax deduction. The Company is permitted under the Code to
carry over the excess contribution over the five-year period following the
contribution to the Foundation. Assuming the close of the Offering at the
mid-point of the Adjusted Valuation Range, the Company estimates that all of the
deduction should be deductible over the six-year period. Neither the Company nor
the Holding Company expect to make any further contributions to the Foundation
during 1998 or within the first five years following the initial contribution.
After that time, the Company and the Holding Company may consider future
contributions to the Foundation. The Company does expect to continue its
practice of making small donations, directly to charitable institutions during
1998 and the following five years. Any such decisions would be based on an
assessment of, among other factors, the financial condition of the Company and
the Holding Company at that time, the interests of shareholders of the Holding
Company and the depositors of the Company, and the financial condition and
operations of the Foundation.
As a private foundation, earnings and gains, if any, from the sale of
common shares or other assets are generally exempt from federal and state
corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private foundation will generally be subject
to a federal excise tax of 2%. The Foundation is required to make an annual
filing with the IRS within four and one-half months after the close of the
Foundation's fiscal year to maintain its tax-exempt status. The Foundation is
required to publish a notice that the annual information return will be
available for public inspection for a period of 180 days after the date of such
public notice. The information return for a private foundation must include,
among other things, an itemized list of all grants made or approved, showing the
amount of each grant, the recipient, any relationship between a grant recipient
and the Foundation's managers and a concise statement of the purpose of each
grant.
REGULATORY CONDITIONS IMPOSED ON THE FOUNDATION. The contribution to
the Foundation is subject to the following conditions being agreed to by the
Foundation in writing as a condition to receiving OTS approval of the
Conversion: (i) the Foundation will be subject to examination by the OTS; (ii)
the Foundation must comply with supervisory directives imposed by the OTS; (iii)
the Committee will operate in accordance with written policies adopted by the
Board of Directors, including a conflict of interest policy; (iv) any common
shares held by the Foundation must be voted in the same ratio as all other
outstanding common shares on all proposals considered by shareholders of the
Holding Company; provided, however, that, consistent with the condition, the OTS
would waive this voting restriction under certain circumstances if compliance
with the voting restriction would: (a) cause a violation of the law of the State
of Ohio and the OTS determines that federal law would not preempt the
application of the laws of Ohio to the Foundation; (b) would cause the
Foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the Foundation; or (c) would cause the Foundation to
be subject to an excise tax under Section 4941 of the Code; and (v) any common
shares subsequently purchased by the Foundation will be aggregated with any
shares repurchased by the Company or the Holding Company for purposes of
calculating the number of shares which may be repurchased during the three-year
period subsequent to the Conversion. In order for the OTS to waive such voting
restriction, the Holding Company's or the Foundation's legal counsel would be
required to render an opinion satisfactory to the OTS. While there is no current
intention for the Holding Company or the Foundation to seek a
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waiver from the OTS from such restrictions, there can be no assurances that a
legal opinion addressing these issues could be rendered, or if rendered, that
the OTS would grant an unconditional waiver of the voting restriction. In no
event would the voting restriction survive the sale of common shares held by the
Foundation.
APPROVAL OF THE FOUNDATION BY MEMBERS. The contribution of common
shares to the Foundation is subject to the approval of a majority of the total
outstanding votes eligible to be cast at the Special Meeting. If the Company's
members approve the Plan, but not the contribution to the Foundation, the
Company intends to complete the Conversion without the contribution to the
Foundation. The elimination of the contribution to the Foundation may materially
increase the pro forma market value of the Company, as converted, and the
Holding Company. See "COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT
FOUNDATION."
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Deposit holders who are members of the Company in its
mutual form will have no voting rights in the Company as converted and will not
participate, therefore, in the election of directors or otherwise control the
Company's affairs. Voting rights in the Holding Company will be held exclusively
by its shareholders, and voting rights in the Company will be held exclusively
by the Holding Company as the sole shareholder of the Company. Each holder of
the Holding Company's common shares will be entitled to one vote for each share
owned on any matter to be considered by the Holding Company's shareholders. See
"DESCRIPTION OF AUTHORIZED SHARES."
DEPOSIT ACCOUNTS AND LOANS. Deposit accounts in the Company, as
converted, will be equivalent in amount, interest rate and other terms to the
present deposit accounts in the Company, and the existing FDIC insurance on such
accounts will not be affected by the Conversion. The Conversion will not affect
the terms of loan accounts or the rights and obligations of borrowers under
their individual contractual arrangements with the Company.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by the Company of a private letter ruling from the IRS or
an opinion of counsel to the effect that the Conversion will constitute a
tax-free reorganization as defined in Section 368(a) of the Code. The Company
intends to proceed with the Conversion based upon an opinion received from its
special counsel, Vorys, Sater, Seymour and Pease LLP, to the following effect:
(1) The Conversion constitutes a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will
be recognized by the Company in its mutual form or in its stock form as
a result of the Conversion. The Company in its mutual form and the
Company in its stock form will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Company upon the
receipt of money from the Holding Company in exchange for the capital
stock of the Company, as converted;
(3) The assets of the Company will have the same basis in its
hands immediately after the Conversion as they had in its hands
immediately prior to the Conversion, and the holding period of the
assets of the Company after the Conversion will include the period
during which the assets were held by the Company before the Conversion;
(4) No gain or loss will be recognized by the deposit account
holders of the Company upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in the Company immediately
prior to the Conversion, of withdrawable deposit accounts in the
Company immediately
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after the Conversion, in the same dollar amount as their withdrawable
deposit accounts in the Company immediately prior to the Conversion,
plus, in the case of Eligible Account Holders and Supplemental Eligible
Account Holders, the interests in the Liquidation Account of the
Company, as described below;
(5) The basis of the withdrawable deposit accounts in the
Company held by its deposit account holders immediately after the
Conversion will be the same as the basis of their deposit accounts in
the Company immediately prior to the Conversion. The basis of the
interests in the Liquidation Account received by the Eligible Account
Holders and Supplemental Eligible Account Holders will be zero. The
basis of the nontransferable subscription rights received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other
Eligible Members will be zero (assuming that at distribution such
rights have no ascertainable fair market value);
(6) No gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders or Other Eligible
Members upon the distribution to them of nontransferable subscription
rights to purchase Common Shares (assuming that at distribution such
rights have no ascertainable fair market value), and no taxable income
will be realized by such Eligible Account Holders, Supplemental
Eligible Account Holders or Other Eligible Members as a result of their
exercise of such nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of the
Company pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the
holding period of such shares will commence on the date of such
exercise. The basis of the Common Shares purchased other than by the
exercise of subscription rights will be the purchase price thereof
(assuming in the case of the other subscribers that the opportunity to
buy in the Subscription Offering has no ascertainable fair market
value), and the holding period of such shares will commence on the day
after the date of the purchase;
(8) For purposes of Section 381 of the Code, the Company will
be treated as if there had been no reorganization. The taxable year of
the Company will not end on the effective date of the Conversion.
Immediately after the Conversion, the Company in its stock form will
succeed to and take into account the tax attributes of the Company in
its mutual form immediately prior to the Conversion, including the
Company's earnings and profits or deficit in earnings and profits;
(9) The bad debt reserves of the Company in its mutual form
immediately prior to the Conversion will not be required to be restored
to the gross income of the Company in its stock form as a result of the
Conversion and immediately after the Conversion such bad debt reserves
will have the same character in the hands of the Company in its stock
form as they would have had if there had been no Conversion. The
Company in its stock form will succeed to and take into account the
dollar amounts of those accounts of the Company in its mutual form
which represent bad debt reserves in respect of which the Company in
its mutual form has taken a bad debt deduction for taxable years ending
on or before the Conversion; and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of the Company available for the subsequent
distribution of dividends within the meaning of Section 316 of the
Code. The creation of the Liquidation Account on the records of the
Company will have no effect on its taxable income, deductions for
additions to reserves for bad debts under Section 593 of the Code or
distributions to stockholders under Section 593(e) of the Code.
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For Ohio tax purposes, the tax consequences of the Conversion
will be as follows:
(1) The Company is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status;
(2) The Company is subject to the Ohio corporate franchise tax
on "financial institutions," which is imposed annually at a rate of
1.5% of the Company's equity capital determined in accordance with
GAAP, and the Conversion will not change such status;
(3) As a "financial institution," the Company is not subject
to any tax based upon net income or net profit imposed by the State of
Ohio, and the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to the
Company in its mutual or stock form for purposes of the Ohio corporate
franchise tax. As a consequence of the Conversion, however, the annual
Ohio corporate franchise tax liability of the Company will increase if
the taxable net worth of the Company (i.e., book net worth computed in
accordance with GAAP at the close of the Company's taxable year for
federal income tax purposes) increases thereby; and
(5) The Conversion will not be a taxable transaction to any
deposit account holder or borrower member of the Company in its mutual
or stock form for purposes of the Ohio corporate franchise tax and the
Ohio personal income tax.
The Company has received an opinion from Keller to the effect that the
subscription rights have no ascertainable fair market value because the rights
are received by specified persons at no cost, may not be transferred and are of
short duration. The IRS could challenge the assumption that the subscription
rights have no ascertainable fair market value.
Each Eligible Account Holder, Supplemental Eligible Account Holder and
Other Eligible Member is urged to consult his or her own tax advisor with
respect to the effect of such tax consequences on his or her own particular
facts and circumstances.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Company in its present mutual form, each depositor in the Company would
receive a pro rata share of any assets of the Company remaining after payment of
the claims of all creditors, including the claims of all depositors to the
withdrawable value of their deposit accounts. A depositor's pro rata share of
such remaining assets would be the same proportion of such assets as the value
of such depositor's accounts bears to the total aggregate value of all deposits
in the Company at the time of liquidation.
In the event of a complete liquidation of the Company in its stock form
after the Conversion, each depositor would have a claim of the same general
priority as the claims of all other general creditors of the Company. Except as
described below, each depositor's claim would be solely in the amount of the
balance in such depositor's account plus accrued interest. The depositor would
have no interest in the assets of the Company above that amount. Such assets
would be distributed to the Holding Company as the sole shareholder of the
Company.
For the purpose of granting a limited priority claim to the assets of
the Company in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
deposit accounts at the Company after the Conversion, the Company will, at the
time of Conversion, establish a liquidation account in an amount equal to the
net worth of the Company as of December 31, 1997 (the "Liquidation Account").
The Liquidation Account will not operate to restrict the use or application of
any of the regulatory capital of the Company.
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Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of each fiscal year of the Company subsequent to the
respective record dates, the balance in the deposit account to which a
Subaccount relates is less than the lesser of (i) the deposit balance in such
deposit account at the close of business on the last day of any other annual
closing date subsequent to the Eligibility Record Date or the Supplemental
Eligibility Record Date, or (ii) the amount of the Qualifying Deposit as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, the balance
of the Subaccount for such deposit account shall be adjusted proportionately to
the reduction in such deposit account balance. In the event of any such downward
adjustment, such Subaccount balance shall not be subsequently increased
notwithstanding any increase in the deposit balance of the related deposit
account. If any deposit account is closed, its related Subaccount shall be
reduced to zero upon such closing.
In the event of a complete liquidation of the converted Company (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the Holding Company as the sole
shareholder of the Company. Any assets remaining after satisfaction of such
liquidation rights and the claims of the Company's creditors would be
distributed to the Holding Company as the sole shareholder of the Company. No
merger, consolidation, purchase of bulk assets or similar combination or
transaction with another financial institution, the deposits of which are
insured by the FDIC, will be deemed to be a complete liquidation for this
purpose and, in any such transaction, the Liquidation Account shall be assumed
by the surviving institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE
INSURED BY THE FDIC. For a description of the characteristics of the Common
Shares, see "DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of the Holding Company and the Company will be final. The
Plan may be amended by the Boards of Directors of the Holding Company and the
Company at any time with the concurrence of the OTS and the Division. If the
Company and the Holding Company determine, upon advice of counsel and after
consultation with the OTS and the Division, that any such amendment is material,
subscribers will be notified of the amendment and will be provided the
opportunity to affirm, increase, decrease or cancel their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan and
the adoption of the Amended Articles of Incorporation and the Amended
Constitution by the voting members of the Company at the Special
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Meeting and the completion of the sale of the requisite amount of Common Shares
within 24 months following the date of such approval. If these conditions are
not satisfied, the Plan will automatically terminate and the Company will
continue its business in the mutual form of organization. The Plan may be
voluntarily terminated by the Board of Directors at any time before the Special
Meeting and at any time thereafter with the approval of the OTS and the
Division.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 12:00 NOON, DAYLIGHT STANDARD
TIME, ON _____ __, 1998. SUBSCRIPTION RIGHTS NOT EXERCISED BEFORE ___:00 __.M.,
DAYLIGHT STANDARD TIME, ON _____ __, 1998, WILL BE VOID, WHETHER OR NOT THE
COMPANY HAS BEEN ABLE TO LOCATE EACH PERSON ENTITLED TO SUCH SUBSCRIPTION
RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. EACH PERSON SUBSCRIBING FOR COMMON SHARES MUST
REPRESENT TO THE COMPANY THAT HE OR SHE IS PURCHASING SUCH SHARES FOR HIS OR HER
OWN ACCOUNT AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER
PERSON FOR THE SALE OR TRANSFER OF THE COMMON SHARES. ANY PERSON WHO ATTEMPTS TO
TRANSFER HIS OR HER SUBSCRIPTION RIGHTS MAY BE SUBJECT TO PENALTIES AND
SANCTIONS, INCLUDING LOSS OF THE SUBSCRIPTION RIGHTS.
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of Common Shares for purchase under the
preference categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the voting members of the Company at the Special Meeting.
The preference categories and preliminary purchase limitations which
have been established by the Plan, in accordance with applicable regulations,
for the allocation of Common Shares are as follows:
(a) Each Eligible Account Holder shall receive, without
payment therefor, a nontransferable right to purchase in the
Subscription Offering up to the greater of (i) 35,000 Common Shares,
(ii) .10% of the total number of Common Shares sold in connection with
the Conversion, and (iii) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of Common
Shares sold in connection with the Conversion by a fraction, the
numerator of which is the amount of the Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date, subject to the overall purchase
limitations set forth in Section 11 of the Plan and subject to
adjustment by the Board of Directors of the Holding Company and the
Company as set forth in Section 11 of the Plan. If the exercise of
subscription rights by Eligible Account Holders results in an
over-subscription, Common Shares will be allocated among subscribing
Eligible Account Holders in a manner which will, to the extent
possible, make the total allocation of each subscriber equal 100 shares
or the amount subscribed for, whichever is less. Any Common Shares
remaining after such allocation has been made will be allocated among
the subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion which the amount of their respective
Qualifying Deposits on the Eligibility Record Date bears to the total
Qualifying Deposits of all Eligible Account Holders on such date.
Notwithstanding the foregoing, Common Shares in excess of 28,937,500,
the maximum of the Adjusted Valuation Range, may be sold to the ESOP
before fully satisfying the subscriptions of Eligible Account Holders.
No fractional shares will be issued. For purposes of this paragraph
(a), increases in the
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Qualifying Deposits of directors and executive officers of the Company
during the twelve months preceding the Eligibility Record Date shall
not be considered.
(b) The ESOP shall receive, without payment therefor, a
nontransferable right to purchase in the Subscription Offering an
aggregate amount of up to 10% of the total Common Shares sold in the
Conversion and contributed to the Foundation, provided that shares
remain available after satisfying the subscription rights of Eligible
Account Holders up to the maximum of the Adjusted Valuation Range
pursuant to paragraph (a) above. Although the Plan and OTS regulations
permit the ESOP to purchase up to 10% of the Common Shares, the Holding
Company anticipates that the ESOP will purchase 8% of the Common
Shares. If the ESOP is unable to purchase all or part of the Common
Shares for which it subscribes, the ESOP may purchase Common Shares on
the open market or may purchase authorized but unissued Common Shares.
If the ESOP purchases authorized but unissued Common Shares, such
purchases could have a dilutive effect on the interests of the Holding
Company's shareholders. See "RISK FACTORS - Potential Impact of Benefit
Plans on Net Earnings and Shareholders' Equity."
(c) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders and the ESOP pursuant
to paragraphs (a) and (b) above each Supplemental Eligible Account
Holder will receive, without payment therefor, a nontransferable right
to purchase up to the greater of (i) 35,000 Common Shares, (ii) .10% of
the total number of Common Shares sold in connection with the
Conversion, and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of Common Shares
sold in connection with the Conversion by a fraction, the numerator of
which is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in
each case on the Supplemental Eligibility Record Date, subject to the
overall purchase limitations set forth in Section 11 of the Plan and
subject to adjustment by the Board of Directors of the Holding Company
and the Company as set forth in Section 11 of the Plan. If the exercise
of subscription rights by Supplemental Eligible Account Holders results
in an oversubscription, Common Shares will be allocated among
subscribing Supplemental Eligible Account Holders in a manner which
will, to the extent possible, make the total allocation of each
subscriber equal 100 shares or the amount subscribed for, whichever is
less. Any Common Shares remaining after such allocation has been made
will be allocated among the subscribing Supplemental Eligible Account
Holders whose subscriptions remain unfilled in the proportion which the
amount of their respective Qualifying Deposits on the Supplemental
Eligibility Record Date bears to the total Qualifying Deposits of all
Supplemental Eligible Account Holders on such date. No fractional
shares will be issued.
(d) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders pursuant to paragraphs (a), (b)
and (c) above, each Other Eligible Member, other than an Eligible
Account Holder or Supplemental Eligible Account Holder, shall receive,
without payment therefor, a nontransferable right to purchase up to the
greater of (i) 35,000 Common Shares, and (ii) .10% of the total number
of Common Shares sold in connection with the Conversion, subject to
adjustment by the Boards of Directors of the Company and the Holding
Company. In the event of an oversubscription by Other Eligible Members,
the available Common Shares will be allocated among subscribing Other
Eligible Members in the same proportion that their subscriptions bear
to the total amount of subscriptions by all Other Eligible Members;
provided, however, that, to the extent sufficient Common Shares are
available, each subscribing Other Eligible Member shall receive 25
Common Shares before the remaining available Common Shares are
allocated.
(e) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders and Other Eligible
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Members pursuant to paragraphs (a), (b), (c) and (d), above, the
directors, officers and employees of the Company shall receive, without
payment therefor, nontransferable rights to purchase an aggregate of up
to 15% of the Common Shares sold in connection with the Conversion
subject to the overall purchase limitations set forth in Section 11 of
the Plan and subject to adjustment by the Boards of Directors of the
Company and the Holding Company as set forth in Section 11 of the Plan.
The ability of directors, officers and employees to purchase Common
Shares under this paragraph is in addition to rights which are
otherwise available to them under the Plan.
If the exercise of subscription rights by directors, officers and
employees of the Company results in an oversubscription, Common Shares will be
allocated among subscribing directors, officers and employees on an equitable
basis to be determined by the Board of Directors of the Company by giving weight
to an individual's period of service, compensation and position at the Company.
For information as to the number of shares proposed to be purchased by the
directors and executive officers, see "Intended Purchases by Directors and
Executive Officers."
The Board of Directors may reject any one or more subscriptions if,
based upon the Board of Directors' interpretation of applicable regulations,
such subscriber is not entitled to the shares for which he or she has subscribed
or if the sale of shares subscribed for would be in violation of any applicable
statutes, regulations, or rules.
The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons having subscription
rights reside. However, no such person will be offered or receive any Common
Shares under the Plan who resides in a foreign country or in a state of the
United States with respect to which each of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares under the Plan
resides in such country or state; (ii) under the securities laws of such country
or state, the granting of subscription rights or the offer or sale of Common
Shares to such persons would require the Holding Company or its officers or
directors to register as a broker or dealer or to register or otherwise qualify
its securities for sale in such country or state; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
The term "resident," as used herein with respect to the Subscription
Offering, means any person who, on the date of submission of a Stock Order Form,
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the residence
of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of the
Company and the Holding Company.
COMMUNITY OFFERING
To the extent Common Shares remain available after the satisfaction of
all subscriptions received in the Subscription Offering, the Company is hereby
offering Common Shares in the Community Offering subject to the limitations set
forth below. If subscriptions are received in the Subscription Offering for up
to 33,465,625 Common Shares, Common Shares may not be available in the Community
Offering. All sales of the Common Shares in the Community Offering will be at
the same price per share as in the Subscription Offering.
THE COMMUNITY OFFERING WILL BE TERMINATED ON OR BEFORE___________,
1998, UNLESS EXTENDED BY THE COMPANY AND THE HOLDING COMPANY WITH THE APPROVAL
OF THE OTS AND THE DIVISION, IF NECESSARY. IN ACCORDANCE WITH THE PLAN, THE
OFFERING MAY NOT BE EXTENDED BEYOND ______________, 1998.
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In the event shares are available for the Community Offering, each
person, together with any Associate or groups Acting in Concert, may purchase in
the Community Offering up to 35,000 Common Shares. If an insufficient number of
Common Shares is available to fill all of the orders received in the Community
Offering, the available Common Shares will be allocated in a manner to be
determined by the Boards of Directors of the Holding Company and the Company,
subject to the following:
(i) Preference will be given to natural persons who maintains
a bona fide residence in Columbiana, Mahoning or Trumbull Counties,
Ohio, the counties in which the offices of the Company are located;
(ii) Orders received in the Community Offering will first be
filled up to 2% of the total number of Common Shares offered, with any
remaining shares allocated on an equal number of shares per order basis
until all orders have been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of the Holding Company and
the Company to accept or reject such purchases in whole or in part.
PUBLIC OFFERING
As a final step in the Conversion, the Plan provides that all Common
Shares not purchased in the Subscription Offering and the Community Offering may
be offered for sale to the general public in the Public Offering through a
syndicate of registered broker-dealers to be formed by Trident, McDonald &
Company and Oppenheimer. The Company and the Holding Company expect to market
any Common Shares which remain unsubscribed after the Subscription Offering and
the Community Offering through the Public Offering. The Company and the Holding
Company have the right to reject orders in whole or part in their sole
discretion in the Public Offering. Neither Trident, McDonald & Company and
Oppenheimer, nor any registered broker-dealer shall have any obligation to take
or purchase any Common Shares in the Public Offering; however, Trident, McDonald
& Company and Oppenheimer have agreed to use their best efforts in the sale of
Common Shares in the Public Offering.
The price at which Common Shares are sold in the Public Offering will
be the same price at which Common Shares are offered and sold in the
Subscription Offering and the Community Offering. No person, together with any
Associate or group Acting in Concert, will be permitted to subscribe in the
Public Offering for more than 35,000 Common Shares, subject to the maximum
purchase limitations. See "- Limitations on Purchases of Common Shares."
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon
the purchase of Common Shares. To the extent Common Shares are available, the
minimum number of Common Shares that may be purchased by any party is 25, or
$250. No fractional shares will be issued. Each Eligible Account Holder,
Supplemental Eligible Account Holder and Other Eligible Member may purchase in
the Subscription Offering not more than 35,000 Common Shares. In connection with
the exercise of subscription rights arising from a single deposit account in
which two or more persons have an interest, however, the aggregate maximum
number of Common Shares which the persons having an interest in such account may
purchase in the Subscription Offering in relation to such account is 35,000
Common Shares. In the event shares are available for the Community Offering or
the Public Offering, each person, together with any Associate or other persons
Acting in Concert, may purchase in the Community Offering and the Public
Offering up to 35,000
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Common Shares. Purchases in the Subscription Offering, the Community Offering
and the Public Offering are subject to the additional limitation that no person,
together with his or her Associates and other persons Acting in Concert with him
or her, may purchase more than 1% of the Common Shares sold in the Offering.
Such limitations do not apply to the Foundation or the ESOP, which intends to
purchase up to 8% of the total Common Shares sold in the Conversion and
contributed to the Foundation. Subject to applicable regulations, the purchase
limitations may be increased or decreased after the commencement of the Offering
in the sole discretion of the Boards of Directors.
"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal whether
or not pursuant to an express agreement" or "a combination or pooling of voting
or other interests in the securities of an issuer for a common purpose pursuant
to any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise." Persons shall be presumed to be Acting in Concert
with each other, subject to rebuttal through a filing with the OTS, if: (i) both
are purchasing Common Shares in the Conversion and (a) are certain executive
officers, including the president, chief executive officer, chief operating
officer or vice president, directors, trustees, partners, persons who perform,
or whose nominees or representatives perform, similar policy making functions at
a company (other than the Company or the Holding Company), a principal business
unit or subsidiary of a company, a partnership, a joint venture or a similar
organization; (b) are persons who directly or indirectly own or control 10% or
more of the stock of a company (other than the Company or the Holding Company);
or (c) constitute a group under the beneficial ownership reporting rules under
Section 13 or the proxy rules under Section 14 of the Exchange Act; or (ii) one
person provides credit to the other for the purchase of Common Shares or is
instrumental in obtaining that credit. Companies (other than the Company or the
Holding Company), partnerships, joint ventures and similar organizations shall
be presumed to be acting in concert with their executive officers, directors,
trustees, trusts for which they serve as trustee, partners, agents who perform,
or whose nominees or representatives perform, similar policy making functions
and persons who directly or indirectly own or control 10% or more of their stock
if both are purchasing Common Shares in the Conversion. In addition, if a person
is presumed to be Acting in Concert with another person, company or similar
organization, then such person is presumed to be Acting in Concert with anyone
else who is, or is presumed to be, Acting in Concert with such other person,
company or similar organization.
For purposes of the Plan, (i) the directors of the Company or the
Holding Company are not deemed to be Acting in Concert solely by reason of their
membership on the Board of Directors of the Company or the Holding Company; (ii)
an associate of a person (an "Associate") is (a) any corporation or organization
(other than the Company or the Holding Company) of which such person is an
officer, partner or, directly or indirectly, the beneficial owner of 10% or more
of any class of equity securities; (b) 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; and (c) any relative or spouse of
such person, or relative of such spouse, who either has the same home as such
person or who is a director or officer of the Bank or the Holding Company.
Purchases of Common Shares in the Offering are also subject to the
change in control regulations of the OTS which restrict direct and indirect
purchases of 10% or more of the stock of any savings association by any person
or group of persons acting in concert, under certain circumstances. See
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE COMPANY AND RELATED
ANTI-TAKEOVER PROVISIONS - Federal Law and Regulation."
After the Conversion, Common Shares, except for Common Shares purchased
by affiliates of the Holding Company and the Company, will be freely
transferable, subject to OTS and Division regulations.
PLAN OF DISTRIBUTION
The offering of the Common Shares is made only pursuant to this
Prospectus, which is available at the offices of the Company. See "ADDITIONAL
INFORMATION." Officers and directors of the Company will be
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available to answer questions about the Conversion and may also hold
informational meetings for interested persons. Such officers and directors will
not be permitted to make statements about the Holding Company or the Company
unless such information is also set forth in this Prospectus, nor will they
render investment advice. The Holding Company will rely on Rule 3a4-1 under the
Exchange Act, and sales of Common Shares will be conducted within the
requirements of Rule 3a4-1, which will permit officers, directors and employees
of the Holding Company and the Company to participate in the sale of Common
Shares. No officer, director or employee of the Holding Company or the Company
will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Shares.
To assist the Holding Company and the Company in marketing the Common
Shares, the Holding Company and the Company have retained Trident, McDonald &
Company and Oppenheimer (the "Underwriters"), broker-dealers registered with the
SEC and members of the National Association of Securities Dealers, Inc.
("NASD"). The Underwriters will assist the Company in (i) training and educating
the Company's employees regarding the mechanics and regulatory requirements of
the conversion process; (ii) conducting information meetings for subscribers and
other potential purchasers; and (iii) keeping records of all stock
subscriptions. For providing these services, the Company has agreed to pay the
Underwriters a commission equal to .95% of the aggregate dollar amount of Common
Shares sold in the Subscription Offering and the Community Offering, excluding
shares sold by Selected Dealers (hereinafter defined), if any, and shares
purchased by the ESOP and directors, officers, and employees of the Company and
their affiliates.
The Company has also agreed to reimburse the Underwriters for all
reasonable legal fees and expenses not to exceed $50,000 and reasonable
out-of-pocket expenses not to exceed $10,000. The Company and the Holding
Company have also agreed to indemnify the Underwriters, under certain
circumstances, against liabilities and expenses (including legal fees) arising
out of or based upon untrue statements or omissions contained in the materials
used in the Offering or in various documents submitted to regulatory authorities
in respect of the Conversion, including liabilities under the Securities Act of
1933, as amended (the "Act"), unless such untrue statement or omission, or
alleged untrue statement or omission, was made in reliance upon certain
information furnished to the Company by the Underwriters expressly for use in
the Summary Proxy Statement or this Prospectus.
If Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, the Underwriters may enter
into an agreement with other NASD member firms ("Selected Dealers") to assist in
the sale of Common Shares in the Community Offering and the Public Offering, if
conducted. If Selected Dealers are used, the Company will pay a fee for shares
sold by Selected Dealers in an amount to be agreed upon jointly by the
Underwriters and the Company to reflect market requirements at the time of the
Community Offering. During the Community Offering and the Public Offering,
Selected Dealers may only solicit indications of interest from their customers
to place orders with the Company as of a certain date (the "Order Date") for the
purchase of Common Shares. When and if the Company believes that enough
indications of interest and orders have been received in the Community Offering
and the Public Offering, if necessary, to consummate the Conversion, the
Underwriters will request, as of the Order Date, Selected Dealers to submit
orders to purchase shares for which they have previously received indications of
interest from the customers. Selected Dealers will send confirmations of the
orders to such customers on the next business day after the Order Date. Selected
Dealers will debit the accounts of their customers on the date which will be
three business days from the Order Date (the "Settlement Date"). On the
Settlement Date, funds received by Selected Dealers will be remitted to the
Company. It is anticipated that the Conversion will be consummated on the
Settlement Date. However, if consummation is delayed after the Settlement Date,
funds will earn interest at the current passbook savings account rate (the
"Conversion Rate"), which is currently ____%, with an annual percentage yield of
____%, until the completion of the offering. Funds will be returned promptly in
the event the Conversion is not consummated.
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EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond ____________, 1998, persons
who have subscribed for Common Shares in the Subscription Offering or in the
Community Offering will receive a written notice that prior to a date specified
in the notice, they have the right to affirm, increase, decrease or rescind
their subscriptions for Common Shares. Persons who do not affirmatively elect to
continue their subscription or who elect to rescind their subscriptions during
any such extension will have all of their funds promptly refunded with interest.
Persons who elect to decrease their subscriptions will have the appropriate
portion of their funds promptly refunded with interest at the Conversion Rate.
USE OF STOCK ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and in the
Community Offering may be made only by completing and submitting a Stock Order
Form. Any person who desires to subscribe for Common Shares in the Subscription
Offering must do so by delivering to the Company by mail or in person, prior to
12:00 noon, Eastern Daylight Time, on ____________, 1998, a properly executed
and completed Stock Order Form, together with full payment of the subscription
price of $10 for each Common Share for which subscription is made. ANY STOCK
ORDER FORM WHICH IS NOT RECEIVED BY THE COMPANY PRIOR TO 12:00 NOON, EASTERN
DAYLIGHT TIME, ON _____ ______, 1998, OR FOR WHICH FULL PAYMENT HAS NOT BEEN
RECEIVED BY THE COMPANY PRIOR TO SUCH TIME, WILL NOT BE ACCEPTED. PHOTOCOPIES,
TELECOPIES OR OTHER REPRODUCTIONS OF STOCK ORDER FORMS WILL NOT BE ACCEPTED. See
"ADDITIONAL INFORMATION."
In the event that (a) a Stock Order Form is not delivered and is
returned to the Holding Company by the United States Postal Service, (b) the
Holding Company is unable to locate the addressee, or (c) the Stock Order Form
is not received, is received after ___________, 1998, is defectively completed
or executed, or is not accompanied by full payment for the shares subscribed for
(including instances where a savings account balance from which withdrawal is
authorized is insufficient to fund the amount of such required payment or funds
that have been wired to such account for the purpose of purchasing shares), the
subscription rights for the person to whom such rights have been granted will
lapse as though that person failed to return the completed Stock Order Form
within the time period specified. The Holding Company may, but will not be
required to, waive any irregularity on any Stock Order Form or require the
submission of corrected Stock Order Forms or the remittance of full payment for
subscribed shares by such date as the Holding Company specify. The waiver of an
irregularity on a Stock order Form in no way obligates the Holding Company to
waive any other irregularity on that, or any irregularity on any other Stock
Order Form. Waivers will be considered on a case by case basis. Photocopies of
Stock order Forms, payments from private third parties, or electronic transfers
of funds will not be accepted. The Holding Company's interpretation of the terms
and conditions of the Plan and of the acceptability of the Stock Order Forms
will be final. The Company and the Holding Company have the right to investigate
any irregularity on any Stock Order Form. Qualifying deposits will be split in
the case of multiple orders.
AN EXECUTED STOCK ORDER FORM, ONCE RECEIVED BY THE HOLDING COMPANY, MAY
NOT BE MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF THE HOLDING
COMPANY, UNLESS (I) THE COMMUNITY OFFERING IS NOT COMPLETED BY __________, 1998,
OR (II) THE FINAL VALUATION OF THE COMPANY, AS CONVERTED, AND THE HOLDING
COMPANY IS LESS THAN $212,500,000 OR MORE THAN $334,652,500. IF EITHER OF THOSE
EVENTS OCCUR, PERSONS WHO HAVE SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION
OFFERING OR ORDERED COMMON SHARES IN THE COMMUNITY OFFERING WILL RECEIVE WRITTEN
NOTICE THAT THEY HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR RESCIND THEIR
SUBSCRIPTIONS OR ORDERS PRIOR TO A DATE SPECIFIED IN THE NOTICE. ANY PERSON WHO
DOES NOT AFFIRMATIVELY ELECT TO CONTINUE HIS SUBSCRIPTION OR ELECTS TO RESCIND
HIS SUBSCRIPTION DURING ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS PROMPTLY
REFUNDED WITH INTEREST AT THE CONVERSION RATE. ANY PERSON WHO ELECTS TO DECREASE
HIS SUBSCRIPTION DURING ANY SUCH EXTENSION WILL HAVE THE APPROPRIATE PORTION OF
HIS FUNDS PROMPTLY REFUNDED WITH INTEREST AT THE CONVERSION RATE. IN ADDITION,
IF THE PURCHASE
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LIMITATIONS ARE INCREASED, PERSONS WHO HAVE SUBSCRIBED FOR THE MAXIMUM AMOUNT
WILL BE GIVEN THE OPPORTUNITY TO INCREASE THEIR SUBSCRIPTIONS. SUBSCRIBERS
SHOULD UNDERSTAND THAT IN THE EVENT OF ANY EXTENSION, SIGNIFICANT DELAYS COULD
OCCUR BETWEEN THE EXPIRATION DATE AND THE FINAL CLOSING DATE OF THE CONVERSION.
PAYMENT FOR COMMON SHARES
Payment of the subscription price for all Common Shares for which
subscription is made must accompany a completed Stock Order Form in order for
subscriptions or orders to be valid. Payment for Common Shares may be made (i)
in cash, if delivered in person; (ii) by check, bank draft, or money order made
payable to the Company; or (iii) by authorization of withdrawal from deposit
accounts in the Company (other than non-self-directed IRAs). No payments by wire
transfer will be accepted, including wire transfers to an existing account. The
Company cannot lend money or otherwise extend credit to any person to purchase
Common Shares.
Payments made in cash or by check, bank draft, or money order will be
placed in a segregated savings account insured by the FDIC up to applicable
limits until the Conversion is completed or terminated. Interest will be paid by
the Company on such account at the Conversion Rate, which is currently ____%
with an annual percentage yield of ____%, from the date payment is received
until the Conversion is completed or terminated. Payments made by check will not
be deemed to have been received until the check has cleared for payment.
Instructions for authorizing withdrawals from deposit accounts,
including certificates of deposit, are provided in the Stock Order Form. Once a
withdrawal has been authorized, none of the designated withdrawal amount may be
used by a subscriber for any purpose other than to purchase Common Shares,
unless the Conversion is terminated. All sums authorized for withdrawal will
continue to earn interest at the contract rate for such account or certificate
until the completion or termination of the Conversion. Interest penalties for
early withdrawal applicable to certificate accounts will be waived in the case
of withdrawals authorized for the purchase of Common Shares. If a partial
withdrawal from a certificate account results in a balance less than the
applicable minimum balance requirement, the certificate will be canceled and the
remaining balance will earn interest at the Company's passbook rate subsequent
to the withdrawal.
In order to utilize funds in an IRA maintained at the Company, the
funds must be transferred to a self-directed IRA that permits the funds to be
invested in stock. There will be no early withdrawal or IRS penalties for such
transfer. The beneficial owner of the IRA must direct the trustee of the account
to use funds from such account to purchase Common Shares in connection with the
Conversion. THIS CANNOT BE DONE THROUGH THE MAIL. Persons who are interested in
utilizing IRAs at the Company to subscribe for Common Shares should contact the
Conversion Information Center at (330) 747-1111 for instructions and assistance.
Subscriptions will not be filled by the Company until subscriptions
have been received in the Offering for up to 21,250,000 Common Shares, the
minimum point of the Adjusted Valuation Range. If the Conversion is terminated,
all funds delivered to the Company for the purchase of Common Shares will be
returned with interest at the Conversion Rate, and all charges to deposit
accounts will be rescinded. If the Conversion is completed, subscribers and
other purchasers will be notified by mail, promptly upon completion of the sale
of the Common Shares, of the number of shares for which their subscriptions have
been accepted. The funds on deposit with the Company for the purchase of Common
Shares will be withdrawn and paid to the Holding Company in exchange for the
Common Shares. Certificates representing Common Shares will be delivered
promptly thereafter. Purchasers may not be able to sell the Common Shares which
they purchased until certificates for the Common Shares are available and
delivered to them, even though trading for the Common Shares may have commenced.
Allocations of Common Shares, if any, will be deemed final only
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upon shareholder receipt of the certificate representing the Common Shares. The
Common Shares will not be insured by the FDIC.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes but may pay for such Common Shares upon consummation of
the Conversion.
INTENDED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
intended purchases by the directors and executive officers of the Company and
the Holding Company:
<TABLE>
<CAPTION>
Position with the Percent of
Holding Company Total Aggregate total
Name and the Company (1) shares (2) purchase price (2) offering (3)
- ---- --------------- ------ -------------- --------
<S> <C> <C> <C> <C>
Richard M. Barrett Director 31,000 $ 310,000 .12%
James E. Bennett, Jr. Director 1,000 10,000 -
Charles. B. Cushwa, III Director 60,000 600,000 .24
William A. Holdford (4) - 10,000 100,000 .04
Donald R. Inglis Director 35,000 300,000 .12
Gary Keller Director 60,000 600,000 .24
Patrick A. Kelly Treasurer 60,000 600,000 .24
Douglas M. McKay Chairman of 80,000 800,000 .32
the Board and President
Herbert F. Schuler, Sr. Director 90,000 900,000 .36
Clarence R. Smith, Jr. Director 25,000 250,000 .10
Robert J. Steele, Jr. (6) - 10,000 100,000 .04
Donald J. Varner (7) Secretary 60,000 600,000 .24
John F. Zimmerman, Jr. Director 15,000 150,000 .06
------- ---------- ----
All directors and executive
officers as a group (13
persons) 532,000 $5,320,000 2.12%
======= ========== ====
</TABLE>
- -----------------------------
(1) Unless otherwise noted, the individual holds the same position with
both the Company and the Holding Company.
(2) Includes intended purchases by Associates of directors and executive
officers, to the extent known.
(3) Assumes that 25,000,000 Common Shares, the mid-point of the Adjusted
Valuation Range, will be sold in connection with the Conversion at $10
per share and that a sufficient number of Common Shares will be
available to satisfy the intended purchases by directors and executive
officers. See "Pricing and Number of Common Shares to be Sold."
(4) Mr. Holdford is the Vice President of Loan Administration of the
Company.
(5) Mr. Kelly is the Treasurer, Chief Financial Officer, Senior Vice
President and a director of the Company.
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(6) Mr. Steele is the Vice President of Savings Administration of the
Company.
(7) Mr. Varner is the Secretary, Senior Vice President of Retail Banking
and a director of the Company.
All purchases by executive officers and directors of the Company are
being made for investment purposes only and with no present intent to resell.
Directors and executive officers will pay the same $10 per share price for
Common Share purchased in the Conversion as all other subscribers.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the
pro forma market value of the shares as determined by an independent appraisal
of the Company, as converted, and the Holding Company. Keller, a firm which
evaluates and appraises financial institutions, has been retained by the Company
to prepare an appraisal of the estimated pro forma market value of the Company
as converted, and the Holding Company. Keller will receive a fee of $27,000 for
its appraisal and one update and will not be reimbursed for out-of-pocket
expenses.
Keller was selected by the Board of Directors of the Company because
Keller has extensive experience in the valuation of thrift institutions,
particularly in the mutual-to-stock conversion context. The Board of Directors
reviewed the credentials of Keller's appraisal personnel and obtained references
and recommendations from other companies which have engaged Keller. Keller is
certified by the OTS as a mutual-to-stock conversion appraiser. The Company and
Keller have no relationships which would affect Keller's independence.
The appraisal was prepared by Keller in reliance upon the information
contained herein. Keller also considered the following factors, among others:
the economic and demographic conditions in the Company's primary market area;
the quality and depth of the Company's management and personnel; certain
historical financial and other information relating to the Company; a
comparative evaluation of the operating and financial statistics of the Company
with those of other thrift institutions; the aggregate size of the Offering; the
impact of the Conversion on the Company's regulatory capital and earnings
potential; the trading market for stock of comparable thrift institutions and
thrift holding companies; and general conditions in the markets for such stocks.
The Boards of Directors of the Holding Company and the Company reviewed and
deemed appropriate the assumptions and methodology used by Keller in preparing
the appraisal.
The Pro Forma Value, determined by Keller, is $250,000,000 as of
February 24, 1998. The Adjusted Valuation Range established in accordance with
the Plan is $212,500,000 to $289,375,000 which, based upon a per share offering
price of $10, will result in the sale of between 21,250,000 and 28,937,500
Common Shares. Applicable regulations permit the Holding Company to issue up to
a total of 33,465,625 Common Shares with an aggregate purchase price of
$334,656,250. The total number of Common Shares sold in the Conversion will be
based on the Adjusted Valuation Range. Pro forma shareholders' equity per share
and pro forma earnings per share decrease moving from the low end to the high
end of the Adjusted Valuation Range. See "PRO FORMA DATA."
If, due to changing market conditions, the final valuation is less than
$212,500,000 or more than $334,656,250, subscribers will be given the right to
affirm, increase, decrease or rescind their subscriptions. Any person who does
not affirmatively elect to continue his subscription or elects to rescind his
subscription before the date specified in the notice will have all of his funds
promptly refunded with interest. Any person who elects to decrease his
subscription will have the appropriate portion of his funds promptly refunded
with interest.
THE APPRAISAL BY KELLER IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON SHARES
OR VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION, KELLER HAS
RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF THE AUDITED
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FINANCIAL STATEMENTS AND STATISTICAL INFORMATION PROVIDED BY THE COMPANY. KELLER
DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER INFORMATION
PROVIDED BY THE COMPANY, NOR DID KELLER VALUE INDEPENDENTLY THE ASSETS OR
LIABILITIES OF THE COMPANY OR THE HOLDING COMPANY. THE VALUATION CONSIDERS THE
COMPANY ONLY AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF
THE LIQUIDATION VALUE OF THE COMPANY. MOREOVER, BECAUSE SUCH VALUATION IS
NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF
WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT
PERSONS PURCHASING COMMON SHARES WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT
THE CONVERSION PURCHASE PRICE.
A copy of the complete appraisal is on file and open for inspection at
the office of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the
Central Regional Office of the OTS, 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606; at the office of the Division, 77 S. High Street,
Columbus, Ohio 43215; and at the offices of the Company.
RESTRICTIONS ON REPURCHASE OF COMMON SHARES
OTS regulations generally prohibit the Holding Company from
repurchasing any of its capital stock for three years following the date of
completion of the Conversion, except as part of an open-market stock repurchase
program during the second and third years following the Conversion involving no
more than 5% of the outstanding capital stock during a twelve-month period. The
OTS may permit a repurchase during the first year following the completion of
the Conversion or may permit the Holding Company to exceed the 5% limits in the
second and third years if exceptional circumstances are established. In
addition, after such a repurchase, the Company's regulatory capital must equal
or exceed all regulatory capital requirements. Before the commencement of a
repurchase program, the Holding Company must provide notice to the OTS, and the
OTS may disapprove the program if the OTS determines that it would adversely
affect the financial condition of the Company or if it determines that there is
no valid business purpose for such repurchase. Such repurchase restrictions
would not prohibit the ESOP or the RRP from purchasing Common Shares during the
first year following the Conversion.
Ohio regulations prohibit the Holding Company from repurchasing shares
during the first year after the Conversion if the effect thereof would cause the
Company not to meet its capital requirements.
RESTRICTIONS ON TRANSFER OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors and executive officers of the
Holding Company will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. The certificates evidencing Common
Shares issued by the Holding Company to directors and executive officers will
bear a legend giving appropriate notice of the restriction imposed upon them. In
addition, the Holding Company will give appropriate instructions to the transfer
agent (if any) for the Holding Company's common shares in respect of the
applicable restriction on transfer of any restricted shares. Any shares issued
as a stock dividend, stock split or otherwise in respect of restricted shares
will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of the Holding Company or the Company, or
any of their Associates, may purchase any common shares of the Holding Company
without the prior written approval of the OTS, except through a broker-dealer
registered with the SEC. This restriction will not apply, however, to negotiated
transactions involving more than 1% of a class of outstanding common shares of
the Holding Company or shares acquired by any stock benefit plan of the Holding
Company or the Company.
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The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Act. Accordingly, the Common Shares may
be offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received in
the Conversion by persons who are not "affiliates" of the Holding Company may be
resold without registration. Common Shares received by affiliates of the Holding
Company will be subject to resale restrictions. An "affiliate" of the Holding
Company, for purposes of Rule 144, is a person who directly, or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, the Holding Company. Rule 144 generally requires that there
be publicly available certain information concerning the Holding Company and
that sales subject to Rule 144 be made in routine brokerage transactions or
through a market maker. If the conditions of Rule 144 are satisfied, each
affiliate (or group of persons acting in concert with one or more affiliates) is
generally entitled to sell in the public market, without registration, in any
three-month period, a number of shares which does not exceed the greater of (i)
1% of the number of outstanding shares of the Holding Company or (ii) if the
shares are admitted to trading on a national securities exchange or reported
through the automated quotation system of a registered securities association,
such as The Nasdaq Stock Market, the average weekly reported volume of trading
during the four weeks preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves the Plan may obtain review of such action
by filing in the Court of Appeals of the United States for the circuit in which
the principal office or residence of such person is located or in the United
States Court of Appeals for the District of Columbia, a written petition praying
that the final action of the OTS be modified, terminated, or set aside. Such
petition must be filed within 30 days after the date of mailing of proxy
materials to the voting members of the Company or within 30 days after the date
of publication in the Federal Register of notice of approval of the Plan by the
OTS, whichever is later.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
AND THE COMPANY AND ANTI-TAKEOVER PROVISIONS
GENERAL
Federal law and regulations, Ohio law, the Articles of Incorporation
and Code of Regulations of the Holding Company, the Amended Articles of
Incorporation and Amended Constitution of the Company, and certain employee
benefit plans to be adopted by the Holding Company and the Company contain
certain provisions which may deter or prohibit a change of control of the
Holding Company and the Company. Such provisions are intended to encourage any
acquirer to negotiate the terms of an acquisition with the Board of Directors of
the Holding Company, thereby reducing the vulnerability of the Holding Company
to takeover attempts and certain other transactions which have not been
negotiated with and approved by the Board of Directors.
Anti-takeover devices and provisions may, however, have the effect of
discouraging sudden and other hostile takeover attempts which are not approved
by the Board of Directors, even under circumstances in which shareholders may
deem such takeovers to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
As a result, shareholders who might desire to participate in such a transaction
may not have an opportunity to participate by virtue of such devices and
provisions. Such provisions may also benefit management by discouraging changes
of control in which incumbent management would be removed from office. The
following is a summary of certain provisions of such laws, regulations and
documents.
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FEDERAL LAW AND REGULATION
FEDERAL DEPOSIT INSURANCE ACT. The Federal Deposit Insurance Act (the
"FDIA") provides that no person, acting directly or indirectly or in concert
with one or more persons, shall acquire control of any insured savings
association or holding company unless 60 days' prior written notice has been
given to the OTS, and the OTS has not issued a notice disapproving the proposed
acquisition. Control, for purposes of the FDIA, means the power, directly or
indirectly, to direct the management or policies of an insured institution or to
vote 25% or more of any class of securities of such institution. This provision
of the FDIA is implemented by the OTS in accordance with the Regulations for
Acquisition of Control of an Insured Institution, 12 C.F.R. Part 574 (the
"Control Regulations"). Control, for purposes of the Control Regulations, exists
in situations in which the acquiring party has direct or indirect voting control
of at least 25% of the institution's voting shares or controls in any manner the
election of a majority of the directors of such institution or the Director of
the OTS determines that such person exercises a controlling influence over the
management or policies of such institution. In addition, control is presumed to
exist, subject to rebuttal, if the acquiring party (which includes a group
"acting in concert") has voting control of at least 10% of the institution's
voting stock and any of eight control factors specified in the Control
Regulations exists. There are also rebuttable presumptions in the Control
Regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family." The Control
Regulations apply to acquisitions of Common Shares in connection with the
Conversion and to acquisitions after the Conversion.
CHANGE IN CONTROL OF CONVERTED ASSOCIATIONS. A regulation of the OTS
provides that, for a period of three years after the date of the completion of
the Conversion, no person shall, directly or indirectly, offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity security of
the Holding Company or the Company without the prior written approval of the
OTS. In addition to the actual ownership of more than 10% of a class of equity
securities, a person shall be deemed to have acquired beneficial ownership of
more than 10% of the equity securities of the Holding Company or the Company if
the person holds any combination of stock and revocable and/or irrevocable
proxies of the Holding Company under circumstances that give rise to a
conclusive control determination or rebuttable control determination under the
Control Regulations. Such circumstances include (i) holding any combination of
voting shares and revocable and/or irrevocable proxies representing more than
25% of any class of voting stock of the Holding Company enabling the acquirer
(a) to elect one-third or more of the directors, (b) to cause the Holding
Company or the Company's shareholders to approve the acquisition or corporate
reorganization of the Holding Company, or (c) to exert a controlling influence
on a material aspect of the business operations of the Holding Company or the
Company, and (ii) acquiring any combination of voting shares and irrevocable
proxies representing more than 25% of any class of voting shares.
The three-year restriction does not apply (i) to any offer with a view
toward public resale made exclusively to the Holding Company or the Company or
any underwriter or selling group acting on behalf of the Holding Company or the
Company, (ii) unless made applicable by the OTS by prior written advice, to any
offer or announcement of an offer which, if consummated, would result in the
acquisition by any person, together with all other acquisitions by any such
person of the same class of securities during the preceding 12-month period, of
not more than 1% of the class of securities, or (iii) to any offer to acquire or
the acquisition of beneficial ownership of more than 10% of any class of equity
security of the Holding Company or the Company by a corporation whose ownership
is or will be substantially the same as the ownership of the Holding Company or
the Company if made more than one year following the date of the Conversion. The
foregoing restriction does not apply to the acquisition of the capital stock of
the Holding Company or the Company by one or more tax-qualified employee stock
benefit plans, provided that the plan or plans do not have the beneficial
ownership in the aggregate of more than 25% of any class of equity security of
the Holding Company or the Company.
HOLDING COMPANY RESTRICTIONS. Federal law generally prohibits a savings
and loan holding company, without prior approval of the Director of the OTS,
from (i) acquiring control of any other savings association or
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savings and loan holding company, (ii) acquiring substantially all of the assets
of a savings association or holding company thereof, or (iii) acquiring or
retaining more than 5% of the voting shares of a savings association or holding
company thereof which is not a subsidiary.
Under certain circumstances, a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash without such savings association being deemed to be controlled by the
Holding Company. Except with the prior approval of the Director of the OTS, no
director or officer of the savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's voting shares
may acquire control of any savings institution, other than a subsidiary
institution or any other savings and loan holding company.
OHIO LAW
MERGER MORATORIUM STATUTE. Ohio has a merger moratorium statute
regulating certain takeover bids affecting certain public corporations which
have significant ties to Ohio. The statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder") for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the exceptions referred to above applies, (2)
the holders of at least two-thirds of the voting shares, and of at least a
majority of the voting shares not beneficially owned by the Interested
Shareholder, approve the business combination at a meeting called for such
purpose, or (3) the business combination meets certain statutory criteria
designed to ensure that the issuing public corporation's remaining shareholders
receive fair consideration for their shares.
An Ohio corporation, under certain circumstances, may "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. The
statute still prohibits for 12 months, however, any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. The
Articles of Incorporation of the Holding Company do not opt out of the
protection afforded by Chapter 1704.
CONTROL SHARE ACQUISITION STATUTE. Section 1701.831 of the Ohio Revised
Code (the "Control Share Acquisition Statute") requires that certain
acquisitions of voting securities which would result in the acquiring
shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of
the Holding Company (a "Control Share Acquisition") must be approved in advance
by the holders of at least a majority of the outstanding voting shares
represented at a meeting at which a quorum is present and a majority of the
portion of the outstanding voting shares represented at such a meeting,
excluding the voting shares owned by the acquiring shareholder. The Control
Share Acquisition Statute was intended, in part, to protect shareholders of Ohio
corporations from coercive tender offers.
TAKEOVER BID STATUTE. Ohio law also contains a statute regulating
takeover bids for any Ohio corporation. Such statute provides that no offeror
may make a takeover bid unless (i) at least 20 days prior thereto the offeror
announces publicly the terms of the proposed takeover bid and files with the
Ohio Division of
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Securities (the "Securities Division") and provides the target company with
certain information in respect of the offeror, his ownership of the company's
shares and his plans for the company, and (ii) within ten days following such
filing either (a) no hearing is required by the Securities Division, (b) a
hearing is requested by the target company within such time but the Securities
Division finds no cause for hearing exists, or (c) a hearing is ordered and upon
such hearing the Securities Division adjudicates that the offeror proposes to
make full, fair and effective disclosure to offerees of all information material
to a decision to accept or reject the offer.
The takeover bid statute also states that no offeror shall make a
takeover bid if he owns 5% or more of the issued and outstanding equity
securities of any class of the target company, any of which were purchased
within one year before the proposed takeover bid, and the offeror, before making
any such purchase, failed to announce his intention to gain control of the
target company or otherwise failed to make full and fair disclosure of such
intention to the persons from whom he acquired such securities. The United
States District Court for the Southern District of Ohio has determined that the
Ohio takeover bid statute is preempted by federal regulation.
ARTICLES OF INCORPORATION OF THE HOLDING COMPANY
ABILITY OF THE BOARD OF DIRECTORS TO ISSUE ADDITIONAL SHARES. The
Articles of Incorporation of the Holding Company permit the Board of Directors
of the Holding Company to issue additional common shares. The ability of the
Board of Directors to issue such additional shares may create impediments to
gaining, or otherwise discourage persons from attempting to gain, control of the
Holding Company.
MATTERS REQUIRING ENLARGED SHAREHOLDER VOTE. Article Sixth of the
Articles of Incorporation of the Holding Company provides that, in the event the
Board of Directors recommends against the approval of any of the following
matters, the holders of at least 80% of the voting shares of the Holding Company
are required to approve any such matters:
(1) A proposed amendment to the Articles of Incorporation
of the Holding Company;
(2) A proposed Amendment to the Code of Regulations of
the Holding Company;
(3) A proposal to change the number of directors by
action of the shareholders;
(4) An agreement of merger or consolidation providing for
the proposed merger or consolidation of the Holding
Company with or into one or more other corporations;
(5) A proposed combination or majority share acquisition
involving the issuance of shares of the Holding
Company and requiring shareholder approval;
(6) A proposal to sell, exchange, transfer or otherwise
dispose of all, or substantially all, of the assets,
with or without the goodwill, of the Holding Company;
or
(7) A proposed dissolution of the Holding Company.
ELIMINATION OF CUMULATIVE VOTING. Section 1701.55 of the Ohio Revised
Code provides that shareholders of a for profit corporation which is not a
savings and loan association and which is incorporated under Ohio law must
initially be granted the right to cumulate votes in the election of directors.
The right to cumulate votes in the election of directors will exist at a meeting
of shareholders if notice in writing is given by any shareholder to the
President, a Vice President or the Secretary of an Ohio corporation, not less
than 48 hours before a meeting at which directors are to be elected, that the
shareholder desires that the voting for the election of directors shall be
cumulative and if an announcement of the giving of such notice is made upon the
convening of such meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice. If cumulative voting is invoked, each
shareholder would have a number of votes equal to the number of directors to be
elected, multiplied by the number of shares owned by him, and would be entitled
to distribute his votes among the candidates as he sees fit.
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Section 1701.69 of the Ohio Revised Code provides that an Ohio
corporation may eliminate cumulative voting in the election of directors after
the expiration of 90 days after the date of initial incorporation by filing with
the Ohio Secretary of State an amendment to the articles of incorporation
eliminating cumulative voting. The Articles of Incorporation of the Holding
Company have been amended to eliminate cumulative voting. The elimination of
cumulative voting may make it more difficult for shareholders to elect as
directors persons whose election is not supported by the Board of Directors of
the Holding Company.
EMPLOYEE BENEFIT PLANS
The Stock Option Plan, the ESOP and the RRP also may be deemed to have
certain anti-takeover effects. See "DESCRIPTION OF AUTHORIZED SHARES" and
"MANAGEMENT - Employee Stock Ownership Plan; - Stock Option Plan; and -
Recognition and Retention Plan."
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of the Holding Company will authorize the
issuance of 100 million common shares, and 25 million preferred shares. Neither
of the common shares and the preferred shares authorized by the Holding
Company's Articles of Incorporation have par value. Upon receipt by the Holding
Company of the purchase price therefor and subsequent issuance thereof, each
Common Share issued in the Conversion will be fully paid and nonassessable.
Notwithstanding the foregoing, until payments are received by the Holding
Company from the ESOP in accordance with the terms of a loan agreement to be
entered into by and between the Holding Company and the ESOP, Common Shares
issued to the ESOP for which payment in money has not been received will not be
fully paid and non-assessable. The Common Shares will represent nonwithdrawable
capital and will not and cannot be insured by the FDIC. Each Common Share will
have the same relative rights and will be identical in all respects to every
other Common Share.
None of the preferred shares of the Holding Company will be issued in
connection with the Conversion. The Board of Directors of the Holding Company is
authorized, without shareholder approval, to issue preferred shares and to fix
and state the designations, preferences or other special rights of such shares
and the qualifications, limitations and restrictions thereof. The preferred
shares may rank prior to the common shares as to dividend rights, liquidation
preferences or both. Each holder of preferred shares will be entitled to one
vote for each preferred share held of record on all matters submitted to a vote
of shareholders. The issuance of preferred shares and any conversion rights
which may be specified by the Board of Directors for the preferred shares could
adversely affect the voting power of holders of the common shares. The Board of
Directors has no present intention to issue any of the preferred shares.
The following is a summary description of the rights of the common
shares of the Holding Company, including the material express terms of such
shares as set forth in the Holding Company's Articles of Incorporation.
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of the Holding
Company, the holders of the Common Shares will be entitled to receive all assets
of the Holding Company available for distribution, in cash or in kind, after
payment or provision for payment of (i) all debts and liabilities of the Holding
Company, (ii) any accrued dividend claims, and (iii) any interests in the
Liquidation Account payable as a result of a liquidation of the Company. See
"THE CONVERSION Liquidation Account."
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VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights
in the Holding Company. Each holder of Common Shares will be entitled to one
vote for each share held of record on all matters submitted to a vote of holders
of common shares. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND
THE COMPANY AND ANTI-TAKEOVER PROVISIONS - Articles of Incorporation of the
Holding Company -- Elimination of Cumulative Voting."
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY," "REGULATION - Office of
Thrift Supervision -- Limitations on Capital Distributions" and "TAXATION -
Federal Taxation" for a description of restrictions on the payment of cash
dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of the Holding
Company will have, as a matter of right, the preemptive right to purchase or
subscribe for shares of any class, now or hereafter authorized, or to purchase
or subscribe for securities or other obligations convertible into or
exchangeable for such shares or which by warrants or otherwise entitle the
holders thereof to subscribe for or purchase any such share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for
a description of the limitations on the repurchase of stock by the Holding
Company; "THE CONVERSION - Restrictions on Transfer of Common Shares by
Directors and Officers" for a description of certain restrictions on the
transferability of Common Shares purchased by officers and directors; and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE COMPANY AND
ANTI-TAKEOVER PROVISIONS" for information regarding regulatory restrictions on
acquiring Common Shares.
REGISTRATION REQUIREMENTS
The Holding Company will register its common shares pursuant to Section
12(g) of the Exchange Act prior to or promptly upon the completion of the
Conversion and will not deregister such shares for a period of three years
following the completion of the Conversion. Upon such registration, the proxy
and tender offer rules, insider trading restrictions, annual and periodic
reporting and other requirements of the Exchange Act will apply to the Holding
Company.
LEGAL MATTERS
Certain legal matters pertaining to the Common Shares and the federal
and Ohio tax consequences of the Conversion are being passed upon for the
Holding Company and the Company by Vorys, Sater, Seymour and Pease LLP,
Cincinnati, Ohio. Certain legal matters are being passed upon for Trident,
McDonald & Company and Oppenheimer by its counsel, Luse Lehman Gorman Pomerenck
& Schick, A Professional Corporation, Washington, D.C.
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EXPERTS
Keller has consented to the publication herein of the summary of its
letter to the Company setting forth its opinion as to the estimated pro forma
market value of the Company as converted and to the use of its name and
statements with respect to it appearing herein.
The financial statements of the Company as of December 31, 1997, and
for the year then ended included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of the Company as of December 31, 1996, and
for each of the two years then ended included in this Prospectus have been
audited by Packer, Thomas & Co., independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form S-1 (File No. 333-47957) under the Act with respect to the Common Shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Such information may be
inspected at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained from the SEC at
prescribed rates. Such information may also be inspected on the SEC's internet
website, at www.sec.gov.
The Company has filed an Application for Conversion (the "Application")
with the OTS and the Division. This Prospectus omits certain information
contained in the Application. The Application may be inspected at the offices of
the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the Central Regional
Office of the OTS, 200 West Madison, Suite 1300, Chicago, Illinois 60606; and at
the offices of the Division, 77 S. High Street, Columbus, Ohio 43215.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE HOLDING COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY, OTHER THAN THE
COMMON SHARES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM DELIVERY OF
THIS PROSPECTUS WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS TO ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY..............................................1
SELECTED FINANCIAL INFORMATION AND OTHER DATA..................10
RISK FACTORS...................................................12
USE OF PROCEEDS................................................18
MARKET FOR COMMON SHARES.......................................19
DIVIDEND POLICY................................................20
REGULATORY CAPITAL COMPLIANCE..................................21
CAPITALIZATION.................................................22
PRO FORMA DATA.................................................23
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITHOUT FOUNDATION.............................................26
RECENT DEVELOPMENTS............................................27
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
CONDENSED STATEMENTS OF INCOME.................................30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............30
THE BUSINESS OF THE COMPANY....................................41
CHANGE IN ACCOUNTANTS..........................................62
MANAGEMENT.....................................................62
REGULATION.....................................................70
TAXATION.......................................................77
THE CONVERSION.................................................80
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND
THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS..........100
DESCRIPTION OF AUTHORIZED SHARES..............................104
REGISTRATION REQUIREMENTS.....................................105
LEGAL MATTERS.................................................105
EXPERTS.......................................................106
ADDITIONAL INFORMATION........................................106
FINANCIAL STATEMENTS..........................................F-1
UNTIL 25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Up to 28,937,500 Common Shares
UNITED COMMUNITY
FINANCIAL CORP.
------------
PROSPECTUS
------------
TRIDENT SECURITIES, INC.
MCDONALD & COMPANY SECURITIES, INC.
CIBC OPPENHEIMER CORP.
___________, 1998
<PAGE> 136
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
Page
----
Independent Auditors' Reports......................................... F-1, 2
Statements of Financial Condition as of December 31, 1997 and 1996.... F-3
Statements of Income for the
Years Ended December 31, 1997, 1996 and 1995..................... F-4
Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995..................... F-5
Statements of Equity for the
Years Ended December 31, 1997, 1996 and 1995..................... F-6
Notes to Financial Statements......................................... F-7
* * *
All financial statement schedules are omitted as the required
information either is not applicable or is included in the Financial
Statements or related Notes.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets,
liabilities (contingent or otherwise), revenues or expenses.
<PAGE> 137
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Home Savings and Loan Company
of Youngstown, Ohio
We have audited the accompanying statements of financial condition of The Home
Savings and Loan Company of Youngstown, Ohio as of December 31, 1997, and the
related statements of income, equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of The Home Savings and Loan Company of
Youngstown, Ohio for the years ended December 31, 1996 and 1995 were audited by
other auditors whose report, dated February 28, 1997, expressed an unqualified
opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1997 financial statements present fairly, in all material
respects, the financial position of The Home Savings and Loan Company of
Youngstown, Ohio at December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
CLEVELAND, OHIO
February 27, 1998
F-1
<PAGE> 138
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
We have audited the accompanying statements of financial condition of The Home
Savings and Loan Company of Youngstown, Ohio as of December 31, 1996, and the
related statements of income, equity, and cash flows for each of the two years
then ended. These financial statements are the responsibility of the Company'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 The Home Savings and Loan
Company of Youngstown, Ohio at December 31, 1996, and the results of its
operations and its cash flows for each of the two years then ended in conformity
with generally accepted accounting principles.
Packer, Thomas & Co.
Youngstown, Ohio
February 28, 1997
F-2
<PAGE> 139
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS:
Cash and deposits with banks $ 14,618 $ 13,686
Federal funds sold and other 19,879 5,982
---------- ----------
Total cash and cash equivalents 34,497 19,668
---------- ----------
Investment securities:
Available for sale (amortized cost of $39,091 and $14,543,
respectively) 39,402 14,659
Held to maturity, (fair value of $5,013 and $28,108, 4,968 27,970
respectively)
Mortgage-backed securities:
Available for sale (amortized cost of $61,633 and $83,750, 62,423 84,466
respectively)
Held to maturity (fair value of $247,986 and $288,219,
respectively) 243,848 286,384
Loans, net (including allowance for loan losses
of $5,982 and $5,040, respectively) 633,236 616,923
Federal Home Loan Bank stock 11,136 10,370
Premises and equipment 7,930 6,596
Accrued interest receivable 6,414 6,450
Real estate owned 55 29
Other assets 1,084 1,221
---------- ----------
TOTAL ASSETS $1,044,993 $1,074,736
========== ==========
LIABILITIES AND EQUITY:
LIABILITIES:
Deposits $ 886,808 $ 932,060
Advance payments by borrowers for taxes and insurance 3,715 3,852
Accrued interest payable 845 1,000
Post-retirement benefit obligation 7,647 7,326
Accrued expenses and other liabilities 4,625 2,367
---------- ----------
Total liabilities 903,640 946,605
---------- ----------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Retained earnings (substantially restricted) 140,636 127,589
Net unrealized gain on available for sale securities, net of
taxes of $385 and $291, respectively 717 542
---------- ----------
TOTAL EQUITY 141,353 128,131
---------- ----------
TOTAL LIABILITIES AND EQUITY $1,044,993 $1,074,736
========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 140
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1996 1995
---------- --------- ----------
(In thousands)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $54,148 $48,586 $43,093
Mortgage-backed securities:
Available for sale 5,122 6,871 6,969
Held to maturity 19,024 21,988 23,827
Investment securities:
Available for sale 2,169 1,226 2,253
Held to maturity 843 1,780 2,185
FHLB stock dividend 766 695 632
Other interest-earning assets 613 603 875
------- ------- -------
Total interest income 82,685 81,749 79,834
INTEREST EXPENSE:
Interest expense on deposits 40,463 43,009 41,104
------- ------- -------
NET INTEREST INCOME 42,222 38,740 38,730
RECOVERY OF LOAN LOSS ALLOWANCES (1,546)
NET INTEREST INCOME AFTER RECOVERY OF
LOAN LOSS ALLOWANCES 43,768 38,740 38,730
------- ------- -------
NONINTEREST INCOME:
Service fees and other charges 1,092 755 681
Net (losses) gains:
Mortgage-backed securities available for sale 80 321
Investment securities available for sale 45 74
Other (losses) gains (34) (45) 9
Other income 426 536 469
------- ------- -------
Total noninterest income 1,564 1,291 1,554
------- ------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits 14,710 12,735 11,033
Occupancy 1,256 1,250 1,194
Equipment and data processing 2,534 2,181 1,768
Deposit insurance premiums 588 2,033 2,064
Federal deposit insurance special assessment 5,903
Franchise tax 1,752 1,643 1,398
Advertising 1,045 1,000 1,162
Other expenses 3,418 3,323 3,376
------- ------- -------
Total noninterest expenses 25,303 30,068 21,995
------- ------- -------
INCOME BEFORE INCOME TAXES 20,029 9,963 18,289
INCOME TAXES 6,982 3,332 6,707
------- ------- -------
NET INCOME $13,047 $ 6,631 $11,582
======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 141
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1996 1995
----------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,047 $ 6,631 $ 11,582
Adjustments to reconcile net income to net cash
provided by operating activities:
Recovery of loan loss allowances (1,546)
Net (gains) losses (46) (404)
Accretion of discounts and amortization of premiums (1,090) (1,499) (2,018)
Depreciation 1,080 1,016 671
FHLB stock dividends (766) (695) (632)
Decrease (increase) in interest receivable 36 1,312 (89)
(Decrease) increase in interest payable (155) (18) 512
Increase in post retirement benefit obligation 321 312 221
Decrease (increase) in prepaid and other assets 137 (182) (109)
Increase (decrease) in other liabilities 2,165 (929) 2,807
-------- -------- --------
Net cash provided by operating activities 13,183 5,948 12,541
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity 42,885 46,034 41,023
Mortgage-backed securities available for sale 19,101 23,014 13,705
Investment securities held to maturity 23,000 2,000 15,700
Investment securities available for sale 6,312 3,653 2,596
Proceeds from sale of:
Mortgage-backed securities available for sale 3,065 9,711
Investment securities available for sale 21,004 16,353
Purchases of:
Mortgage-backed securities held to maturity (30,031) (43,884)
Mortgage-backed securities available for sale (8,110) (16,334)
Investment securities available for sale (30,876) (7,544) (16,487)
Investment securities held to maturity (11,704)
Principal collected on loans 119,120 125,550 105,413
Loans originated (133,357) (194,650) (142,779)
Loans acquired (116) (24) (4,024)
Proceeds from disposal of real estate owned 315 81 385
Purchases of premises and equipment (2,414) (1,516) (1,488)
Proceeds from disposal of premises and equipment 7
-------- -------- --------
Net cash provided by (used in) investing activities 47,035 (20,532) (31,814)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Now, Savings and Money Market Accounts (16,842) (241) (54,150)
Net (decrease) increase of Certificates of Deposit (28,410) (6,554) 94,093
Net (decrease) increase in advance payments by borrowers
for taxes and insurance (137) (767) 542
-------- -------- --------
Net cash provided (used in) by financing activities (45,389) (7,562) 40,485
-------- -------- --------
Increase (decrease) in cash and cash equivalents 14,829 (22,146) 21,212
Cash and cash equivalents, beginning of year 19,668 41,814 20,602
-------- -------- --------
Cash and cash equivalents, end of year $ 34,497 $ 19,668 $ 41,814
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 142
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
On Retained
Securities Earnings Total Equity
-------------- -------- ------------
(In thousands)
<S> <C> <C> <C>
Balance, January 1, 1995 $(2,167) $109,376 $107,209
Change in net unrealized gain on securities, net of taxes 3,502 3,502
Net income 11,582 11,582
------- -------- --------
Balance, December 31, 1995 1,335 120,958 122,293
------- -------- --------
Change in net unrealized loss on securities, net of taxes (793) (793)
Net income 6,631 6,631
------- -------- --------
Balance, December 31, 1996 542 127,589 128,131
------- -------- --------
Change in net unrealized gain on securities, net of taxes 175 175
Net income 13,047 13,047
------- -------- --------
Balance, December 31, 1997 $ 717 $140,636 $141,353
======= ======== ========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 143
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of The Home Savings & Loan Company of Youngstown,
Ohio, a state chartered savings and loan company, (the "Company"), conform
to generally accepted accounting principles and prevailing practices within
the banking and thrift industry. A summary of the more significant
accounting policies follows:
NATURE OF OPERATIONS
The Company is an Ohio Corporation organized as a savings and loan
association. The business of the Company is providing consumer and business
banking services to its market area in northeastern Ohio. At the end of
1997, the Company was doing business through 14 full service banking
branches. Loans and deposits are primarily generated from the areas where
banking branches are located. The Company's income is derived predominantly
from interest on loans, securities, and to a lesser extent, noninterest
income. The Company's principal expenses are interest paid on deposits and
normal operating costs. The Company's operations are principally in the
savings and loan industry, which constitutes a single industry segment.
PLAN OF CONVERSION
On December 9, 1997, the Board of Directors of the Company adopted a Plan
of Conversion to convert from a state chartered mutual savings and loan
association to a state of Ohio chartered capital stock savings and loan
association with the concurrent formation of a holding company subject to
approval by regulatory authorities and depositors of the Company. The
conversion is expected to be accomplished through the adoption of a state
stock charter for the Company, the sale of all of the Company's stock to
the holding company and the sale of the holding company's common stock to
the public. A subscription offering of the shares of common stock will be
offered initially to eligible account holders, employee benefit plans of
the Company, supplemental eligible account holders, other members and
directors, officers and employees of the Company. Any shares of common
stock not sold in the subscription offering are expected to be offered for
sale to the general public.
At the time of the conversion, the Company will establish a liquidation
account in an amount equal to its retained earnings as of the date of the
latest balance sheet appearing in the final prospectus. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their
accounts at the Company after the conversion. The liquidation account will
be reduced annually to the extent that eligible account holders and
supplemental eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases will not restore
an eligible or supplemental eligible account holder's interest in the
liquidation account. In the event of a complete liquidation of the Company,
each eligible account holder and supplemental eligible account holder will
be entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for
accounts then held.
The Company formed a charitable foundation (the "Foundation") in 1991 to
further the commitment to the communities it serves. At the time of the
conversion, the Company plans to contribute to the Foundation a number of
common shares equal to 5% of the common shares issued in the conversion,
subject to the overall limitation of 1,250,000 common shares.
Subsequent to the conversion, the Company may not declare or pay cash
dividends on or repurchase any of its shares of common stock, if the effect
thereof would cause equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
F-7
<PAGE> 144
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense. As of December 31, 1997, conversion costs have
not been significant.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Securities are classified as available for sale or held to maturity upon
their acquisition. Securities classified as available for sale are carried
at estimated fair value with the unrealized holding gain or loss reflected
as a component of equity, net of taxes. Securities classified as held to
maturity are carried at amortized cost. Premiums and discounts are
recognized in interest income over the period to maturity by the level
yield method. Realized gains or losses on the sale of debt securities are
recorded based on the amortized cost of the specific securities sold.
Security sales are recorded on a trade date basis.
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances. For balance sheet presentation, the
balances are presented net of deferred fees or costs on originated loans or
unamortized premiums or discounts on purchased loans. Discounts and
premiums are accreted or amortized using the interest method over the
remaining period to contractual maturity. Unamortized net fees or costs are
recognized upon early repayment of the loans. Unamortized net fees or costs
on loans sold are included in the basis of the loans in calculating gains
and losses.
Loans intended for sale are carried at the lower of cost or estimated
market value determined on an aggregate basis. Net unrealized losses are
recognized through a valuation allowance by a charge to income. Gains or
losses on the sale of loans are determined under the specific
identification method.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures," which impose certain requirements on
the measurement of impaired loans. The Company has previously measured such
loans in accordance with the methods prescribed in SFAS No. 114.
Consequently, no additional loss provisions were required by the adoption
of these statements. SFAS No. 114 also requires that impaired loans for
which foreclosure is probable should continue to be accounted for as loans.
The adoption of SFAS No. 114 and SFAS No. 118 did not have a material
effect on the Company's results of operations.
A loan (including a loan impaired under SFAS No. 114) is classified as
nonaccrual when collectability is in doubt (this is generally when the
borrower is 90 days past due on contractual principal or interest
payments). A loan may be considered impaired, but remain on accrual status,
when the borrower demonstrates (by continuing to make payments) a
willingness to keep the loan current and by reducing the delinquency to
less than 90 days. When a loan is placed on nonaccrual status, unpaid
interest is reversed and an allowance is established by a charge to
interest income equal to all accrued interest. Income is subsequently
recognized only to the extent that cash payments are received. Cash
receipts received on impaired loans are generally applied first to escrow
requirements, then to delinquent interest, with any remainder to the
principal balance. Loans are returned to full accrual status when the
borrower has the ability and intent to make periodic principal and interest
payments (this generally requires that the loan be brought current in
accordance with its original contractual terms). Loans are
F-8
<PAGE> 145
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
classified as restructured when concessions are made to borrowers with
respect to the principal balance, interest rate or the terms due to the
inability of the borrower to meet the obligation under the original terms.
A loan is considered to be impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. In
general, the Company considers a loan on income-producing properties to be
impaired when the debt service ratio is less than 1.0 and it is not
probable that all payments will be received in accordance with contractual
terms. Loans on non-income producing properties are considered impaired
whenever fair value of the underlying collateral is less than book value of
the outstanding loan. The Company performs a review of all loans over
$500,000 to determine if the impairment criteria have been met. If the
impairment criteria have been met, a reserve is calculated, including all
collection costs, according to the provisions of the SFAS No. 114. Most of
the Company's loan portfolios are excluded from the scope of SFAS No. 114
because the pronouncement is generally not applicable to large groups of
smaller-balance homogeneous loans such as residential mortgage, and other
consumer loans. For loans which are individually not significant ($500,000
or less) and represent a homogeneous population, the Company evaluates
impairment based on the level and extent of delinquencies in the portfolio
and the Company's prior charge-off experience with those delinquencies. The
Company charges principal off at the earlier of (i) when a total loss of
principal has been deemed to have occurred as a result of the book value
exceeding the fair value, or (ii) when collection efforts have ceased.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established at a level believed adequate
by management to absorb probable losses inherent in the loan portfolio.
Management's determination of the adequacy of the allowance is based upon
estimates derived from an analysis of individual credits, prior and current
loss experience, loan portfolio delinquency levels, overall growth in the
loan portfolio and current economic conditions. Consequently, these
estimates are particularly susceptible to changes that could result in a
material adjustment to results of operations. The provision for loan losses
represents a charge against current earnings in order to maintain the
allowance for loan losses at an appropriate level.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the
straight-line method over the useful lives (or term of the lease, if
shorter) of the related assets.
REAL ESTATE OWNED
Real estate owned, including property acquired in settlement of foreclosed
loans, is carried at the lower of cost or estimated fair value less
estimated cost to sell after foreclosure. Costs relating to the development
and improvement of real estate owned are capitalized, whereas costs
relating to holding and maintaining the property are charged to expense.
LOAN FEES
Loan origination fees received for loans, net of direct origination costs,
are deferred and amortized to interest income over the contractual lives of
the loans using the level yield method. Fees received for loan commitments
that are expected to be drawn, based on the Company's experience with
similar commitments, are deferred and amortized over the lives of the loans
using the level yield method. Fees for other loan commitments are deferred
and amortized over the loan commitment period on a straight-line basis.
Unamortized deferred loan fees or costs related to loans paid off are
included in income. Unamortized net fees or costs on loans sold are
included in the basis of the loans in calculating gains and losses.
Amortization of net deferred fees is discontinued for loans that are deemed
to be nonperforming.
F-9
<PAGE> 146
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
INCOME TAXES
The provision for federal income taxes is based upon earnings reported for
financial statement purposes rather than amounts reported on the Company's
income tax returns. Deferred income taxes, which result from temporary
differences in the recognition of income and expense for financial
statement and tax return purposes, are included in the calculation of
income tax expense. The effect on deferred tax assets and liabilities of a
change in income tax rates is recognized in income in the period that
includes the enactment date.
POSTRETIREMENT BENEFITS
The Company accrues estimated costs of retiree health care and life
insurance benefits over the years employees render the services necessary
to earn those benefits. The Company elected to recognize the accumulated
postretirement benefit obligation when SFAS No. 106 "Employers' Accounting
for Postretirement Benefits other than Pensions" was adopted.
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a term of three months or less to be cash
equivalents.
LONG-LIVED ASSETS
Effective October 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of." SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangible assets and
goodwill related to those assets to be held and used and for long-lived
assets to be held and certain intangible assets to be disposed of. The
adoption of SFAS No. 121 did not have a material impact on the Company's
financial conditions or results of operations.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability depends to a large extent on its net interest
income, which is the difference between interest income from loans and
investments and interest expense on deposits. Like most financial
institutions, the Company's short-term interest income and interest expense
are significantly affected by changes in market interest rates and other
economic factors beyond its control. The Company's interest earning assets
consist primarily of long-term, fixed rate and adjustable rate mortgage
loans and investments which adjust more slowly to changes in interest rates
than its interest bearing liabilities which are deposits. Accordingly, the
Company's earnings could be adversely affected during periods of rising
interest rates.
NEW ACCOUNTING STANDARDS
On January 1, 1997 the Company adopted SFAS No. 125. SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," amends portions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," amends
and extends to all servicing assets and liabilities the accounting
standards for mortgage servicing rights now in SFAS No. 65, and supersedes
SFAS No. 122. SFAS No. 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. Those standards are based upon consistent application
of a financial components approach that focuses on control. The statement
also defines accounting treatment for servicing assets and other retained
interests in the assets that are transferred. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is required to be applied
prospectively. The adoption of this statement has not had a material effect
on the Company's financial condition or results of operations. The
Financial Accounting Standards Board has issued SFAS No. 127, "Deferral of
the Effective Date of Certain Provisions of SFAS No. 125," that defers the
effective date of certain provisions of SFAS No. 125 related to secured
borrowings and collateral, repurchase agreements,
F-10
<PAGE> 147
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
dollar rolls, securities lending, and similar transactions until after
December 31, 1997. Management has determined that the impact of adopting
this statement is not material to the financial statements.
SFAS No. 130, "Reporting Comprehensive Income," issued in July 1997,
establishes standards for reporting and presentation of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. It requires that all items
that are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No.
130 requires that companies (i) classify terms of other comprehensive
income by their nature in a financial statement and (ii) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the
statement of financial condition. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassifications of financial
statements for earlier periods provided for comprehensive purposes is
required.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement
standardizes the disclosure for pensions and other postretirement benefits
to the extent practicable, requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
as useful as they were when SFAS No. 87 "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for the Settlement and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," and SFAS No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions," were issued. SFAS No. 132 suggests combined
formats for presentation of pension and other postretirement benefit
disclosures. It does not change the measurement or recognition of those
plans. SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. Restatements of disclosures for earlier periods provided for
comparative purposes is required. Management does not believe the adoption
of this statement will have a material impact on the Company's financial
condition and results on operations.
RECLASSIFICATIONS
Certain items in the financial statements for 1996 and 1995 have been
reclassified to conform to the 1997 presentation.
2. CASH AND CASH EQUIVALENTS
Federal Reserve Board regulations require depository institutions to
maintain certain minimum reserve balances. These reserves, which consisted
of vault cash and deposits at the Federal Reserve Bank, totaled $2.534
million and $2.22 million at December 31, 1997 and 1996, respectively.
F-11
<PAGE> 148
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Available for Sale
U.S. Treasury and agency securities $25,072 $190 $ - $25,262
Corporate notes 14,019 121 - 14,140
------- ---- --- -------
Total investment securities available for sale 39,091 311 - 39,402
Held to Maturity
U.S. Treasury and agency securities 4,968 45 - 5,013
------- ---- --- -------
Total investment securities held to maturity 4,968 45 - 5,013
------- ---- --- -------
Total investment securities $44,059 $356 $ - $44,415
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Available for Sale
U.S. Treasure and agency securities $12,517 $ 96 $ - $12,613
Corporate notes 2,026 21 1 2,046
------- ----- --- -------
Total investment securities available for sale 14,543 117 1 14,659
Held to Maturity
U.S. Treasury and agency securities 14,967 84 15,051
Corporate notes 13,003 55 1 13,057
------- ----- --- -------
Total investment securities held to maturity 27,970 139 1 28,108
------- ----- --- -------
Total investment securities $42,513 $256 $ 2 $42,767
======= ===== ==== =======
</TABLE>
The weighted average interest rate on investment securities was 6.39% and
6.34% at December 31, 1997 and 1996, respectively. The corporate notes
consist primarily of medium-term notes issued by corporations with
investment grade ratings.
Investment securities available for sale by contractual maturity, repricing
or expected call date are shown below:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------
Amortized Cost Fair Value
-------------- ----------
(In thousands)
<S> <C> <C>
Due in one year or less $ 5,004 $ 5,011
Due after one year through five years 29,087 29,354
Due after five years through ten years 5,000 5,037
Due after ten years - -
------- -------
Total $39,091 $39,402
======= =======
</TABLE>
F-12
<PAGE> 149
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
Investment securities held to maturity by contractual maturity, repricing
or expected call date are shown below:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------
Amortized Cost Fair Value
-------------- ----------
(In thousands)
<S> <C> <C>
Due in one year or less $ - $ -
Due after one year through five years 4,968 5,013
Due after five years through ten years - -
Due after ten years - -
------ ------
Total $4,968 $5,013
====== ======
</TABLE>
Proceeds on sales of investment securities available for sale were
$21,004,000 and $16,353,000 for the years ended December 31, 1996 and 1995.
There were realized gains of approximately $155,000 and $74,000 for the
years ended December 31, 1996 and 1995, respectively. Realized losses were
approximately $110,000 for the year ended December 31, 1996, and there were
no realized losses for year ended December 31, 1995. There were no sales of
investment securities during the year ended December 31, 1997.
Securities pledged for public funds deposits were approximately $3,763,000
and $2,888,000 at December 31, 1997 and 1996, respectively.
4. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities were summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Available for Sale
Participation certificates:
Government agency issues $ 59,304 $1,073 $205 $ 60,172
Private issues 2,329 - 78 2,251
--------- ------ ---- ---------
Total mortgage-backed securities
available for sale 61,633 1,073 283 62,423
--------- ------ ---- ---------
Held to Maturity
Participation certificates:
Government and government agency issues 243,848 4,672 534 247,986
--------- ------ ---- ---------
Total mortgage-backed securities $305,481 $5,745 $817 $310,409
--------- ------ ---- ---------
</TABLE>
F-13
<PAGE> 150
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Available for Sale
Participation certificates:
Government agency issues $ 81,237 $1,655 $ 859 $ 82,033
Private issues 2,513 - 80 2,433
-------- ------ ------ --------
Total mortgage-backed securities
available for sale 83,750 1,655 939 84,466
-------- ------ ------ --------
Held to Maturity
Participation certificates:
Government and government agency issues 286,384 4,519 2,684 288,219
-------- ------ ------ --------
Total mortgage-backed securities $370,134 $6,174 $3,623 $372,685
======== ====== ====== ========
</TABLE>
Mortgage-backed securities are classified by type of interest payment as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996
---- ----
Amortized Amortized
Cost Fair Value Cost Fair Value
--------- ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Available for Sale
Adjustable rate:
Private issues $ 762 $ 762 $ 919 $ 919
-------- -------- -------- --------
Total adjustable rate 762 762 919 919
-------- -------- -------- --------
Fixed rate:
Participation certificates:
Government agency issues 59,304 60,172 81,237 82,033
Private issues 1,567 1,489 1,594 1,514
-------- -------- -------- --------
Total fixed rate 60,871 61,661 82,831 83,547
-------- -------- -------- --------
Total available for sale 61,633 62,423 83,750 84,466
-------- -------- -------- --------
Held to Maturity
Adjustable rate:
Participation certificates:
Government agency Issues 955 969 1,113 1,124
-------- -------- -------- --------
Total adjustable rate 955 969 1,113 1,124
-------- -------- -------- --------
Fixed rate:
Participation certificates:
Government and government
agency issues 242,893 247,017 285,271 287,095
-------- -------- -------- --------
Total fixed rate 242,893 247,017 285,271 287,095
-------- -------- -------- --------
Total held to maturity 243,848 247,986 286,384 288,219
-------- -------- -------- --------
Total mortgage-backed securities $305,481 $310,409 $370,134 $372,685
======== ======== ======== ========
</TABLE>
Proceeds on sales of mortgage-backed securities available for sale were
$3,065,000 and $9,711,000 for the years ended December 31, 1997 and 1995,
respectively. These were realized gains of $80,000 and $325,000 for the years
F-14
<PAGE> 151
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
ended December 31, 1997 and 1995, respectively, and realized losses for the year
ended December 31, 1995 were $4,000. There were no sales of mortgage-backed
securities during the year ended December 31, 1996.
5. LOANS
Loans held for portfolio consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
------ -------
(In thousands)
<S> <C> <C>
Real Estate:
Permanent:
One-to-four family $489,677 $482,089
Multifamily 8,944 8,778
Non-residential 33,479 35,315
Land 285 195
Construction:
One-to-four family 24,044 27,610
Multifamily 325 490
-------- --------
Total real estate 556,754 554,477
Consumer 43,388 39,605
Commercial 59,897 46,742
-------- --------
Total loans 660,039 640,824
-------- --------
Less:
Loans in process 16,485 14,700
Allowance for loan losses 5,982 5,040
Deferred loan fees, net 4,336 4,161
-------- --------
Total 26,803 23,901
-------- --------
Loans, net $633,236 $616,923
======== ========
</TABLE>
Loans with adjustable rates included above totaled $180.6 million and
$177.0 million at December 31, 1997 and 1996, respectively. Substantially
all such loans have contractual interest rates that increase or decrease at
periodic intervals no greater than three years, or have original terms to
maturity of three years or less. Adjustable-rate loans reprice primarily
based upon U.S. Treasury security rates.
The Bank's primary lending area is within the northeast, Ohio. At December
31, 1997 and 1996, substantially all of the Company's gross loans were to
borrowers in Ohio.
The Company originates or purchases commercial real estate and business
loans. These loans are considered by management to be of somewhat greater
risk of uncollectibility than single-family residential real estate loans
due to the dependency on income production or future development of real
estate. The following table sets forth the Company's commercial
non-residential real estate portfolios by type of collateral.
F-15
<PAGE> 152
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996
------------------- -------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
(In thousands)
<S> <C> <C> <C> <C>
Strip shopping centers $ 1,736 5.19% $ 1,886 5.34%
Office buildings 9,160 27.36 9,922 28.10
Warehouses 17,853 53.33 18,610 52.70
Hotel property 4,373 13.06 4,504 12.75
Other 357 1.06 393 1.11
------- ------ ------- ------
Total $33,479 100.00% $35,315 100.00%
======= ====== ======= ======
</TABLE>
Commercial loans are collateralized by accounts receivable, inventory and
other assets used in the borrowers' business. Substantially all of the
consumer loans, including consumer lines of credit, are secured by equity
in the borrowers' residence.
At December 31, 1997, 1996 and 1995, loans serviced for the benefit of
others, not included in the detail above, totaled $6.6 million, $7.0
million and $7.6 million, respectively.
Loan commitments are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments
extend over various periods of time with the majority of such commitments
disbursed within a ninety day period. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Commitments to extend credit at fixed rates exposes the Company to
some degree of interest rate risk. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The type or amount of collateral
obtained varies and is based on management's credit evaluation of the
potential borrower. The Company normally has outstanding a number of
commitments to extend credit. At December 31, 1997, there were outstanding
commitments to originate $5,708,000 of fixed-rate mortgage loans and other
loans (with interest rates that ranged from 7 1/4% to 8 1/2%) and
$1,992,000 of adjustable-rate loans, all at market rates. Terms of the
commitments extend up to nine months, but are generally less than two
months.
At December 31, 1997, there were also outstanding unfunded consumer lines
of credit of $16,068,000 and commercial lines of credit of $3,047,000.
Substantially all lines of credit are adjustable-rate based on the one-year
U.S. Treasury index and are generally renewable on an annual basis. The
Company does not expect all of these lines to be used by the borrowers.
The Company's business activity is principally with customers located in
Ohio. Except for residential loans in the Company's market area, the
Company has no other significant concentrations of credit risk.
F-16
<PAGE> 153
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 5,040 $5,118 $5,111
Recovery of loan loss allowances (1,546) - -
Amounts charged off (446) (85) (394)
Recoveries 2,934 7 401
------- ------ ------
Balance, end of year $ 5,982 $5,040 $5,118
======= ====== ======
</TABLE>
Nonperforming loans (loans 90 days past due and restructured loans) were
$10.2 million, $9.8 million and $6.1 million at December 31, 1997, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
As of or for the year ended
December 31,
---------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Impaired loans on which no specific valuation allowance was
provided $9,340 $8,863
Impaired loans on which specific valuation allowance was provided
151 251
------ ------
Total impaired loans at year-end 9,491 9,114
Specific valuation allowances on impaired loans at year-end 157 254
Average impaired loans during year 8,390 7,349
Interest income recognized on impaired loans during the year 544 522
Interest income potential based on original contract terms of
impaired loans 585 584
</TABLE>
Directors and officers of the Company are customers of the institution in
the ordinary course of business. Deposits and loans of directors and
officers have terms consistent with those offered to other customers. At
December 31, 1997 and 1996, loans to officers or directors of the Company
totaled approximately $1,345,000 and $1,227,000, respectively.
F-17
<PAGE> 154
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
6. PREMISES AND EQUIPMENT AND OTHER ASSETS
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Land and land improvements $ 1,952 $ 1,066
Buildings 9,992 8,900
Leasehold improvements 325 771
Furniture and equipment 4,773 4,134
------- -------
17,042 14,871
Less allowances for depreciation and amortization 9,112 8,275
------- -------
Total $ 7,930 $ 6,596
======= =======
</TABLE>
Accrued interest - receivables consist of the following:
December 31,
----------------------------
1997 1996
---- ----
(In thousands)
Investment securities $ 639 $ 314
Mortgage-backed securities 2,252 2,758
Loans 3,523 3,378
------ ------
Total $6,414 $6,450
====== ======
7. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1997 1996
-------------------------- -------------------------
Weighted Weighted
Amount Average Rate Amount Average Rate
------ ------------ ------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Checking accounts:
Interest-bearing $ 58,707 2.03% $ 56,347 2.34%
Noninterest-bearing 5,387 4,201
Savings accounts 243,588 2.99 256,081 3.08
Money market accounts 56,727 2.99 64,622 3.08
Certificates of deposit 522,399 5.78 550,809 5.74
-------- ---- -------- ----
Total deposits $886,808 4.56% $932,060 4.60%
======== ==== ======== ====
</TABLE>
F-18
<PAGE> 155
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
<TABLE>
<CAPTION>
Interest expense on deposits is summarized as follows:
Year Ended December 31,
---------------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Interest-bearing checking $ 1,165 $ 1,154 $ 1,058
Savings accounts 7,387 7,879 8,123
Money market accounts 1,741 2,094 2,307
Certificates of deposit 30,170 31,882 29,616
------- ------- -------
$40,463 $43,009 $41,104
======= ======= =======
</TABLE>
A summary of certificates of deposit by maturity follows:
December 31, 1997
-----------------
(In thousands)
Within 12 months $349,600
12 months to 24 months 82,530
24 months to 36 months 51,240
36 months to 48 months 14,780
Over 48 months 24,249
--------
Total $522,399
At December 31, 1997, deposit accounts with balances of $100,000 and
greater totaled approximately $48.7 million. Deposits in excess of $100,000
are not federally insured. The Company has not accepted brokered deposits
for the years ended December 31, 1997 and 1996.
Directors and officers of the Company are customers of the institution in
the ordinary course of business. Deposits and loans of directors and
officers have terms consistent with those offered to other customers. At
December 31, 1997 and 1996, deposits from officers or directors of the
Company totaled approximately $2,467,000 and $2,484,000, respectively.
8. INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred
income tax assets and liabilities are computed annually for differences
between financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Valuation allowances are established,
based on the weight of available evidence, when it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
Income tax expense is the tax payable or refundable for the period adjusted
for the change during the period in deferred tax assets and liabilities.
The provision for federal income taxes consists of the following
components:
Year ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Current $6,807 $3,055 $5,875
Deferred 175 277 832
------ ------ ------
Total $6,982 $3,332 $6,707
====== ====== ======
F-19
<PAGE> 156
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
A reconciliation from tax at the statutory rate to the income tax provision
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
Dollars Rate Dollars Rate Dollars Rate
------- ---- ------- ---- ------- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $7,010 35.00% $3,487 35.00% $6,401 35.00%
Increase (decrease) due to:
Other (28) (.14) (155) (1.55) 306 1.67
------ ----- ------ ----- ------ -----
Income tax provision $6,982 34.86% $3,332 33.45% $6,707 36.67%
====== ===== ====== ===== ====== =====
</TABLE>
Significant components of the deferred tax assets and liabilities are as
follows. No valuation allowance was considered necessary for the years
ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $2,093 $1,764
Post-retirement benefits 2,676 2,564
Deferred loan fees 1,518 1,457
Interest on non-accrual loans 205 204
------ ------
Net deferred tax assets 6,492 5,989
------ ------
Deferred tax liabilities:
Accelerated depreciation 479 560
Pension benefit obligations 461 493
Original issue discount 1,408 877
FHLB stock dividends 2,093 1,833
Post 1987 tax bad debts 2,152 2,152
Mark-to-market 385 291
------ ------
Net deferred tax liabilities 6,978 6,206
------ ------
Net deferred tax liability $ (486) $ (217)
====== ======
</TABLE>
During 1996, legislation was passed that repealed Section 593 of the
Internal Revenue Code for taxable years beginning after December 31, 1995.
Section 593 allowed thrift institutions, including the Company, to use the
percentage-of-taxable income bad debt accounting method, if more favorable
than the specific charge-off method, for federal income tax purposes. The
excess reserves (deduction based on the percentage-of-taxable income less
the deduction based on the specific charge-off method) accumulated
post-1987 are required to be recaptured ratably over a six-year period
beginning in 1996. The recapture has no effect on the Company's statement
of income as income taxes were provided for in prior years in accordance
with generally accepted accounting principles. The timing of this recapture
may be delayed for a one or two-year period to the extent that the Company
originates more residential loans than the average originations in the past
six years. The Company met the origination requirement for 1996 and 1997
and, therefore, will delay recapture at least until the six-year period
beginning in 1998. The recapture amount of approximately $6.1 million will
result in payments totaling approximately $2.1 million and have been
previously accrued. The pre-1988 reserve provisions are subject only to
recapture requirements in the case of certain excess distributions to, and
redemptions of shareholders or if the Company no longer qualifies as a
"bank." Tax bad debt deductions
F-20
<PAGE> 157
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
accumulated prior to 1988 by the Company are approximately $14.4 million.
No deferred income taxes have been provided on these bad debt deductions
and no recapture of these amounts is anticipated.
9. REGULATORY CAPITAL REQUIREMENTS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. The
regulations require the Company to meet specific capital adequacy
guidelines and the regulatory framework for prompt corrective action that
involve quantitative measures of the Company's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's capital classification is also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of Core and
Tangible capital (as defined in the regulations) to adjusted total assets
(as defined) and of total capital (as defined) to risk-weighted assets (as
defined).
<TABLE>
<CAPTION>
As of December 31, 1997
------------------------------------------------------------------------
Minimum To Be Well Capitalized
Capital Under Prompt Corrective
Actual Requirements Action Provisions
-------------------- ------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted $146,461 28.85% $40,619 8.00% $50,774 10.00%
assets)
Tier 1 capital (to risk-weighted 140,636 27.70 * * 30,464 6.00
assets)
Core (Tier 1) capital (to 140,636 13.47 31,322 3.00 52,203 5.00
adjusted total assets)
Tangible capital (to adjusted
total assets) 140,636 13.47 15,661 1.50 * *
As of December 31, 1996
------------------------------------------------------------------------
Minimum To Be Well Capitalized
Capital Under Prompt Corrective
Actual Requirements Action Provisions
-------------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands)
Total capital (to risk-weighted $132,374 26.15% $40,496 8.00% $50,620 10.00%
assets)
Tier 1 capital (to risk-weighted 127,589 25.21 * * 30,372 6.00
assets)
Core (Tier 1) capital (to 127,589 11.87 32,247 3.00 53,745 5.00
adjusted total assets)
Tangible capital (to adjusted
total assets) 127,589 11.87 16,124 1.50 * *
</TABLE>
* Ratio is not required under regulations.
F-21
<PAGE> 158
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
The following is a reconciliation of the Company's equity reported in the
financial statements under generally accepted accounting principles to OTS
regulatory capital requirements.
<TABLE>
<CAPTION>
Tangible Core (Tier 1) Risk-Based
Capital Capital Capital
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
DECEMBER 31, 1997
Total equity as reported in the financial statements $141,353 $141,353 $141,353
General allowance for loan losses - - 5,825
Net unrealized gain on available for sale securities (717) (717) (717)
-------- -------- --------
Regulatory Capital $140,636 $140,636 $146,461
======== ======== ========
DECEMBER 31, 1996
Total equity as reported in the financial statements $128,131 $128,131 $128,131
General allowance for loan losses - - 4,785
Net unrealized gain on available for sale securities (542) (542) (542)
-------- -------- --------
Regulatory Capital $127,589 $127,589 $132,374
======== ======== ========
</TABLE>
As of December 31, 1997 and 1996, the Office of Thrift Supervision
categorized the Company as well capitalized under the regulatory framework
for Prompt Corrective Action. To be categorized as well capitalized, the
Company must maintain minimum Core, Tier 1 and total capital ratios as set
forth in the table above. There are no conditions or events since that
notification that have changed the Company's category.
Management believes, as of December 31, 1997, that the Company meets all
capital requirements to which it is subject. Events beyond management's
control, such as fluctuations in interest rates or a downturn in the
economy in areas in which the Company's loans and securities are
concentrated, could adversely affect future earnings and, consequently, the
Company's ability to meet its future capital requirements.
10. BENEFIT PLANS
RETIREMENT PLANS
The Company has a defined benefit pension plan covering substantially all
of its full-time employees. The benefits are based on years of service and
the employee's compensation during the last five years of employment.
Participants become 100% vested upon completion of five years of service.
The Company's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional
amounts as the Company may determine to be appropriate from time to time.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
F-22
<PAGE> 159
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
Net periodic pension expense included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 376 $ 357 $ 290
Interest cost on projected benefit obligation 530 544 466
Actual return on plan assets (1,013) (525) (425)
Net amortization and deferral 500 (39) (60)
------- ------ ------
Net periodic pension expense $ 393 $ 337 $ 271
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits $5,004 $5,227
Nonvested benefits 236 196
------ ------
Actuarial present value of accumulated benefit obligations $5,240 $5,423
====== ======
</TABLE>
The following tables present the pension plan's funded status and amounts
recognized in the Company's financial statements:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Plan assets at fair value, primarily stock and bond funds $ 7,445 $ 7,264
Less: projected benefit obligation
for service rendered to date (8,612) (8,350)
------- -------
Excess of projected benefit obligation over plan assets (1,167) (1,086)
Unrecognized net loss from past experience different from that
assumed and effect of changes in assumptions 1,544 1,745
Unrecognized net transition asset (161)
Unrecognized prior service cost 367 410
------- -------
Prepaid pension cost included in prepaid expenses
and other assets $ 744 $ 908
======= =======
</TABLE>
Assumptions used in accounting for the defined benefit plan were as
follows:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Weighted average discount rate 7.00% 7.25%
Rates of increase in future compensation levels 6.00 6.00
Expected long-term rate of return on plan assets 8.00 8.00
</TABLE>
The prior service cost is being amortized using the straight-line method
over the average remaining service period of participants expected to
receive benefits.
F-23
<PAGE> 160
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
The Company has a defined contribution 401(K) savings plan, which covers
substantially all employees. Under the provisions of the plan, the
Company's matching contribution is discretionary and may be changed from
year to year. For 1997 and 1996, the Company match was 25% of pre-tax
contributions, up to a maximum of 6% of the employees' base pay. In
addition, in 1997, 1996 and 1995 the Company paid a 1% discretionary
contribution to all employees who were eligible to participate in the plan.
Also in 1996, the Company implemented a discretionary profit sharing pool
as a part of the 401(K) plan which is based upon a formula involving the
average net income of the Company over a three year period. Participants
become 100% vested in the Company contributions upon completion of five
years of service. For the years ended 1997, 1996 and 1995, the expense
related to this plan was approximately $468,000, $513,000 and $107,000,
respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's retirement plans, the Company sponsors a
defined benefit health care plan that provides postretirement medical
benefits to full-time employees who have worked 15 years and attained age
60, or worked 5 years and attained age 65, while in service with the
Company. The plan is contributory and contains minor cost-sharing features
such as deductibles and coinsurance. In addition, postretirement life
insurance coverage is provided for employees who were participants prior to
December 10, 1976. The life insurance plan is non-contributory. The
Company's policy is to pay premiums monthly, with no pre-funding.
The following tables present the other postretirement benefit plan's
funded status and amounts recognized in the Company's financial statements:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 208 $ 189 $ 165
Interest cost 332 316 296
Net amortization and deferral (134) (128) (177)
----- ----- -----
Net periodic post-retirement benefit cost $ 406 $ 377 $ 284
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $1,738 $1,709
Fully eligible active plan participants 252 483
Other active plan participants 3,260 2,592
------ ------
Accumulated post-retirement benefit obligation 5,250 4,784
Unrecognized net gain 2,028 2,147
Unrecognized prior service cost 369 395
------ ------
Accrued post-retirement benefit obligation $7,647 $7,326
====== ======
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of coverage benefits (i.e., health care cost trend rate) used in the 1997
and 1996 actuarial valuations is 9 percent through 1997 and is assumed to
decrease 1 percent per year to 6 percent for the year 2000 and remain at
that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rate by one percentage point for each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1997, by approximately $1,015,000, and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for 1997 by approximately $120,000.
F-24
<PAGE> 161
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7 percent and 7.25 percent at
December 31, 1997 and 1996, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by
the Company using available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash, Cash Equivalents, Accrued Interest Receivable and Payable and Advance
Payments by Borrowers for Taxes and Insurance - The carrying amounts as
reported in the Statements of Financial Condition are a reasonable estimate
of fair value due to their short-term nature.
Mortgage-Backed and Investment Securities - Fair values are based on quoted
market prices, dealer quotes and prices obtained from independent pricing
services.
Loans - The fair value is estimated by discounting the future cash flows
using the current market rates for loans of similar maturities with
adjustments for market and credit risks.
Federal Home Loan Bank Stock - The fair value is estimated to be the
carrying value, which is par. All transactions in the capital stock of the
Federal Home Loan Bank are executed at par.
Deposits - The fair value of demand deposits, savings accounts and money
market deposit accounts is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using rates currently offered for deposits of similar remaining maturities.
Limitations - Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists for
a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, a significant asset
not considered a financial asset is premises and equipment. In addition,
tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in any of the estimates.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and 1996.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
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<PAGE> 162
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 34,497 $ 34,497 $ 19,668 $ 19,668
Investment securities:
Held to maturity 4,968 5,013 27,970 28,108
Available for sale 39,402 39,402 14,659 14,659
Mortgage-backed securities:
Held to maturity 243,848 247,986 286,384 288,219
Available for sale 62,423 62,423 84,466 84,466
Loans 633,236 640,354 616,923 614,723
Federal Home Loan Bank stock 11,136 11,136 10,370 10,370
Accrued interest receivable 6,414 6,414 6,450 6,450
Liabilities:
Deposits:
Checking, savings and money
market accounts 364,409 364,409 381,251 381,251
Certificates of deposit 522,399 522,051 550,809 550,433
Advance payments by borrowers
for taxes and insurance 3,715 3,715 3,852 3,852
Accrued interest payable 845 845 1,000 1,000
</TABLE>
12. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
Supplemental disclosures of cash flow information are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowings $40,618 $43,026 $40,592
Income taxes 5,500 4,425 4,311
Supplemental schedule of noncash activities:
Loans exchanged for mortgage-backed securities 224
Securities transferred from held to maturity to
available for sale 13,934
Transfers from loans to real estate owned 372 71 311
</TABLE>
13. SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, the President signed into law an omnibus
appropriations act for fiscal year 1997 that included, among other things,
the recapitalization of the Savings Association Insurance Fund ("SAIF") in
a section entitled the Deposit Insurance Funds Act of 1996 ("ACT"). The Act
included a provision where all insured depository institutions would be
charged a one-time special assessment on their SAIF assessable deposits as
of March 31, 1995. The Company recorded a pretax charge of $5,903,000
($3,837,000 after tax), which represented 65.7 basis points of the March
31, 1995 assessable deposits. This charge was recorded upon enactment of
the Act on September 30, 1996, and paid on November 29, 1996. The annual
deposit insurance rate in effect after this recapitalization has been
reduced to 6.5 basis points of insured deposits.
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<PAGE> 163
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<S> <C>
* Legal Fees and expenses......................................$200,000
* Postage, printing, Edgar and mailing..........................500,000
* Appraisal and business plan fees and expenses..................38,000
* Accounting fees and expenses.................................110,000
* SEC filing fees...............................................105,199
* OTS filing fees................................................14,400
* Nasdaq filing fees.............................................95,000
* Conversion agent fees and expenses.............................75,000
* Transfer agent fees and expenses...............................45,000
* Other expenses................................................189,401
** Underwriting fees and expenses..............................2,128,000
Total estimated expenses............................... $3,500,000
</TABLE>
- -----------------------------
* Estimated.
** To assist the Holding Company and the Company in marketing the Common
Shares, the Holding Company and the Company have retained Trident
Securities, Inc. ("Trident"), McDonald & Company Securities, Inc.
("McDonald") and CIBC Oppenheimer Corp. (collectively, the
"Underwriters"). The Underwriters are broker-dealers registered with
the SEC and members of the NASD.
For its services, the Underwriters will receive a marketing fee of .95%
of the aggregate purchase price of the Common Shares sold other than
(i) Common Shares purchased by the directors, officers and employees of
the Company and the Holding Company and their affiliates, (ii) Common
Shares purchased by the ESOP, and (iii) Common Shares sold by Selected
Dealers (hereinafter defined).
Depending on market conditions, the Common Shares, if any, not
initially subscribed for in the Subscription Offering or the Community
Offering may be offered for sale to the general public on a best
efforts basis in a syndicated community offering by a selling group of
broker-dealers ("Selected Dealers") to be formed by the Underwriters.
If Selected Dealers are employed, the Selected Dealers will be paid a
commission to be agreed to by the Underwriters, the Company and the
Holding Company.
The estimated underwriting fees are based on the following assumptions:
(i) 25,000,000 Common Shares will be sold in the Offering; (ii)
approximately 600,000 Common Shares sold in the Offering will be
purchased by directors, officers and employees of the Company and the
Holding Company and their affiliates; (iii) 2,000,000 Common Shares
sold in the Offering will be purchased by the ESOP; and (iv) the
remaining 22,400,000 Common Shares sold in the Offering will be sold to
persons other than the ESOP and the Company's directors, executive
officers and employees and affiliates, with sales commissions of .95%
of the aggregate dollar amount of such Common Shares.
The Company will also reimburse the Underwriters for all reasonable
fees and expenses of its legal counsel, not to exceed $60,000.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) OHIO REVISED CODE
Division (E) of Section 1701.13 of the Ohio Revised Code
governs indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or
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<PAGE> 164
investigative, other than an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee, or agent of another corporation, domestic
or foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorney's fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that
the court of common pleas or the court in which such action or suit
was brought determines upon application that, despite the
adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity
for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised
Code.
(3) To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any action,
suit, or proceeding referred to in divisions (E)(1) and (2) of this section, or
in defense of any claim, issue, or matter therein, he shall be indemnified
against expenses, including attorney's fees, actually and reasonably incurred by
him in connection with the action, suit, or proceeding.
(4) Any indemnification under divisions (E)(1) and (2) of this
section, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in divisions
(E)(1) and (2) of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or
threatened with any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm having
associated with it an attorney, who has been retained by or who has
performed services for the corporation or any person to be
indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such
action, suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which action or suit was brought to review the reasonableness of such
determination.
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<PAGE> 165
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (E)(1) and (2) of this section, may be paid
by the corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the directors in the specific
case upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is not entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles, the regulations or any agreement,
vote of shareholders or disinterested directors, or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
their offices and positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance, on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or profit, 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 the corporation would have the power to indemnify
him against such liability under this section. Insurance may be purchased from
or maintained with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to division (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" include all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
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<PAGE> 166
(b) THE HOLDING COMPANY'S CODE OF REGULATIONS
Article Five of the Holding Company's Code of Regulations
provides for the indemnification of officers and directors as follows:
Section 5.01. Mandatory Indemnification. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful. A
person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
Section 5.02. Court-Approved Indemnification. Anything
contained in the Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or
director of the corporation who was a party to any completed action or suit
instituted by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee or agent of another corporation
(domestic or foreign, nonprofit or for profit), partnership, joint venture,
trust or other enterprise, in respect of any claim, issue or matter asserted in
such action or suit as to which he shall have been adjudged to be liable for
acting with reckless disregard for the best interests of the corporation or
misconduct (other than negligence) in the performance of his duty to the
corporation unless and only to the extent that the Court of Common Pleas of
Mahoning County, Ohio, or the court in which such action or suit was brought
shall determine upon application that, despite such adjudication of liability,
and in view of all the circumstances of the case, he is fairly and reasonably
entitled to such indemnity as such Court of Common Pleas or such other court
shall deem proper; and
(B) the corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by this
Section 5.02.
Section 5.03. Indemnification for Expenses. Anything contained
in the Regulations or elsewhere to the contrary notwithstanding, to the extent
that an officer or director of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
5.01, or in defense of any claim, issue or matter therein, he shall be promptly
indemnified by the corporation against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs)
actually and reasonably incurred by him in connection therewith.
Section 5.04 Determination Required. Any indemnification
required under Section 5.01 and not precluded under Section 5.02 shall be made
by the corporation only upon a determination that such indemnification of the
officer or director is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 5.01. Such determination may
be made only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Mahoning County,
Ohio, or (if the corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any; any such determination may be made by a
court under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been denied
or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no
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<PAGE> 167
decision for any reason to deny any such determination, by the disinterested
directors under division (A) or by independent legal counsel under division (B)
or by shareholders under division (C) of this Section 5.04 shall be evidence in
rebuttal of the presumption recited in Section 5.01. Any determination made by
the disinterested directors under division (A) or by independent legal counsel
under division (B) of this Section 5.04 to make indemnification in respect of
any claim, issue or matter asserted in an action or suit threatened or brought
by or in the right of the corporation shall be promptly communicated to the
person who threatened or brought such action or suit, and within ten (10) days
after receipt of such notification such person shall have the right to petition
the Court of Common Pleas of Mahoning County, Ohio, or the court in which such
action or suit was brought, if any, to review the reasonableness of such
determination.
Section 5.05. Advances for Expenses. Expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees and
transcript costs) incurred in defending any action, suit or proceeding referred
to in Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as provided in
Section 5.04 that he is not entitled to be indemnified by the corporation as
provided under Section 5.01; or
(B) if, in respect of any claim, issue or other matter
asserted by or in the right of the corporation in such action or suit, he shall
have been adjudged to be liable for acting with reckless disregard for the best
interests of the corporation or misconduct (other than negligence) in the
performance of his duty to the corporation, unless and only to the extent that
the Court of Common Pleas of Mahoning County, Ohio, or the court in which such
action or suit was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances, he is fairly
and reasonably entitled to all or part of such indemnification.
Section 5.06. Article Five Not Exclusive. The indemnification
provided by this Article Five shall not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled under the Articles
or the Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
Section 5.07. Insurance. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation (domestic or foreign, nonprofit or for profit), 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 the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
Section 5.08. Certain Definitions. For purposes of this
Article Five, and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article 5
shall be deemed to have been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or other matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry of
a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based upon
a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
(B) References to an "other enterprise" shall include
employee benefit plans; references to a "fine" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
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<PAGE> 168
Section 5.09. Venue. Any action, suit or proceeding to
determine a claim for indemnification under this Article Five may be maintained
by the person claiming such indemnification, or by the corporation, in the Court
of Common Pleas of Mahoning County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Mahoning County, Ohio, in any
such action, suit or proceeding.
(c) INSURANCE POLICIES
The Company currently maintains a directors' and officers'
liability policy providing for insurance of directors and officers for liability
incurred in connection with performance of their duties as directors and
officers. Such policy does not, however, provide insurance for losses resulting
from willful or criminal misconduct.
(d) INDEMNIFICATION AGREEMENTS
(i) AGREEMENT WITH KELLER & CO., INC.
The Company has agreed to indemnify Keller & Co., Inc.
("Keller"), the firm retained by the Company to provide the appraisal of the pro
forma market value of the Company, as converted, and the Holding Company, in
connection with certain matters related to the appraisal. The Company will
indemnify Keller and its affiliates and employees for certain costs and
expenses, including reasonable legal fees, in connection with claims or
litigation relating to the appraisal and arising out of any misstatement or
untrue statement of a material fact in the information supplied to Keller by the
Company or by an intentional omission by the Company to state a material fact in
the information so provided, except where Keller has been negligent or at fault.
(ii) AGREEMENT WITH TRIDENT
In general, the agreement with Trident (the "Agency
Agreement") provides that the Company will indemnify and hold harmless Trident's
directors, officers, employees, agents and any controlling person against any
and all loss, liability, claim, damage or expense (including the reasonable fees
and disbursements of counsel) arising out of any untrue statement, or alleged
untrue statement, of a material fact contained in the Summary Proxy Statement or
the Prospectus, any application to regulatory authorities, any "blue sky"
application, or any other related document prepared or executed by or on behalf
of the Company with its consent in connection with, or in contemplation of, the
transactions contemplated by the Agency Agreement, or any omission therefrom of
a material fact required to be stated therein, unless such untrue statement or
omission, or alleged untrue statement or omission, was made in reliance upon,
and in conformity with, written information regarding Trident furnished to the
Company by Trident expressly for use in the Summary Proxy Statement or the
Prospectus.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Holding Company have been sold by the Holding
Company without registration pursuant to the Act, except as follows:
On February 2, 1998, in connection with the incorporation of the
Holding Company, 100 common shares, without par value, of the Holding Company
(the "Securities") were sold for an aggregate purchase price of $100 pursuant to
Section 4(2) of the Act in a transaction not involving any public offering. The
Securities were sold to Douglas M. McKay, the President of the Holding Company,
who had access to all material information about the Holding Company. The
Securities were offered without the use of any form of general solicitation or
advertising. No underwriter was involved in the transaction, and no commission,
discount or other remuneration was paid or given in connection with the sale of
the Securities. Under the terms of the Subscription Agreement between the
Holding Company and Mr. McKay, the Securities will be repurchased by the Holding
Company for $100 on the effective date of the Conversion.
II-6
<PAGE> 169
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
The exhibits filed as a part of this Registration Statement are as follows:
<S> <C>
*1.1 Engagement letter with Trident Securities, Inc.
1.2 Form of Agency Agreement with Trident Securities, Inc.
2 Amended Plan of Conversion
*3.1 Articles of Incorporation of United Community Financial Corp.
3.2 Code of Regulations of United Community Financial Corp.
*5 Opinion of Vorys, Sater, Seymour and Pease LLP regarding legality of securities being registered
*8.1 Opinion of Vorys, Sater, Seymour and Pease LLP regarding tax matters
*8.2 Opinion of Keller & Company, Inc. regarding the value of subscription rights for tax purposes.
10.1 The Home Savings and Loan Company of Youngstown, Ohio 1998 Long-Tern Incentive Plan (proposed)
*10.2 United Community Financial Corp. Recognition and Retention Plan and Trust Agreement (proposed)
10.3 United Community Financial Corp. Employee Stock Ownership Plan and Trust (proposed)
10.4 Form of Employment Agreement between The Home Savings and Loan Company of Youngstown, Ohio and certain
executive officers (proposed) (revised)
16 Letter from Packer, Thomas & Co. regarding change in certifying accountants
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Packer, Thomas & Co.
*23.3 Consent of Keller & Company, Inc.
*23.4 Consent of Vorys, Sater, Seymour and Pease LLP
*27 Financial Data Schedule
99.1 Summary Proxy Statement (revised)
99.2 Order Form and Form of Certification
*99.3 Form of Proxy
99.4 Solicitation and Marketing Material (proposed) (revised)
*99.5 Appraisal Agreement between The Home Savings and Loan Company of Youngstown, Ohio and Keller &
Company, Inc.
**99.6 Appraisal Report prepared by Keller & Company, Inc.
----------------------
</TABLE>
* Previously filed.
** Previously filed pursuant to hardship exemption.
(b)FINANCIAL STATEMENT SCHEDULES:
No financial statement schedules are filed because the
required information is not applicable or is included in the financial
statements or related notes.
II-7
<PAGE> 170
ITEM 17. UNDERTAKINGS.
(a) The undersigned, the Holding Company, hereby
undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of
the Registration Statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the Registration
Statement;
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the Registration Statement or
any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any
liability under the Act, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of the
Holding Company, pursuant to the foregoing provisions or otherwise, the Holding
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Holding
Company of expenses incurred or paid by a director, officer or controlling
person of the Holding Company 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 Holding Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-8
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, duly authorized to do so, in the City of Youngstown, State of Ohio,
on May 6, 1998.
UNITED COMMUNITY FINANCIAL CORP.
By: /s/ DOUGLAS M. McKAY
---------------------
Douglas M. McKay
its President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director , 1998
- ----------------------------------- -----
Richard M. Barrett
/s/ JAMES E. BENNETT, JR. Director May 6, 1998
- -----------------------------------
James E. Bennett, Jr.
/s/ CHARLES B. CUSHWA, III Director May 6, 1998
- -----------------------------------
Charles B. Cushwa, III
Director , 1998
- ----------------------------------- -----
Donald R. Inglis
Director , 1998
- ----------------------------------- -----
Gary Keller
/s/ PATRICK A. KELLY Treasurer (principal financial and accounting May 6, 1998
- ----------------------------------- officer)
Patrick A. Kelly
/s/ DOUGLAS M. McKAY Director, President and Chairman (principal May 6, 1998
- ----------------------------------- executive officer)
Douglas M. McKay
/s/ HERBERT F. SCHULER Director May 6, 1998
- -----------------------------------
Herbert F. Schuler
/s/ CLARENCE R. SMITH, JR. Director May 6, 1998
- -----------------------------------
Clarence R. Smith, Jr.
/s/ DONALD J. VARNER Secretary May 6, 1998
- -----------------------------------
Donald J. Varner
/s/ JOHN F. ZIMMERMAN, JR. Director May 6, 1998
- -----------------------------------
John F. Zimmerman, Jr.
</TABLE>
II-9
<PAGE> 1
Exhibit 1.2
UNITED COMMUNITY FINANCIAL CORP.
____________ TO ____________ SHARES
COMMON STOCK
(WITHOUT PAR VALUE)
$10.00 PER SHARE
SALES AGENCY AGREEMENT
----------------------
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
United Community Financial Corp., an Ohio corporation (the "Holding
Company"), and The Home Savings and Loan Company of Youngstown, Ohio, an
Ohio-chartered and federally insured mutual savings and loan association (the
"Company"), hereby confirm, as of _____________, 1998, their respective
agreements with Trident Securities, Inc. ("Trident"), a broker-dealer registered
with the Securities and Exchange Commission ("Commission") and a member of the
National Association of Securities Dealers, Inc. ("NASD"), as follows:
1. INTRODUCTORY. The Company intends to convert from an Ohio-chartered
mutual savings association to an Ohio-chartered stock savings association as a
wholly owned subsidiary of the Holding Company (together with the Offerings, as
defined below, the issuance of shares of common stock of the Company to the
Holding Company and the incorporation of the Holding Company, the "Conversion")
pursuant to a plan of conversion adopted on ____________ (the "Plan"). In
accordance with the Plan, the Holding Company is offering shares of its common
stock no par value per share (the "Shares" and the "Common Stock"), pursuant to
nontransferable subscription rights in a subscription offering (the
"Subscription Offering") to certain depositors and borrowers of the Company, the
Company's Employee Stock Ownership Plan (the "ESOP") and directors, officers and
employees of the Company. Shares of the Common Stock not sold in the
Subscription Offering may be offered to the general public in a community
offering (the "Community Offering", and together with the Subscription Offering
the "Offerings"), subject to the right of the Holding Company and the Company,
in their absolute discretion, to reject orders in the Community Offering in
whole or in part. It is anticipated that shares of the Common Stock not
otherwise subscribed for in the Subscription and Community Offerings may be
offered at the discretion of the Holding Company to certain members of the
general public as part of a community offering on a best efforts basis by
Trident or, if necessary, by a selling group of selected broker-dealers to be
managed by Trident (the "Syndicated Community Offering"). In the Offerings, the
Holding Company is offering between ___________ and ___________ shares,
<PAGE> 2
United Community Financial Corp.
Sales Agency Agreement
Page 2
with the possibility of offering up to ___________ shares without a
resolicitation of subscribers. No Eligible Account Holder, Supplemental Account
Holder or Other Member may purchase in his capacity as such more than 30,000
shares of Common Stock in the Subscription Offering. No individual person or
other entity, together with associates of and persons acting in concert with
such person, may purchase in the Community Offering and the Syndicated Community
Offering more than 30,000 shares of Common Stock. No person, individually or
together with associates of and persons acting in concert with such person, may
purchase more than 30,000 shares of Common Stock in the Conversion.
The Holding Company and the Company have been advised by Trident that
it will utilize its best efforts in assisting the Holding Company and the
Company with the sale of the Shares in the Offerings and, if deemed necessary by
the Holding Company, in a Syndicated Community Offering. Prior to the execution
of this Agreement, the Holding Company has delivered to Trident the Prospectus
dated ____________, 1998 (as hereinafter defined) and all supplements thereto to
be used in the Offerings. Such Prospectus contains information with respect to
the Holding Company, the Company and the Shares.
2. Representations and Warranties.
-------------------------------
(a) The Holding Company and the Company jointly and severally
represent and warrant to Trident that:
(i) The Holding Company has filed with the Commission
a registration statement, including exhibits and an amendment
or amendments thereto, on Form S-1 (No. 333-_____), including
a Prospectus relating to the Offerings, for the registration
of the Shares under the Securities Act of 1933, as amended
(the "Act"); and such registration statement has become
effective under the Act and no stop order has been issued with
respect thereto and no proceedings therefor have been
initiated or, to the Holding Company's best knowledge,
threatened by the Commission. Except as the context may
otherwise require, such registration statement, as amended or
supplemented, on file with the Commission at the time the
registration statement became effective, including the
Prospectus, financial statements, schedules, exhibits and all
other documents filed as part thereof, as amended and
supplemented, is herein called the "Registration Statement,"
and the prospectus, as amended or supplemented, on file with
the Commission at the time the Registration Statement became
effective is herein called the "Prospectus," except that if
the prospectus filed by the Holding Company with the
Commission pursuant to Rule 424(b) of the general rules and
regulations of the Commission under the Act (together with the
enforceable published policies and actions of the Commission
thereunder, the "SEC
<PAGE> 3
United Community Financial Corp.
Sales Agency Agreement
Page 3
Regulations") differs from the form of prospectus on file at
the time the Registration Statement became effective, the term
"Prospectus" shall refer to the Rule 424(b) prospectus from
and after the time it is filed with the Commission and shall
include any amendments or supplements thereto from and after
their dates of effectiveness or use, respectively. If any
Shares remain unsubscribed following completion of the
Subscription Offering and the Community Offering, the Holding
Company (i) will, if required by the SEC Regulations, promptly
file with the Commission a post-effective amendment to such
Registration Statement relating to the results of the
Subscription and the Community Offerings, any additional
information with respect to the proposed plan of distribution
and any revised pricing information or (ii) if no such
post-effective amendment is required, will file with, or mail
for filing to, the Commission a prospectus or prospectus
supplement containing information relating to the results of
the Subscription and Community Offerings and pricing
information pursuant to Rule 424(c) of the Regulations, in
either case in a form reasonably acceptable to the Holding
Company and Trident.
(ii) The Company has filed an Application for
Approval of Conversion including exhibits (as amended or
supplemented, the "Conversion Application" with the Office of
Thrift Supervision ("OTS") under the Home Owners' Loan Act
(the "HOLA") and the rules and regulations promulgated
thereunder, which has been approved by the OTS; and the
Prospectus and the proxy statement for the solicitation of
proxies from members for the special meeting to approve the
Plan (the "Proxy Statement") included as part of the
Conversion Application have been approved for use by the OTS.
No order has been issued by the OTS preventing or suspending
the use of the Prospectus or the Proxy Statement; and no
action by or before the OTS revoking such approvals is, to the
Company's best knowledge, pending or threatened.
(iii) The Holding Company has filed with the OTS a
holding company application on Form H-(e)1-S (the "H-(e)1-S")
under the HOLA and the regulations promulgated thereunder and
shall receive approval of its acquisition of the Company from
the OTS prior to closing.
(iv) The Company and Holding Company have filed
copies of the Conversion Application and a holding company
application (the "Holding Company Application") with the Ohio
Department of Commerce, Division of Savings and Loans (the
"Ohio Division") together with all amendments thereto. Such
applications have been approved by the Ohio Division,
including approval of the proposed stock articles of
incorporation, constitution, and bylaws.
<PAGE> 4
United Community Financial Corp.
Sales Agency Agreement
Page 4
(v) At the date of the Prospectus and at all times
subsequent thereto through and including the Closing Date (i)
the Registration Statement and the Prospectus (as amended or
supplemented, if amended or supplemented) complied with the
Act and the SEC Regulations, (ii) the Registration Statement
(as amended or supplemented, if amended or supplemented) did
not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading,
(iii) the Prospectus (as amended or supplemented, if amended
or supplemented) did not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, and (iv) the Conversion Application was complete
and did not contain an untrue statement or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. Representations or
warranties in this subsection shall not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Holding Company or the Company
relating to Trident by or on behalf of Trident expressly for
use in the Registration Statement or Prospectus.
(vi) The Holding Company has been duly incorporated
as an Ohio corporation and the Company has been duly organized
as a mutual savings association under the laws of the State of
Ohio, and each of them is validly existing and in good
standing under the laws of the jurisdiction of its
organization with full power and authority to own its property
and conduct its business as described in the Registration
Statement and Prospectus; the Company is a member in good
standing of the Federal Home Loan Bank; and the deposit
accounts of the Company are insured by the Savings Association
Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC") up to the applicable legal
limits. Neither the Holding Company nor the Company is
required to be qualified to do business as a foreign
corporation in any jurisdiction where non-qualification would
have a material adverse effect on the operations of the
Holding Company and the Company, taken as a whole. The Company
does not own equity securities of or an equity interest in any
business enterprise other than the Holding Company and the
Company's wholly owned service corporation. Upon amendment of
the Company's charter, constitution and bylaws to read in the
form of a federal stock charter and constitution as provided
under Ohio law and the rules and regulations promulgated
thereunder and completion of the sale by the Holding Company
of the Shares as contemplated by the Prospectus, (i) the
<PAGE> 5
United Community Financial Corp.
Sales Agency Agreement
Page 5
Company will be converted pursuant to the Plan to an
Ohio-chartered capital stock savings association with full
power and authority to own its property and conduct its
business as described in the Prospectus, (ii) all of the
authorized and outstanding capital stock of the Company will
be owned of record and beneficially by the Holding Company,
and (iii) the Holding Company will have no direct subsidiaries
other than the Company.
(vii) The Company has good and marketable title to
all assets material to its business and to those assets
described in the Prospectus as owned by it, free and clear of
all material liens, charges, encumbrances or restrictions,
except for liens for taxes not yet due, except as described in
the Prospectus and except as could not in the aggregate have a
material adverse effect upon the operations or financial
condition of the Holding Company and the Company taken as a
whole; and all of the leases and subleases material to the
operations or financial condition of the Company, under which
it holds properties, including those described in the
Prospectus, are in full force and effect as described therein.
(viii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary actions
on the part of each of the Holding Company and the Company,
and this Agreement is a valid and binding obligation with
valid execution and delivery by each of the Holding Company
and the Company, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar
laws relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of savings and
loan holding companies the accounts of whose subsidiaries are
insured by the FDIC or by general equity principles,
regardless of whether such enforceability is considered in a
proceeding in equity or at law, and except to the extent that
the provisions of Sections 8 and 9 hereof may be unenforceable
as against public policy or pursuant to Section 23A of the
Federal Reserve Act, 12 U.S.C. Section 371c ("Section 23A")).
(ix) Except as described in the Prospectus, there is
no litigation or governmental proceeding pending or, to the
best knowledge of the Holding Company or the Company,
threatened against or involving the Holding Company, the
Company or any of their respective assets which individually
or in the aggregate would reasonably be expected to have a
material adverse effect on the condition (financial or
otherwise), results of operations and business, including the
assets and properties, of the Holding Company and the Company,
taken as a whole.
<PAGE> 6
United Community Financial Corp.
Sales Agency Agreement
Page 6
(x) The Holding Company and the Company have received
the opinion of Vorys, Sater, Seymour and Pease, LLP to the
effect that the Conversion will constitute a tax-free
reorganization under the Internal Revenue Code of 1986, as
amended, and that the Conversion will not be a taxable
transaction for the Holding Company or the Company under the
income tax laws of Ohio. The facts relied upon in such
opinions are accurate and complete.
(xi) Each of the Holding Company and the Company has
all such corporate power, authority, authorizations, approvals
and orders as may be required to enter into this Agreement and
to carry out the provisions and conditions hereof, subject to
the limitations set forth herein and subject to the
satisfaction of certain conditions imposed by the OTS in
connection with its approval Conversion Application and the
H-(e)1-S application and the Ohio Division in connection with
its approval of the Conversion Application and Holding Company
Application, and except as may be required under the
securities, or "blue sky," laws of various jurisdictions, and
in the case of the Holding Company, as of the Closing Date,
will, to the best knowledge of the Company, have such
approvals and orders to issue and sell the Shares to be sold
by the Holding Company as provided herein, and in the case of
the Company, as of the Closing Date, will, to the knowledge of
the Holding Company, have such approvals and orders to issue
and sell the Shares of its Common Stock to be sold to the
Holding Company as provided in the Plan, subject to the
issuance of an amended charter in the form required for an
Ohio-chartered stock savings associations (the "Stock
Charter"), the form of which Stock Charter has been approved
by the Ohio Division.
(xii) Neither the Holding Company nor the Company is
in violation of any rule or regulation of the Ohio Division,
OTS or FDIC that could reasonably be expected to result in any
enforcement action against the Holding Company, the Company or
their respective officers or directors that could reasonably
be expected to have a material adverse effect on the condition
(financial or otherwise), operations, businesses, assets or
properties of the Holding Company and the Company, taken as a
whole.
(xiii) The financial statements and any related notes
or schedules which are included in the Registration Statement
and the Prospectus fairly present the financial condition,
income, retained earnings and cash flows of the Company at the
respective dates thereof and for the respective periods
covered thereby and comply as to form with the applicable
accounting requirements of the SEC
<PAGE> 7
United Community Financial Corp.
Sales Agency Agreement
Page 7
Regulations and the applicable accounting regulations of the
OTS. Such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except
as set forth therein, and such financial statements are
consistent with financial statements and other reports filed
by the Company with supervisory and regulatory authorities
except as such generally accepted accounting principles may
otherwise require. The tables in the Prospectus accurately
present the information purported to be shown thereby at the
respective dates thereof and for the respective periods
therein.
(xiv) There has been no material change in the
condition (financial or otherwise), results of operations or
business, including assets and properties, of the Holding
Company and the Company, taken as a whole, since the latest
date as of which such condition is set forth in the
Prospectus, except as set forth therein; and the
capitalization, assets, properties and business of each of the
Holding Company and the Company conform in all material
respects to the descriptions thereof contained in the
Prospectus. Neither the Holding Company nor the Company has
any material liabilities of any kind, contingent or otherwise,
except as set forth in the Prospectus.
(xv) There has been no breach or default (or the
occurrence of any event which, with notice or lapse of time or
both, would constitute a default) under, or creation or
imposition of any lien, charge or other encumbrance upon any
of the properties or assets of the Holding Company or the
Company pursuant to any of the terms, provisions or conditions
of, any agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Holding Company or the
Company is a party or by which any of them or any of their
respective assets or properties may be bound or is subject, or
violation of any governmental license or permit or any
enforceable published law, administrative regulation or order
or court order, writ, injunction or decree, which breach,
default, encumbrance or violation would have a material
adverse effect on the condition (financial or otherwise),
operations, business, assets or properties of the Holding
Company and the Company taken as a whole; all agreements which
are material to the condition (financial or otherwise),
results of operations or business of the Holding Company and
the Company taken as a whole are in full force and effect, and
no party to any such agreement has instituted or, to the best
knowledge of the Holding Company and the Company, threatened
any action or proceeding wherein the Holding Company or the
Company would be alleged to be in default thereunder.
<PAGE> 8
United Community Financial Corp.
Sales Agency Agreement
Page 8
(xvi) Neither the Holding Company nor the Company is
in violation of its respective Articles of Incorporation,
constitution, charter or bylaws. The execution and delivery
hereof and the consummation of the transactions contemplated
hereby by the Holding Company and the Company do not conflict
with or result in a breach of the Articles of Incorporation,
charter, constitution or bylaws of the Holding Company or the
Company (in either mutual or stock form) or constitute a
material breach of or default (or an event which, with notice
or lapse of time or both, would constitute a default) under,
give rise to any right of termination, cancellation or
acceleration contained in, or result in the creation or
imposition of any lien, charge or other encumbrance upon any
of the properties or assets of the Holding Company or the
Company pursuant to any of the terms, provisions or conditions
of, any material agreement, contract, indenture, bond,
debenture, note, instrument or obligation to which the Holding
Company or the Company is a party or violate any governmental
license or permit or any enforceable published law,
administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain
conditions imposed by the Director of the OTS and Ohio
Division in connection with his approval of the Conversion
Application or the H-(e)1-S, which breach, default,
encumbrance or violation would have a material adverse effect
on the condition (financial or otherwise), operations or
business of the Holding Company and the Company taken as a
whole.
(xvii) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus and prior to the Closing Date (as hereinafter
defined), except as otherwise may be indicated or contemplated
therein (including any judgment resulting from litigation
described in the Prospectus), neither the Holding Company nor
the Company has issued any equity securities which will remain
issued at the Closing Date or incurred any liability or
obligation, direct or contingent, or borrowed money, except
liabilities, obligations or borrowings in the ordinary course
of business, or entered into any other transaction not in the
ordinary course of business and consistent with prior
practices, which is material in light of the business of the
Holding Company and the Company, taken as a whole.
(xviii) Upon consummation of the Conversion, the
authorized, issued and outstanding equity capital of the
Holding Company shall be within the range as set forth in the
Prospectus under the caption "Capitalization," and no Common
Stock of the Holding Company shall be outstanding immediately
prior to the Closing Date; the issuance and the sale of the
Shares of the Holding Company have been duly authorized by all
necessary action of the Holding Company and
<PAGE> 9
United Community Financial Corp.
Sales Agency Agreement
Page 9
approved by the OTS, and, when issued in accordance with the
terms of the Plan and paid for, shall be validly issued, fully
paid and nonassessable and shall conform to the description
thereof contained in the Prospectus; the issuance of the
Shares is not subject to preemptive rights; and purchasers of
the Shares from the Holding Company, upon issuance thereof
against payment therefor, will acquire such Shares free and
clear of all claims, encumbrances, security interests and
liens of the Holding Company whatsoever. The certificates
representing the Shares will conform in all material respects
with the requirements of applicable laws and regulations. The
issuance and sale of the capital stock of the Company to the
Holding Company has been duly authorized by all necessary
action of the Company and the Holding Company and appropriate
regulatory authorities (subject to the satisfaction of various
conditions imposed by the OTS or the Ohio Division in
connection with its approval of the Conversion Application,
the Holding Company Application and the H-(e)1-S, and such
capital stock, when issued in accordance with the terms of the
Plan, will be fully paid and nonassessable and will conform in
all material respects to the description thereof contained in
the Prospectus.
(xix) No approval of any regulatory or supervisory or
other public authority is required in connection with the
execution and delivery of this Agreement or the issuance of
the Shares, except for the declaration of effectiveness of any
required post-effective amendment by the Commission and
approval thereof by the OTS, approval of the Holding Company's
application on H-(e)1-S by the OTS, and the approval of the
Conversion Application and Holding Company Application by the
Ohio Division and the issuance of the stock charter and
constitution by the Ohio Division and as may be required under
the securities laws of various jurisdictions.
(xx) All contracts and other documents required to be
filed as exhibits to the Registration Statement or the
Conversion Application, Holding Company Application and the
H-(e)1-S have been filed with the Commission, the Ohio
Division and the OTS, as the case may be.
(xxi) Deloitte & Touche, LLP which has audited the
financial statements of the Company at December 31, 1997 and
1998 and for the years ended December 31, 1997, 1996 and 1995
included in the Prospectus is an independent public accountant
within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountant.
<PAGE> 10
United Community Financial Corp.
Sales Agency Agreement
Page 10
(xxii) The Holding Company and the Company have
timely filed all required federal, state and local franchise
tax returns, and no deficiency has been asserted with respect
to such returns by any taxing authorities, and the Holding
Company and the Company have paid all taxes that have become
due and, to the best of their knowledge, have made adequate
reserves for similar future tax liabilities, except where any
failure to make such filings, payments and reserves, or the
assertion of such a deficiency, would not have a material
adverse effect on the condition of the Holding Company and the
Company, taken as a whole or in the case of taxes which the
Company is contesting in good faith.
(xxiii) All of the loans represented as assets of the
Company on the most recent financial statements of the Company
included in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to
lending, including without limitation truth in lending
(including the requirements of Regulation Z and 12 C.F.R. Part
226 and Section 563.99), real estate settlement procedures,
consumer credit protection, equal credit opportunity and all
disclosure laws applicable to such loans, except for
violations which, if asserted, would not have a material
adverse effect on the Holding Company and the Company, taken
as a whole.
(xxiv) The records of account holders, depositors,
borrowers and other members of the Company delivered to
Trident by the Company or its agent for use during the
Conversion have been prepared or reviewed by the Company and,
to the best knowledge of the Holding Company and the Company,
are reliable and accurate.
(xxv) None of the Holding Company, the Company or the
employees of the Holding Company or the Company, has made any
payment of funds to the Holding Company or the Company
prohibited by law, and no funds of the Holding Company or the
Company have been set aside to be used for any payment
prohibited by law.
(xxvi) There are no actions, suits, regulatory
investigations or other proceedings pending or, to the best
knowledge of the Holding Company or the Company, threatened
against the Holding Company or the Company relating to
environmental protection. To the best knowledge of the Holding
Company and the Company, no disposal, release or discharge of
hazardous or toxic substances, pollutants or contaminants,
including petroleum and gas products, as any of such terms may
be defined under federal, state or local law, has been caused
by the Holding Company or the Company or, to the best
knowledge of the Holding
<PAGE> 11
United Community Financial Corp.
Sales Agency Agreement
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Company or the Company, has occurred on, in or at any of the
facilities or properties of the Holding Company or the
Company, except such disposal, release or discharge which
would not have a material adverse effect on the Holding
Company or the Company, taken as a whole.
(xxvii) At the Closing Date, the Holding Company and
the Company will have completed the conditions precedent to,
and shall have conducted the Conversion in all material
respects in accordance with, the Plan, the HOLA and
regulations promulgated thereunder, Ohio law and regulation
and all other applicable laws, regulations, published
decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion
imposed by the OTS and the Ohio Division.
(b) Trident represents and warrants to the Holding Company and
the Company that:
(i) Trident is registered as a broker-dealer with the
Commission, and is in good standing with the Commission and
the NASD.
(ii) Trident is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation, and is licensed to conduct business in the
State of Ohio with full corporate power and authority to
provide the services to be furnished to the Holding Company
and the Company hereunder.
(iii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action
on the part of Trident, and this Agreement is a legal, valid
and binding obligation of Trident, enforceable in accordance
with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of
registered broker-dealers, the accounts of whose may be
protected by the Securities Investor Protection Corporation or
by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at
law, and except to the extent that the provisions of Sections
8 and 9 hereof may be unenforceable as against public policy
or pursuant to Section 23A).
(iv) Each of Trident and, to Trident's knowledge, its
employees, agents and representatives who shall perform any of
the services required hereunder to be performed by Trident
shall be duly authorized and shall have all licenses,
<PAGE> 12
United Community Financial Corp.
Sales Agency Agreement
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approvals and permits necessary to perform such services, and
Trident is a registered selling agent in the jurisdictions in
which the Common Stock is to be offered and sold and will
remain registered in such jurisdictions in which the Holding
Company is relying on such registration for the sale of the
Shares, until the Conversion is consummated or terminated.
(v) The execution and delivery of this Agreement by
Trident, the fulfillment of the terms set forth herein and the
consummation of the transactions contemplated hereby shall not
violate or conflict with the corporate charter or bylaws of
Trident or violate, conflict with or constitute a breach of,
or default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, any material
agreement, indenture or other instrument by which Trident is
bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or
court decree, injunction or order.
(vi) Any funds received by Trident to purchase Common
Stock will be handled in accordance with Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(vii) There is not now pending or, to Trident's
knowledge, threatened against Trident any action or proceeding
before the Commission, the NASD, any state securities
commission or any state or federal court concerning Trident's
activities as a broker-dealer.
3. EMPLOYMENT OF TRIDENT; SALE AND DELIVERY OF THE SHARES. On the basis
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Holding Company and the Company hereby
employ Trident as their agent to utilize its best efforts in assisting the
Holding Company with the Holding Company's sale of the Shares in the
Subscription Offering and Community Offering. Trident will assist the Holding
Company and the Company in: (i) training and educating their employees regarding
the mechanics and regulatory requirements of the Conversion; (ii) keeping
records of all stock subscriptions and allocating Shares in the event of an
oversubscription; (iii) obtaining proxies from members of the Company with
respect to the Special Meeting at which the Plan is submitted to a vote; and
(iv) assisting with the Community Offering. The employment of Trident hereunder
shall terminate (a) forty-five (45) days after the Offerings close, unless the
Holding Company and the Company, with the approval of the OTS, are permitted to
extend such period of time, or (b) upon consummation of the Conversion,
whichever date shall first occur.
In the event the Holding Company is unable to sell a minimum of
__________ Shares (or such lesser amount as the OTS may permit) within the
period herein provided, this Agreement
<PAGE> 13
United Community Financial Corp.
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shall terminate, and the Holding Company and the Company shall refund promptly
to any persons who have subscribed for any of the Shares, the full amount which
it may have received from them, together with interest as provided in the
Prospectus, and no party to this Agreement shall have any obligation to the
other party hereunder, except as set forth in Sections 6, 8(a) and 9 hereof.
Appropriate arrangements for placing the funds received from subscriptions for
Shares in special interest-bearing accounts with the Company until all Shares
are sold and paid for were made prior to the commencement of the Subscription
Offering, with provision for prompt refund to the purchasers as set forth above,
or for delivery to the Holding Company if all Shares are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Holding Company agrees to issue or have issued such Shares and to release for
delivery certificates to subscribers thereof for such Shares on the Closing Date
against payment to the Holding Company by any means authorized pursuant to the
Prospectus, at the principal office of the Holding Company at 275 Federal Plaza
West, Youngstown, Ohio 44501-1111 or at such other place as shall be agreed upon
between the parties hereto. The date upon which Trident is paid the compensation
due hereunder is herein called the "Closing Date."
Trident agrees either (a) upon receipt of executed order forms of
subscribers to forward, for deposit in a segregated account, the offering price
of the Common Stock ordered on or before twelve noon on the next business day
following receipt or execution of an order form by Trident to the Company or (b)
to solicit indications of interest in which event (i) Trident will subsequently
contact any potential subscriber indicating interest to confirm the interest and
give instructions to execute and return an order form or to receive
authorization to execute the order form on the subscriber's behalf, (ii) Trident
will mail acknowledgments of receipt of orders to each subscriber confirming
interest on the business day following such confirmation, (iii) Trident will
debit accounts of such subscribers on the third business day ("debit date")
following receipt of the confirmation referred to in (i), and (iv) Trident will
forward completed order forms together with such funds to the Company on or
before twelve noon on the next business day following the debit date for deposit
in a segregated account. Trident acknowledges that if the procedure in (b) is
adopted, subscribers' funds are not required to be in their accounts until the
debit date.
In addition to the expenses specified in Section 6 hereof, Trident
shall receive the following compensation for its services hereunder:
(a) Except for shares purchased by the Company's executive
officers and directors, and their associates, and by any employee
benefit plan for which no
<PAGE> 14
United Community Financial Corp.
Sales Agency Agreement
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commission shall be paid: (i) a commission equal to 0.95% of the
aggregate dollar amount of stock sold to eligible account holders,
supplemental eligible account holders and other members and persons in
the Community Offering; excluding any shares sold to the Company's
directors, executive officers and employee benefit plans, and
associates of the Company's directors and executive officers and (ii) a
commission to be agreed upon by Trident and the Holding Company for
Shares sold by other member firms of the NASD through a selected
dealers arrangement in the Syndicated Community Offering. All such fees
are to be payable in next-day funds to Trident on the Closing Date.
(b) Trident shall be reimbursed for allocable expenses,
including but not limited to travel, communications, legal fees and
postage, incurred by it whether or not the Offerings are successfully
completed; provided, however, that reimbursable out of pocket expenses
shall not exceed $10,000 and legal fees exclusive of disbursements will
not exceed $50,000 without the prior permission from the Company
(excluding legal fees and expenses to comply with "blue sky"
requirements), and that neither the Holding Company or the Company
shall pay or reimburse Trident for any of the foregoing expenses
accrued after Trident shall have notified the Holding Company or the
Company of its election to terminate this Agreement pursuant to Section
11 hereof or after such time as the Holding Company or the Company
shall have given notice in accordance with Section 12 hereof that
Trident is in breach of this Agreement. Full payment to defray
Trident's reimbursable expenses shall be made in next-day funds on the
Closing Date or, if the Conversion is not completed and is terminated
for any reason, within ten (10) business days of receipt by the Holding
Company of a written request from Trident for reimbursement of its
expenses. Trident acknowledges receipt of $5,000 advance payment from
the Company which shall be credited against the total reimbursement due
Trident hereunder.
(c) Notwithstanding the limitations on reimbursement of
Trident for allocable expenses provided in the immediately preceding
paragraph (b), in the event that a resolicitation or other event causes
the Offerings to be extended beyond their original expiration date,
Trident shall be reimbursed for its reasonable allocable expenses
incurred during such extended period.
The Holding Company shall pay any stock issue and transfer taxes which
may be payable with respect to the sale of the Shares. The Holding Company and
the Company shall also pay all reasonable expenses of the Conversion incurred by
them or on their prior approval including but not limited to their attorneys'
fees, NASD filing fees, and attorneys' fees relating to any required state
securities laws research and filings, telephone charges, air freight, rental
equipment, supplies, transfer agent charges, fees relating to auditing and
accounting and costs of printing all documents necessary in connection with the
Conversion.
<PAGE> 15
United Community Financial Corp.
Sales Agency Agreement
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4. OFFERING. Subject to the provisions of Section 7 hereof, Trident is
assisting the Holding Company on a best efforts basis in offering a minimum of
____________ and a maximum of _____________ Shares, with the possibility of
offering up to ___________ shares (except as the OTS may permit to be decreased
or increased) in the Subscription and Community Offerings. The Shares are to be
offered to the public at the price set forth on the cover page of the Prospectus
and the first page of this Agreement.
5. FURTHER AGREEMENTS. The Holding Company and the Company jointly and
severally covenant and agree that:
(a) The Holding Company shall deliver to Trident, from time to
time, such number of copies of the Prospectus as Trident reasonably may
request. The Holding Company authorizes Trident to use the Prospectus
in any lawful manner in connection with the offer and sale of the
Shares.
(b) The Holding Company will notify Trident immediately upon
discovery, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement becomes
effective or any supplement to the Prospectus has been filed, (ii) of
the issuance by the Commission of any stop order relating to the
Registration Statement or of the initiation or the threat of any
proceedings for that purpose, (iii) of the receipt of any notice with
respect to the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, and (iv) of the receipt of any
comments (other than those of a non-substantive nature) from the staff
of the Commission relating to the Registration Statement. If the
Commission enters a stop order relating to the Registration Statement
at any time, the Holding Company will make every reasonable effort to
obtain the lifting of such order at the earliest possible moment.
(c) During the time when a prospectus is required to be
delivered under the Act, the Holding Company will comply so far as it
is able with all requirements imposed upon it by the Act, as now in
effect and hereafter amended, and by the SEC Regulations, as from time
to time in force, so far as necessary to permit the continuance of
offers and sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus. If during the period when the
Prospectus is required to be delivered in connection with the offer and
sale of the Shares any event relating to or affecting the Holding
Company and the Company, taken as a whole, shall occur as a result of
which it is necessary, in the opinion of counsel for Trident, with the
concurrence of counsel to the Holding Company, to amend or supplement
the Prospectus in order to make the Prospectus not false or misleading
in light of the circumstances existing at the time it is delivered to a
purchaser of the Shares, the Holding Company forthwith shall prepare
and
<PAGE> 16
United Community Financial Corp.
Sales Agency Agreement
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furnish to Trident a reasonable number of copies of an amendment or
amendments or of a supplement or supplements to the Prospectus (in form
and substance satisfactory to counsel for Trident) which shall amend or
supplement the Prospectus so that, as amended or supplemented, the
Prospectus shall not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances existing at the time the
Prospectus is delivered to a purchaser of the Shares, not misleading.
The Holding Company will not file or use any amendment or supplement to
the Registration Statement or the Prospectus of which Trident has not
first been furnished a copy or to which Trident shall reasonably object
after having been furnished such copy. For the purposes of this
subsection the Holding Company and the Company shall furnish such
information with respect to themselves as Trident from time to time may
reasonably request.
(d) The Holding Company and the Company have taken or will
take all reasonable necessary action as may be required to qualify or
register the Shares for offer and sale by the Holding Company under the
securities or blue sky laws of such jurisdictions as Trident and the
Holding Company may agree upon; provided, however, that the Holding
Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any such jurisdiction. In each
jurisdiction where such qualification or registration shall be
effected, the Holding Company, unless Trident agrees that such action
is not necessary or advisable in connection with the distribution of
the Shares, shall file and make such statements or reports as are, or
reasonably may be, required by the laws of such jurisdiction.
(e) Appropriate entries will be made in the financial records
of the Company sufficient to establish a liquidation account for the
benefit of eligible account holders and supplemental eligible account
holders in accordance with the requirements of the OTS.
(f) The Holding Company will file a registration statement for
the Common Stock under Section 12(g) of the Exchange Act, prior to
completion of the stock offering pursuant to the Plan and shall request
that such registration statement be effective upon completion of the
Conversion. The Holding Company shall maintain the effectiveness of
such registration for a minimum period of three years or for such
shorter period as may be required by applicable law.
(g) The Holding Company will make generally available to its
security holders as soon as practicable, but not later than 90 days
after the close of the period covered thereby, an earnings statement
(in form complying with the provisions of Rule 158 of the regulations
promulgated under the Act) covering a twelve-month period
<PAGE> 17
United Community Financial Corp.
Sales Agency Agreement
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beginning not later than the first day of the Holding Company's fiscal
quarter next following the effective date (as defined in said Rule 158)
of the Registration Statement.
(h) For a period of three (3) years from the date of this
Agreement (unless the Common Stock shall have been deregistered under
the Exchange Act), the Holding Company will furnish to Trident, as soon
as publicly available after the end of each fiscal year, a copy of its
annual report to shareholders for such year; and the Holding Company
will furnish to Trident (i) as soon as publicly available, a copy of
each report or definitive proxy statement of the Holding Company filed
with the Commission under the Exchange Act or mailed to shareholders,
and (ii) from time to time, such other public information concerning
the Holding Company as Trident may reasonably request.
(i) The Holding Company shall use the net proceeds from the
sale of the Shares consistently with the manner set forth in the
Prospectus.
(j) The Holding Company shall not deliver the Shares until
each and every condition set forth in Section 7 hereof has been
satisfied, unless such condition is waived by Trident.
(k) The Holding Company shall advise Trident, if necessary, as
to the allocation of deposits, in the case of eligible account holders
and votes, in the case of other members, and of the Shares in the event
of an oversubscription and shall provide Trident final instructions as
to the allocation of the Shares ("Allocation Instructions") in such
event and such information shall be accurate and reliable. Trident
shall be entitled to rely on such instructions and shall have no
liability in respect of its reliance thereon, including without
limitation, no liability for or related to any denial or grant of a
subscription in whole or in part.
(l) The Holding Company and the Company will take such actions
and furnish such information as are reasonably requested by Trident in
order for Trident to ensure compliance with the NASD's "Interpretation
Relating to Free-Riding and Withholding."
6. PAYMENT OF EXPENSES. Whether or not the Conversion is consummated,
the Holding Company and the Company shall pay or reimburse Trident for (a) all
filing fees paid or incurred by Trident in connection with all filings with the
NASD with respect to the Subscription and Community Offerings and, (b) if the
Holding Company is unable to sell a minimum of ___________ Shares or such lesser
amount as the OTS may permit or the Conversion is otherwise terminated, the
Holding Company and the Company shall reimburse Trident for allocable expenses
incurred by Trident relating to the offering of the Shares as provided in
<PAGE> 18
United Community Financial Corp.
Sales Agency Agreement
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Section 3 hereof; provided, however, that neither the Holding Company nor the
Company shall pay or reimburse Trident for any of the foregoing expenses accrued
after Trident shall have notified the Holding Company or the Company of its
election to terminate this Agreement pursuant to Section 11 hereof or after such
time as the Holding Company or the Company shall have given notice in accordance
with Section 12 hereof that Trident is in breach of this Agreement.
7. CONDITIONS OF TRIDENT'S OBLIGATIONS. Except as may be waived by
Trident, the obligations of Trident as provided herein shall be subject to the
accuracy of the representations and warranties contained in Section 2 hereof as
of the date hereof and as of the Closing Date, to the performance by the Holding
Company and the Company of their obligations hereunder and to the following
conditions:
(a) At the Closing Date, Trident shall receive the favorable
opinion of Vorys, Sater, Seymour and Pease, LLP, special counsel for
the Holding Company and the Company, dated the Closing Date, addressed
to Trident, in form and substance reasonably satisfactory to counsel
for Trident and to the effect that:
(i) the Holding Company has been duly incorporated
and is validly existing as a corporation under the laws of the
State of Ohio, and the Company is validly existing as a
savings association in mutual form under the laws of the State
of Ohio, each with full corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;
(ii) the Company is a member of the Federal Home Loan
Bank, and the deposit accounts of the Company are insured by
the SAIF up to the applicable legal limits;
(iii) to the Actual Knowledge of such counsel, the
activities of the Company as such activities are described in
the Prospectus are permitted under federal and Ohio law to
subsidiaries of an Ohio business corporation and the
activities of the Company's wholly-owned service corporation
as described in the Prospectus are permitted for a service
corporation of an Ohio chartered savings association under
Ohio law and to the extent applicable under the HOLA;
(iv) the Plan complies with, and to such counsel's
Actual Knowledge, the Conversion has been effected in all
material respects in accordance with, Ohio law, the HOLA and
the regulations promulgated thereunder (except with respect to
the securities or "blue sky" laws of various states and except
for compliance with post-Closing conditions in the Ohio
Division and OTS approvals as to which
<PAGE> 19
United Community Financial Corp.
Sales Agency Agreement
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no opinion need be rendered); to such counsel's Actual
Knowledge, all of the terms, conditions, requirements and
provisions with respect to the Plan and the Conversion imposed
by the Ohio Division and OTS, except with respect to the
Conversion Application, the Prospectus and the Proxy Statement
(which are covered by clause (xix) below) and the filing or
submission of certain required post-Conversion reports or
other materials by the Holding Company or the Company, have
been complied with by the Holding Company and the Company in
all material respects; and, to the Actual Knowledge of such
counsel, no person has sought to obtain regulatory or judicial
review of the final action of the Ohio Division and OTS in
approving the Plan;
(v) the Holding Company has authorized Common Stock
as set forth in the Registration Statement and the Prospectus,
and the description of such Common Stock in the Registration
Statement and the Prospectus is accurate in all material
respects;
(vi) the issuance and sale of the Shares have been
duly and validly authorized by all necessary corporate action
on the part of the Holding Company; the Shares, upon receipt
of payment and issuance in accordance with the terms of the
Plan and this Agreement, will be validly issued, fully paid,
nonassessable and free of preemptive rights, and purchasers of
the Shares from the Holding Company, upon issuance thereof
against payment therefor, will acquire such Shares free and
clear of all claims, encumbrances, security interests and
liens created by the Holding Company;
(vii) the form of certificate used to evidence the
Shares is in proper form and complies in all material respects
with applicable Ohio law;
(viii) the issuance and sale of the capital stock of
the Company to the Holding Company have been duly authorized
by all necessary corporate action of the Company and the
Holding Company and have received the approval of the Ohio
Division and OTS, and such capital stock, upon receipt of
payment and issuance in accordance with the terms of the Plan,
will be validly issued, fully paid and nonassessable and owned
of record and, to the Actual Knowledge of such counsel,
beneficially by the Holding Company;
(ix) subject to the satisfaction of the conditions to
the Ohio Division of the Conversion Application and Holding
Company Application and the OTS's approval of the Conversion
Application and H-(e)1-S, no further approval, authorization,
consent or other order of any federal or state regulatory
agency, the
<PAGE> 20
United Community Financial Corp.
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Ohio Division or the OTS is required in connection with the
execution and delivery of this Agreement and the consummation
of the Conversion, except with respect to the issuance to the
Company of the Stock Charter and constitution by the Ohio
Division, except as may be required under the "blue sky" laws
of various jurisdictions and except as may be required under
the rules and regulations of the NASD;
(x) to the Actual Knowledge of such counsel, the
Company has obtained all licenses, permits and other
governmental authorizations currently required for the conduct
of its business by federal laws and regulations as such
business is described in the Prospectus, all such licenses,
permits and other governmental authorizations are in full
force and effect and the Company is in all material respects
complying therewith, except where the failure to hold such
licenses, permits or governmental authorizations or the
failure to so comply would not have a material adverse effect
on the Holding Company and the Company, taken as a whole;
(xi) to the Actual Knowledge of such counsel, there
are no material legal or governmental proceedings pending or
threatened against or involving the assets of the Holding
Company or the Company (provided that for this purpose such
counsel need not regard any litigation or governmental
procedure to be "threatened" unless the potential litigant or
government authority has manifested to the management of the
Holding Company or the Company, or to such counsel, a present
intention to initiate such litigation or proceeding);
(xii) to the Actual Knowledge of such counsel, the
execution and delivery of this Agreement and the consummation
of the Conversion by the Holding Company and the Company do
not constitute a material breach of or default (or an event
which, with notice or lapse of time or both, would constitute
a default) under, nor give rise to any right of termination,
cancellation or acceleration contained in, or result in the
creation or imposition of any lien, charge or other
encumbrance upon any of the properties or assets of the
Holding Company or the Company pursuant to any of the terms,
provisions or conditions of, any material agreement, contract,
indenture, bond, debenture, note, instrument or obligation to
which the Holding Company or the Company is a party or violate
any federal governmental license or permit or any federal law,
administrative regulation or order or court order, writ,
injunction or decree (subject to the satisfaction of certain
conditions imposed by the OTS or the Ohio Division), which
breach, default, encumbrance or violation would have a
material adverse
<PAGE> 21
United Community Financial Corp.
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effect on the condition (financial or otherwise), operations,
business, assets or properties of the Holding Company and the
Company, taken as a whole; and
(xiii) to the Actual Knowledge of such counsel, there
has been no material breach of any provision of the Holding
Company's or the Company's Articles of Incorporation,
constitution, charter or bylaws or breach or default (or the
occurrence of any event which, with notice or lapse of time or
both, would constitute a default) under any agreement,
contract, indenture, bond, debenture, note, instrument or
obligation to which the Holding Company or the Company is a
party or by which any of them or any of their respective
assets or properties may be bound, or a violation of any court
order, writ, injunction or decree which breach, default, or
violation would have a material adverse effect on the
condition (financial or otherwise), operations, business,
assets or properties of the Holding Company and the Company,
taken as a whole;
(xiv) the execution and delivery of this Agreement
and the consummation of the Conversion have been duly and
validly authorized by all necessary corporate action on the
part of each of the Holding Company and the Company;
(xv) this Agreement is a legal, valid and binding
obligation of each of the Holding Company and the Company,
enforceable in accordance with its terms except as the
enforceability thereof may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization, receivership,
conservatorship or other laws relating to or affecting the
enforcement of creditors' rights generally or the rights of
creditors of depository institutions whose accounts are
insured by the FDIC savings and loan holding companies the
accounts of whose subsidiaries are insured by the FDIC, (ii)
by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at
law, or (iii) laws relating to the safety and soundness of
insured depository institutions and their affiliates and
except to the extent that the provisions of Sections 8 and 9
hereof may be unenforceable as against public policy or
applicable law, including but not limited to Section 23A (as
to which no opinion need be rendered);
(xvi) the statements in the Prospectus and
incorporated by reference in the Proxy Statement under the
captions "Regulation," "Dividends," "Restrictions on
Acquisitions of the Holding Company" and "Description of
Capital Stock," insofar as they are, or refer to, statements
of law or legal conclusions (excluding financial data included
therein, as to which an opinion need not be expressed), have
been prepared or reviewed by counsel and are correct in all
material respects;
<PAGE> 22
United Community Financial Corp.
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(xvii) the Conversion Application has been approved
by the OTS and Ohio Division, and the Prospectus and the Proxy
Statement have been authorized for use by the OTS; the
Registration Statement and any post-effective amendment
thereto has been declared effective by the Commission, and to
the Actual Knowledge of such counsel, no proceedings are
pending by or before the Commission, the Ohio Division or the
OTS seeking to revoke or rescind the orders declaring the
Registration Statement effective or approving the Conversion
Application, or, to the Actual Knowledge of such counsel, are
contemplated or threatened;
(xviii) the execution and delivery of this Agreement
and the consummation of the Conversion by the Holding Company
and the Company do not conflict with or result in a breach of
the Articles of Incorporation, constitution, charter or bylaws
of the Holding Company or the Company (in either mutual or
stock form); and
(xix) at the time the Conversion Application, the
Registration Statement, the Prospectus and the Proxy
Statement, in each case as amended, were approved or declared
effective, such documents complied as to form in all material
respects with the requirements of the Act, the HOLA and the
SEC Regulations and rules and regulations of the OTS and the
Ohio Division, as the case may be (except as to information
with respect to Trident included therein and financial
statements, notes to financial statements, financial tables
and other financial and statistical data, and stock valuation
information, included therein, as to which an opinion need not
be expressed); to such counsel's Actual Knowledge, all
documents and exhibits required to be filed with the
Conversion Application and the Registration Statement have
been so filed and the descriptions in the Conversion
Application and the Registration Statement of such documents
and exhibits are accurate in all material respects.
In rendering such opinions, such counsel may rely as to
matters of fact on certificates of officers and directors of the
Holding Company and the Company and certificates of public officials
delivered pursuant hereto. Such counsel may assume that any agreement
is the valid and binding obligation of any parties to such agreement
other than the Holding Company and the Company. Such opinion may be
governed by, and interpreted in accordance with, the Legal Opinion
Accord (the "Accord") of the ABA Section of Business Law (1991), and,
as a consequence, such opinion is subject to the qualifications,
exceptions, definitions, limitations on coverage and other limitations,
all as more particularly described in the Accord, and it should be read
in conjunction therewith.
<PAGE> 23
United Community Financial Corp.
Sales Agency Agreement
Page 23
In addition, the General Qualifications set forth in the Accord apply
to the opinions set forth in such opinion, and the term "Actual
Knowledge" as used therein shall have the meaning set forth in the
Accord. Such opinion may be limited to present statutes, regulations
and judicial interpretations and to facts as they presently exist; in
rendering such opinion, such counsel need assume no obligation to
revise or supplement it should the present laws be changed by
legislative or regulatory action, judicial decision or otherwise which
occur subsequent to the date of the opinion; and such counsel need
express no view, opinion or belief with respect to whether any proposed
or pending legislation, if enacted, or any regulations or any policy
statements issued by any regulatory agency, whether or not promulgated
pursuant to any such legislation, would affect the validity of the
execution and delivery by the Holding Company and the Company of this
Agreement or the issuance of the Shares. Further, in rendering such
opinions, Vorys, Sater, Seymour and Pease, LLP will opine solely as to
matters of Federal Securities and Banking law and Ohio law.
(c) At the Closing Date, Trident shall receive the letter of
Vorys, Sater, Seymour and Pease, LLP, special counsel for the Holding
Company and the Company, dated the Closing Date, addressed to Trident,
in form and substance reasonably satisfactory to counsel for Trident
and to the effect that: based on such counsel's participation in
conferences with representatives of the Holding Company, the Company,
its counsel, the independent appraiser, the independent certified
public accountants, Trident and its counsel, review of documents and
understanding of applicable law (including the requirements of Form S-1
and the character of the Registration Statement contemplated thereby)
and the experience such counsel has gained in its practice under the
Act, nothing has come to such counsel's attention that would lead it to
believe that the Registration Statement, as amended or supplemented
(except as to information in respect of Trident contained therein and
except as to the financial statements, notes to financial statements,
financial tables and other financial and statistical data and stock
valuation information contained therein, as to which counsel need
express no view), at the time it became effective contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, or that the Prospectus, as amended or supplemented (except
as to information in respect of Trident contained therein and except as
to financial statements, notes to financial statements, financial
tables and other financial and statistical data and stock valuation
information contained therein as to which such counsel need express no
view), as of its date and at the Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (in making this statement
such counsel may state that it has not undertaken to verify
independently the information
<PAGE> 24
United Community Financial Corp.
Sales Agency Agreement
Page 24
in the Registration Statement or Prospectus and, therefore, does not
assume any responsibility for the accuracy of completeness or fairness
thereof).
(d) Counsel for Trident shall have been furnished such
documents as they reasonably may require for the purpose of enabling
them to review or pass upon the matters required by Trident, and for
the purpose of evidencing the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions herein contained,
including but not limited to, resolutions of the Board of Directors of
the Holding Company and the Company regarding the authorization of this
Agreement and the transactions contemplated hereby.
(e) Prior to and at the Closing Date, in the reasonable
opinion of Trident, (i) there shall have been no material adverse
change in the condition, financial or otherwise, business or results of
operations of the Holding Company and the Company, taken as a whole,
since the latest date as of which such condition is set forth in the
Prospectus, except as referred to therein; (ii) there shall have been
no transaction entered into by the Holding Company or the Company after
the latest date as of which the financial condition of the Holding
Company and the Company is set forth in the Prospectus other than
transactions referred to or contemplated therein, transactions in the
ordinary course of business, and transactions which are not materially
adverse to the Holding Company and the Company, taken as a whole; (iii)
none of the Holding Company or the Company shall have received from the
OTS or Commission any direction (oral or written) to make any change in
the method of conducting their respective businesses which is material
and adverse to the business of the Holding Company and the Company,
taken as a whole, with which they have not complied; (iv) except as
noted in the Prospectus, no action, suit or proceeding, at law or in
equity or before or by any federal or state commission, board or other
administrative agency, shall be pending or threatened against the
Holding Company or the Company or affecting any of their respective
assets, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the business, operations, financial
condition or income of the Holding Company and the Company, taken as a
whole; and (v) the Shares shall have been qualified or registered for
offering and sale by the Holding Company under the securities or blue
sky laws of such jurisdictions as Trident and the Holding Company shall
have agreed upon.
(f) At the Closing Date, Trident shall receive a certificate
of the principal executive officer and the principal financial officer
of each of the Holding Company and the Company, dated the Closing Date,
to the effect that: (i) they have examined the Prospectus and, at the
time the Prospectus became authorized by the Holding Company for use,
the Prospectus did not contain an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in light of the
<PAGE> 25
United Community Financial Corp.
Sales Agency Agreement
Page 25
circumstances under which they were made, not misleading with respect
to the Holding Company or the Company; (ii) since the date the
Prospectus became authorized by the Holding Company for use, no event
has occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth, including
specifically, but without limitation, any material change in the
business, condition (financial or otherwise) or results of operations
of the Holding Company or the Company and, the conditions set forth in
clauses (ii) through (iv) inclusive of subsection (e) of this Section 7
have been satisfied; (iii) to the best knowledge of such officers, no
order has been issued by the Commission or the OTS to suspend the
Subscription Offering or the Community Offering or the effectiveness of
the Prospectus, and no action for such purposes has been instituted or
threatened by the Commission or the OTS; (iv) to the best knowledge of
such officers, no person has sought to obtain review of the final
actions of the Office approving the Plan; and (v) all of the
representations and warranties contained in Section 2 of this Agreement
are true and correct, with the same force and effect as though
expressly made on the Closing Date.
(g) At the Closing Date, Trident shall receive, among other
documents: (i) copies of the letters from the OTS authorizing the use
of the Prospectus and the Proxy Statement; (ii) if available, a copy of
the order of the Commission declaring the Registration Statement
effective; (iii) copies of the letters from the OTS evidencing the
corporate existence of the Company; (iv) a copy of the letter from the
appropriate Ohio authority evidencing the incorporation (and, if
generally available from such authority, valid existence) of the
Holding Company; (v) a copy of the Holding Company's Articles of
Incorporation certified by the appropriate Ohio governmental authority;
(vi) a copy of the OTS order approving the Conversion; (vii) a copy of
the OTS letter authorizing the acquisition of the Company by the
Holding Company; (viii) a copy of the letter from the OTS approving the
use of the prospectus, proxy statement and offering materials; and (ix)
such other documents as Trident may reasonably request and which are
normal and customary documents to be provided at the Closing Date.
(h) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Company's Stock Charter executed by the
OTS.
(i) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from Deloitte & Touche, LLP,
independent certified public accountants, addressed to Trident and the
Holding Company, in substance and form satisfactory to counsel for
Trident, with respect to the financial statements and certain financial
information contained in the Prospectus.
<PAGE> 26
United Community Financial Corp.
Sales Agency Agreement
Page 26
(j) At the Closing Date, Trident shall receive a letter in
form and substance satisfactory to counsel for Trident from Deloitte &
Touche, LLP, independent certified public accountants, dated the
Closing Date and addressed to Trident and the Holding Company,
confirming the statements made by them in the letter delivered by them
pursuant to the preceding subsection as of a specified date not more
than three (3) business days prior to the Closing Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident and its counsel. Any
certificates signed by an officer or director of the Holding Company or the
Company prepared for Trident's reliance and delivered to Trident or to counsel
for Trident shall be deemed a representation and warranty by the Holding Company
or the Company to Trident as to the statements made therein. If any condition to
Trident's obligations hereunder to be fulfilled prior to or at the Closing Date
is not so fulfilled, Trident may terminate this Agreement or, if Trident so
elects, may waive any such conditions which have not been fulfilled, or may
extend the time of their fulfillment. If Trident terminates this Agreement as
aforesaid, the Holding Company and the Company shall reimburse Trident for its
expenses as provided in Section 3(b) hereof.
8. Indemnification.
----------------
(a) The Holding Company and the Company jointly and severally
agree to indemnify and hold harmless Trident, its officers, directors
and employees and each person, if any, who controls Trident within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all loss, liability, claim, damage and expense
whatsoever and shall further promptly reimburse such persons upon
written demand for any legal or other expenses reasonably incurred by
each or any of them in investigating, preparing to defend or defending
against any such action, proceeding or claim (whether commenced or
threatened) arising out of or based upon (A) any misrepresentation by
the Holding Company or the Company in this Agreement or any breach of
warranty by the Holding Company or the Company with respect to this
Agreement or arising out of or based upon any untrue or alleged untrue
statement of a material fact or the omission or alleged omission of a
material fact required to be stated or necessary to make not misleading
any statements contained in (i) the Registration Statement or the
Prospectus or (ii) any application or other document or communication
(in this Section 8 collectively called "Application") prepared or
executed by or on behalf of the Holding Company or the Company or based
upon (B) written information furnished by or on behalf of the Holding
Company or the Company, whether or not filed in any jurisdiction, to
effect the Conversion or qualify the Shares under the securities laws
thereof or filed with the OTS or Commission, unless such statement or
omission was
<PAGE> 27
United Community Financial Corp.
Sales Agency Agreement
Page 27
made in reliance upon and in conformity with written information
furnished to the Holding Company or the Company with respect to Trident
by or on behalf of Trident expressly for use in the Prospectus or any
amendment or supplement thereof or in any Application, as the case may
be.
(b) The Holding Company shall indemnify and hold Trident
harmless for any liability whatsoever arising out of any records of
account holders, depositors, and other members of the Company delivered
to Trident by the Company or its agents for use during the Conversion.
(c) Trident agrees to indemnify and hold harmless the Holding
Company and the Company, their officers, directors and employees and
each person, if any, who controls the Holding Company and the Company
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the
Holding Company and the Company to Trident, but only with respect to
(A) statements or omissions, if any, made in the Prospectus or any
amendment or supplement thereof, in any Application or to a purchaser
of the Shares in reliance upon, and in conformity with, written
information furnished to the Holding Company or the Company with
respect to Trident by or on behalf of Trident expressly for use in the
Prospectus or in any Application; (B) any misrepresentation or breach
of warranty by Trident in Section 2(b) of this Agreement; or (C) any
liability of the Holding Company or the Company which is found in a
final judgment by a court of competent jurisdiction (not subject to
further appeal) to have principally and directly resulted from
negligence or willful misconduct of Trident.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with the other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than the reasonable cost of
investigation except as otherwise provided herein. In the event the
indemnifying party
<PAGE> 28
United Community Financial Corp.
Sales Agency Agreement
Page 28
elects to assume the defense of any such action and retain counsel
acceptable to the indemnified party, the indemnified party may retain
additional counsel, but shall bear the fees and expenses of such
counsel unless (i) the indemnifying party shall have specifically
authorized the indemnified party to retain such counsel or (ii) the
parties to such suit include such indemnifying party and the
indemnified party, and such indemnified party shall have been advised
by counsel that one or more material legal defenses may be available to
the indemnified party which may not be available to the indemnifying
party, in which case the indemnifying party shall not be entitled to
assume the defense of such suit notwithstanding the indemnifying
party's obligation to bear the fees and expenses of such counsel. An
indemnifying party against whom indemnity may be sought shall not be
liable to indemnify an indemnified party under this Section 8 if any
settlement of any such action is effected without such indemnifying
party's consent. To the extent required by law, this Section 8 is
subject to and limited by the provisions of Section 23A.
9. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 8 above is for any reason held to be unavailable to Trident, the Holding
Company and/or the Company other than in accordance with its terms, the Holding
Company or the Company and Trident shall contribute to the aggregate losses,
liabilities, claims, damages, and expenses of the nature contemplated by said
indemnity agreement incurred by the Holding Company or the Company and Trident
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Holding Company and the Company on the one hand and Trident on
the other from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above, but also the relative fault of the Holding Company or the Company on the
one hand and Trident on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Holding Company and the Company on the one hand and
Trident on the other shall be deemed to be in the same proportions as the total
net proceeds from the Conversion received by the Holding Company and the Company
bear to the total fees received by Trident under this Agreement. The relative
fault of the Holding Company or the Company on the one hand and Trident on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Holding
Company or the Company or by Trident and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Holding Company and the Company and Trident agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation or by
<PAGE> 29
United Community Financial Corp.
Sales Agency Agreement
Page 29
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceeds the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. To the extent required by law, this Section 9 is subject to
and limited by the provisions of Section 23A.
10. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND INDEMNITIES. The
respective indemnities of the Holding Company and the Company and Trident and
the representation and warranties of the Holding Company and the Company and of
Trident set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of Trident or the Holding
Company or the Company or any controlling person or indemnified party referred
to in Section 8 hereof, and shall survive any termination or consummation of
this Agreement and/or the issuance of the Shares, and any legal representative
of Trident, the Holding Company, the Company and any such controlling persons
shall be entitled to the benefit of the respective agreements, indemnities,
warranties and representations.
11. TERMINATION. Trident may terminate this Agreement by giving the
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or
occurrence has materially disrupted the United States securities
markets such as to make it, in Trident's reasonable opinion,
impracticable to proceed with the offering of the Shares; or if trading
on the New York Stock Exchange ("NYSE") shall have suspended (except
that this shall not apply to the imposition of NYSE trading collars
imposed on program trading); or if the United States shall have become
involved in a war or major hostilities; or if a general banking
moratorium has been declared by a state or federal authority which has
a material effect on the Company or the Conversion; or if a moratorium
in foreign exchange trading by major international banks or persons has
been declared; or if there shall have been a material adverse change in
the capitalization, condition or business of the Holding Company, or if
the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act,
<PAGE> 30
United Community Financial Corp.
Sales Agency Agreement
Page 30
whether or not said loss shall have been insured; or if there shall
have been a material adverse change in the condition or prospects of
the Holding Company or the Company.
(b) If Trident elects to terminate this Agreement as provided
in this Section, the Holding Company and the Company shall be notified
promptly by Trident by telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the
reasons set forth in subsection (a) above, the Holding Company and the
Company shall upon demand pay Trident the full amount so owing pursuant
to Sections 3(b), 3(c), 6, 8(a) and 9 of this Agreement.
(d) The Company may terminate the Conversion in accordance
with the terms of the Plan. Such termination shall be without liability
to any party, except that the Holding Company and the Company shall be
required to fulfill their obligations pursuant to Sections 3(b), 3(c),
6, 8(a) and 9 of this Agreement and Trident shall be required to
fulfill its obligations, if any, pursuant to Section 9 of this
Agreement.
12. NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to Trident shall be
mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601
Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. Timothy
Lavelle (with a copy to Luse Lehman Gorman Pomerenk & Schick, P.C. Suite 400,
5335 Wisconsin Avenue, N.W., Washington, D.C., 20015, Attention: Alan Schick,
Esquire). and if sent to the Holding Company or the Company, shall be mailed,
delivered or telegraphed and confirmed to The Home Savings and Loan Company of
Youngstown, Ohio, 275 Federal West Plaza, Youngstown, Ohio 44501-1111,
Attention: Douglas B. McKay, President (with a copy to Vorys, Sater, Seymour and
Pease, LLP, Cincinnati, Ohio, Attention: Terry Haber, Esquire).
13. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, Trident, the Holding Company, the Company and the
controlling and other persons referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained.
14. CONSTRUCTION. Unless governed by preemptive federal law, this
Agreement shall be governed by and construed in accordance with the substantive
laws of Ohio.
<PAGE> 31
United Community Financial Corp.
Sales Agency Agreement
Page 31
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
<PAGE> 32
United Community Financial Corp.
Sales Agency Agreement
Page 32
Please acknowledge your agreement to the foregoing by signing below and
returning to the Holding Company one copy of this letter.
<TABLE>
<S> <C>
UNITED COMMUNITY FINANCIAL CORP. THE HOME SAVINGS AND LOAN
ASSOCIATION OF YOUNGSTOWN, OHIO
By: By:
------------------------------------ -------------------------------------
Douglas B. McKay Douglas B. McKay
President and Chief Executive Officer President and Chief Executive Officer
Date: _________, 1998 Date: __________, 1998
</TABLE>
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:
---------------
Date: __________, 1998
<PAGE> 1
Exhibit 2
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
AMENDED PLAN OF CONVERSION
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
1. Introduction.......................................................................................................1
2. Definitions........................................................................................................1
3. Procedures for the Conversion......................................................................................4
4. Initial Purchase Price of Common Shares and Number of Common Shares to be Offered..................................5
5. Subscription Rights of Eligible Account Holders....................................................................6
6. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans..................................................6
7. Subscription Rights of Supplemental Eligible Account Holders.......................................................7
8. Subscription Rights of Other Eligible Members......................................................................7
9. Subscription Rights of Directors, Officers and Employees...........................................................7
10. Community Offering, Public Offering and Other Offerings............................................................8
11. Additional Limitations on Purchases................................................................................8
12. Procedures for the Offerings......................................................................................10
13. Payment for Common Shares.........................................................................................10
14. Expiration of Subscription Rights.................................................................................11
15. Compliance with Securities Laws...................................................................................12
16. Rights of Shareholders After Completion of Conversion.............................................................12
17. Liquidation Account...............................................................................................12
18. Accounts in Converted Company.....................................................................................13
19. Restrictions on Purchases and Sales of Common Shares by Officers and Directors Following Conversion...............13
20. Restrictions on Acquisition of the Company or the Holding Company.................................................13
21. Consummation of Conversion........................................................................................14
22. Adoption of Amended Articles and Amended Constitution.............................................................14
23. Tax Rulings/Opinions..............................................................................................14
24. Directors and Officers of the Company.............................................................................14
25. Stock Benefit Plans...............................................................................................14
26. Registration of Common Shares; Market for Common Shares...........................................................14
27. Establishment and Funding of Charitable Foundation................................................................15
28. Expenses of Conversion............................................................................................15
29. Amendment or Termination of this Plan.............................................................................15
30. Interpretation of this Plan.......................................................................................15
</TABLE>
A-i
<PAGE> 2
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
AMENDED PLAN OF CONVERSION
1. INTRODUCTION.
The Board of Directors of The Home Savings and Loan Company of
Youngstown, Ohio (the "Company") adopted a Plan of Conversion on December 9,
1997. On May 6, 1998, the Board of Directors approved certain amendments to the
Plan of Conversion, all of which are incorporated into this Amended Plan of
Conversion. This Amended Plan of Conversion is hereinafter referred to as this
"Plan."
The Board of Directors of the Company believes that a conversion of the
Company from a mutual savings and loan association incorporated under Ohio law
to a permanent capital stock savings and loan association incorporated under
Ohio law (the "Conversion") pursuant to this Plan is in the best interests of
the Company, its members, depositors, customers, employees and the communities
it serves. In connection with the conversion to stock form, the Company has
formed a holding company (the "Holding Company") which will provide the Company
with greater organizational and operational flexibility, including increased
versatility for effecting mergers and acquisitions of other financial
institutions. The Holding Company will own all of the issued and outstanding
common stock of the Company.
Through the sale of common shares of the Holding Company, the
Conversion will provide increased capital levels to support and enhance lending
and investment activities, diversification into additional financial services
activities and growth. The increased capital from the Conversion will further
enhance the Company's ability to meet the borrowing and other financial needs of
the communities it currently serves.
To further demonstrate the commitment of the Company to the communities
it serves, the Plan provides that the Company may establish or contribute to a
charitable foundation in connection with the Conversion. The contribution of
funds for shares of the holding company to a charitable foundation would allow
the communities served by the Company to benefit from the growth and
profitability of the Company and the Holding Company. The foundation would be
funded either through a contribution of cash by the Company prior to the
Conversion or through the donation of common shares of the Holding Company
immediately after the Conversion, or a combination thereof.
This Plan is subject to the approval of the Ohio Department of
Commerce, Division of Financial Institutions, and the Office of Thrift
Supervision and must be adopted by a majority of the members of the Company
eligible to vote at a special meeting of members.
2. DEFINITIONS.
As used in this Plan, the following terms have the following meanings:
ACTING IN CONCERT means (a) knowing participation in a joint activity
or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a combination
or pooling of voting or other interests in the securities of an issuer
for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or
otherwise.
ACTUAL PURCHASE PRICE means the actual uniform price per share at which
Common Shares are ultimately sold by the Holding Company in the
Offerings in accordance with the terms hereof.
AFFILIATE, when used to indicate a relationship with a specified
Person, means a Person who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control
with the specified Person.
AMENDED ARTICLES means the Amended Articles of Incorporation of the
Company which are in the form attached hereto as Exhibit I and which
authorize the issuance of capital stock and which will be filed with
the Ohio Secretary of State on the date on which the Conversion becomes
effective.
AMENDED CONSTITUTION means the Amended Constitution of the Company
which is in the form attached hereto as Exhibit II and which will be
filed with the Division on the date on which the Conversion becomes
effective.
1
<PAGE> 3
APPLICATION means the Application for Conversion on Form AC to be filed
by the Company with the OTS pursuant to Title 12, Code of Federal
Regulations, Part 563b and with the Division pursuant to Ohio
Administrative Code Section 1301:2-1-16.
ASSOCIATE, when used to indicate a relationship with any Person, means
(i) any corporation or organization (other than the Company, the
Holding Company or a majority-owned subsidiary of the Company or the
Holding Company) 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 trustee or in a similar fiduciary capacity, except
that such term will not include a Tax-Qualified Employee Stock Benefit
Plan, or a non-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 an Officer.
BROKER means any Person engaged in the business of effecting
transactions in securities for the account of others.
CODE means the Internal Revenue Code of 1986, as amended.
COMMON SHARES means the common shares of the Holding Company to be
offered and sold by the Holding Company in connection with the
Conversion, but shall not include shares, if any, issued to a
charitable foundation pursuant to Section 27 hereof.
COMMUNITY MEMBER means any natural person who, on the date of
submission of an Order Form, is a resident of Mahoning, Trumbull or
Columbiana County, the counties in Ohio in which the Company has its
home and branch offices.
COMMUNITY OFFERING means the offering of Common Shares to the public
concurrently with or after the completion of the Subscription Offering
in a manner by which Community Members are given preference.
COMPANY means The Home Savings and Loan Company of Youngstown, Ohio, in
its mutual form or stock form, as appropriate.
CONVERSION means the change in the form of the Company from the mutual
to the permanent capital stock form upon (i) the adoption and filing of
the Amended Articles and the Amended Constitution; (ii) the sale and
issuance of Common Shares by the Holding Company in the Offerings, and
(iii) the purchase by the Holding Company of the capital stock of the
Company.
DEALER means any Person who engages either for all or part of such
person's time, directly or indirectly, as an agent, Broker or
principal, in the business of offering, buying, selling or otherwise
dealing or trading in securities issued by another Person.
DEMAND ACCOUNT has the same meaning as specified in Title 12, Code of
Federal Regulations, Part 561, as in effect on the date this Plan is
adopted by the Board of Directors of the Company.
DIRECTOR means a director of the Holding Company, the Company or any
subsidiary.
DIVISION means the Division of Financial Institutions of the Department
of Commerce of the State of Ohio.
ELIGIBILITY RECORD DATE means the close of business on July 31, 1996,
the record date set by the Company for determining Eligible Account
Holders.
ELIGIBLE ACCOUNT HOLDER means any Person holding a Qualifying Deposit
in the Company on the Eligibility Record Date.
EMPLOYEE means an employee of the Company or any subsidiary.
ESTIMATED PRICE RANGE means the range of the estimated aggregate pro
forma market value of the total Common Shares to be offered in the
Conversion, as determined by the Independent Appraiser in accordance
with Section 4 of this Plan.
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FDIC means the Federal Deposit Insurance Corporation, an agency of the
United States Government, or any successor thereto.
FOUNDATION means the charitable foundation, described in Section 27 of
this Plan, which will qualify as an exempt organization under Section
501(c)(3) of the Code.
HOLDING COMPANY means the corporation to be formed at the direction of
the Company for the purpose of becoming a savings and loan holding
company through the acquisition of all of the capital stock to be
issued by the Company in connection with the Conversion.
INDEPENDENT APPRAISER means the firm employed by the Company to
determine the estimated pro forma market value of the Common Shares.
INITIAL PURCHASE PRICE means the price per share to be paid initially
for Common Shares subscribed for in the Subscription Offering or
ordered in the Community Offering.
LIQUIDATION ACCOUNT means the account established in accordance with
Section 17 of this Plan for Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain a Savings Account at
the Company after the Conversion.
MEMBER means any Person qualifying as a member of the Company under its
articles of incorporation and constitution in effect on the date of the
Special Meeting.
OFFERINGS means the Subscription Offering, the Community Offering and
the Public Offering, if any.
OFFICER means the Chairman of the Board of Directors, the President, a
Vice President, the Secretary, the Treasurer or principal financial
officer, or the comptroller or principal accounting officer of the
Holding Company or the Company and any other person performing similar
functions for the Holding Company or the Company.
ORDER FORMS means the original forms which will be sent to Participants
to exercise their Subscription Rights in accordance with this Plan and
which may be sent to Persons in the Community Offering and the Public
Offering to order Common Shares.
OTHER ELIGIBLE MEMBER means a Voting Member, other than an Eligible
Account Holder or a Supplemental Eligible Account Holder.
OTS means the Department of the Treasury, Office of Thrift Supervision,
an agency of the United States Government.
PARTICIPANT means any Eligible Account Holder, Tax-Qualified Employee
Stock Benefit Plan, Supplemental Eligible Account Holder, Other
Eligible Member or Director, Officer or Employee.
PERSON means an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, any unincorporated
organization, or a government or political subdivision thereof.
PROSPECTUS means the document or documents describing the terms and
conditions of the Offerings, including a complete description of the
business and affairs of the Company and the Holding Company.
PROXY means the form of authorization by which a Person is, or may be
deemed to be, designated to act for a Voting Member in the exercise of
his or her voting rights in the affairs of the Company.
PROXY MATERIALS means the Notice of Special Meeting, the Proxy
Statement and the form of Proxy used in connection with soliciting
Proxies from Members for use at the Special Meeting.
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PUBLIC OFFERING means an underwritten firm commitment offering of
Common Shares to the public through one or more underwriters.
QUALIFYING DEPOSIT means the aggregate balance of all Savings Accounts
and, as permitted by 12 C.F.R. Section 563b3.3(e)(1), the aggregate
balance of all Demand Accounts, owned by an Eligible Account Holder or
a Supplemental Eligible Account Holder at the close of business on the
Eligibility Record Date or the Supplemental Eligibility Record Date,
respectively; provided, however, that Savings Accounts and Demand
Accounts with an aggregate deposit balance of less than $50 will not
constitute a Qualifying Deposit.
SAVINGS ACCOUNT has the same meaning as specified in Title 12, Code of
Federal Regulations, Part 561, as in effect on the date this Plan is
adopted by the Board of Directors of the Company, and includes
certificates of deposit.
SEC means the Securities and Exchange Commission, an agency of the
United States Government.
SPECIAL MEETING means the meeting of the Voting Members of the Company
called for the specific purpose of submitting this Plan to the Voting
Members for approval.
SUBSCRIPTION OFFERING means the offering of Common Shares to the
holders of Subscription Rights.
SUBSCRIPTION RIGHTS means the nontransferable rights issued by the
Company to Participants to purchase Common Shares in the Subscription
Offering pursuant to this Plan.
SUPPLEMENTAL ELIGIBILITY RECORD DATE means the last day of the calendar
quarter preceding the approval of the Application by the OTS and the
record date used for determining Supplemental Eligible Account Holders.
Such date shall be required by this Plan if the Eligibility Record Date
is more than 15 months prior to the date of the latest amendment to the
Application filed prior to approval of the Application by the OTS.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any Person holding a
Qualifying Deposit at the close of business on the Supplemental
Eligibility Record Date, except Officers and Directors and their
Associates.
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit
plan or defined contribution plan of the Holding Company or the
Company, such as an employee stock ownership plan, stock bonus plan,
profit sharing plan or other plan which, with its related trust, meets
the requirements for qualification under Section 401 of the Code.
VOTING MEMBER means any Member of the Company eligible to vote at the
Special Meeting.
VOTING RECORD DATE means the record date fixed by the Board of
Directors of the Company in accordance with Ohio law and the articles
of incorporation and constitution of the Company for determining the
eligibility of Members to vote on this Plan at the Special Meeting.
3. PROCEDURES FOR THE CONVERSION.
The following procedures will be followed to effect the Conversion:
(a) Promptly after the adoption of this Plan by a vote of at least
two-thirds of the members of the Board of Directors of the Company, the Company
will publish a notice of the adoption of this Plan in an English language
newspaper having general circulation in each community in which an office of the
Company is located. Copies of this Plan will also be made available for
inspection by Members at the offices of the Company.
(b) The Company will submit this Plan for approval, together with all
other requisite materials, to the OTS and the Division in the form of the
Application. After the filing of the Application with the OTS and the Division,
the Company (i) will prominently post in each of the offices of the Company and
publish in an English language newspaper having general circulation in each
community in which an office of the Company is located a notice to the effect
that the Company has filed the Application with the OTS, and (ii) when advised
by the Division, will prominently post in each of the offices of the Company and
publish in an English language newspaper having general circulation in each
community in which an office of the Company is located a notice to the effect
that the Company has filed the Application with the Division.
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<PAGE> 6
(c) The Holding Company will be incorporated, after which the Board of
Directors of the Holding Company will consent to the Plan by at least a
two-thirds vote. As soon as practicable after the adoption of the Plan by the
Board of Directors of the Holding Company, the Holding Company will submit or
cause to be submitted to the OTS such applications as may be required for
approval of the Holding Company's acquisition of the Company. In addition, the
Holding Company will file a registration statement with the SEC to register the
Common Shares under the Securities Act of 1933, as amended. The Holding Company
will also register the Common Shares under any applicable state securities laws,
subject to Section 15 hereof.
(d) After the OTS and the Division approve the Application and the SEC
approves the registration statement, the Company will mail Proxy Materials to
each of the Voting Members at his or her last known address appearing on the
records of the Company for the purpose of soliciting the Proxies of Voting
Members for use at the Special Meeting. The approval of this Plan requires the
affirmative vote, cast in person or by Proxy, of a majority of the total
outstanding votes entitled to be cast at the Special Meeting. The Company may,
at its option, mail to all Voting Members a proxy statement in either long or
summary form describing this Plan. If the Company provides a summary form proxy
statement, the Company shall also mail to all Eligible Account Holders and
Supplemental Eligible Account Holders who are not Voting Members a letter
informing them of their right to receive a Prospectus and an Order Form and
other materials relating to the Conversion by returning a postage-paid card
which will be distributed with the Proxy Materials or such letter.
(e) Subject to the approval of this Plan by the Voting Members at the
Special Meeting, Common Shares will be offered simultaneously to Participants in
the respective priorities set forth in Sections 5, 6, 7, 8 and 9 of this Plan.
All sales of Common Shares to Participants will be completed at the earliest
practicable date following expiration of the Subscription Rights provided for in
this Plan. Notwithstanding anything in this Plan to the contrary, the Company,
in its sole discretion, may commence the Subscription Offering concurrently with
or at any time after the mailing to the Voting Members of the Proxy Materials
and may complete the Subscription Offering before the Special Meeting, provided
that the offer and sale of Common Shares shall be conditioned upon the approval
of this Plan by the Voting Members. In the event that the Company elects, in its
discretion, to commence the Subscription Offering after the Special Meeting, the
Subscription Offering will be commenced not later than 45 days after the date on
which the Special Meeting is adjourned, except as may otherwise be approved by
the OTS. Concurrently with, following the commencement of or following the
completion of the Subscription Offering, the Company may also offer Common
Shares in the Community Offering, subject to the prior satisfaction of the
Subscription Rights of the Participants. Following the completion of the
Community Offering, the Company may offer any remaining Common Shares in a
Public Offering.
(f) The Holding Company will use a portion of the net proceeds from the
Offerings to purchase all of the capital stock of the Company to be outstanding
upon the consummation of the Conversion.
(g) All other steps considered necessary or desirable by the Boards of
Directors of the Company and the Holding Company to effect the Conversion will
be taken pursuant to applicable laws and regulations.
4. INITIAL PURCHASE PRICE OF COMMON SHARES AND NUMBER OF COMMON SHARES TO
BE OFFERED.
(a) The Initial Purchase Price will be determined by the Boards of
Directors of the Company and the Holding Company before the commencement of the
Subscription Offering, subject to adjustment as described below. The Actual
Purchase Price and the number of Common Shares to be sold in connection with the
Conversion will be determined by the Boards of Directors of the Company and the
Holding Company before the completion of all sales of Common Shares contemplated
by this Plan on the basis of the estimated pro forma market value of the
Company, as converted. No fractional shares will be issued in connection with
the Conversion.
(b) The estimated pro forma market value of the Company, as converted,
will be determined by the Independent Appraiser, based upon such factors as the
Independent Appraiser deems appropriate and as are consistent with the
regulations of the OTS and the Division. Immediately before the commencement of
the Subscription Offering, the Estimated Price Range will be established. The
maximum of the Estimated Price Range shall be 15% above the pro forma market
value of the Company and the minimum of the Estimated Price Range shall be 15%
below the pro forma market value of the Company. The Independent Appraiser will
review, from time to time as appropriate or as required by law or regulation,
developments subsequent to its valuation to determine whether the estimated pro
forma market value of the Company, as converted, should be revised.
(c) If, after the commencement of the Subscription Offering, the
Independent Appraiser determines that the estimated pro forma market value of
the Company, as converted, has increased or decreased due to subsequent
developments, the
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<PAGE> 7
Conversion may be completed without notifying Persons who have subscribed for
Common Shares and without a resolicitation of subscriptions from such Persons if
such estimated pro forma market value is not less than the minimum of the
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<PAGE> 8
Estimated Price Range and does not exceed the maximum of the Estimated Price
Range by more than 15%. If, however, as a result of any such change, the
estimated pro forma market value of the Company is less than the minimum of the
Estimated Price Range or exceeds the maximum of the Estimated Price Range by
more than 15%, a new Estimated Price Range may be established and the Board of
Directors may, with the approval of the OTS and the Division, elect to increase
or decrease the number of Common Shares to be sold in connection with the
Conversion or increase or decrease the Initial Purchase Price, in which case
Persons who have subscribed for Common Shares will be notified and will be given
the opportunity to increase, decrease or rescind their subscriptions.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Each Eligible Account Holder will receive, without payment
therefor, nontransferable Subscription Rights to purchase a number of Common
Shares up to the greater of (i) the amount which may be purchased in the Public
Offering or the Community Offering, (ii) one-tenth of one percent (.10%) of the
total number of Common Shares to be sold in connection with the Conversion, and
(iii) 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of Common Shares to be sold in connection with the
Conversion by a fraction, the numerator of which is the amount of the Eligible
Account Holder's Qualifying Deposit and the denominator of which is the total
amount of Qualifying Deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date, subject to the overall purchase limitations set
forth in Section 11 of this Plan and subject to adjustment by the Boards of
Directors of the Company and the Holding Company as set forth in Section 11 of
this Plan.
(b) In the event that subscriptions for Common Shares are received from
Eligible Account Holders upon the exercise of Subscription Rights pursuant to
paragraph (a) of this Section 5 in excess of the number of Common Shares
available for such subscriptions, the Common Shares available for purchase will
be allocated among the subscribing Eligible Account Holders in a manner by which
each subscribing Eligible Account Holder, to the extent possible, will be
permitted to subscribe for a number of shares sufficient to make such Eligible
Account Holder's total allocation of Common Shares equal to the lesser of (i)
100 shares and (ii) the number of shares subscribed for by such Eligible Account
Holder. Any shares remaining after such allocation will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each Eligible Account Holder's Qualifying
Deposit bears to the total of the Qualifying Deposits of all subscribing
Eligible Account Holders. No fractional shares will, however, be issued in
connection with the Conversion.
(c) The Subscription Rights of the Eligible Account Holders are
subordinate to the limited priority rights of the Tax-Qualified Employee Stock
Benefit Plans of the Company as set forth in Section 6 of this Plan. For
purposes of paragraph (b) of this Section 5, Subscription Rights held by
Eligible Account Holders who are also Officers or Directors, and their
Associates, to the extent that they are attributable to increased deposits
during the one-year period preceding the Eligibility Record Date, will be
subordinated to the Subscription Rights of all other Eligible Account Holders.
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
The Tax-Qualified Employee Stock Benefit Plans of the Company will
receive non-transferable Subscription Rights to purchase up to 10% of the Common
Shares to be sold in connection with the Conversion, subject to adjustment by
the Boards of Directors of the Company and the Holding Company as set forth in
Section 11 of this Plan. The Subscription Rights of the Tax-Qualified Employee
Stock Benefit Plans are subordinate to the Subscription Rights of Eligible
Account Holders pursuant to Section 5 of this Plan, except that if the final pro
forma market value of the Company exceeds the maximum of the Estimated Price
Range determined pursuant to Section 4 of this Plan, the Tax-Qualified Employee
Stock Benefit Plans shall have first priority with respect to the amount of
Common Shares sold in excess of the maximum of the Estimated Price Range. Common
Shares purchased by an individual participant (a "Plan Participant") in a
Tax-Qualified Employee Stock Benefit Plan using funds therein pursuant to the
exercise of Subscription Rights granted to such Plan Participant in his
individual capacity as an Eligible Account Holder or Supplemental Eligible
Account Holder and purchases by such Plan Participant in the Community Offering
or the Public Offering shall not be deemed to be purchases by a Tax-Qualified
Employee Stock Benefit Plan for purposes of calculating the maximum amount of
Common Shares that Tax-Qualified Employee Stock Benefit Plans may purchase
pursuant to the first sentence of this Section 6, if the individual Plan
Participant controls or directs the investment authority with respect to such
account or subaccount.
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<PAGE> 9
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
(a) In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application filed prior
to OTS approval of the Application, then, and only in that event, each
Supplemental Eligible Account Holder will receive, without payment therefor,
nontransferable Subscription Rights to purchase a number of Common Shares up to
the greater of (i) the amount which may be purchased in the Public Offering or
the Community Offering, (ii) one-tenth of one percent (.10%) of the total number
of Common Shares to be sold in connection with the Conversion, and (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of Common Shares to be sold in connection with the
Conversion by a fraction, the numerator of which is the amount of the
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of Qualifying Deposits of all Supplemental Eligible
Account Holders, in each case on the Supplemental Eligibility Record Date,
subject to the overall purchase limitations set forth in Section 11 of this Plan
and subject to adjustment by the Boards of Directors of the Company and the
Holding Company as set forth in Section 11 of this Plan.
(b) In the event that subscriptions for Common Shares are received from
Supplemental Eligible Account Holders upon the exercise of Subscription Rights
pursuant to paragraph (a) of this Section 7 in excess of the number of Common
Shares available for such subscriptions, the Common Shares available for
purchase will be allocated among the subscribing Supplemental Eligible Account
Holders in a manner by which each subscribing Supplemental Eligible Account
Holder, to the extent possible, will be permitted to subscribe for a number of
Common Shares sufficient to make such Supplemental Eligible Account Holder's
total allocation of Common Shares equal to the lesser of (i) 100 shares and (ii)
the number of Common Shares subscribed for by such Supplemental Eligible Account
Holder. Any Common Shares remaining after such allocation will be allocated
among the subscribing Supplemental Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion which the amount of each such Supplemental
Eligible Account Holder's Qualifying Deposit bears to the total amount of the
Qualifying Deposits of all such subscribing Supplemental Eligible Account
Holders. No fractional shares will be issued, however, in connection with the
Conversion.
(c) Subscription Rights received pursuant to this Section 7 are
subordinate to the Subscription Rights of Eligible Account Holders and the
Tax-Qualified Employee Stock Benefit Plans pursuant to Sections 5 and 6 of this
Plan. Any Subscription Rights received by an Eligible Account Holder pursuant to
Section 5 of this Plan will be applied in partial satisfaction of Subscription
Rights received pursuant to this Section 7.
8. SUBSCRIPTION RIGHTS OF OTHER ELIGIBLE MEMBERS.
(a) Each Other Eligible Member will receive, without payment therefor,
nontransferable Subscription Rights to purchase a number of Common Shares up to
the greater of (i) the amount of Common Shares which may be purchased in the
Public Offering or the Community Offering, and (ii) one-tenth of one percent
(.10%) of the total number of Common Shares to be sold in connection with the
Conversion, subject to the overall purchase limitations set forth in Section 11
of this Plan and subject to adjustment by the Boards of Directors of the Company
and the Holding Company as set forth in Section 11 of this Plan.
(b) In the event that subscriptions for Common Shares are received from
Other Eligible Members upon the exercise of Subscription Rights pursuant to
paragraph (a) of this Section 8 in excess of the number of Common Shares
available for such subscriptions, the Common Shares available for purchase will
be allocated among the subscribing Other Eligible Members in the same proportion
that their respective subscriptions bear to the aggregate subscriptions of all
Other Eligible Members; provided, however, that, to the extent sufficient Common
Shares are available, each subscribing Other Eligible Member shall be permitted
to purchase 25 Common Shares before the remaining available Common Shares are
allocated. No fractional shares will be issued, however, in connection with the
Conversion.
(c) Subscription Rights received by Other Eligible Members pursuant to
this Section 8 are subordinate to the Subscription Rights received by Eligible
Account Holders, the Tax-Qualified Employee Stock Benefit Plans and Supplemental
Eligible Account Holders pursuant to Sections 5, 6 and 7 of this Plan.
9. SUBSCRIPTION RIGHTS OF DIRECTORS, OFFICERS AND EMPLOYEES.
(a) Directors, Officers and Employees of the Company shall receive,
without payment therefor, non-transferable Subscription Rights to purchase, in
the aggregate, up to 15% of the Common Shares to be sold in connection with the
Conversion, subject to the overall purchase limitations set forth in Section 11
of this Plan and subject to adjustment by the Boards of Directors of the Company
and the Holding Company as set forth in Section 11 of this Plan.
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<PAGE> 10
(b) In the event that subscriptions for Common Shares are received from
Directors, Officers and Employees upon the exercise of Subscription Rights
pursuant to paragraph (a) of this Section 9 in excess of the number of Common
Shares available for such subscriptions, the Common Shares available for
purchase will be allocated among the individual Directors, Officers and
Employees of the Company on an equitable basis to be determined by the Board of
Directors of the Company by giving weight to a Person's period of service,
compensation and position. If any such Director, Officer or Employee does not
subscribe for his or her full allocation of Common Shares, any Common Shares not
subscribed for may be purchased by other Directors, Officers and Employees of
the Company in proportion to their respective Subscription Rights. No fractional
shares shall be issued, however, in connection with the Conversion.
(c) Subscription Rights received by Directors, Officers and Employees
of the Company pursuant to this Section 9 are subordinate to the Subscription
Rights received by Eligible Amount Holders, the Tax-Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders and Other Eligible Members
pursuant to Sections 5, 6, 7 and 8 of this Plan.
10. COMMUNITY OFFERING, PUBLIC OFFERING AND OTHER OFFERINGS.
(a) Any Common Shares not subscribed for in the Subscription Offering
may be offered and sold in the Community Offering. If conducted, the Community
Offering may be conducted concurrently with or at any time after the
commencement or completion of the Subscription Offering and will be conducted in
a manner which will give Community Members a preference in the purchase of
Common Shares and will seek to achieve the widest distribution of Common Shares.
The Company or the Holding Company may retain a Broker or a syndicate of
broker-dealers to assist in selling the Common Shares in the Community Offering.
The Community Offering must be completed within 45 days after the completion of
the Subscription Offering, unless extended by the Holding Company and the
Company with any required regulatory approval.
(b) The maximum number of Common Shares which may be subscribed for or
purchased in the Community Offering by any Person, together with any Associates
or group of Persons Acting in Concert, will be 35,000 Common Shares, subject to
the overall purchase limitations set forth in Section 11 of this Plan and
subject to adjustment by the Boards of Directors of the Company and the Holding
Company as set forth in Section 11 of this Plan. Orders for Common Shares in the
Community Offering will first be filled up to a maximum of two percent (2%) of
the Common Shares and thereafter any remaining shares will be allocated on an
equal number of shares per order basis until all orders for Common Shares have
been filled, subject to the limitations provided in Section 11 of this Plan. The
Company and the Holding Company reserve the right to reject, in whole or in
part, any order to purchase Common Shares from any Person in the Community
Offering.
(c) The Holding Company and the Company may sell any Common Shares
remaining following the Subscription Offering and the Community Offering in a
Public Offering. The provisions of Section 11 hereof shall not be applicable to
the sales to underwriters for purposes of the Public Offering but shall be
applicable to sales by the underwriters to the public. The price to be paid by
the underwriters in such an offering shall be equal to the Actual Purchase Price
less an underwriting discount to be negotiated among such underwriters and the
Company and the Holding Company, subject to any required regulatory approval or
consent.
(d) If for any reason a Public Offering of Common Shares not sold in
the Subscription Offering and the Community Offering cannot be effected, or in
the event that any insignificant residue of Common Shares is not sold in the
Subscription Offering and the Community Offering, the Holding Company and the
Company shall use their best efforts to obtain other purchasers for such shares
in such manner and upon such conditions as may be satisfactory to the OTS and
the Division.
11. ADDITIONAL LIMITATIONS ON PURCHASES
(a) A minimum of 25 Common Shares must be purchased by each Person
purchasing Common Shares in connection with the Conversion to the extent Common
Shares are available; provided, however, that if the Actual Purchase Price is
greater than $20 per share, the minimum number of Common Shares to which a
Person may subscribe will be adjusted in a manner by which the aggregate Actual
Purchase Price required to be paid for such minimum number of Common Shares does
not exceed $500. No fractional shares will be issued, however, in connection
with the Conversion.
(b) If a Qualifying Deposit is held in the name of more than one
Person, the aggregate amount of Common Shares which may be subscribed for or
purchased by all Persons having an interest in such Qualifying Deposit shall be
subject to the applicable purchase limitations set forth in Sections 5, 7, 8, 9
and 10 of this Plan.
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<PAGE> 11
(c) Participants may purchase Common Shares in the Community Offering
subject to the purchase limitations set forth in Section 10 of this Plan;
provided, however, that the maximum amount of Common Shares which may be
subscribed for or purchased in connection with the Conversion by any Person,
together with any Associate or group of Persons Acting in Concert, will be one
percent (1%) of the Common Shares to be sold in connection with the Conversion,
except that any one or more of the Tax-Qualified Employee Stock Benefit Plans
may purchase in the aggregate not more than 10% of the Common Shares to be sold
in connection with the Conversion and will be entitled to purchase such amount
regardless of the number of Common Shares purchased by other Persons. Common
Shares held by one or more Tax-Qualified Employee Stock Benefit Plans or
non-tax-qualified employee stock benefit plans and attributed to a Person will
not be aggregated with Common Shares purchased directly by or otherwise
attributable to such Person. Common Shares purchased by a Plan Participant in a
Tax-Qualified Employee Stock Benefit Plan using funds therein pursuant to the
exercise of Subscription Rights granted to such Plan Participant in his
individual capacity as a Participant and for purchases by such Plan Participant
in the Community Offering or the Public Offering shall be aggregated with Common
Shares purchased directly by or otherwise attributable to such Person. For the
purpose of this Section 11, the members of the Boards of Directors of the
Company and the Holding Company will not be deemed to be Associates or a group
of Persons Acting in Concert solely as a result of their membership on such
Boards of Directors.
(d) The Officers and Directors of the Company and their Associates may
purchase in the Conversion, in the aggregate, up to 25% of the total number of
Common Shares to be sold in connection with the Conversion. Common Shares held
by one or more Tax-Qualified Employee Stock Benefit Plans or non-tax-qualified
employee stock benefit plans and attributed to a Person will not be aggregated
with Common Shares purchased directly by or otherwise attributable to such
Person. Common Shares purchased by Plan Participants in a Tax-Qualified Employee
Stock Benefit Plan using funds therein pursuant to the exercise of Subscription
Rights granted to such Plan Participant in his individual capacity as a
Participant or purchases by a Plan Participant in the Community Offering or the
Public Offering shall be aggregated with Common Shares purchased directly by or
otherwise attributable to such Person.
(e) Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members or
resolicitation of subscribers, the purchase limitations set forth in Sections 10
and 11 of this Plan may be increased or decreased at the sole discretion of the
Boards of Directors of the Company and the Holding Company at any time. If such
limitation is increased after the commencement of the Subscription Offering,
persons who subscribed for the maximum amount will be given the opportunity to
increase their subscriptions up to the then applicable limit, subject to the
rights and preferences of any person who has priority Subscription Rights. The
Boards of Directors of the Company and the Holding Company may, in their sole
discretion, increase such maximum purchase limitation up to 9.99%; provided,
however, that orders for Common Shares exceeding 5% of the Common Shares to be
sold in connection with the Conversion shall not exceed, in the aggregate, 10%
of the Common Shares to be sold in connection with the Conversion. In the event
that the purchase limitation is decreased after commencement of the Subscription
Offering, the order of any Person who subscribed for the maximum number of
Common Shares shall be decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number of Common Shares
permitted to be subscribed for by such Person. The maximum purchase limitation
for Eligible Account Holders, Supplemental Eligible Account Holders and Other
Eligible Members shall not be decreased below one-tenth of one percent (.10%) of
the total number of Common Shares to be issued in connection with the
Conversion.
(f) The purchase limitations set forth in this Section 11 shall not
apply to the common shares, if any, contributed to the Foundation in accordance
with the provisions of Section 27 of this Plan, nor shall such common shares be
deemed Common Shares.
(g) The Subscription Rights granted under this Plan are
nontransferable. Each Subscription Right may be exercised only by the Person to
whom it is issued and only for such Person's own account. Each Person exercising
Subscription Rights will be required to certify that he or she is purchasing for
his or her own account and that he or she has no agreement or understanding for
the sale or transfer of the Common Shares for which he or she subscribes. The
Board of Directors of the Company may reject any subscription which it
reasonably believes involves an impermissible transfer of a Subscription Right.
The Board of Directors of the Company may require any Person who the Board
reasonably believes to be involved in an impermissible transfer of a
Subscription Right to provide such information or assurances as the Board may
request to verify the validity of a Subscription Right.
10
<PAGE> 12
12. PROCEDURES FOR THE OFFERINGS.
(a) At the time the Proxy Materials are mailed to the Voting Members at
their last known addresses appearing on the records of the Company, pursuant to
the authorization of the OTS and the Division, the Company and the Holding
Company may commence the Subscription Offering and the Community Offering. The
Holding Company and the Company may elect to mail a Prospectus and an Order Form
only to those Participants who request such materials by returning a
postage-paid card by a date specified in the letter informing them of their
Subscription Rights. Under such circumstances, the Subscription Offering shall
not be closed until the expiration of 30 days after the mailing by the Holding
Company and the Company of the postage-paid card to Participants.
(b) The Prospectus will contain all the information required by the
OTS, the Division, the SEC and all applicable laws and regulations necessary to
enable the recipients of the Order Forms to make informed investment decisions
regarding the purchase of Common Shares.
(c) The Order Forms will contain all the information required by the
OTS, the Division and all applicable laws and regulations. Order Forms which
have been photocopied or reproduced in any other manner will not be accepted.
(d) The offer of Common Shares to Participants, to Community Members
and to others will be conditioned upon the approval of this Plan by the Voting
Members at the Special Meeting.
(e) The Subscription Offering and the Community Offering may be closed
before the Special Meeting.
13. PAYMENT FOR COMMON SHARES.
(a) Full payment for all Common Shares subscribed for must be received
by the Company, together with properly completed and manually signed original
Order Forms therefor, before the expiration time, which will be specified on the
Order Forms, unless such date is extended by the Company and the Holding
Company. The amount of the required payment will be the amount which equals the
Initial Purchase Price (which will be specified in the Order Forms or
accompanying materials), multiplied by the number of Common Shares subscribed
for in accordance with the terms of this Plan.
(b) Payment for Common Shares ordered in the Subscription Offering will
be permitted to be made:
(i) In cash, if delivered in person;
(ii) By check, bank draft, money order or negotiable order of
withdrawal; provided, however, that any payment by check
will be accepted subject to payment of such check by the
drawee of such check;
(iii) By appropriate authorization of withdrawal from any Savings
Account at the Company; or
(iv) By appropriate authorization of funds held for such Person's
benefit by a Tax-Qualified Employee Stock Benefit Plan to
the extent that such plan allows participants or any related
trust established for the benefit of such Person to direct
that some or all of such Person's individual accounts or
subaccounts be invested in Common Shares.
(c) For the purpose of determining the withdrawal balance of any
Savings Account, such withdrawals will be deemed to have been made upon receipt
of appropriate authorization therefor, but interest at the rates applicable to
such accounts will be paid by the Company on the amounts deemed to have been
withdrawn until the date on which the Conversion is completed or terminated, at
which time the authorized withdrawal actually will be made. Interest will be
paid by the Company on payments for Common Shares paid in cash or by check,
negotiable order of withdrawal or money order at an annual rate equal to the
passbook account rate at the Company or such higher rate as may be determined by
the Company. Such interest will be paid from the date payments are received by
the Company until consummation or termination of the Conversion.
(d) The Order Forms will contain appropriate means by which
authorization of withdrawals from Savings Accounts may be made to pay for
subscribed Common Shares. Once a withdrawal has been authorized, none of the
designated withdrawal amount may be withdrawn from the designated Savings
Account (except by the Company as payment for Common Shares) while this Plan
remains in effect. Savings Accounts will be permitted to be established for the
purpose of making payment for subscribed Common Shares. Notwithstanding any
regulatory provisions regarding penalties for early
11
<PAGE> 13
withdrawal from certificate accounts and minimum qualifying balances for such
accounts, payment for Common Shares will be permitted through authorization of
withdrawals from such accounts without the assessment of such penalties. If,
after such withdrawal, the applicable minimum balance requirement ceases to be
met, such certificate account will be canceled and the remaining balance thereof
will earn interest only at the passbook account rate at the Company.
(e) The Company may not lend funds or otherwise extend credit to any
Person to purchase Common Shares.
(f) If the Actual Purchase Price is less than the Initial Purchase
Price, the Company shall refund the difference to all Participants and other
Persons, unless the Holding Company and the Company choose to provide
Participants and other Persons the opportunity on the Order Form to elect to
have such difference applied to the purchase of additional whole Common Shares,
subject to applicable purchase limits. If the Actual Purchase Price is more than
the Initial Purchase Price, the Company shall reduce the number of Common Shares
ordered by Participants and other Persons and refund any remaining amount which
is attributable to a fractional share interest, unless the Company and the
Holding Company choose to provide Participants and other Persons the opportunity
to increase their payments for Common Shares subscribed for or ordered, subject
to applicable purchase limits.
14. EXPIRATION OF SUBSCRIPTION RIGHTS.
(a) All Subscription Rights provided for in this Plan, including,
without limitation, the Subscription Rights of all Persons whose Order Forms are
returned by the United States Post Office as undeliverable, will expire at a
specified time on a specified date which will be not less than 20 days nor more
than 45 days following the date on which Order Forms are first sent to
Participants. If the Holding Company and the Company elect to mail a Prospectus
and an Order Form only to those Participants who request such materials by
returning a postage-paid card by a date specified in the letter informing them
of their Subscription Rights, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing of the postage-paid card to
Participants.
(b) If the Company is unable to locate particular persons granted
Subscription Rights under this Plan, or if Order Forms (i) are returned as
undeliverable by the United States Post Office, (ii) are not received by the
Company prior to the expiration date specified thereon, (iii) are defectively
filled out or executed, or (iv) are not, when received by the Company,
accompanied by the full required payment for the Common Shares subscribed for
(including cases in which Savings Accounts from which withdrawals are authorized
contain insufficient funds to satisfy the required payment or the check, bank
draft, negotiable order of withdrawal or money order is not paid by the drawee
thereof), the Subscription Rights will lapse as though the Person to whom such
rights have been granted failed to return the completed Order Form within the
time period specified thereon. In any such case as discussed in this paragraph
(b), all payments accompanying the Order Forms will be refunded and, in the case
of payments authorized through withdrawal from Savings Accounts as permitted by
Section 13 of this Plan, such withdrawals will not be made.
(c) The Company may, but will not be obligated to, waive any
irregularity on any Order Form or require the submission of a corrected Order
Form or waive the remittance of full payment for shares subscribed for by such
date as it may specify. An executed Order Form, once received by the Company,
may not be modified, amended or rescinded without the consent of the Company,
unless (i) the Community Offering is not completed within 45 days after the
expiration time of the Subscription Offering, or (ii) the final valuation of the
Company, as converted, is less than the minimum of the Estimated Price Range
established by the Independent Appraiser before the commencement of the
Subscription Offering or exceeds the maximum of the Estimated Price Range by
more than 15%. If either of those events occurs, persons who have subscribed for
Common Shares will receive written notice that they have a right to affirm,
increase, decrease or rescind their subscriptions. Subject to the authority of
the OTS and the Division, all interpretations by the Company and the Holding
Company of the terms and conditions of this Plan and of the Order Forms will be
final.
(d) The sale of all Common Shares must be completed within 45 days
after the termination of the Subscription Offering, unless extended by the
Company with the consent of the OTS and the Division, and within 24 months of
approval of this Plan by the Voting Members at the Special Meeting. The 24-month
period may not be extended by the Company, the OTS or the Division.
12
<PAGE> 14
15. COMPLIANCE WITH SECURITIES LAWS.
The Company and the Holding Company will make reasonable efforts to
comply with the securities laws of the United States and all other jurisdictions
in which Participants reside. No Person, however, will be offered any
Subscription Rights or sold any Common Shares under this Plan if such Person
resides in a foreign country or in any jurisdiction of the United States in
respect of which (a) the granting of Subscription Rights or the offer or sale of
Common Shares under this Plan to such Person would require the Company, the
Holding Company or their Directors, Officers or employees to register under the
securities laws of such jurisdiction as a Broker, Dealer or agent or to register
or otherwise qualify the Common Shares for sale in such state; (b) there are few
Participants otherwise eligible to subscribe for Shares under this Plan who
reside in such jurisdiction; or (c) the Company determines that compliance with
the securities laws of such jurisdiction would be impracticable or unduly
burdenson for reasons of cost or otherwise. No payments will be made in lieu of
the granting of Subscription Rights to such Participants.
16. RIGHTS OF SHAREHOLDERS AFTER COMPLETION OF CONVERSION.
After the Conversion, the Holding Company will be the sole shareholder
of the Company and will exercise all rights attendant to owning the shares of
the Company. Voting rights in respect of the Holding Company will be held and
exercised exclusively by the holders of the issued and outstanding common shares
of the Holding Company. Neither borrowers from the Company nor holders of
Savings Accounts in the Company will have any voting rights in the Company or
the Holding Company on the basis of such borrowings or Savings Accounts. The
shareholders of the Holding Company will have the exclusive rights, subject to
the rights of Eligible Account Holders and Supplemental Eligible Account Holders
in the Liquidation Account provided for in Section 17 of this Plan, to receive
the distribution of any assets remaining after payment of creditors' claims,
including the claims of Savings Account holders to the withdrawal value of their
accounts, in the event of any voluntary or involuntary liquidation of the
Company after the Conversion.
17. LIQUIDATION ACCOUNT.
(a) For purposes of granting a limited priority claim to the assets of
the Company in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain a
Savings Account at the Company after the Conversion, the Company will, at the
time of the Conversion, establish the Liquidation Account in an amount equal to
the retained earnings of the Company as set forth in its latest statement of
financial condition contained in the Prospectus for the sale of Common Shares.
The Liquidation Account will not operate to restrict the use or application of
any of the regulatory capital of the Company.
(b) Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a separate inchoate interest in a portion of the Liquidation
Account for each Savings Account making up such account holder's Qualifying
Deposit (herein referred to as the "Subaccount").
(c) The initial balance of each Subaccount will be an amount determined
by multiplying the amount in the Liquidation Account by a fraction, the
numerator of which is the amount of the account holder's Qualifying Deposits as
of the close of business on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as the case may be, and the denominator of which is the
total amount of all Qualifying Deposits of Eligible Account Holders and
Supplemental Eligible Account Holders on the corresponding record date. For
Savings Accounts in existence on both the Eligibility Record Date and the
Supplemental Eligibility Record Date, separate Subaccounts will be determined on
the basis of the Qualifying Deposits in such Savings Accounts on each such date.
The balance of each Subaccount will never be increased above the initial
balance. If the balance in the Savings Account to which a Subaccount relates, at
the close of business on the last day of each fiscal year of the Company
subsequent to the respective record dates, is less than the lesser of (i) the
deposit balance in such Savings Account at the close of business on the last day
of each fiscal year of the Holding Company subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date and (ii) the amount of the
Qualifying Deposit as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, the balance of the Subaccount for such Savings Account
will be adjusted in proportion to the reduction in such Savings Account balance.
In the event of any such downward adjustment, such Subaccount balance will not
be subsequently increased notwithstanding any increase in the deposit balance of
the related Savings Account. If any Savings Account is closed, its related
Subaccount will be reduced to zero upon such closing. The Subaccount of an
account holder will be maintained for as long as the account holder maintains
the related Savings Account with the same Social Security or tax identification
number.
(d) In the event of a complete liquidation of the converted Company
(and only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder will be entitled to receive from the Liquidation Account a
13
<PAGE> 15
distribution equal to the current adjusted balance in each of such account
holder's Subaccounts before any liquidation distribution may be made to any
holders of the capital stock of the Company. No merger, consolidation, sale of
bulk assets or similar combination or transaction with another savings
association, the accounts of which are insured by the FDIC, will be deemed to be
a complete liquidation for this purpose and, in any such transaction, the
Liquidation Account will be assumed by the surviving insured institution.
18. ACCOUNTS IN CONVERTED COMPANY.
Each Savings Account in the Company at the time of the Conversion will
constitute, without payment or further action by the account holder, a Savings
Account in the Company as converted, equal in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Common Shares), and subject to the same terms and conditions, except
as to voting and liquidation rights, as such Savings Account in the Company
immediately before the Conversion.
19. RESTRICTIONS ON PURCHASES AND SALES OF COMMON SHARES BY OFFICERS AND
DIRECTORS FOLLOWING CONVERSION.
(a) All Common Shares purchased by Officers or Directors of the Holding
Company or the Company or their Associates pursuant to this Plan will be subject
to the restriction that no such shares will be sold for a period of one year
following the date of purchase of such shares, except in the event of the death
of the Officer, Director or Associate or pursuant to any merger or similar
transaction approved by the OTS.
(b) With respect to all Common Shares subject to the restriction on
subsequent disposition pursuant to paragraph (a) of this Section 19, each of the
following provisions will apply:
(i) Each certificate representing such shares will bear the
following legend prominently stamped thereon giving notice
of such restriction on transfer:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD
BY THE REGISTERED HOLDER HEREOF FOR A PERIOD OF NOT LESS
THAN ONE YEAR FROM THE DATE OF ISSUANCE HEREOF, EXCEPT IN
THE EVENT OF THE DEATH OF THE REGISTERED HOLDER OF SUCH
SHARES.
(ii) Instructions will be given to the transfer agent for the
Holding Company, if any, not to recognize or effect any
transfer of any certificates representing such shares or any
change of record ownership thereof in violation of such
restriction on transfer; and
(iii) Any shares of capital stock of the Holding Company issued as
a stock dividend, stock split or otherwise with respect to
outstanding Common Shares subject to restrictions on
transfer hereunder will be subject to the same restrictions
as are applicable to the Common Shares with respect to which
such shares of stock are issued.
(c) For a period of three years following the Conversion, no Officer or
Director, or any Associates of such Officer or Director shall, without the prior
written approval of the OTS, purchase the capital stock of the Holding Company
other than from a Broker or Dealer registered with the SEC. This provision will
not apply to (i) negotiated transactions involving more than one percent of a
class of outstanding capital stock of the Holding Company or (ii) purchases of
shares of capital stock made by and held by any one or more tax-qualified or
non-tax-qualified employee stock benefit plans which may be attributable to
individual Officers or Directors.
The foregoing restrictions on purchases of common shares of the Holding
Company shall be in addition to any restrictions that may be imposed by federal
and state securities laws.
20. RESTRICTIONS ON ACQUISITION OF THE COMPANY OR THE HOLDING COMPANY.
Acquisition of the capital stock of the Company or the Holding Company
after the Conversion will be subject to various restrictions contained in the
Amended Articles, the Amended Constitution, the articles of incorporation of the
Holding Company, the code of regulations of the Holding Company and various
state and federal laws and regulations. In addition, the articles of
incorporation of the Holding Company or the Amended Articles may include the
limitation that, for a period of up to five years
14
<PAGE> 16
from the date of completion of the Conversion of the Company from mutual to
stock form, no Person may directly or indirectly offer to acquire or acquire
beneficial ownership of more than 10% of any class of an equity security of the
Company or the Holding Company.
21. CONSUMMATION OF CONVERSION.
The Conversion of the Company from mutual to stock form will be deemed
to have taken place and to be effective at the time and date provided in the
regulations of the OTS and the Division. The Conversion must be completed within
24 months of the approval of this Plan by the Members.
22. ADOPTION OF AMENDED ARTICLES AND AMENDED CONSTITUTION
As part of the Conversion, the Company shall take all appropriate steps
to adopt the Amended Articles and the Amended Constitution and to present the
Amended Articles and the Amended Constitutions to the Voting Members for their
approval.
23. TAX RULINGS/OPINIONS.
The Conversion is expressly conditioned upon the prior receipt by the
Company and the Holding Company of either rulings from the Internal Revenue
Service and the appropriate Ohio taxing authorities or opinions of legal counsel
or other tax advisors to the Company in form and substance satisfactory to the
Company and to the effect, among other things, that the Conversion will
constitute a tax-free "reorganization" as defined in Section 368(a) of the
Internal Revenue Code of 1986, as amended, and comparable provisions of
applicable state law, or that consummation of the transactions provided for in
this Plan will not otherwise result in any federal, state or other tax
consequences to the Company or the converted Company deemed materially adverse
by the Board of Directors of the Company or the Board of Directors of the
Holding Company.
24. DIRECTORS AND OFFICERS OF THE COMPANY.
It is not intended that the Conversion will result in any change in the
Directors or Officers of the Company. The persons serving as Officers on the
date the Application is filed with the OTS and the Division will continue to
serve at the discretion of the Board of Directors of the Company in their
respective capacities as Officers of the converted the Company. The persons
serving as Directors of the Company on the date the Application is filed with
the OTS and the Division will continue to serve as Directors following the
Conversion until their terms expire or their earlier death, resignation or
removal from office.
25. STOCK BENEFIT PLANS.
Following the completion of the Conversion, the Company or the Holding
Company may establish one or more stock option plans and management recognition
plans to the extent permitted by OTS regulations. The Company and the Holding
Company may make scheduled or discretionary contributions to one or more stock
benefit plans maintained by the Company or the Holding Company for the benefit
of the Directors, Officers or employees of the Company or the Holding Company,
provided such contributions do not cause the Company to fail to meet its
regulatory capital requirement.
26. REGISTRATION OF COMMON SHARES; MARKET FOR COMMON SHARES.
(a) Before or promptly following the Conversion, the Holding Company
will register the Common Shares with the SEC pursuant to the Securities Exchange
Act of 1934 and will not deregister such shares for a period of three years
thereafter.
(b) The Holding Company will use its best efforts to encourage and
assist a market maker to establish and maintain a market for the Common Shares
and will use its best efforts to cause such shares to be quoted on The Nasdaq
Stock Market (or any comparable quotation system which may hereafter be
developed) or listed on a national or regional securities exchange.
15
<PAGE> 17
27. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the Company may
establish or contribute to the Foundation. To fund the Foundation, the Company
would contribute funds prior to completion of the Conversion or, immediately
subsequent to the Conversion, the Company or the Holding Company would
contribute common shares in an amount not to exceed eight percent (8%) of the
number of Common Shares issued in the Conversion, or a combination of cash and
common shares, subject to the receipt of any required regulatory approval or
consent. The purpose of the contribution to the Foundation is to complement the
Company's existing community reinvestment activities and to share the Company's
financial success as a locally-based, community-oriented, financial services
institution.
The Foundation would be dedicated to the promotion of charitable
purposes including community development, grants, or donations to support
housing assistance and affordable housing programs, not-for-profit community
groups and other similar types of organizations and projects. In order to serve
the purposes for which it would be formed and in order to maintain its
qualification under Section 501(c)(3) of the Code, the Foundation might sell, on
an annual basis, a portion of the common shares contributed to it by the Company
or the Holding Company, if any.
The Board of Directors of the Foundation may be comprised of
individuals who are Officers or Directors of the Company or the Holding Company.
The Board of Directors of the Foundation would be responsible for establishing
the policies of the Foundation with respect to grants or donations, consistent
with the stated purposes of the Foundation.
28. EXPENSES OF CONVERSION.
The Company and the Holding Company will use their best efforts to
ensure that the expenses incurred in connection with the Conversion will be
reasonable.
29. AMENDMENT OR TERMINATION OF THIS PLAN.
If deemed necessary or desirable by the Boards of Directors of the
Company and the Holding Company, this Plan may be amended by the Boards of
Directors of the Company and the Holding Company in their sole discretion at any
time prior to the solicitation of Proxies from Voting Members entitled to vote
on this Plan and at any time thereafter with the concurrence of the OTS and the
Division. The Conversion pursuant to this Plan may be terminated by the Boards
of Directors of the Company and the Holding Company in their sole discretion at
any time prior to the Special Meeting and at any time thereafter with the
concurrence of the OTS and the Division.
30. INTERPRETATION OF THIS PLAN.
The Boards of Directors of the Company and the Holding Company will
interpret this Plan. To the extent permitted by law, all interpretations of this
Plan and applications of its terms shall be made by a majority of the Directors
of the Company and the Holding Company and, subject to the authority of the OTS
and the Division, such interpretation will be final.
16
<PAGE> 1
Exhibit 3.2
CODE OF REGULATIONS
OF
UNITED COMMUNITY FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Section Caption Page No.
- ------- ------- --------
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
<S> <C> <C>
1.01. Annual Meetings.......................................................................1
1.02. Calling of Meetings...................................................................1
1.03. Place of Meetings.....................................................................1
1.04. Notice of Meetings....................................................................1
1.05. Waiver of Notice......................................................................2
1.06. Quorum................................................................................2
1.07. Votes Required........................................................................2
1.08. Order of Business.....................................................................2
1.09. Shareholders Entitled to Vote.........................................................2
1.10. Cumulative Voting.....................................................................2
1.11. Proxies...............................................................................3
1.12. Inspectors of Election................................................................3
ARTICLE TWO
DIRECTORS
2.01. Authority and Qualifications..........................................................3
2.02. Number of Directors and Term of Office................................................3
2.03. Nomination............................................................................4
2.04. Election..............................................................................5
2.05. Removal...............................................................................5
2.06. Vacancies.............................................................................5
2.07. Meetings..............................................................................5
2.08. Notice of Meetings....................................................................6
2.09. Waiver of Notice......................................................................6
2.10. Quorum................................................................................6
2.11. Executive Committee...................................................................6
2.12. Compensation..........................................................................7
2.13. Bylaws................................................................................7
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
ARTICLE THREE
OFFICERS
<S> <C> <C>
3.01. Officers..............................................................................7
3.02. Tenure of Office......................................................................7
3.03. Duties of the Chairman of the Board...................................................7
3.04. Duties of the President...............................................................8
3.05. Duties of the Vice Presidents.........................................................8
3.06. Duties of the Secretary...............................................................8
3.07. Duties of the Treasurer...............................................................8
ARTICLE FOUR
SHARES
4.01. Certificates..........................................................................8
4.02. Transfers.............................................................................9
4.03. Transfer Agents and Registrars........................................................9
4.04. Lost, Wrongfully Taken or Destroyed Certificates......................................9
4.05. Uncertificated Shares................................................................10
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
5.01. Mandatory Indemnification............................................................10
5.02. Court-Approved Indemnification.......................................................10
5.03. Indemnification for Expenses.........................................................11
5.04 Determination Required...............................................................11
5.05. Advances for Expenses................................................................12
5.06. Article Five Not Exclusive...........................................................12
5.07. Insurance............................................................................12
5.08. Certain Definitions..................................................................12
5.09. Venue................................................................................13
ARTICLE SIX
MISCELLANEOUS
6.01. Amendments...........................................................................13
6.02. Action by Shareholders or Directors Without a Meeting................................13
</TABLE>
<PAGE> 3
CODE OF REGULATIONS
OF
UNITED COMMUNITY FINANCIAL CORP.
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETINGS. The annual meeting of the
shareholders for the election of directors, for the consideration of reports to
be laid before such meeting and for the transaction of such other business as
may properly come before such meeting shall be held on the last Thursday in
April of each year or on such other date as may be fixed from time to time by
the directors.
SECTION 1.02. CALLING OF MEETINGS. Meetings of the
shareholders may be called only by the chairman of the board; the president or,
in case of the president's absence, death, or disability, the vice president
authorized to exercise the authority of the president; the secretary; the
directors by action at a meeting, or a majority of the directors acting without
a meeting; or the holders of at least twenty-five percent of all shares
outstanding and entitled to vote thereat.
SECTION 1.03. PLACE OF MEETINGS. All meetings of shareholders
shall be held at the principal office of the corporation, unless otherwise
provided by action of the directors. Meetings of shareholders may be held at any
place within or without the State of Ohio.
SECTION 1.04. NOTICE OF MEETINGS. (A) Written notice stating
the time, place and purposes of a meeting of the shareholders shall be given
either by personal delivery or by mail not less than seven nor more than sixty
days before the date of the meeting (1) to each shareholder of record entitled
to notice of the meeting, (2) by or at the direction of the president or the
secretary. If mailed, such notice shall be addressed to the shareholder at his
address as it appears on the records of the corporation. Notice of adjournment
of a meeting need not be given if the time and place to which it is adjourned
are fixed and announced at such meeting. In the event of a transfer of shares
after the record date for determining the shareholders who are entitled to
receive notice of a meeting of shareholders, it shall not be necessary to give
notice to the transferee. Nothing herein contained shall prevent the setting of
a record date in the manner provided by law, the Articles of Incorporation of
the corporation (the "Articles") or elsewhere in this Code of Regulations (the
"Regulations") for the determination of shareholders who are entitled to receive
notice of or to vote at any meeting of shareholders or for any purpose required
or permitted by law.
(B) Following receipt by the president or the secretary of a
request in writing, specifying the purpose or purposes for which the persons
properly making such request have called
1
<PAGE> 4
a meeting of the shareholders, delivered either in person or by registered mail
to such officer by any persons entitled to call a meeting of shareholders, such
officer shall cause to be given to the shareholders entitled thereto notice of a
meeting to be held on a date not less than seven nor more than sixty days after
the receipt of such request, as such officer may fix. If such notice is not
given within fifteen days after the receipt of such request by the president or
the secretary, then, and only then, the persons properly calling the meeting may
fix the time of meeting and give notice thereof in accordance with the
provisions of the Regulations.
SECTION 1.05. WAIVER OF NOTICE. Notice of the time, place and
purpose or purposes of any meeting of shareholders may be waived in writing,
either before or after the holding of such meeting, by any shareholders, which
writing shall be filed with or entered upon the records of such meeting. The
attendance of any shareholder, in person or by proxy, at any such meeting
without protesting the lack of proper notice, prior to or at the commencement of
the meeting, shall be deemed to be a waiver by such shareholder of notice of
such meeting.
SECTION 1.06. QUORUM. At any meeting of shareholders, the
holders of a majority of the voting shares of the corporation outstanding and
entitled to vote thereat, present in person or by proxy, shall constitute a
quorum for such meeting. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, or the chairman of
the board, the president, or the officer of the corporation acting as chairman
of the meeting, may adjourn such meeting from time to time, and if a quorum is
present at such adjourned meeting any business may be transacted as if the
meeting had been held as originally called.
SECTION 1.07. VOTES REQUIRED. At all elections of directors
the candidates receiving the greatest number of votes shall be elected. Any
other matter submitted to the shareholders for their vote shall be decided by
the vote of such proportion of the shares, or of any class of shares, or of each
class, as is required by law, the Articles or the Regulations.
SECTION 1.08. ORDER OF BUSINESS. The order of business at any
meeting of shareholders shall be determined by the officer of the corporation
acting as chairman of such meeting unless otherwise determined by a vote of the
holders of a majority of the voting shares of the corporation then outstanding,
present in person or by proxy, and entitled to vote at such meeting.
SECTION 1.09. SHAREHOLDERS ENTITLED TO VOTE. Each shareholder
of record on the books of the corporation on the record date for determining the
shareholders who are entitled to vote at a meeting of shareholders shall be
entitled at such meeting to one vote for each share of the corporation standing
in his name on the books of the corporation on such record date. The directors
may fix a record date for the determination of the shareholders who are entitled
to receive notice of and to vote at a meeting of shareholders, which record date
shall not be a date earlier than the date on which the record date is fixed and
which record date may be a maximum of sixty days preceding the date of the
meeting of shareholders.
SECTION 1.10. CUMULATIVE VOTING. If notice in writing shall be
given by a shareholder to the president, a vice president or the secretary of
the corporation, not less than forty-
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eight hours before the time fixed for holding a meeting of the shareholders for
the purpose of electing directors if notice of such meeting shall have been
given at least ten days prior thereto, and otherwise not less than twenty-four
hours before such time, that such shareholder desires that the voting at such
election shall be cumulative, and if an announcement of the giving of such
notice is made upon the convening of the meeting by the chairman or secretary or
by or on behalf of the shareholder giving such notice, each shareholder shall
have the right to cumulate such voting power as he possesses and to give one
candidate as many votes as is determined by multiplying the number of directors
to be elected by the number of votes to which such shareholder is entitled, or
to distribute such number of votes on the same principle among two or more
candidates, as he sees fit; provided, however, that the foregoing procedures
shall not apply if the Articles provide that no shareholder may cumulate his
voting power.
SECTION 1.11. PROXIES. At meetings of the shareholders, any
shareholder of record entitled to vote thereat may be represented and may vote
by a proxy or proxies appointed by an instrument in writing signed by such
shareholder, but such instrument shall be filed with the secretary of the
meeting before the person holding such proxy shall be allowed to vote
thereunder. No proxy shall be valid after the expiration of eleven months after
the date of its execution, unless the shareholder executing it shall have
specified therein the length of time it is to continue in force.
SECTION 1.12. INSPECTORS OF ELECTION. In advance of any
meeting of shareholders, the directors may appoint inspectors of election to act
at such meeting or any adjournment thereof; if inspectors are not so appointed,
the officer of the corporation acting as chairman of any such meeting may make
such appointment. In case any person appointed as inspector fails to appear or
act, the vacancy may be filled only by appointment made by the directors in
advance of such meeting or, if not so filled, at the meeting by the officer of
the corporation acting as chairman of such meeting. No other person or persons
may appoint or require the appointment of inspectors of election.
ARTICLE TWO
DIRECTORS
SECTION 2.01. AUTHORITY AND QUALIFICATIONS. Except where the
law, the Articles or the Regulations otherwise provide, all authority of the
corporation shall be vested in and exercised by its directors.
Section 2.02. Number of Directors and Term of Office.
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(A) Until changed in accordance with the provisions of the
Regulations, the number of directors of the corporation shall be nine.
(B) Directors shall be elected in such numbers and to serve
for such terms that the terms of an equal number of directors, as nearly as
possible, will expire each year. A term may
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not exceed three years. Directors shall serve until their successors are duly
elected and qualified or until their earlier resignation, removal from office,
or death.
(C) The number of directors may be fixed or changed at a
meeting of the shareholders called for the purpose of electing directors at
which a quorum is present, only by the affirmative vote of the holders of not
less than a majority of the voting shares which are represented at the meeting,
in person or by proxy, and entitled to vote on such proposal.
(D) The directors may fix or change the number of directors
and may fill any director's office that is created by an increase in the number
of directors; provided, however, that the directors may not increase the number
of directors to greater than thirteen (13) nor reduce the number of directors to
fewer than seven (7) and no reduction in the number of directors shall of itself
have the effect of shortening the term of any incumbent director.
Section 2.03. Nomination.
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(A) Any nominee for election as a director of the corporation
may be proposed only by the directors or by any shareholder entitled to vote for
the election of directors. No person, other than a nominee proposed by the
directors, may be nominated for election as a director of the corporation unless
such person shall have been proposed in a written notice, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
corporation at the principal offices of the corporation. In the case of a
nominee proposed for election as a director at an annual meeting of
shareholders, such written notice of a proposed nominee shall be received by the
Secretary of the corporation on or before the sixtieth (60th) day before the
first anniversary of the most recent annual meeting of shareholders of the
corporation held for the election of directors; provided, however, that if the
annual meeting for the election of directors in any year is not held on or
before the thirty-first (31st) day next following such anniversary, then the
written notice required by this subparagraph (A) shall be received by the
Secretary within a reasonable time prior to the date of such annual meeting. In
the case of a nominee proposed for election as a director at a special meeting
of shareholders at which directors are to be elected, such written notice of a
proposed nominee shall be received by the Secretary of the corporation no later
than the close of business on the seventh (7th) day following the day on which
notice of the special meeting was mailed to shareholders. Each such written
notice of a proposed nominee shall set forth (1) the name, age, business or
residence address of each nominee proposed in such notice, (2) the principal
occupation or employment of each such nominee, and (3) the number of common
shares of the corporation owned beneficially and/or of record by each such
nominee and the length of time any such shares have been so owned.
(B) If a shareholder shall attempt to nominate one or more
persons for election as a director at any meeting at which directors are to be
elected without having identified each such person in a written notice given as
contemplated by, and/or without having provided therein the information
specified in, subparagraph (A) of this Section, each such attempted nomination
shall be invalid and shall be disregarded unless the person acting as Chairman
of the meeting determines that the facts warrant the acceptance of such
nomination.
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(C) The election of directors shall be by ballot whenever
requested by the person acting as Chairman of the meeting or by the holders of a
majority of the voting shares outstanding, entitled to vote at such meeting and
present in person or by proxy, but unless such request is made, the election
shall be by voice vote.
SECTION 2.04. ELECTION. At each annual meeting of shareholders
for the election of directors, the successors to the directors whose term shall
expire in that year shall be elected, but if the annual meeting is not held or
if one or more of such directors are not elected thereat, they may be elected at
a special meeting called for that purpose. The election of directors shall be by
ballot whenever requested by the presiding officer of the meeting or by the
holders of a majority of the voting shares outstanding, entitled to vote at such
meeting and present in person or by proxy, but unless such request is made, the
election shall be viva voce.
SECTION 2.05. REMOVAL. A director or directors may be removed
from office, with or without assigning any cause, only by the vote of the
holders of shares entitling them to exercise not less than 75% of the voting
power of the corporation to elect directors in place of those to be removed;
provided, however, if the shareholders have a right to vote cumulatively in the
election of directors, unless all the directors, or all the directors of a
particular class (if the directors of the corporation are divided into classes),
are removed, no individual director shall be removed in case the votes of a
sufficient number of shares are cast against his removal that, if cumulatively
voted at an election of all directors, or all the directors of a particular
class, as the case may be, would be sufficient to elect at least one director.
In case of any such removal, a new director may be elected at the same meeting
for the unexpired term of each director removed. Failure to elect a director to
fill the unexpired term of any director removed shall be deemed to create a
vacancy in the board.
SECTION 2.06. VACANCIES. The remaining directors, though less
than a majority of the whole authorized number of directors, may, by the vote of
a majority of their number, fill any vacancy in the board for the unexpired
term. A vacancy in the board exists within the meaning of this Section 2.06 in
case the shareholders increase the authorized number of directors but fail at
the meeting at which such increase is authorized, or an adjournment thereof, to
elect the additional directors provided for, or in case the shareholders fail at
any time to elect the whole authorized number of directors.
SECTION 2.07. MEETINGS. A meeting of the directors shall be
held immediately following the adjournment of each annual meeting of
shareholders at which directors are elected, and notice of such meeting need not
be given. The directors shall hold such other meetings as may from time to time
be called, and such other meetings of directors may be called only by the
chairman of the board, the president, or any two directors. All meetings of
directors shall be held at the principal office of the corporation or at such
other place as the directors may from time to time determine by resolution.
Meetings of the directors may be held through any communications equipment if
all persons participating can hear each other, and participation in a meeting
pursuant to this provision shall constitute presence at such meeting.
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SECTION 2.08. NOTICE OF MEETINGS. Notice of the time and place
of each meeting of directors for which such notice is required by law, the
Articles, the Regulations or the By-Laws shall be given to each of the directors
by at least one of the following methods:
(A) In a writing mailed not less than three days before
such meeting and addressed to the residence or usual
place of business of a director, as such address
appears on the records of the corporation; or
(B) By telegraph, cable, radio, wireless, or a writing
sent or delivered to the residence or usual place of
business of a director as the same appears on the
records of the corporation, not later than the day
before the date on which such meeting is to be held;
or
(C) Personally or by telephone not later than the day
before the date on which such meeting is to be held.
Notice given to a director by any one of the methods specified in the
Regulations shall be sufficient, and the method of giving notice to all
directors need not be uniform. Notice of any meeting of directors may be given
only by the chairman of the board, the president or the secretary of the
corporation. Any such notice need not specify the purpose or purposes of the
meeting. Notice of adjournment of a meeting of directors need not be given if
the time and place to which it is adjourned are fixed and announced at such
meeting.
SECTION 2.09. WAIVER OF NOTICE. Notice of any meeting of
directors may be waived in writing, either before or after the holding of such
meeting, by any director, which writing shall be filed with or entered upon the
records of the meeting. The attendance of any director at any meeting of
directors without protesting, prior to or at the commencement of the meeting,
the lack of proper notice, shall be deemed to be a waiver by him of notice of
such meeting.
SECTION 2.10. QUORUM. A majority of the whole authorized
number of directors shall be necessary to constitute a quorum for a meeting of
directors, except that a majority of the directors in office shall constitute a
quorum for filling a vacancy in the board. The act of a majority of the
directors present at a meeting at which a quorum is present is the act of the
board, except as otherwise provided by law, the Articles or the Regulations.
SECTION 2.11. EXECUTIVE COMMITTEE. The directors may create an
executive committee or any other committee of directors, to consist of not less
than three directors, and may authorize the delegation to such executive
committee or other committees of any of the authority of the directors, however
conferred, other than that of filling vacancies among the directors or in the
executive committee or in any other committee of the directors.
Such executive committee or any other committee of directors
shall serve at the pleasure of the directors, shall act only in the intervals
between meetings of the directors, and shall be subject to the control and
direction of the directors. Such executive committee or other
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committee of directors may act by a majority of its members at a meeting or by a
writing or writings signed by all of its members.
Any act or authorization of any act by the executive committee
or any other committee within the authority delegated to it shall be as
effective for all purposes as the act or authorization of the directors. No
notice of a meeting of the executive committee or of any other committee of
directors shall be required. A meeting of the executive committee or of any
other committee of directors may be called only by the president or by a member
of such executive or other committee of directors. Meetings of the executive
committee or of any other committee of directors may be held through any
communications equipment if all persons participating can hear each other and
participation in such a meeting shall constitute presence thereat.
SECTION 2.12. COMPENSATION. Directors shall be entitled to
receive as compensation for services rendered and expenses incurred as directors
such amounts as the directors may determine.
SECTION 2.13. BYLAWS. The directors may adopt, and amend from
time to time, bylaws for their own government, which bylaws shall not be
inconsistent with the law, the Articles or the Regulations.
ARTICLE THREE
OFFICERS
SECTION 3.01. OFFICERS. The officers of the corporation to be
elected by the directors shall be a president, a secretary, a treasurer, and, if
desired, one or more vice presidents and such other officers and assistant
officers as the directors may from time to time elect. The directors may elect a
chairman of the board, who must be a director. Officers need not be shareholders
of the corporation and may be paid such compensation as the board of directors
may determine. Any two or more offices may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Articles, the Regulations or
the bylaws to be executed, acknowledged or verified by two or more officers.
SECTION 3.02. TENURE OF OFFICE. The officers of the
corporation shall hold office at the pleasure of the directors. Any officer of
the corporation may be removed, either with or without cause, at any time, by
the affirmative vote of a majority of all the directors then in office; such
removal, however, shall be without prejudice to the contract rights, if any, of
the person so removed.
SECTION 3.03. DUTIES OF THE CHAIRMAN OF THE BOARD. The
chairman of the board, if any, shall preside at all meetings of the directors.
He shall have such other powers and duties as the directors shall from time to
time assign to him.
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SECTION 3.04. DUTIES OF THE PRESIDENT. The president shall be
the chief executive officer of the corporation, shall exercise supervision over
the business of the corporation and shall have, among such additional powers and
duties as the directors may from time to time assign to him, the power and
authority to sign all certificates evidencing shares of the corporation and all
deeds, mortgages, bonds, contracts, notes and other instruments requiring the
signature of the president of the corporation. It shall be the duty of the
president to preside at all meetings of shareholders.
SECTION 3.05. DUTIES OF THE VICE PRESIDENTS. In the absence of
the president or in the event of his inability or refusal to act, the vice
president, if any (or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election), shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the directors may from time to time
prescribe.
SECTION 3.06. DUTIES OF THE SECRETARY. It shall be the duty of
the secretary, or of an assistant secretary, if any, in case of the absence or
inability to act of the secretary, to keep minutes of all the proceedings of the
shareholders and the directors and to make a proper record of the same; to
perform such other duties as may be required by law, the Articles or the
Regulations; to perform such other and further duties as may from time to time
be assigned to him by the directors or the president; and to deliver all books,
paper and property of the corporation in his possession to his successor, or to
the president.
SECTION 3.07. DUTIES OF THE TREASURER. The treasurer, or an
assistant treasurer, if any, in case of the absence or inability to act of the
treasurer, shall receive and safely keep in charge all money, bills, notes,
chooses in action, securities and similar property belonging to the corporation,
and shall do with or disburse the same as directed by the president or the
directors; shall keep an accurate account of the finances and business of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, together with such
other accounts as may be required and hold the same open for inspection and
examination by the directors; shall give bond in such sum with such security as
the directors may require for the faithful performance of his duties; shall,
upon the expiration of his term of office, deliver all money and other property
of the corporation in his possession or custody to his successor or the
president; and shall perform such other duties as from time to time may be
assigned to him by the directors.
ARTICLE FOUR
SHARES
SECTION 4.01. CERTIFICATES. Certificates evidencing ownership
of shares of the corporation shall be issued to those entitled to them. Each
certificate evidencing shares of the
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corporation shall bear a distinguishing number; the signatures of the chairman
of the board, the president, or a vice president, and of the secretary or an
assistant secretary (except that when any such certificate is countersigned by
an incorporated transfer agent or registrar, such signatures may be facsimile,
engraved, stamped or printed); and such recitals as may be required by law.
Certificates evidencing shares of the corporation shall be of such tenor and
design as the directors may from time to time adopt and may bear such recitals
as are permitted by law.
SECTION 4.02. TRANSFERS. Where a certificate evidencing a
share or shares of the corporation is presented to the corporation or its proper
agents with a request to register transfer, the transfer shall be registered as
requested if:
(1) An appropriate person signs on each certificate so
presented or signs on a separate document an assignment or transfer of shares
evidenced by each such certificate, or signs a power to assign or transfer such
shares, or when the signature of an appropriate person is written without more
on the back of each such certificate; and
(2) Reasonable assurance is given that the endorsement of each
appropriate person is genuine and effective; the corporation or its agents may
refuse to register a transfer of shares unless the signature of each appropriate
person is guaranteed by a commercial bank or trust company having an office or a
correspondent in the City of New York or by a firm having membership in the New
York Stock Exchange; and
(3) All applicable laws relating to the collection of transfer
or other taxes have been complied with; and
(4) The corporation or its agents are not otherwise required
or permitted to refuse to register such transfer.
SECTION 4.03. TRANSFER AGENTS AND REGISTRARS. The directors
may appoint one or more agents to transfer or to register shares of the
corporation, or both.
SECTION 4.04. LOST, WRONGFULLY TAKEN OR DESTROYED
CERTIFICATES. Except as otherwise provided by law, where the owner of a
certificate evidencing shares of the corporation claims that such certificate
has been lost, destroyed or wrongfully taken, the directors must cause the
corporation to issue a new certificate in place of the original certificate if
the owner:
(1) So requests before the corporation has notice that such
original certificate has been acquired by a bona fide purchaser; and
(2) Files with the corporation, unless waived by the
directors, an indemnity bond, with surety or sureties satisfactory to the
corporation, in such sums as the directors may, in their discretion, deem
reasonably sufficient as indemnity against any loss or liability that the
corporation may incur by reason of the issuance of each such new certificate;
and
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(3) Satisfies any other reasonable requirements which may be
imposed by the directors, in their discretion.
SECTION 4.05. UNCERTIFICATED SHARES. Anything contained in
this Article Fourth to the contrary notwithstanding, the directors may provide
by resolution that some or all of any or all classes and series of shares of the
corporation shall be Uncertificated shares, provided that such resolution shall
not apply to (A) shares of the corporation represented by a certificate until
such certificate is surrendered to the corporation in accordance with applicable
provisions of Ohio law or (B) any certificated security of the corporation
issued in exchange for an uncertificated security in accordance with applicable
provisions of Ohio law. The rights and obligations of the holders of
uncertificated shares and the rights and obligations of the holders of
certificates representing shares of the same class and series shall be
identical, except as otherwise expressly provided by law.
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful. A
person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
SECTION 5.02. COURT-APPROVED INDEMNIFICATION. Anything
contained in the Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or
director of the corporation who was a party to any completed action or suit
instituted by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director,
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trustee, officer, employee or agent of another corporation (domestic or foreign,
nonprofit or for profit), partnership, joint venture, trust or other enterprise,
in respect of any claim, issue or matter asserted in such action or suit as to
which he shall have been adjudged to be liable for acting with reckless
disregard for the best interests of the corporation or misconduct (other than
negligence) in the performance of his duty to the corporation unless and only to
the extent that the Court of Common Pleas of Mahoning County, Ohio, or the court
in which such action or suit was brought shall determine upon application that,
despite such adjudication of liability, and in view of all the circumstances of
the case, he is fairly and reasonably entitled to such indemnity as such Court
of Common Pleas or such other court shall deem proper; and
(B) the corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by this
Section 5.02.
SECTION 5.03. INDEMNIFICATION FOR EXPENSES. Anything contained
in the Regulations or elsewhere to the contrary notwithstanding, to the extent
that an officer or director of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
5.01, or in defense of any claim, issue or matter therein, he shall be promptly
indemnified by the corporation against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript costs)
actually and reasonably incurred by him in connection therewith.
SECTION 5.04 DETERMINATION REQUIRED. Any indemnification
required under Section 5.01 and not precluded under Section 5.02 shall be made
by the corporation only upon a determination that such indemnification of the
officer or director is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 5.01. Such determination may
be made only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Mahoning County,
Ohio, or (if the corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any; any such determination may be made by a
court under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been denied
or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by shareholders under division
(C) of this Section 5.04 shall be evidence in rebuttal of the presumption
recited in Section 5.01. Any determination made by the disinterested directors
under division (A) or by independent legal counsel under division (B) of this
Section 5.04 to make indemnification in respect of any claim, issue or matter
asserted in an action or suit threatened or brought by or in the right of the
corporation shall be promptly communicated to the person who threatened or
brought
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such action or suit, and within ten days after receipt of such notification such
person shall have the right to petition the Court of Common Pleas of Mahoning
County, Ohio, or the court in which such action or suit was brought, if any, to
review the reasonableness of such determination.
SECTION 5.05. ADVANCES FOR EXPENSES. Expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees and
transcript costs) incurred in defending any action, suit or proceeding referred
to in Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as provided in
Section 5.04 that he is not entitled to be indemnified by the corporation as
provided under Section 5.01; or
(B) if, in respect of any claim, issue or other matter
asserted by or in the right of the corporation in such action or suit, he shall
have been adjudged to be liable for acting with reckless disregard for the best
interests of the corporation or misconduct (other than negligence) in the
performance of his duty to the corporation, unless and only to the extent that
the Court of Common Pleas of Mahoning County, Ohio, or the court in which such
action or suit was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances, he is fairly
and reasonably entitled to all or part of such indemnification.
SECTION 5.06. ARTICLE FIVE NOT EXCLUSIVE. The indemnification
provided by this Article Five shall not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled under the Articles
or the Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
SECTION 5.07. INSURANCE. The corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation (domestic or foreign, nonprofit or for profit), 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 the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
SECTION 5.08. CERTAIN DEFINITIONS. For purposes of this
Article Five, and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article 5
shall be deemed to have been successful on the merits or otherwise in defense of
any action, suit or proceeding referred
12
<PAGE> 15
to in Section 5.01, or in defense of any claim, issue or other matter therein,
if such action, suit or proceeding shall be terminated as to such person, with
or without prejudice, without the entry of a judgment or order against him,
without a conviction of him, without the imposition of a fine upon him and
without his payment or agreement to pay any amount in settlement thereof
(whether or not any such termination is based upon a judicial or other
determination of the lack of merit of the claims made against him or otherwise
results in a vindication of him); and
(B) References to an "other enterprise" shall include employee
benefit plans; references to a "fine" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
SECTION 5.09. VENUE. Any action, suit or proceeding to
determine a claim for indemnification under this Article Five may be maintained
by the person claiming such indemnification, or by the corporation, in the Court
of Common Pleas of Mahoning County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Mahoning County, Ohio, in any
such action, suit or proceeding.
ARTICLE SIX
MISCELLANEOUS
SECTION 6.01. AMENDMENTS. The Regulations may be amended, or
new regulations may be adopted, at a meeting of shareholders held for such
purpose, only by the affirmative vote of the holders of shares entitling them to
exercise not less than a majority of the voting power of the corporation on such
proposal, or without a meeting by the written consent of the holders of shares
entitling them to exercise not less than a majority of the voting power of the
corporation on such proposal.
SECTION 6.02. ACTION BY SHAREHOLDERS OR DIRECTORS WITHOUT A
MEETING. Anything contained in the Regulations to the contrary notwithstanding,
except as provided in Section 6.01, any action which may be authorized or taken
at a meeting of the shareholders or of the directors or of a committee of the
directors, as the case may be, may be authorized or taken without a meeting with
the affirmative vote or approval of, and in a writing or writings signed by, all
the shareholders who would be entitled to notice of a meeting of the
shareholders held for such purpose, or all the directors, or all the members of
such committee of the directors, respectively, which writings shall be filed
with or entered upon the records of the corporation.
13
<PAGE> 1
Exhibit 10.1
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
1998 LONG-TERM INCENTIVE PLAN
<PAGE> 2
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN OHIO
1998 LONG-TERM INCENTIVE PLAN
INDEX
SECTION DESCRIPTION
- ------- -----------
1 Purpose of the Plan
2 Definitions
3 Types of Awards Covered
4 Administration
5 Eligibility
6 Shares of Stock Subject to the Plan
7 Stock Options
8 Stock Appreciation Rights
9 Restricted Stock
10 Performance Awards
11 Other Stock-Based Incentive Awards
12 Exercise of Options
13 Rights in Event of Death or Disability
14 Award Agreements
15 Tax Withholding
16 Change of Control
17 Dilution or Other Adjustment
18 Transferability
19 Amendment or Termination
20 General Provisions
21 Plan Effective Date
22 Plan Termination
<PAGE> 3
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
1998 LONG-TERM INCENTIVE PLAN
SECTION 1
PURPOSE OF THE PLAN
1.1 The 1998 Long-Term Incentive Plan, maintained by The Home Savings and
Loan Company of Youngstown, Ohio, is intended to motivate key
employees to enhance shareholder value by offering incentives to its
key employees who are primarily responsible for the growth of the
Company and to attract and retain qualified employees.
SECTION 2
DEFINITIONS
2.1 Unless the context indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this
Section:
A) "AFFILIATE" means (i) a member of a controlled group of
corporations of which the Company is a member or (ii) an
unincorporated trade or business which is under common control
with the Company as determined in accordance with Section
414(c) of the Internal Revenue Code of 1986, as amended, (the
"Code") and the regulations issued thereunder. For purposes
hereof, a "controlled group of corporations" shall mean a
controlled group of corporations as defined in Section 1563(a)
of the Code determined without regard to Sections 1563(a)(4)
and (e)(3)(c).
b) "AWARD" shall mean grants or awards under this Plan in the
form of Options, SARs, Restricted Stock, Performance Awards or
other stock-based incentive awards.
c) "BOARD" shall mean the Board of Directors of the Company.
d) "CHANGE OF CONTROL" shall be deemed to have taken place on an
occurrence of an event as defined in Section 16 of this Plan.
e) "CODE" shall mean the Internal Revenue Code of 1986 as it may
be amended from time to time and related Treasury Regulations.
f) "COMMITTEE" shall mean the Board, or any Committee comprised
of two or more Outside Directors, that may be designated by
the Board to administer the Plan, in accordance with Section 4
hereof.
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1998 LONG-TERM INCENTIVE PLAN
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g) "COMMON STOCK" shall mean the common stock, par value $.01, of
the Company.
h) "COMPANY" shall mean The Home Savings and Loan Company of
Youngstown, Ohio.
i) "DEFERRED SHARES" an award made pursuant to Section 11 of the
Plan of the right to receive Common Stock in lieu of cash
thereof at the end of a specified time period.
j) "DIRECTOR" shall mean any member of the Board.
k) "DISABILITY" shall mean permanent and total disability within
the meaning of Section 22(e)(3) of the Code.
l) "EMPLOYEE" shall mean any full-time employee of the Company or
its Subsidiaries (including Directors who are otherwise
employed on a full-time basis by the Company or its
Subsidiaries).
m) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934
as it may be amended from time to time.
n) "FAIR MARKET VALUE" of the Common Stock on a given date shall
be based upon either (i) if the Common Stock is listed on a
national securities exchange or quoted in an interdealer
quotation system, the last sales price or, if unavailable, the
average of the closing bid and asked prices per share of the
Common Stock on such date (or, if there was no trading or
quotation in the Common Stock on such date, on the next
preceding date on which there was trading or quotation) as
provided by one of such organizations or (ii) if the Common
Stock is not listed on a national securities exchange or
quoted in an interdealer quotation system, the price will be
equal to the Company's fair market value, as determined by the
Committee in good faith based upon the best available facts
and circumstances at the time.
o) "GRANTEE" shall mean a person granted an Award under the Plan.
p) "IMMEDIATE FAMILY" shall mean with respect to a given Grantee
that Grantee's spouse, children, or grandchildren (including
adopted children or grandchildren).
q) "ISO" shall mean an Award granted pursuant to the Plan to
purchase shares of the Stock and IS intended to qualify as an
incentive stock option under Section 422 of the Code, as now
or hereafter constituted.
r) "NON-EMPLOYEE DIRECTOR" shall mean a Director of the Company
who is not an Employee nor has been an Employee at any time
during the prior one-year period.
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1998 LONG-TERM INCENTIVE PLAN
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s) "NQSO" shall mean an Award granted pursuant to the Plan to
purchase shares of stock and IS NOT intended to qualify as an
incentive stock option under Section 422 of the Code, as now
or hereafter constituted.
t) "OPTIONS" shall refer collectively to NQSOs and ISOs issued
under and subject to the Plan.
u) "OUTSIDE DIRECTOR" shall mean a non-employee Director within
the meaning of Rule 16b-3(b)(3) under the Exchange Act, or any
successor thereto, who are also "outside directors" within the
meaning of Section 162(m) of the Code and the regulations
thereunder.
v) "PERFORMANCE AWARDS" shall mean Awards under the Plan, payable
in cash, Common Stock, other securities or other awards and
shall confer on the holder thereof the right to receive
payments, upon the achievement of such performance goals
during such performance periods as the Committee shall
establish.
w) "PERMITTED TRANSFEREE" shall mean any individual or entity as
defined in Section 18.2 of this Plan.
x) "PLAN" shall mean this 1998 Long-Term Incentive Plan as set
forth herein and as amended from time to time.
y) "RESTRICTED STOCK" shall mean an Award of Common Stock subject
to restrictions on transfer and/or such other restrictions on
incidents of ownership as the Committee may determine.
aa) RULES" means Rule 16(b)(3) and any successor provisions
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
bb) "SAR" shall mean an Award constituting the right to receive,
upon surrender of the right, but without payment, an amount
payable in cash.
cc) "Subsidiary or Subsidiaries" shall mean any entity or entities
in which the Company owns a majority of the voting power.
dd) "TEN PERCENT SHAREHOLDER" shall mean any Grantee who owns more
than 10% of the combined voting power of all classes of stock
of the Company, within the meaning of Section 422 of the Code.
SECTION 3
TYPES OF AWARDS COVERED
3.1 Awards granted, under the Plan may be:
a) stock options ("Options") which may be designated as:
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1998 LONG-TERM INCENTIVE PLAN
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(i) nonqualified stock options ("NQSOs"); or
(ii) incentive stock options ("ISOs");
b) stock appreciation rights ("SARs");
c) restricted stock awards ("Restricted Stock");
d) performance awards ("Performance Awards"); or
e) other forms of stock-based incentive awards.
SECTION 4
ADMINISTRATION
4.1 The Plan shall be administered by the Committee. Subject to the
provisions of the Plan and applicable law, the Committee shall have
full discretion and the exclusive power to:
a) select the Employees who will participate in the Plan and to
make Awards to such Employees;
b) determine the time at which such Awards shall be granted and
any terms and conditions with respect to such Awards as shall
not be inconsistent with the provisions of the Plan; and
c) resolve all questions relating to the administration of the
Plan, and applicable law.
4.2 The interpretation of and application by the Committee of any
provision of the Plan shall be final and conclusive. The Committee,
in its sole discretion, may establish such rules and guidelines
relating to the Plan as it may deem appropriate.
4.3 The Committee may employ such legal counsel, consultants, and agents
as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent. The
Committee shall keep minutes of its actions under the Plan.
4.4 No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to
the Plan or any Awards granted hereunder. All members of the
Committee shall be fully protected by the Company in respect to any
such action, determination or interpretation.
4
<PAGE> 7
THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
- ----------------------------------------
SECTION 5
ELIGIBILITY
5.1 The individuals who shall be eligible to participate in the Plan
shall be officers, management, and such other key Employees of the
Company and Subsidiaries (including any directors who are also
employees) as the Committee may from time to time determine.
5.2 Directors of the Company who are not employees of the Company shall
be eligible to participate in the Plan.
5.3 An Employee or Non-Employee Director who has been granted an Award in
one year shall not necessarily be entitled to be granted Awards in
subsequent years.
SECTION 6
SHARES OF STOCK SUBJECT TO THE PLAN
6.1 Awards may be granted with respect to the Common Stock of the
Company.
6.2 Shares delivered upon exercise of the Awards, at the election of the
Board of Directors of the Company, may be Common Stock that is
authorized but previously unissued, or stock reacquired by the
Company, or both.
6.3 Subject to the provisions of Section 17, the maximum number of shares
available for issuance under the Plan shall be at least ______ and
will represent ten percent (10%) of the total number of shares
outstanding. As such shares outstanding increase (which limit shall
be determined without considering as outstanding any shares that are
the subject of any unexercised options under the Plan or any other
option plan of the Company or any Shares owned by the Company or any
of its subsidiaries) such shares available for issuance under the
plan share increase proportionately; provided, however, that the
maximum number of Shares for which ISOs may be granted under the Plan
shall not exceed ________ Shares (which number is subject to
adjustment as provided in Section 17.2) The number of shares of
Common Stock reserved under the Plan shall not be less than the total
number of shares granted, whether exercised or unexercised for all
Awards under the Plan.
6.4 Notwithstanding any other provision of the Plan to the contrary, in
no event may any Grantee in any calendar year receive more than _____
Options whether they be ISOs or NQSOs, subject to adjustments as
provided in Section 17 of the Plan.
6.5 Notwithstanding any other provision of the Plan to the contrary, in
no event may any Grantee in any calendar year receive more than _____
SARs, subject to adjustments as provided in Section 17 of the Plan.
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1998 LONG-TERM INCENTIVE PLAN
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6.6 Notwithstanding any other provision of the Plan to the contrary, in
no event may any Grantee in any calendar year receive an award of
Performance Awards having an aggregate maximum value as of their
respective date of grant in excess of ___________.
6.7 Any shares of Common Stock awarded under the Plan, which Award for
any reason expires or is terminated unexercised as to such shares,
shall again be available for the grant of other Awards under the
Plan; provided, however, that forfeited shares or other securities
shall not be available for further Awards if the Grantee has realized
any benefits of ownership from such shares.
SECTION 7
STOCK OPTIONS
7.1 The Committee may grant Options, as follows, which shall be evidenced
by a stock option agreement and may be designated as (i) NQSOs or
(ii) ISOs:
a) NQSOS
-----
(i) A NQSO is a right to purchase a specified number of
shares of Common Stock during such time as the Committee
may determine, not to exceed ten years, at a price
determined by the Committee that is not less than the
Fair Market Value of the Common Stock on the date the
option is granted.
(ii) The purchase price of the Common Stock subject to the
NQSO may be paid in cash. At the discretion of the
Committee, the purchase price may also be paid by the
tender of Common Stock or through a combination of
Common Stock and cash or through such other means as the
Committee determines are consistent with the Plan's
purpose and applicable law. No fractional shares of
Common Stock will be issued or accepted.
(iii) No NQSO may be exercised more than ten years after the
date the NQSO is granted.
(iv) Without limiting the foregoing, to the extent permitted
by law (including relevant state law):
A) the Committee may agree to accept, as full or partial
payment of the purchase price of Common Stock issued
upon the exercise of the NQSO, a promissory note of
the person exercising the NQSO evidencing the
person's obligation to make future cash payments to
the Company, which promissory note shall be payable
as determined by the Company (but in no event later
than five years after the date thereof), shall be
secured by a pledge of the shares of
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THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
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Common Stock purchased and shall bear interest at a
rate established by the Committee; and
B) the Committee may permit the person exercising the
NQSO, either on a selective or aggregate basis, to
simultaneously exercise the NQSO and sell the shares
of Common Stock acquired, pursuant to a brokerage or
similar arrangement approved in advance by the
Committee, and use the proceeds from sale as payment
of the exercise price of the NQSO.
(b) ISOS
----
(i) No ISO may be granted under the Plan to a Non-Employee
Director.
(ii) The aggregate Fair Market Value (determined at the time
of the grant of the Award) of the shares of Common Stock
subject to ISOs which are exercisable by a Grantee for
the first time during a particular calendar year shall
not exceed $100,000. To the extent that ISOs granted to
a Grantee exceed the limitation set forth in the
preceding sentence, ISOs granted last shall be treated
as NQSOs.
(iii) No ISO may be exercisable more than:
A) in the case of a Grantee who IS NOT a Ten Percent
Shareholder, on the date the ISO is granted, ten
years after the date the ISO is granted; and
B) in the case of a Grantee who IS a Ten Percent
Shareholder, on the date the ISO is granted, five
years after the date the ISO is granted.
(iv) The exercise price of any ISO shall be determined by the
Committee and shall not be less than:
A) in the case of a Grantee who IS NOT a Ten Percent
Shareholder on the date the ISO is granted, the Fair
Market Value of the Common Stock subject to the ISO
on such date; and
B) in the case of an employee who IS a Ten Percent
Shareholder on the date the ISO is granted, not less
than 110 percent of the Fair Market Value of the
Common Stock subject to the ISO on such date.
(v) The Committee may provide that the option price under an
ISO may be paid by one or more of the methods available
for paying the option price of an NQSO per Section
7.1(a)(iv).
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1998 LONG-TERM INCENTIVE PLAN
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7.2 The Committee shall specify in the stock option agreement the terms
upon which the Options shall become exercisable; provided, however
that the Grantee continues to be employed by the Company on such
anniversary date (ii) expire at the end of the maximum time frame
allowable under Sections 7.1(a)(iii) or 7.1(b)(iii), as applicable,
and (iii) be granted with an exercise price equal to the Fair Market
Value.
7.3 The aggregate number of shares of Common Stock to be issued pursuant
to ISOs shall not exceed five percent (5%) of the Company's
outstanding shares, or in the event of a change in capitalization as
described in Section 17.2.
SECTION 8
STOCK APPRECIATION RIGHTS
7.2 The amount payable with respect to each SAR shall be equal in value
to the applicable percentage of the excess, if any, of the Fair
Market Value of a share of Common Stock on the exercise date over the
exercise price of the SAR. The exercise price of the SAR shall be
determined by the Committee and shall not be less than the Fair
Market Value of a share of Common Stock on the date the SAR is
granted. SARs may be granted in tandem with an Option in which event
the Grantee has the right to elect to exercise either the SAR or the
Option. Upon their election to exercise one of these Awards, the
other Award is subsequently terminated. SARs may also be granted as
an independent Award.
8.3 In the case of an SAR granted in tandem with an ISO to an employee
who is a Ten Percent Shareholder on the date of such grant, the
amount payable with respect to each SAR shall be equal in value to
the applicable percentage of the excess, if any, of the Fair Market
Value of a share of Common Stock on the exercise date over the
exercise price of the SAR, which exercise price shall not be less
than 110 percent of the Fair Market Value of a share of Common Stock
on the date the SAR is granted.
8.4 The applicable percentage and exercise price shall be established by
the Committee at the time the SAR is granted.
SECTION 9
RESTRICTED STOCK
9.1 Restricted Stock is Common Stock of the Company that is issued to a
Grantee at a price determined by the Committee, which price may be
zero, and is subject to restrictions on transfer and/or such other
restrictions on incidents of ownership as the Committee may
determine.
9.2 The Committee shall specify in the Award agreement the terms upon
which such shares of Common Stock granted to a Grantee as an Award
shall vest; provided,
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THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
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however that the Grantee continues to be employed by the Company on
such date.
9.3 The Committee may, in its discretion, provide for accelerated vesting
of Restricted Stock upon the achievement of specified performance
goals to be determined by the Committee.
9.4 Grantee may make the election under Section 83(b) of the Code.
SECTION 10
PERFORMANCE AWARDS
10.1 A Performance Award granted under the Plan:
a) may be denominated or payable in cash, Common Stock,
Restricted Stock, other securities, or other Awards; and
b) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such
performance goals during such performance periods as the
Committee shall establish.
10.1 Subject to the terms of the Plan and any applicable Award agreement,
the performance goals to be achieved during any performance period,
the length of any performance period, the amount of any Performance
Award granted and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the
Committee.
SECTION 11
OTHER STOCK-BASED INCENTIVE AWARDS
10.1 The Committee may from time to time grant Awards under this Plan that
provide a Grantee the right to purchase Common Stock or units that
are valued by reference to the Fair Market Value of the Common Stock
(including, but not limited to, phantom securities or dividend
equivalents) or to receive Deferred Shares which are stock-based
incentive grants in lieu of a cash deferral of bonuses. Such Awards
shall be in a form determined by the Committee (and may include terms
contingent upon a change of control of the Company); PROVIDED that
such Awards shall not be inconsistent with the terms and purposes of
the Plan.
11.2 The Committee shall determine the price of any Award and may accept
any lawful consideration.
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THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
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SECTION 12
EXERCISE OF OPTIONS
12.1 The Committee may provide for the exercise of Options in installments
and upon such terms, conditions and restrictions as it may determine
subject to applicable law and the other requirements of this Plan.
12.2 The Committee may provide for termination of an Option in the case of
termination of employment or directorship or any other reason.
12.3 An Option granted hereunder shall be exercisable, in whole or in
part, only by written notice delivered in person or by mail to the
Secretary of the Company at its principal office, specifying the
number of shares of Common Stock to be purchased and accompanied by
payment thereof and otherwise in accordance with the stock option
agreement pursuant to which the Option was granted.
SECTION 13
RIGHTS IN EVENT OF DEATH OR DISABILITY
13.1 If a Grantee dies or becomes subject to a Disability prior to
termination of his or her right to exercise an Option in accordance
with the provisions of his or her stock option agreement without
having totally exercised the Option, the stock option agreement may
provide that the Option may be exercised, to the extent that the
shares with respect to the Option could have been exercised by the
Grantee on the date of his or her death or Disability, by (i), in the
event of the Grantee's death, the Grantee's estate or by the person
who acquired the right to exercise the Option by bequest or
inheritance or (ii), in the event of the Grantee's Disability, the
Grantee or his or her personal representative.
13.2 In the event of the Grantee's death or Disability, the Option shall
not be exercisable after the date of its expiration or more than six
months from the date of the Grantee's death or Disability, whichever
first occurs.
13.3 The date of Disability of a Grantee shall be determined by the
Committee.
SECTION 14
AWARD AGREEMENTS
14.1 Each Award granted under the Plan shall be evidenced by an award
agreement between the Grantee to whom the Award is granted and the
Company, setting forth the number of shares of Common Stock, SARs, or
units subject to the Award and such other terms and conditions
applicable to the Award not inconsistent with the Plan as the
Committee may deem appropriate.
14.2 The award agreement for an Option shall also be referred to as a
stock option agreement.
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THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
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SECTION 15
TAX WITHHOLDING
15.1 The Committee may establish such rules and procedures as it considers
desirable in order to satisfy any obligation of the Company to
withhold federal income taxes or other taxes with respect to any
Award made under the Plan. Such rules and procedures may provide:
a) in the case of Awards paid in shares of Common Stock, the
Company may withhold shares of Common Stock otherwise issuable
upon exercise of such Award in order to satisfy withholding
obligations, unless otherwise instructed by the Grantee or
unless the Committee determines otherwise at the time of
Grant; and
b) in the case of an Award paid in cash, that the withholding
obligation shall be satisfied by withholding the applicable
amount and paying the net amount in cash to the Grantee;
provided that the requirements of the Rules, to the extent
applicable, must be satisfied with regard to any withholding
pursuant to clause (a).
SECTION 16
CHANGE OF CONTROL
16.1 For the purpose of the Plan, a "Change of Control" of the Company
means a Change of Control of a nature that:
(i) would be required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or
(ii) results in a Change of Control of the Company within the
meaning of the Home Owners' Loan Act of 1933, as amended,
and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS) (or its predecessor agency), as in
effect on the Effective Date, as defined in Section 21
hereof (provided, that in applying the definition of change
of control as set forth under the rules and regulations of
the OTS, the Board shall substitute its judgment for that of
the OTS); or
(iii) without limitation such a Change of Control shall be deemed
to have occurred at such time as;
(a) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of
the
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1998 LONG-TERM INCENTIVE PLAN
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Company's outstanding securities ordinarily having
the right to vote at the election of directors except
for any securities purchased by the Company in
connection with the conversion to the stock forms;
(b) individuals who constitute the Board of Directors of
the Company on the date hereof (the "Incumbent
Board"), cease for any reason to constitute at least
a majority thereof, provided that any person becoming
a director subsequent to the date hereof whose
election was approved by a vote of a least 75% of the
directors comprising the Incumbent Board, or whose
nomination for election by the Company's shareholders
was approved by the same Nominating Committee serving
under an Incumbent Board shall be, for purposes of
this clause (b), considered as though he were a
member of the Incumbent Board;
(c) a plan of reorganization, merger, consolidation, sale
of all or substantially all the assets of the Company
or similar transaction occurs in which the Company is
not the resulting entity or;
(d) the approval by shareholders of a proxy statement
proposal soliciting proxies from shareholders of the
Company, by someone other than the current management
of the Company; seeking stockholder approval of a
plan of reorganization, merger or consolidation of
the Company or similar transaction with one or more
corporations as a result of which the outstanding
shares of the class of securities then subject to the
plan or transaction are exchanged for or converted
into cash or property or securities not issued by the
Company; or
(e) a tender offer is made and completed for 20% or more
of the voting securities of the Company.
16.2 However, notwithstanding anything contained in this section to the
contrary, a Change of Control shall not be deemed to have occurred as
a result of an event described in (i), (ii), or (iii) (a), (c), or
(e) above which resulted from an acquisition or proposed acquisition
of stock of the Company by a person, as defined in the OTS'
Acquisition of Control Regulations (12 C.F.R. 574) (The "Control
Regulations"), who was an executive officer of the Company on January
19, 1990 and who has continued to serve as an executive officer of
the Company as of the date of the event described in (i), (ii) or
(iii) (a), (c) or (e) above (an "incumbent officer"). In the event a
group of individuals acting in concert satisfies the definition of
"person" under the Control Regulations, the requirements of the
preceding sentence shall be satisfied and thus a Change of Control
shall not be deemed to have occurred if at least one individual in
the group is an incumbent officer.
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1998 LONG-TERM INCENTIVE PLAN
- ----------------------------------------
16.3 In the event of a Change of Control affecting the Company, then,
notwithstanding any provision of the Plan or of any provisions of any
Award agreements entered into between the Company and any Grantee to
the contrary, all Awards that have not expired and which are then
held by any Grantee (or the person or persons to whom any deceased
Grantee's rights have been transferred) shall, as of such Change of
Control, become fully and immediately vested and exercisable and may
be exercised for the remaining term of such Awards.
SECTION 17
DILUTION OR OTHER ADJUSTMENT
17.1 If the Company is a party to any merger or consolidation, or
undergoes any merger, consolidation, separation, reorganization,
liquidation or the like, the Committee shall have the power to make
arrangements, which shall be binding upon the holders of unexpired
Awards, for the substitution of new Awards for, or the assumption by
another corporation of, any unexpired Awards then outstanding
hereunder.
17.2 In the event of a reclassification, stock split, combination of
shares, separation (including a spin-off), dividend on shares of the
Common Stock payable in stock or other similar change in
capitalization or in the corporate structure of shares of the Common
Stock, the Committee shall conclusively determine the appropriate
adjustment in the option prices of outstanding Options, and the
number and kind of shares or other securities as to which outstanding
Awards shall be exercisable, and in the aggregate number of shares
with respect to which Awards may be granted.
17.3 The number of shares reserved under the Plan shall adjust as the
number of shares of Common Stock increase as provided in Section 6.3
of this Plan.
SECTION 18
TRANSFERABILITY
18.1 No Award, other than an NQSO, shall be sold, pledged, assigned,
transferred, or encumbered by a Grantee other than by will or by the
laws of descent and distribution.
18.2 Only an NQSO may be pledged, assigned, transferred, or gifted by a
Grantee to another individual provided that the NQSO is pledged,
assigned, transferred or gifted without consideration by a Grantee,
subject to such rules as the Committee may adopt, to (i) a member of
the Grantee's immediate family, (ii) a trust solely for the benefit
of the Grantee and his or her immediate family or (iii) a partnership
or limited liability company whose only partners or members are the
Grantee and his or her Immediate Family (hereinafter referred to as
the Permitted Transferee); PROVIDED that the Committee is notified in
advance in
13
<PAGE> 16
THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
- ----------------------------------------
writing of the terms and conditions of any proposed pledge,
assignment, transfer, or gift and the Committee determines that such
pledge, assignment, transfer or gift complies with the requirements
of the Plan and the applicable Award agreement.
18.3 Any pledge, assignment or gift of an Award that does not comply with
the provisions of the Plan and the applicable Award agreement shall
be void and unenforceable against the Company.
18.4 All terms and conditions of a pledged, assigned, transferred or
gifted Award shall apply to the beneficiary, executor, administrator,
and Permitted Transferee, whether one or more, of the Grantee
(including the beneficiary, executor and administrator of a permitted
transferee), including the right to amend the applicable Award
agreement; PROVIDED that the permitted transferee shall not pledge,
assign, transfer, or gift an Award other than by will or by the laws
of descent and distribution.
SECTION 19
AMENDMENT OR TERMINATION
19.1 The Committee may at any time amend, suspend or terminate the Plan;
PROVIDED, that:
a) no change in any Awards previously granted may be made without
the consent of the holder thereof; and
b) no amendment, other than an amendment authorized by Section 17
or Section 6.3, may be made increasing the aggregate number of
shares of the Common Stock with respect to which ISOs may be
granted, or changing the class of employees eligible to
receive ISOs hereunder, without the approval of the holders of
a majority of the outstanding voting shares of the Company.
SECTION 20
GENERAL PROVISIONS
20.1 No Awards may be exercised by a Grantee if such exercise, and the
receipt of cash or stock thereunder, would be, in the opinion of
counsel selected by the Company, contrary to law or the regulations
of any duly constituted authority having jurisdiction over the Plan.
20.2 A bona fide leave of absence approved by a duly constituted officer
of the Company shall not be considered interruption or termination of
service of any Grantee for any purposes of the Plan or Awards granted
thereunder, except that no Awards may be granted to an Employee while
he or she is on a bona fide leave of absence.
14
<PAGE> 17
THE HOME SAVINGS & LOAN COMPANY
1998 LONG-TERM INCENTIVE PLAN
- ----------------------------------------
20.3 No Grantee shall have any rights as a shareholder with respect to any
shares subject to Awards granted to him or her under the Plan prior
to the date as of which he or she is actually recorded as the holder
of such shares upon the stock records of the Company.
20.4 Nothing contained in the Plan or in an Award agreement granted
thereunder shall confer upon any Grantee any right to (i) continue in
the employ of the Company or any of its Subsidiaries or continue
serving on the Board of Directors of the Company or (ii) interfere in
any way with the right of the Company or any of its Subsidiaries to
terminate the Grantee's employment at any time or service on the
Board.
20.5 Any Award agreement may provide that stock issued upon exercise of
any Awards may be subject to such restrictions, including, without
limitation, restrictions as to transferability and restrictions
constituting substantial risks of forfeiture as the Committee may
determine at the time such Award is granted.
SECTION 21
PLAN EFFECTIVE DATE
21.1 The Plan shall become effective on the date of its adoption by the
Board of Directors of the Company subject to approval of the Plan by
the holders of a majority of the outstanding voting shares of the
Company within twelve (12) months after the date of the Plan's
adoption by said Board of Directors. In the event of the failure to
obtain such shareholder approval, the Plan and any Awards granted
thereunder, shall be null and void and the Company shall have no
liability thereunder.
21.2 No Award granted under the Plan shall be exercisable until such
shareholder approval has been obtained.
SECTION 22
PLAN TERMINATION
22.1 No Award may be granted under the Plan on or after the date which is
ten years following the effective date specified in Section 21, but
Awards previously granted may be exercised in accordance with their
terms.
15
<PAGE> 1
Exhibit 10.3
UNITED COMMUNITY FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
{Effective January 1, 1998}
<PAGE> 2
UNITED COMMUNITY FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1 PARTICIPATION............................................................................................1
-------------
1.01. Eligibility Requirements.................................................................1
1.02. Service for Eligibility..................................................................1
2 CONTRIBUTIONS............................................................................................2
-------------
2.01. Regular Employer Contribution............................................................2
2.02. Employer Contribution to Reduce Loan Obligation..........................................2
2.03. Rollover Contributions/Participant Contributions.........................................2
2.04. Limitations on Annual Additions..........................................................3
2.05. Dual Plan Limitation.....................................................................3
2.06. Corrective Adjustments...................................................................4
2.07. Contributions Conditioned on Initial Plan Qualification..................................4
3 ALLOCATION OF EMPLOYER CONTRIBUTIONS.....................................................................5
------------------------------------
3.01. Allocation of Regular Contributions and Forfeitures......................................5
3.02. Allocation of Employer Shares Purchased with Proceeds of Plan Loan.......................5
3.03. Special Restriction on Allocation........................................................6
4 PARTICIPANTS' ACCOUNTS...................................................................................6
----------------------
4.01. Establishment of Employer Contributions Accounts.........................................6
4.02. Establishment of Suspense Account........................................................6
5 PLAN INVESTMENTS.........................................................................................7
----------------
5.01. Primary Investments......................................................................7
5.02. Diversification Requirements.............................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
6 VALUATION OF PARTICIPANTS' ACCOUNTS......................................................................8
-----------------------------------
6.01. Valuations...............................................................................8
6.02. Method of Adjustment.....................................................................8
7 RETIREMENT BENEFITS......................................................................................9
-------------------
7.01. Time of Retirement.......................................................................9
7.02. Amount of Retirement Benefits............................................................9
8 DEATH BENEFITS..........................................................................................10
--------------
8.01. Amount of Death Benefit.................................................................10
8.02. Designation of Beneficiary..............................................................10
8.03. Distribution of Death Benefit...........................................................11
9 DISABILITY BENEFITS.....................................................................................11
-------------------
9.01. Amount of Disability Benefit............................................................11
9.02. Determination of Total and Permanent Disability.........................................12
10 TERMINATION OF EMPLOYMENT..............................................................................12
-------------------------
10.01. Amount of Benefits Upon Termination of Employment......................................12
11 VESTING................................................................................................13
-------
11.01. Determination of Vested Benefits.......................................................13
11.02. Service for Vesting....................................................................13
11.03. Full Vesting at Normal Retirement Age, Death or Disability.............................13
11.04. Termination After Eligibility for Retirement...........................................13
12 PAYMENT OF BENEFITS....................................................................................14
-------------------
12.01. Method of Payment......................................................................14
12.02. Timing of Payments.....................................................................14
12.03. Distributions After Death..............................................................14
12.04. Cash-Outs/Consent......................................................................15
12.05. Put Option.............................................................................16
12.06. Right of First Refusal.................................................................18
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
12.07. Eligible Rollover Distributions........................................................19
12.08. Installment Distributions..............................................................20
13 BREAK IN SERVICE RULES.................................................................................21
----------------------
13.01. Effect of Break in Service on Eligibility..............................................21
13.02. Effect of Break in Service on Vesting..................................................21
13.03. Authorized Leaves of Absence...........................................................22
14 TRUST AGREEMENT........................................................................................22
---------------
14.01. Description of Trust Agreement.........................................................22
15 PLAN ADMINISTRATION....................................................................................22
-------------------
15.01. Plan Administrator.....................................................................22
15.02. Duties of Plan Administrator...........................................................23
16 AMENDMENTS.............................................................................................23
----------
16.01. Sponsor's Right to Amend Plan..........................................................23
17 DISTRIBUTIONS ON PLAN TERMINATION......................................................................24
---------------------------------
17.01. Full Vesting on Plan Termination.......................................................24
17.02. Payment on Plan Termination............................................................24
17.03. Discontinuance of Contributions; Partial Termination of Plan...........................25
18 CREDITORS OF PARTICIPANTS..............................................................................25
-------------------------
18.01. Non-Assignability......................................................................25
18.02. Qualified Domestic Relations Orders....................................................25
19 CLAIMS PROCEDURES......................................................................................25
-----------------
19.01. Filing a Claim for Benefits............................................................25
19.02. Denial of Claim........................................................................26
19.03. Remedies Available to Participants.....................................................26
20 VOTING RIGHTS..........................................................................................27
-------------
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
20.01. Participant Voting Rights with Respect to Allocated Shares.............................27
20.02. Participant Voting Rights with Respect to Unallocated Shares...........................28
21 TOP HEAVY RULES........................................................................................28
---------------
21.01. Definitions............................................................................28
21.02. Top Heavy Status.......................................................................29
21.03. Minimum Contributions..................................................................30
21.04. Top Heavy Vesting......................................................................31
22 EXEMPT LOANS...........................................................................................31
------------
22.01. Authority to Borrow....................................................................31
22.02. Requirements for Plan Loans............................................................31
23 MISCELLANEOUS..........................................................................................33
-------------
23.01. Employment Rights......................................................................33
23.02. Gender.................................................................................33
23.03. Notice Requirement.....................................................................33
23.04. Merger or Consolidation................................................................33
23.05. Social Security Benefits...............................................................33
23.06. Forfeitures............................................................................33
23.07. Named Fiduciaries......................................................................34
23.08. Limitations on Payment.................................................................34
23.09. Interpretation of Document.............................................................34
23.10. Nonterminable Protections and Rights...................................................35
23.11. Dividends..............................................................................35
24 CERTAIN DEFINITIONS....................................................................................35
-------------------
24.01. Account................................................................................35
24.02. Affiliate..............................................................................35
24.03. Annual Additions.......................................................................36
24.04. Beneficiary............................................................................36
24.05. Code...................................................................................37
24.06. Compensation...........................................................................37
24.07. Current Participant....................................................................37
24.08. Effective Date.........................................................................37
24.09. Employee...............................................................................37
24.10. Employer...............................................................................37
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
24.11. Employer Contributions Account.........................................................38
24.12. Employer Shares or Shares..............................................................38
24.13. Employment Commencement Date...........................................................38
24.14. Entry Date.............................................................................38
24.16. Forfeiture.............................................................................39
24.17. Full Time..............................................................................39
24.18. Hour of Service........................................................................39
24.19. Late Retirement Date...................................................................40
24.21. Normal Retirement Age..................................................................40
24.22. Normal Retirement Date.................................................................40
24.23. One-Year Break in Service..............................................................41
24.24. Participant............................................................................41
24.25. Plan...................................................................................41
24.26. Plan Administrator.....................................................................41
24.27. Plan Year..............................................................................41
24.28. Projected Annual Benefit...............................................................41
24.29. Spouse or Surviving Spouse.............................................................42
24.30. Trust Agreement........................................................................42
24.31. Trust Fund.............................................................................42
24.32. Trustee................................................................................42
24.33. Valuation Date.........................................................................42
24.34. Year of Service........................................................................42
</TABLE>
v
<PAGE> 7
UNITED COMMUNITY FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
United Community Financial Corp. (the "Sponsor") hereby adopts
the following employee stock ownership plan (hereinafter referred to as the
"Plan"), effective as of the Effective Date. The Plan shall be for the exclusive
benefit of eligible Employees of the Sponsor and The Home Savings and Loan
Company of Youngstown, Ohio, and, where applicable, the designated Beneficiaries
of such Employees. It is intended that this Plan, together with the Trust
Agreement, shall comply with the applicable provisions of the Code and ERISA.
SECTION L
---------
PARTICIPATION
-------------
1.01. ELIGIBILITY REQUIREMENTS
Each Employee of the Employer shall be eligible to participate
in the Plan on the Entry Date coinciding with or first following the date on
which he has completed 12 months of service as a Full-Time Employee and has
attained age 20. An Employee shall also be given credit for all 12-month periods
during which he was a Full-Time Employee with an Affiliate which is not a
participating employer.
1.02. SERVICE FOR ELIGIBILITY
The 12-month period during which the Employee must meet the
Full-Time requirement shall initially be the 12 consecutive months beginning
with his Employment Commencement Date and, thereafter, the anniversary of the
Employee's Employment Commencement Date.
<PAGE> 8
SECTION 2
---------
CONTRIBUTIONS
-------------
2.01. REGULAR EMPLOYER CONTRIBUTION
Subject to its right to terminate or amend this Plan, the
Employer may contribute and pay to the Trustee of the Trust Fund created for the
purpose of carrying out this Plan a contribution in cash or Employer Shares as
the Board of Directors of the Sponsor may in its discretion determine.
The amount of such contribution by the Employer to be paid to
the Plan in any year shall be such amount as the Board of Directors of the
Employer may in its discretion determine; provided, however, that, in any year,
the amount contributed shall not exceed the maximum amount deductible from the
Employer's income for such year under Section 404(a)(3) of the Code, or any
succeeding statute of similar import.
2.02. EMPLOYER CONTRIBUTION TO REDUCE LOAN OBLIGATION
In addition to the contributions authorized by Section 2.01,
the Employer may in its discretion contribute amounts sufficient to enable the
Trustee to pay, on or before the due date thereof, each installment of principal
and interest on any Plan loan used to acquire Employer Shares, provided that the
amounts contributed by the Employer pursuant to this Section 2.02, in any year,
shall not exceed the maximum amount deductible from the Employer's income for
such year under Section 404(a)(9) of the Code, or any succeeding statute of
similar import.
2.03. ROLLOVER CONTRIBUTIONS/PARTICIPANT CONTRIBUTIONS
Neither rollover contributions nor Participant contributions
to the Plan are permitted.
2.04. LIMITATIONS ON ANNUAL ADDITIONS
Annual Additions to each Participant's Account shall not
exceed the lesser of (a) $30,000 [or, if greater, such increased amount as
permitted by the Secretary of the Treasury]; or (b) 25% of the Participant's
"compensation" for the Limitation Year.
2
<PAGE> 9
For purposes of this Section 2.04, the portion of such
Employer contribution which is deemed to be allocated to a Participant's Account
for such Plan Year shall be an amount which bears the same ratio to the total
contribution made by or on behalf of the Employer for such Plan Year which is
used to repay principal (or, to the extent more than one-third of such Employer
contributions are allocated in a Plan Year to "Highly-Compensated Employees,"
within the meaning of Code Section 414(q), to repay principal and interest) on
one or more Plan loans, or to purchase Employer Shares, as the number of
Employer Shares allocated to such Participant's Account in respect of such Plan
Year bears to the total number of Employer Shares allocated to the Accounts of
all Participants in respect of such Plan Year.
For purposes of this Section 2.04, "compensation" shall mean
compensation as defined in Treasury Regulation Section 1.415-2(d)(1)-(3), or one
of the alternative definitions of compensation set forth in Treasury Regulation
Section 1.415-2(d)(11)(i) or (ii), as selected by the Plan Administrator.
Elective deferrals, as such term is defined by Section
402(g)(3) of the Code, and amounts contributed or deferred at the election of
the Employee by the Employer which are not includable in the gross income of an
Employee by reason of Section 125 or Section 457 of the Code, shall be included
in the definition of "compensation" selected by the Plan Administrator pursuant
to the preceding paragraph.
2.05. DUAL PLAN LIMITATION
This Section 2.05 shall apply prior to the first Plan Year
coinciding with or immediately following January 1, 2000.
If the Participant is, or was, covered under a defined benefit
plan and a defined contribution plan maintained by the Employer, the sum of the
Participant's defined benefit plan fraction and defined contribution plan
fraction may not exceed 1.0 in any Limitation Year.
The defined benefit plan fraction is a fraction, the numerator
of which is the sum of the Participant's Projected Annual Benefits under all
defined benefit plans (whether or not terminated) maintained by the Employer and
the denominator of
3
<PAGE> 10
which is the lesser of (a) 1.25 times the dollar limitation of Section
415(b)(1)(A) of the Code in effect for the Limitation Year; or (b) 1.4 times the
Participant's average compensation for the three consecutive years that produced
the highest average.
The defined contribution plan fraction is a fraction, the
numerator of which is the sum of the Annual Additions to the Participant's
Accounts under all defined contribution plans maintained by the Employer
(whether or not terminated) for the current and all prior Limitation Years, and
the denominator of which is the sum of the lesser of the following amounts
determined for such year and for each prior Year of Service with the Employer:
(a) 1.25 times the dollar limitation in effect under Section 415(c)(1)(A) of the
Code for such year; or (b) 1.4 times the amount which may be taken into account
under Section 415(c)(1)(B) of the Code.
For any years in which the Plan is "top heavy," "1.0" shall be
substituted for "1.25" in the preceding two paragraphs.
If, in any Limitation Year, the sum of the defined benefit
plan fraction and the defined contribution plan fraction exceeds 1.0, the rate
of benefit accruals under this Plan will be reduced so that the sum of the
fractions equals 1.0.
2.06. CORRECTIVE ADJUSTMENTS
If, due to a reasonable error in estimating a Participant's
annual compensation, or due to the allocation of Forfeitures, an excess Annual
Addition exists, such excess will be used to reduce Employer contributions for
such Participant in the next, and succeeding, Limitation Years. If the
Participant was not covered by the Plan at the end of the Limitation Year, such
excess will be applied to reduce Employer contributions for all remaining
Participants in the next, and succeeding, Limitation Years.
2.07. CONTRIBUTIONS CONDITIONED ON INITIAL PLAN QUALIFICATION
All Employer contributions under this Plan will be made with
the understanding that the Plan will initially qualify under the provisions of
Section 401(a) of the Code. In the event the Internal Revenue Service determines
that this Plan is not initially qualified under the Code, and the Employer is
unable to
4
<PAGE> 11
amend the Plan so as to receive a favorable determination, then any contribution
made by the Employer incident to such initial qualification request, less any
expenses and adjusted by any gains or losses, will be refunded to the Employer.
Such refund must be returned to the Employer within one year after the date the
initial qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for filing the Employer's
return for the taxable year in which the Plan is adopted, or such later date as
the Secretary of the Treasury may prescribe.
SECTION 3
---------
ALLOCATION OF EMPLOYER CONTRIBUTIONS
------------------------------------
3.01. ALLOCATION OF REGULAR CONTRIBUTIONS AND FORFEITURES
Each Plan Year, the Employer's regular contribution made
pursuant to Section 2.01, and any Forfeitures available for such year, shall be
allocated to the Accounts of Participants who are both Full-Time and Current
Participants for such year. In that regard, the amount allocated to the Account
of a particular Full-Time Current Participant shall be in the same proportion to
the total amounts available for allocation as the Compensation of such Full-Time
Current Participant for the Plan Year bears to the Compensation of all Full-Time
Current Participants for such Plan Year.
3.02. ALLOCATION OF EMPLOYER SHARES PURCHASED WITH PROCEEDS OF PLAN
LOAN
Any Employer Shares purchased with the proceeds of Plan loans
shall be held in a suspense account and allocated to Participants' Employer
Contributions Accounts as such loans are reduced and such Shares are released
pursuant to the terms of the loans and Section 22.02(e) of the Plan. Each year
the number of Employer Shares released under all Plan loans shall be allocated
to each Participant's Employer Contributions Account in the same manner as the
Employer's regular contribution is allocated under Section 3.01.
5
<PAGE> 12
3.03. SPECIAL RESTRICTION ON ALLOCATION
Notwithstanding any provision contained herein, no portion of
the assets of the Plan attributable to Employer Shares acquired by the Plan in a
sale to which either Sections 1042 or 2057 of the Code applies may be allocated,
either directly or indirectly, (a) to the Employer Contributions Account of a
Participant who owns, after application of Section 318(a) of the Code, more than
25% of either (i) any class of outstanding stock of the Employer; or (ii) the
total value of any outstanding stock of the Employer; or (b) during the
non-allocation period [as defined in Code Section 409(n)], to the Employer
Contributions Account of a Participant [or any person related to such
Participant within the meaning of Code Section 267(b)] who makes an election
under Code Section 1042(a) with respect to Employer Shares.
SECTION 4
---------
PARTICIPANTS' ACCOUNTS
----------------------
4.01. ESTABLISHMENT OF EMPLOYER CONTRIBUTIONS ACCOUNTS
The Plan Administrator shall establish and maintain an
Employer Contributions Account for each Participant to record:
(a) his share of the Employer contributions and Forfeitures
allocated under Section 3; and
(b) his share of the net income, or net losses, resulting from
the investment thereof.
4.02. ESTABLISHMENT OF SUSPENSE ACCOUNT
The Plan Administrator shall establish and maintain a suspense
account to record the number of Employer Shares encumbered under all outstanding
Plan loans. As described in Section 3.02, Employer Shares shall be transferred
from the suspense account and allocated to the Participants' Employer
Contributions Accounts as such Shares are released from encumbrance under the
terms of such Plan loans.
6
<PAGE> 13
SECTION 5
---------
PLAN INVESTMENTS
----------------
5.01. PRIMARY INVESTMENTS
As an employee stock ownership plan, this Plan shall invest
primarily in Employer Shares. Any Plan assets not invested in Employer Shares
shall be invested in other investment vehicles by the Trustee, in its
discretion, pursuant to the provisions of the Trust Agreement.
5.02. DIVERSIFICATION REQUIREMENTS
(a) Any Participant who has completed at least ten years of
participation in the Plan and who has attained age 55 (the "diversification
requirements"), may elect within the first 90 days of each of the six Plan Years
immediately following the Plan Year in which he first satisfies the
diversification requirements, to direct the Plan as to the investment of up to
25% of the total balance of his Account attributable to Employer Shares (to the
extent such 25% portion exceeds the amount to which a prior election under this
paragraph applies). In the case of the Plan Year in which the Participant can
make his last such election, the preceding sentence shall be applied by
substituting "50%" for "25%." The Participant's direction shall be provided to
the Plan Administrator in writing.
(b) The Plan shall, in each instance, distribute
[notwithstanding Section 409(d) of the Code] the portion of the Participant's
Account that is covered by the election within the first 180 days of the Plan
Year in which the election is made. This paragraph (b) shall apply
notwithstanding any other provision of the Plan other than such provisions as
require the consent of the Participant to a distribution with a present value in
excess of $5,000. If the Participant does not consent, such amount shall be
retained in the Plan.
(c) In lieu of making the distribution described in paragraph
(b) above, the Plan may satisfy the requirements of paragraph (a) by offering at
least three investment options (other than Employer Shares) to each Participant
making the election described in paragraph (a) and, if the Participant so
elects, by investing within the 180-day period specified in
7
<PAGE> 14
paragraph (b) the amount in question in the option(s) selected by the
Participant.
SECTION 6
---------
VALUATION OF PARTICIPANTS' ACCOUNTS
-----------------------------------
6.01. VALUATIONS
As of each Valuation Date, or more frequently at the election
of the Plan Administrator, the Plan Administrator shall obtain an evaluation of
the assets of the Trust Fund from the Trustee on the basis of the market value
of the assets of the Trust Fund. On the basis of such valuation, the
Participants' Accounts shall be adjusted as of such Valuation Date to reflect
the effect of income received or accrued, realized and unrealized profits and
losses, expenses, Forfeitures, payments to Participants and all other
transactions in the period since the last preceding Valuation Date.
For purposes of valuation of Employer Shares under this
section and with respect to all other activities carried on by the Plan which
require the valuation of Employer Shares, at all times during which the Employer
Shares are not readily tradable on an established securities market, such
valuations shall be made by an independent appraiser, within the meaning of
Section 401(a)(28)(C) of the Code.
6.02. METHOD OF ADJUSTMENT
The amount to the credit of each Participant's Account as of
each Valuation Date shall be adjusted as of each succeeding Valuation Date by
the following credits and charges in the order specified:
(a) In the case of each Participant to, for or on behalf of
whom disbursements from the Plan have been made, there shall be debited the
total amount of any disbursements made to him or for his account from his
Account during the period since the last Valuation Date.
(b) In the case of each Participant (including former
Employees for whom Accounts are being maintained), there shall be
8
<PAGE> 15
credited or debited to his Account that portion of the net increase (including
an amount equal to the non-distributed dividends on allocated Employer Shares)
or net decrease of the value of the assets of the Trust Fund since the last
Valuation Date which the balance of his Account [after completion of the
adjustment called for in Section 6.02(a) above] bears to the total balance of
all Accounts after completion of the adjustments called for in Section 6.02(a)
above.
(c) In the case of each Full-Time Current Participant, there
shall be credited to his Account the Employer's contributions, Forfeitures and
Employer Shares released under Plan loans that are allocable to him under
Section 3 of this Plan. In allocating Forfeitures, Employer Shares shall be
allocated only after other assets in all terminated Participants' Accounts have
been allocated.
SECTION 7
---------
RETIREMENT BENEFITS
-------------------
7.01. TIME OF RETIREMENT
A Participant may retire from the employ of the Employer on
his Normal Retirement Date or his Late Retirement Date.
7.02. AMOUNT OF RETIREMENT BENEFITS
The amount which a Participant shall be entitled to receive
upon reaching his Normal Retirement Date or his Late Retirement Date shall be an
amount equal to the value of the Employer Shares credited to his Account and the
net value of the other assets of such Account as of the Valuation Date
immediately following his Normal Retirement Date or his Late Retirement Date.
9
<PAGE> 16
SECTION 8
---------
DEATH BENEFITS
--------------
8.01. AMOUNT OF DEATH BENEFIT
The death benefit under this Plan shall be an amount equal to
the value of the Employer Shares and the net value of the other assets credited
to the deceased Participant's Account as of the later of (a) the Valuation Date
immediately following the date of his death; and (b) the Valuation Date
immediately following the date death benefits are distributed.
8.02. DESIGNATION OF BENEFICIARY
Subject to the provisions of Section 8.03, each Participant
shall designate, by a written instrument filed with the Plan Administrator, one
or more Beneficiaries who, upon the death of the Participant, shall be entitled
to receive the death benefit described in Section 8.01. If more than one
Beneficiary is named, the Participant may specify the sequence and/or proportion
in which payments must be made to each Beneficiary. In the absence of such
specification, payments shall be made in equal shares to all named Beneficiaries
then living at the time of the Participant's death. To the extent otherwise
consistent with this Plan, a Participant may change his Beneficiary from time to
time by written notice delivered to the Plan Administrator in the manner
prescribed by the Plan Administrator. The Plan Administrator may, in its
discretion, limit the number of Beneficiaries that may be designated by a
Participant. If no Beneficiary has been designated or if no designated
Beneficiary is living at the time of the Participant's death, payment of such
death benefit, if any, to the extent permitted by law, shall be made to the
executors or administrators of the Participant's estate. Any minor's share shall
be paid to such adult or adults as have, in the opinion of the Plan
Administrator, assumed custody and support of such minor. Proof of death
satisfactory to the Plan Administrator must be furnished prior to the payment of
any death benefit under the Plan.
Once benefits begin to be paid to a Beneficiary pursuant to
this section, such Beneficiary shall name an individual or individuals to
receive the remainder of such benefit, if any, upon the death of the
Beneficiary. In the absence of such a
10
<PAGE> 17
designation by the Beneficiary, such remaining benefit, if any, shall be paid to
the estate of the Beneficiary.
If the designated Beneficiary is alive at the time of the
Participant's death but dies prior to the commencement of the payment of death
benefits hereunder, the death benefit payable pursuant to this Section 8 shall
be payable to the estate of the Beneficiary.
8.03. DISTRIBUTION OF DEATH BENEFIT
If a Participant dies while actively employed, without a
Surviving Spouse and prior to the commencement of his retirement benefits, the
death benefit described in Section 8.01 shall be distributed to the person or
persons specified in Section 8.02, in accordance with the provisions of Section
12 hereof.
If a Participant dies while actively employed, with a
Surviving Spouse and prior to the commencement of his retirement benefits, then,
notwithstanding the provisions of Section 8.02 hereof, the death benefit
described in Section 8.01 shall be paid to his Surviving Spouse in accordance
with the provisions of Section 12 hereof, UNLESS such Surviving Spouse, in
accordance with the provisions of this paragraph, has consented to an alternate
Beneficiary, in which case, such death benefit shall be distributed to such
alternate Beneficiary in accordance with the provisions of Section 12. For
purposes of the preceding sentence, the consent of the Spouse must (a) be in
writing; (b) designate a specific Beneficiary, including any class of
beneficiaries or contingent beneficiaries, which may not be changed without
spousal consent (or the Spouse expressly permits designations by the Participant
without further spousal consent); (c) acknowledge the effect of such consent;
and (d) be witnessed by a Plan representative or notary public.
SECTION 9
---------
DISABILITY BENEFITS
-------------------
9.01. AMOUNT OF DISABILITY BENEFIT
11
<PAGE> 18
If a Participant who is actively employed becomes "totally and
permanently disabled" as defined in Section 9.02 below, such Participant shall
be entitled to receive as a disability benefit an amount equal to the value of
the Employer Shares credited to his Account and the net value of other assets of
such Account as of the later of (a) the Valuation Date immediately following the
date that the Plan Administrator determines him to be "totally and permanently
disabled", and (b) the Valuation Date immediately following the date disability
benefits are distributed.
9.02. DETERMINATION OF TOTAL AND PERMANENT DISABILITY
A Participant shall be considered to be "totally and
permanently disabled" if it is established by a licensed physician selected by
the Plan Administrator that the Participant is not able to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months.
SECTION 10
----------
TERMINATION OF EMPLOYMENT
-------------------------
10.01. AMOUNT OF BENEFITS UPON TERMINATION OF EMPLOYMENT
If a Participant leaves the employ of the Employer for any
reason other than retirement, death or disability in accordance with Section 7,
8 or 9 hereof, he shall be entitled to receive an amount equal to the
nonforfeitable percentage of the value of the Employer Shares and the net value
of the other assets credited to his Account as of the later of: (a) the
Valuation Date immediately following the date of his termination of employment;
and (b) the Valuation Date immediately following the date such termination
benefits are distributed. Such nonforfeitable percentage shall be determined in
accordance with Section 11.01 hereof.
12
<PAGE> 19
SECTION 11
----------
VESTING
-------
11.01. DETERMINATION OF VESTED BENEFITS
Employer contributions allocated to the Participant's Employer
Contributions Account shall become vested in accordance with the table shown
below:
<TABLE>
<CAPTION>
NONFORFEITABLE
YEARS OF SERVICE PERCENTAGE
<S> <C>
Less than 5 0
5 or more 100%
</TABLE>
11.02. SERVICE FOR VESTING
Years of Service for vesting purposes shall include all Years
of Service with the Employer.
11.03. FULL VESTING AT NORMAL RETIREMENT AGE, DEATH OR DISABILITY
Notwithstanding any provision in this Plan to the contrary,
the value of a Participant's Accounts shall be fully vested and nonforfeitable
upon the Participant's (a) attaining his Normal Retirement Age; (b) becoming
totally and permanently disabled; or (c) death, provided the Participant is
actively employed with the Employer upon the occurrence of such events.
11.04. TERMINATION AFTER ELIGIBILITY FOR RETIREMENT
The termination of a Participant's employment after he has
attained his Normal Retirement Age shall be considered a retirement for purposes
of this Plan.
13
<PAGE> 20
SECTION 12
----------
PAYMENT OF BENEFITS
-------------------
12.01. METHOD OF PAYMENT
At the time a Participant or Beneficiary becomes entitled to
receive any amount because of the Participant's retirement, death, disability or
termination of employment, the Trustee, acting in accordance with the written
instructions of the Plan Administrator, shall make payment from the Trust Fund
to such individual (or his Beneficiary in the case of his death) in the form of
either (a) a lump sum; or (b) in periodic installments payable monthly,
quarterly, semi-annually or annually in accordance with Section 12.08. All such
payments shall be made by the Trustee, at the option of the Participant (or his
Beneficiary) in Employer Shares, in cash or both.
12.02. TIMING OF PAYMENTS
(a) Unless the Participant elects otherwise, the payment of
retirement, death, disability and termination benefits shall begin no later than
60 days after the latest of the close of the Plan Year in which (i) the
Participant attains his Normal Retirement Age; (ii) occurs the 10th anniversary
of the year in which the Participant commenced participation in the Plan; or (c)
the Participant terminates service with the Employer.
(b) Notwithstanding any provisions hereof to the contrary,
benefit payments under this Plan which are paid to a Participant who is not a
"5% owner," as such term is defined by Code Section 416, shall commence by the
April 1 following the later of (a) the calendar year in which the Participant
attains age 70 1/2; or (b) the calendar year in which the Participant retires.
Benefit payments under this Plan which are paid to a "5% owner," as such term is
defined by Code Section 416, shall commence by the April 1 of the calendar year
following the calendar year in which the Participant attains age 70 1/2. In such
case, the "5% owner" shall elect to receive a benefit in a form specified in
Section 12.01, providing that such form of benefit at all times meets the
requirements of Section 401(a)(9) of the Code and regulations thereunder.
12.03. DISTRIBUTIONS AFTER DEATH
14
<PAGE> 21
If the distribution of the Participant's Account has begun and
he dies before his entire Account has been distributed to him, the remaining
portion of such Account will be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
Subject to Section 12.04 of the Plan, if the Participant dies
before his distribution has begun, his entire Account shall be distributed
within five years after the fifth anniversary of the first December 31
coinciding with or next following the date of his death unless (a) a portion of
his Account is payable to or on behalf of a designated Beneficiary; (b) such
portion will be distributed over the life of such designated Beneficiary; and
(c) such distribution begins not later than the December 31 coinciding with or
next following the first anniversary of the date of the Participant's death (or
such date as prescribed by the Secretary of Treasury).
Notwithstanding the preceding paragraph, if the designated
Beneficiary is the Participant's Surviving Spouse, the date by which
distributions must commence under (c) in the preceding paragraph shall be the
date the Participant would have attained age 70 1/2. If the Surviving Spouse
dies before distributions to said spouse begins, this section shall apply as if
the Surviving Spouse were the Participant. Life expectancy of a Surviving Spouse
may be recalculated annually; however, in the case of any other designated
Beneficiary, such life expectancy will be calculated at the time that payment
first commences without further calculations. In addition, any amount paid to a
child of the Participant will be treated as if it had been paid to the Surviving
Spouse when the child reaches the age of majority.
12.04. CASH-OUTS/CONSENT
If for any reason a Participant terminates service or dies and
the value of his nonforfeitable Account does not exceed (or at the time of any
prior distribution has not exceeded) $5,000, the Participant (or Beneficiary in
the case of the Participant's death) shall receive a distribution of the value
of the entire nonforfeitable portion of such Accounts as soon as
administratively feasible after the next Valuation Date after his date of
termination; and the remainder of such Accounts will be
15
<PAGE> 22
treated as a Forfeiture. For purposes of this section, if the value of the
Participant's nonforfeitable Account is zero, the Participant shall be deemed to
have received a distribution of such nonforfeitable Account.
If the value of a Participant's nonforfeitable Accounts
exceeds (or at the time of any prior distribution exceeded) $5,000, no amount
shall be distributed to such Participant prior to his Normal Retirement Age
without his consent. A Participant's election to receive a distribution from the
Plan prior to his Normal Retirement Age shall not be valid unless the
Participant has received a general description of the material features and an
explanation of the relative values of the optional forms of benefits
(hereinafter referred to as "description") under the Plan. The Participant shall
be provided with such description not less than 30 days and not more than 90
days prior to the date his benefits are scheduled to commence, provided that a
distribution may be made to the Participant prior to such 30-day period,
provided the Participant is informed he has a right to a period of at least 30
days after receiving the description to consider the decision of whether to
elect a distribution from this Plan and the Participant, after receiving such
information, affirmatively elects a distribution prior to such 30-day period.
If a Participant who is not 100% vested in his Account
receives a distribution pursuant to this section which is less than the value of
his Employer Contributions Account and resumes employment covered under this
Plan, the Participant's Account will be restored to the amount on the date of
distribution if he repays to the Plan the full amount of his distribution before
the earlier of (a) five years after the first date on which the Participant is
subsequently reemployed by the Employer; or (b) the date on which he incurs five
consecutive One-Year Breaks in Service following the date of distribution. If a
Participant is deemed to have received a distribution pursuant to the first
paragraph of this section, the Participant will be deemed to have repaid the
full amount of his distribution upon his rehire.
12.05. PUT OPTION
Except as otherwise provided in this Section 12.05, any
Employer Shares which are not readily tradable on an established market at the
time they are distributed to Participants or former
16
<PAGE> 23
Participants, or they are subject to a trading limitation when distributed,
shall be subject to a put option which will permit the Participant, the
Participant's donees or a person (including an estate or its distributee) to
whom the Shares pass by reason of the Participant's death to put those Employer
Shares to the Employer. Put options shall be exercisable at least during the
16-month period which begins on the date the Employer Shares subject to the
option are distributed by this Plan. Such an option may be exercised by the
holder of the Shares notifying the Employer in writing that the put option is
being exercised. The price at which the put option must be exercisable is the
fair market value of the Shares determined in accordance with the provisions of
Treasury Regulation sec.54.4975-11(d)(5).
If, pursuant to this section, the Employer is required to
repurchase Employer Shares which are distributed to a Participant within one
taxable year in a distribution that represents the balance to the credit of the
Participant's Account, the amount to be paid for such Employer Shares shall be
paid in substantially equal periodic payments (not less frequently than
annually) over a period beginning not later than 30 days after the exercise of
the put option described in this section and not exceeding five years. If,
pursuant to this section, the Employer is required to repurchase Employer Shares
which are distributed to a Participant as part of an installment distribution,
the amount to be paid for such Employer Shares shall be paid not later than 30
days after the exercise of the put option described in this Section.
Under no circumstances may the put option bind the Plan.
However, the Plan may assume the rights and obligations of the Employer at the
time the put obligation is exercised. Adequate security shall be provided and
reasonable interest shall be paid on the unpaid amounts referred to in the
preceding sentence.
Notwithstanding any provision of this Plan to the contrary,
(a) to the extent that the Employer is prohibited by law from redeeming or
purchasing its own securities, consistent with the provisions of Section
409(h)(3) of the Code, Employer Shares under this Plan shall not be subject to
the put option described in this Section 12.05 and, as such, a Participant will
not be permitted to put such Employer Shares to the Employer; or (b) in the case
of a Plan established by a bank which is
17
<PAGE> 24
prohibited by law from redeeming or purchasing its own securities, the
requirements of this section shall not apply, providing the Plan provides that
Participants entitled to receive a distribution from the Plan shall have the
right to receive a distribution in the form of cash.
12.06. RIGHT OF FIRST REFUSAL
(a) During any period when Employer Shares are not publicly
traded, all distributions of Employer Shares to any Participant or his
Beneficiary by the Plan shall be subject to a "right of first refusal" upon the
terms and conditions hereinafter set forth. The "right of first refusal" shall
provide that prior to any transfer (as determined by the Plan Administrator) of
the Employer Shares, the Participant or Beneficiary must first offer to sell
such shares to the Plan; and if the Plan refuses to exercise its right to
purchase the Employer Shares, then the Employer shall have a "right of first
refusal" to purchase such Shares. Neither the Plan nor the Employer shall be
required to exercise the "right of first refusal." This Section 12.06 shall not
be operative unless and until the Board of Directors of the Employer so directs.
(b) The terms and conditions of the "right of first refusal"
shall be determined as follows:
(i) If the Participant or Beneficiary receives a bona
fide offer for the purchase of all or any part of his Employer
Shares from a third party, the Participant or Beneficiary
shall forthwith deliver (by registered mail, return receipt
requested) a copy of any such offer to the Plan Administrator.
The Trustee (as directed by the Plan Administrator) or the
Employer, as the case may be, shall then have 14 days after
receipt by the Plan Administrator of the written offer to
exercise the right to purchase all or any portion of the
Employer Shares.
(ii) The selling price and other terms under the
"right of first refusal" must not be less favorable to the
Participant or Beneficiary than the purchase price and other
terms offered by a buyer other than the Employer or the Plan,
making a good faith offer to purchase the security.
18
<PAGE> 25
12.07. ELIGIBLE ROLLOVER DISTRIBUTIONS
(a) Notwithstanding any provision of this Plan to the contrary
that would otherwise limit a distributee's election under the Plan, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
(b) The following definitions will apply for purposes of this
Section 12.07:
(i) Eligible rollover distribution: An eligible
rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not
include: (A) any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated Beneficiary;
(B) any distribution that is for a specified period of ten
years or more; (C) any distribution to the extent such
distribution is required under Code Section 401(a)(9); and (D)
the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities).
(ii) Eligible retirement plan: An eligible retirement
plan is an individual retirement account described in Code
Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section
403(a) or a qualified trust described in Code Section 401(a)
that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the Surviving Spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
19
<PAGE> 26
(iii) Distributee: A distributee includes an Employee
or former Employee. In addition, the Spouse or Surviving
Spouse of an Employee or former Employee is a distributee with
regard to the interest of the Spouse or Surviving Spouse.
(iv) Direct rollover: A direct rollover is a payment
by the Plan to the eligible retirement plan specified by the
distributee.
12.08. INSTALLMENT DISTRIBUTIONS
Notwithstanding any provisions in this Plan to the contrary,
if a Participant's entire interest is to be distributed in other than an
immediate lump sum, unless the Participant elects otherwise, such distribution
shall be made in substantially equal periodic installments (not less frequently
than annually) over a period not longer than the greater of:
(a) five years; or
(b) in the case of a Participant with an Account in excess of
$710,000 for each $140,000, or any fraction thereof, by which such balance
exceeds $710,000; provided, however, that in no event may installment payments
under the Plan be made which exceeds either:
(i) a period certain not extending beyond the life
expectancy of the Participant; or
(ii) a period certain not extending beyond the joint
and last survivor expectancy of the Participant and a
designated Beneficiary.
If a Participant's Account is to be distributed in other than
a lump sum, then the amount to be distributed each year must be at least an
amount equal to the quotient obtained by dividing the Participant's Account by
the life expectancy of the Participant and designated Beneficiary. If the
Participant's Spouse is not the designated Beneficiary, the method of
distribution selected must at all times comply with proposed Treasury regulation
1.401(a)(9)-2.
20
<PAGE> 27
The $710,000 and $140,000 dollar amounts referred to above
shall be indexed for inflation for years after 1997 by the Secretary of the
Treasury, and the amount applicable for any Plan Year shall be the dollar amount
specified by the Secretary.
SECTION L3
----------
BREAK IN SERVICE RULES
----------------------
13.01. EFFECT OF BREAK IN SERVICE ON ELIGIBILITY
If a Participant terminates his employment with the Employer
and subsequently resumes employment after incurring a One-Year Break in Service,
the rehired Participant shall again participate in the Plan as of the date of
his reemployment, providing he is an Employee on his date of rehire.
13.02. EFFECT OF BREAK IN SERVICE ON VESTING
In the case of a Participant who has five or more consecutive
One-Year Breaks in Service, Years of Service performed by such Participant after
such One-Year Breaks in Service will be disregarded for the purpose of
determining the vested percentage of any Employer contributions that accrued to
his Account before the commencement of such One-Year Breaks in Service.
Moreover, if a Participant incurs five or more consecutive
One-Year Breaks in Service, such Participant's pre-break service will be
disregarded in determining the vested percentage of any post-break Employer
contributions that accrue to his Account if (a) he has no vested interest in his
Account at the time of his separation from service; and (b) upon returning to
service, the number of his consecutive One-Year Breaks in Service is greater
than the number of his pre-break Years of Service.
Separate accounts will be maintained for the Participant's
pre-break and post-break Employer contributions. Both accounts will share in the
earnings and losses of the Trust Fund.
In the case of a Participant who does not have five
consecutive One-Year Breaks in Service, both pre-break and post-break Years of
Service will count in determining the vested
21
<PAGE> 28
percentage of pre-break and post-break Employer contributions that accrue to his
Account.
13.03. AUTHORIZED LEAVES OF ABSENCE
Authorized leaves of absence, as determined by the Plan
Administrator, will be included in determining service for both eligibility and
vesting purposes. All Employees in similar circumstances will be treated alike.
Notwithstanding anything in the Plan to the contrary,
contributions, benefits and service credit with respect to "qualified military
service," as such term is defined by Section 414(u)(5) of the Code, shall be
provided in accordance with Section 414(u) of the Code.
SECTION 14
----------
TRUST AGREEMENT
---------------
14.01. DESCRIPTION OF TRUST AGREEMENT
The Employer proposes to enter into a Trust Agreement with the
Trustee to provide for the administration of the Trust Fund. The Trust Agreement
shall be deemed to form a part of this Plan, and any and all rights or benefits
which may accrue to any person under this Plan shall be subject to all the terms
and provisions of the Trust Agreement. The Plan is designed to invest primarily
in Employer Shares. If and to the extent that Employer Shares are not available
at a price acceptable to the Trustee, the Trustee is authorized to make other
investments as provided in the Trust Agreement.
SECTION 15
----------
PLAN ADMINISTRATION
-------------------
15.01. PLAN ADMINISTRATOR
The Plan shall be administered by a Plan Administrator. Such
Plan Administrator shall be a committee of one or more individuals who shall be
appointed by and serve at the pleasure
22
<PAGE> 29
of the Employer. In the event that no such appointment is made, the Sponsor
shall serve as Plan Administrator.
15.02. DUTIES OF PLAN ADMINISTRATOR
The Plan Administrator shall supervise the maintenance of such
accounts and records as shall be necessary or desirable to show the
contributions of the Employer, allocations to Participants' Accounts, payments
from Participants' Accounts, valuations of the Trust Fund and all other
transactions pertinent to the Plan.
The Plan Administrator is authorized to perform all functions
necessary to administer the Plan, including, without limitation, to determine
the eligibility and qualification of Employees for benefits under the Plan; to
determine the allocation and vesting of contributions, earnings and profits of
the Plan; to interpret and construe the terms of the Plan; to adopt rules,
regulations and procedures consistent therewith and to decide all disputes with
respect to the rights and obligations of Participants in the Plan. If the Trust
Agreement permits, the Plan Administrator may direct the Trustee with respect to
investment of the assets of the Trust Fund or may employ investment counsel to
do so. The Plan Administrator will have absolute discretion in carrying out its
duties and responsibilities under this paragraph.
The Plan Administrator may employ one or more persons to
render advice with regard to any responsibility it has under the Plan and may
designate others to carry out any of its responsibilities.
SECTION 16
----------
AMENDMENTS
----------
16.01. SPONSOR'S RIGHT TO AMEND PLAN
The Sponsor shall have the right at any time, by an instrument
in writing, to modify, alter or amend this Plan, in whole or in part, provided
that no such change shall in any way affect the vested rights of the Employees
under this Plan. If an amendment changes the nonforfeitable rights provided in
Section
23
<PAGE> 30
11 and such amendment does not provide the Participant with a greater
nonforfeitable interest in his Account for each Year of Service earned under the
Plan, then each Participant having not less than three Years of Service may
elect, during the period beginning when the amendment is adopted and ending no
earlier than the latest of (a) 60 days after the amendment's adoption; (b) 60
days after the amendment's effective date; or (c) 60 days after the Participant
is issued a written notice of the amendment, to have his nonforfeitable rights
computed without regard to such amendment. No election is required to the extent
an amendment does not decrease the nonforfeitable percentage of a Participant
for any Year of Service.
No amendment to the Plan shall decrease a Participant's
Account balance or eliminate an optional form of distribution. Any amendment to
the Plan shall be executed by any individual authorized by the Board of
Directors of the Sponsor.
SECTION 17
----------
DISTRIBUTIONS ON PLAN TERMINATION
---------------------------------
17.01. FULL VESTING ON PLAN TERMINATION
The Sponsor shall have the right at any time, by an instrument
in writing, to terminate the Plan. When and if this Plan is terminated, or upon
dissolution or liquidation of the Employer, after the payment of all expenses
and after all adjustments of Participants' Accounts to reflect such expenses,
fund profits or losses, income and allocations to date of termination, each
affected Participant shall be entitled to receive that number of Employer Shares
as is then credited to his Account and the net value of other assets of such
Account.
17.02. PAYMENT ON PLAN TERMINATION
The Plan Administrator shall make payment of each
Participant's Account in cash or Employer Shares. Such payment shall be made to
each Participant in a single lump sum payment.
24
<PAGE> 31
17.03. DISCONTINUANCE OF CONTRIBUTIONS; PARTIAL TERMINATION OF PLAN
Any complete discontinuance of contributions by the Employer
or partial termination of the Plan will be treated as a termination with all
affected Participants acquiring nonforfeitable interests in amounts contributed
to such date of termination.
SECTION 18
----------
CREDITORS OF PARTICIPANTS
-------------------------
18.01. NON-ASSIGNABILITY
Except to the extent permitted by ERISA, assignment, pledge or
encumbrance of any character of the benefits under the Plan is not permitted or
recognized under any circumstances; and such benefits shall not be subject to
claims of creditors, execution, attachment, garnishment or any other legal
process.
18.02. QUALIFIED DOMESTIC RELATIONS ORDERS
Section 18.01 shall also apply to the creation, assignment or
recognition of a right to any benefit payable with respect to a Participant
pursuant to a domestic relations order, unless such order is determined to be a
qualified domestic relations order [as defined in Section 414(p) of the Code],
or any domestic relations order entered before January 1, 1985.
A qualified domestic relations order may provide for an
immediate lump-sum distribution to the alternate payee named therein upon the
determination by the Plan Administrator that the order constitutes a qualified
domestic relations order.
SECTION 19
----------
CLAIMS PROCEDURES
-----------------
19.01. FILING A CLAIM FOR BENEFITS
25
<PAGE> 32
A Participant or Beneficiary, or the Employer acting on behalf
of such Participant or Beneficiary, shall notify the Plan Administrator of a
claim for benefits under the Plan. Such request shall be in writing to the Plan
Administrator and shall set forth the basis of such claim and shall authorize
the Plan Administrator to conduct such examinations as may be necessary to
determine the validity of the claim and to take such steps as may be necessary
to facilitate the payment of benefits to which the Participant or Beneficiary
may be entitled under the terms of the Plan.
A decision by the Plan Administrator shall be made promptly
and not later than 90 days after the Plan Administrator's receipt of the claim
for benefits under the Plan, unless special circumstances require an extension
of the time for processing; in which case, a decision shall be rendered as soon
as possible, but not later than 180 days after the initial receipt of the claim
for benefits.
19.02. DENIAL OF CLAIM
Whenever a claim for benefits by any Participant or
Beneficiary has been denied by the Plan Administrator, a written notice prepared
in a manner calculated to be understood by the Participant or Beneficiary shall
be provided setting forth (a) the specific reasons for the denial; (b) the
specific reference to the pertinent Plan provisions on which the denial is
based; (c) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material or
information is necessary; and (d) an explanation of the Plan's claim review
procedure.
19.03. REMEDIES AVAILABLE TO PARTICIPANTS
Upon denial of his claim by the Plan Administrator, a
Participant or Beneficiary:
(a) may request a review by a named fiduciary, other than the
Plan Administrator, upon written application to the Plan;
(b) may review pertinent Plan documents; and
26
<PAGE> 33
(c) may submit issues and comments in writing to a named
fiduciary.
A Participant or Beneficiary shall have 60 days after receipt
by the claimant of written notification of a denial of a claim to request a
review of a denied claim.
A decision by a named fiduciary shall be made promptly and not
later than 60 days after the named fiduciary's receipt of a request for review,
unless special circumstances require an extension of the time for processing; in
which case, a decision shall be rendered as soon as possible, but not later than
120 days after receipt of a request for review. The decision on review by a
named fiduciary shall be in writing and shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, and
specific references to the pertinent Plan provisions on which the decision is
based.
SECTION 20
----------
VOTING RIGHTS
-------------
20.01. PARTICIPANT VOTING RIGHTS WITH RESPECT TO ALLOCATED SHARES
If the Employer Shares are "registration-type class of
securities," all Employer Shares held in the Trust Fund and allocated to
Participants' Accounts shall be voted by the Trustee pursuant to written
instructions received from the Participants or Beneficiaries. If the Employer
Shares are not "registration-type class of securities," all Employer Shares held
in the Trust Fund and allocated to Participants' Accounts shall be voted by the
Trustee pursuant to written instructions received from Participants and
Beneficiaries with respect to any corporate matters relating to the approval of
any corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such similar transaction as the Secretary may provide in
regulations. For this purpose, "registration-type class of securities" shall
have the meaning as set forth in Code Section 409(e)(4). With respect to
allocated Shares for which the Trustee does not receive written instructions
from Participants, such Shares shall be voted by the Trustee in the same
27
<PAGE> 34
proportion as the Shares voted by the Participants.
20.02. PARTICIPANT VOTING RIGHTS WITH RESPECT TO UNALLOCATED SHARES
All Employer Shares held in the Trust Fund and not allocated
to Participants' Accounts shall be voted by the Trustee in the same proportion
as the Shares voted by the Participants. Notwithstanding the foregoing, if at
the time Employer Shares are required to be voted, no shares have been allocated
to Participants' Accounts, the Plan Administrator shall vote such shares.
SECTION 21
----------
TOP HEAVY RULES
---------------
21.01. DEFINITIONS
If the Plan is or becomes top heavy in any Plan Year, the
provisions of this Section 21 will supersede any conflicting provisions in the
Plan. The following definitions and rules are necessary to comply with related
federal tax requirements:
(a) Key Employee: Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the determination period
was (i) an officer of the Employer if such individual's annual compensation
exceeds 50% of the dollar limitation under Code Section 415(b)(1)(A); (ii) an
owner (or considered an owner under Code Section 318) of one of the ten largest
interests in the Employer if such individual's annual compensation exceeds the
dollar limitation under Code Section 415(c)(l)(A); (iii) a 5% owner of the
Employer; or (iv) a 1% owner of the Employer who has annual compensation of more
than $150,000. For purposes of this section, annual compensation means
compensation as defined in Code Section 415(c)(3), but including amounts
contributed by the Employer pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Code Section 125, 402(a)(8),
402(h) or 403(b). The determination period is the Plan Year containing the
Determination Date and the four preceding Plan Years. The determination of who
is a Key Employee will be made in accordance with Code Section 416(i)(1) and the
regulations thereunder.
28
<PAGE> 35
(b) Non-Key Employee: Any Employee or former Employee of the
Employer who is not a Key Employee. The Beneficiary of a Non-Key Employee will
be treated as a Non-Key Employee, and the Beneficiary of a former Non-Key
Employee will be treated as a former Non-Key Employee.
(c) Determination Date: For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year, the last day of such Plan Year.
(d) Permissive Aggregation Group: The Required Aggregation
Group of plans plus any other plan or plans of the Employer which, when
considered as a group with the Required Aggregation Group, would continue to
satisfy the requirements of Code Sections 401(a)(4) and 410.
(e) Required Aggregation Group: (i) Each qualified plan of the
Employer in which at least one Key Employee participates or participated at any
time during the determination period (regardless of whether the Plan has
terminated); and (ii) any other qualified plan of the Employer which enables a
plan described in (i) to meet the requirements of Code Sections 401(a)(4) or
410.
(f) Top Heavy Plan: The Plan, if it meets the requirements of
Section 21.02.
21.02. TOP HEAVY STATUS
This Plan, and any other plans aggregated with it, will become
top heavy pursuant to this Section 21.02, as of the Determination Date, if the
present value of accrued benefits for Key Employees is more than 60% (90% in the
case of "super top heavy") of the sum of the present value of accrued benefits
of all Employees, excluding former Key Employees. In the case of more than one
plan which is to be aggregated, the present value of the accrued benefits
(including distributions for Key Employees and all Employees) is first
determined separately for each plan as of each plan's Determination Date. The
plans then will be aggregated by adding the results of each plan as of the
Determination Dates for such plans that fall within the same calendar year. The
combined results will indicate whether the plans are top heavy.
29
<PAGE> 36
The account balances and accrued benefits of a Participant who
has not been credited with an Hour of Service for the Employer maintaining the
Plan during the five-year period ending on the Determination Date will be
disregarded.
The present value of accrued benefits as of the Determination
Date for any individual is the sum of (a) the Account balance as of the most
recent Valuation Date occurring within a 12-month period ending on the
Determination Date; (b) an adjustment for contributions due as of the
Determination Date; and (c) the aggregate distributions made with respect to
such individual under the Plan during the five-year period ending on the
Determination Date. For an employee stock ownership plan, the adjustment in (b)
is generally the amount of contributions actually made after the Valuation Date
but on or before the Determination Date.
In determining whether the Plan is top heavy, it must be
aggregated with each plan included in the Required Aggregation Group. In
addition, the Employer may aggregate plans included in the Permissive
Aggregation Group.
21.03. MINIMUM CONTRIBUTIONS
For each Plan Year in which the Plan is top heavy, each
Participant who is a Non-Key Employee (including those Participants who did not
complete 1,000 Hours of Service in the Plan Year) must receive an annual
allocation of contributions and Forfeitures (disregarding Social Security
benefits) equal to at least 3% of his Compensation; provided that, if the
largest percentage of Compensation allocated to a Key Employee for a Plan Year
is less than 3%, that largest percentage will be substituted for 3%. For any
year in which the Employer maintains a defined benefit plan in addition to this
Plan, the benefit which is required to be provided to participants in both plans
will be satisfied by providing each Non-Key Employee with the minimum annual
top-heavy benefit provided under the top heavy provisions of the defined benefit
plan. For any year in which the Employer maintains another defined contribution
plan in addition to this Plan, the minimum benefit required to be provided to
participants in both plans shall be provided by this Plan.
21.04. TOP HEAVY VESTING
30
<PAGE> 37
If the Plan should become top heavy, the following vesting
schedule shall apply to each Participant's Employer Contributions Account:
<TABLE>
<CAPTION>
NONFORFEITABLE
YEARS OF SERVICE PERCENTAGE
<S> <C>
Less than 3 0
3 or more 100%
</TABLE>
Under no circumstances, however, will a Participant's vested interest be
decreased as a result of the Plan becoming top heavy.
If at any time after becoming top heavy the Plan should cease
to be top heavy, the vesting schedule contained in Section 11 shall again be
applicable. However, any portion of a Participant's Employer Contributions
Account that was nonforfeitable before the Plan ceased to be top heavy shall
remain nonforfeitable. In addition, any Participant with three or more Years of
Service at the time that the Plan ceases to be top heavy may elect to have the
vesting schedule contained in this section remain applicable. The election
period shall be the same as described in Section 16.
SECTION 22
----------
EXEMPT LOANS
------------
22.01. AUTHORITY TO BORROW
The Trustee may borrow funds on behalf of the Plan to purchase
Employer Shares, provided that any Plan loan is an exempt loan within the
meaning of Treasury Regulation Section 54.4975-7(b)(l)(iii).
22.02. REQUIREMENTS FOR PLAN LOANS
Any loan made to the Plan pursuant to this Section 22 must
meet the following requirements:
(a) The proceeds of the loan must be used within a reasonable
time after their receipt by the Plan either (i) to
31
<PAGE> 38
acquire Employer Shares; (ii) to repay such loan; or (iii) to repay a prior
exempt loan.
(b) The interest rate of the loan must not be in excess of a
reasonable rate of interest. All relevant factors will be considered in
determining a reasonable rate of interest, including the amount and duration of
the loan, the security and guarantee (if any) involved, the credit standing of
the Plan and the guarantor (if any) and the interest rate prevailing for
comparable loans.
(c) The loan must be for a specific term. Such loan may not be
payable at the demand of any person, except in the case of default.
(d) The loan must be without recourse against the Plan.
Furthermore, the only assets of the Plan that may be given as collateral for the
loan are Employer Shares of two classes--those acquired with the proceeds of the
loan and those that were used as collateral on a prior exempt loan repaid with
the proceeds of the current loan. No person entitled to payment under the exempt
loan shall have any rights to assets of the Plan other than: (i) collateral
given for the loan; (ii) contributions (other than contributions of Employer
Shares) that are made under the Plan to meet its obligations under the loan; and
(iii) earnings attributable to such collateral and the investment of such
contributions.
(e) The loan and/or related documents must provide for the
release from encumbrance of Plan assets used as collateral for the loan. For
each Plan Year during the duration of the loan, the number of securities
released must equal the number of encumbered securities held immediately before
release for the current Plan Year multiplied by a fraction. The Plan
Administrator shall select either the fraction set forth in Treasury Regulation
54.4975-8(i) or (ii). If collateral includes more than one class of securities,
the number of securities of each class to be released for a Plan Year must be
determined by applying the same fraction to each class.
(f) All other requirements of Treasury Regulation Section
54.4975-7(b).
32
<PAGE> 39
SECTION 23
----------
MISCELLANEOUS
-------------
23.01. EMPLOYMENT RIGHTS
The right of the Employer to terminate the employment of any
of its Employees shall not in any way be affected by the Employee's
participation in this Plan.
23.02. GENDER
Wherever used in this Plan the masculine pronoun refers to
both men and women.
23.03. NOTICE REQUIREMENT
Notice of the existence and provisions of the Plan and of any
amendment thereto shall be communicated by the Employer to those entitled to
notice thereof.
23.04. MERGER OR CONSOLIDATION
In case of any merger or consolidation with, or transfer of
assets or liabilities to, any other plan, each Participant in the Plan would (if
this Plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to, or greater than, the benefit he
would have been entitled to receive immediately before the merger, consolidation
or transfer (if the Plan then terminated).
23.05. SOCIAL SECURITY BENEFITS
Post-separation Social Security benefit increases shall not
affect benefits under this Plan.
23.06. FORFEITURES
Forfeitures resulting from termination of employment shall be
allocated to other Participants as of the last day of the Plan Year which
immediately follows the earlier of: (a) the date on which the Participant
receives an actual distribution of his nonforfeitable Account; and (b) the date
the Participant incurs five consecutive One-Year Breaks in Service.
33
<PAGE> 40
In the event that a Participant who received a distribution of
his nonforfeitable Account returns to the employment of the Employer before he
incurs five consecutive One-Year Breaks in Service and takes such action as is
necessary to reinstate the portion of his Account that was previously forfeited,
the forfeited portion of his Account shall be restored first from Forfeitures
available for allocation in that year and then from additional Employer
contributions, if necessary. All rights to forfeiture restoration shall lapse
when this Plan is terminated with regard to all Participants who have not
resumed employment prior to Plan termination.
23.07. NAMED FIDUCIARIES
The named fiduciaries of this Plan shall be the Sponsor, the
Plan Administrator and the Trustee.
23.08. LIMITATIONS ON PAYMENT
No payment shall be made to any incompetent person (through
minority or otherwise) until the Plan Administrator shall have been furnished
evidence satisfactory to it of the person to whom such payment shall be made and
his right to receive the same. Until furnished such evidence, all amounts so
payable shall be held in trust for the person or persons entitled to receive
them, separate and apart from the Plan's general Trust Fund.
23.09. INTERPRETATION OF DOCUMENT
The construction and interpretation of the Plan provisions are
vested with the Plan Administrator, in its absolute discretion, including,
without limitation, the determination of benefits, eligibility and
interpretation of Plan provisions. All such decisions, determinations and
interpretations shall be final, conclusive and binding upon all parties having
an interest in the Plan.
23.10. NONTERMINABLE PROTECTIONS AND RIGHTS
Notwithstanding anything contained herein to the contrary,
except as provided in Section 12.05 or 12.06 of the Plan, or as otherwise
permitted by applicable law, no security
34
<PAGE> 41
acquired with the proceeds of an exempt loan may be subject to a put, call or
other option, or buy-sell or similar arrangement while held by and/or
distributed from this Plan.
The rights and protections specified in the preceding
sentence, together with the put option rights provided for in Section 12.05
hereof, shall be nonterminable regardless of whether this Plan ceases to be an
employee stock ownership plan or an exempt loan is paid in full.
23.11. DIVIDENDS
Dividends on Employer Shares held in a Participant's Account
shall be allocated as investment earnings of such Participant's Account, and
dividends on Shares held in the unallocated suspense account described in
Section 4.02 shall be allocated in accordance with procedures established by the
Plan Administrator.
SECTION 24
----------
CERTAIN DEFINITIONS
-------------------
Whenever used in this Plan, the following words and phrases
shall have the meanings specified below. Additional words and phrases may be
defined in the text of the Plan.
24.01. ACCOUNT
"Account" means a Participant's Employer Contributions
Account.
24.02. AFFILIATE
"Affiliate" means any other employer which, together with the
Sponsor, is a member of a controlled group of corporations or of a commonly
controlled trade or business [as defined in Code Sections 414(b) and (c) and as
modified by Code Section 415(h)] or of an affiliated service group [as defined
in Code Section 414(m)] or other organization described in Code Section 414(o).
35
<PAGE> 42
24.03. ANNUAL ADDITIONS
"Annual Additions" means the sum of the following amounts
credited to a Participant for the Limitation Year under all defined contribution
plans maintained by the Employer:
(a) Employer contributions;
(b) Forfeitures;
(c) amounts allocated after March 31, 1984 to an individual
medical account, as defined in Section 415(l)(1) of the Code, which is part of a
defined benefit plan maintained by the Employer; and
(d) amounts derived from contributions paid or accrued after
December 31, 1985 in taxable years ending after such date which are attributable
to postretirement medical benefits allocated to the separate account of a key
employee [as defined in Section 416(i) of the Code] under a welfare benefit fund
[as defined in Section 419(e) of the Code] maintained by the Employer. The
amounts described under this paragraph (d) shall not be subject to the 25% of
compensation limit provided in Section 2.04.
"Annual Additions" shall exclude, for a Limitation Year,
forfeitures of Employer Shares purchased with the proceeds of a loan described
in Section 2.02 and interest on a loan described in Section 2.02 which is
deductible under Code Section 404(a)(9)(B), providing not more than one-third of
Employer contributions made to the Plan for such year are allocated to the
Accounts of Participants who are Highly-Compensated Employees, within the
meaning of Code Section 414(q).
24.04. BENEFICIARY
"Beneficiary" means the individual, individuals or trust
designated by the Participant under the terms of Section 8.02 hereof to receive
the death benefit payable under the Plan.
24.05. CODE
36
<PAGE> 43
"Code" means the Internal Revenue Code of 1986, as may be
amended from time to time, and corresponding provisions of future federal
internal revenue codes.
24.06. COMPENSATION
"Compensation" means all amounts paid to the Participant by
the Employer for a Plan Year which is treated as wages pursuant to Code Section
3401(a), plus all other payments of compensation which the Employer is required
to report on form W-2, plus all amounts excluded from income under Sections 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code, excluding any amounts paid by
the Employer during any Plan Year in excess of $160,000, as adjusted under Code
Section 401(a)(17) for Plan Years after January 1, 1998. For purposes of a
Participant's first Plan Year of eligibility, only Compensation paid to such
Participant after the Entry Date on which he begins to participate in the Plan
shall be considered for purposes of determining allocations under Section 3
hereof.
24.07. CURRENT PARTICIPANT
"Current Participant" means, for any Plan Year, a Participant
who was employed by the Employer on the last day of such Plan Year.
[24.08. EFFECTIVE DATE]
"Effective Date" means January 1, 1998.
24.09. EMPLOYEE
"Employee" means any person who is an employee in the regular
employment of the Employer.
24.10. EMPLOYER
"Employer" means United Community Financial Corp. and any
Affiliate who, with the consent of the Employer, adopts this Plan as a
participating employer. As of the Effective Date, The Home Savings and Loan
Company of Youngstown, Ohio shall be a participating employer.
24.11. EMPLOYER CONTRIBUTIONS ACCOUNT
37
<PAGE> 44
"Employer Contributions Account" means the account established
for each Participant under this Plan pursuant to Section 4.01.
24.12. EMPLOYER SHARES OR SHARES
"Employer Shares" or "Shares" means securities which
constitute "employer securities" under Section 409(l) of the Code and
"qualifying employer securities" under Section 4975(e)(8) of the Code and
Section 407(d)(5) of ERISA.
24.13. EMPLOYMENT COMMENCEMENT DATE
"Employment Commencement Date" means the date on which an
Employee first performs an Hour of Service for the Employer.
24.14. ENTRY DATE
"Entry Date" means the first day of January, April, July or
October following the period described in Section 1.02 in which an Employee
satisfied the requirements of Section 1.01, but not earlier than the Effective
Date.
38
<PAGE> 45
24.15. ERISA
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
24.16. FORFEITURE
"Forfeiture" means the amount of the value of any
Participant's Account that such Participant is not entitled to receive under
Section 11 on the termination of his employment.
24.17. FULL TIME
"Full Time" means employment with the Employer for not less
than 1,000 hours during the 12 consecutive calendar months for which a
determination is made.
24.18. HOUR OF SERVICE
"Hour of Service" means
(a) each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer or an Affiliate. These
hours shall be credited to the Employee for the computation period or periods in
which the duties are performed; and
(b) each hour for which an Employee is paid, or entitled to
payment, by the Employer or an Affiliate on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, absence for maternity or paternity reasons, jury
duty, military duty, leave of absence or required by the Family and Medical
Leave Act of 1993. No more than 501 Hours of Service shall be credited under
this paragraph for any single continuous period (whether or not such period
occurs in a single computation period). Hours under this paragraph shall be
calculated and credited pursuant to Section 2530.200b-2 of the Department of
Labor Regulations, which are incorporated herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the
39
<PAGE> 46
Employer or an Affiliate. The same hours of service shall not be credited both
under paragraph (a) or paragraph (b), as the case may be, and under this
paragraph (c). These hours shall be credited to the computation period or
periods to which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made; and
(d) in the case of a Participant who is absent from work for
maternity or paternity reasons, such Participant shall have credited, solely for
purposes of determining whether a One-Year Break in Service has occurred for
eligibility and vesting, in the year in which the absence begins if necessary to
prevent a One-Year Break in Service for such year; or in the following year, the
number of hours that would normally have been credited but for such absence; or
in any case in which such hours cannot be determined, 8 Hours of Service per day
of such absence. The total number of hours treated as Hours of Service under
this paragraph shall not exceed 501 hours. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means an absence (i) by
reason of pregnancy of the Participant; (ii) by reason of the birth of a child
of the Participant; (iii) by reason of the placement of a child with the
Participant in connection with the adoption of such child by such Participant;
or (iv) for purposes of caring for such child for a period beginning immediately
following such birth or placement.
24.19. LATE RETIREMENT DATE
"Late Retirement Date" means the first day of the month
following the date on which a Participant elects to retire after his Normal
Retirement Date.
24.20. LIMITATION YEARError! Bookmark not defined.
"Limitation Year" means the Plan Year.
24.21. NORMAL RETIREMENT AGE
"Normal Retirement Age" means age 65.
24.22. NORMAL RETIREMENT DATE
"Normal Retirement Date" means the first day of the month
coincident with or next following the date on which the
40
<PAGE> 47
Participant attains Normal Retirement Age; provided, however, that this Plan
shall not be interpreted to require that a Participant retire prior to attaining
any specific age.
24.23. ONE-YEAR BREAK IN SERVICE
"One-Year Break in Service" means, for vesting purposes, a
Plan Year during which a Participant has not completed more than 500 Hours of
Service.
24.24. PARTICIPANT
"Participant" means either (a) an Employee who is
participating in the Plan in accordance with Section 1.01 for whom Accounts are
being maintained; or (b) a former Employee for whom Accounts are being
maintained.
24.25. PLAN
"Plan" means the United Community Financial Corp. Employee
Stock Ownership Plan as in effect from time to time.
24.26. PLAN ADMINISTRATOR
"Plan Administrator" means an administrative committee
appointed by the Sponsor to administer this Plan pursuant to Section 15 or, if
no such appointment is made, the Sponsor.
24.27. PLAN YEAR
"Plan Year" means the fiscal year of the Plan which begins
each January l and ends each December 31.
24.28. PROJECTED ANNUAL BENEFIT
"Projected Annual Benefit" means the annual benefit to which
the Participant would be entitled under all Employer sponsored defined benefit
plans, assuming that the Participant continues employment until his Normal
Retirement Date, that the Participant's Compensation continues until his Normal
Retirement Date at the rate in effect during the current calendar year and that
all other factors relevant for determining benefits under the plans remain
constant at the level in effect during the current calendar year.
41
<PAGE> 48
24.29. SPOUSE OR SURVIVING SPOUSE
"Spouse" or "Surviving Spouse" means an individual who is
legally married to the Participant, provided that an individual who was formerly
married to the Participant will be treated as the Spouse or Surviving Spouse to
the extent provided under a qualified domestic relations order as described in
Section 414(p) of the Code.
24.30. TRUST AGREEMENT
"Trust Agreement" means the agreement, and any amendments made
thereto, by and between the Employer and the Trustee for the management,
investment and disbursement of funds held in the Trust Fund.
24.31. TRUST FUND
"Trust Fund" means the fund established pursuant to the terms
of the Trust Agreement.
24.32. TRUSTEE
"Trustee" means the bank, trust company and/or individual or
individuals designated by the Employer to hold and invest the Trust Fund and to
pay benefits and expenses as authorized by the Plan Administrator in accordance
with the terms and provisions of the agreement by and between the Employer and
such bank, trust company and/or individual or individuals.
24.33. VALUATION DATE
"Valuation Date" means the last day of each Plan Year and any
other date(s) fixed by the Plan Administrator for the valuation of assets and
adjustments of individual Accounts.
24.34. YEAR OF SERVICE
"Year of Service" means a Plan Year during which a Participant
is, and each Plan Year prior to the Effective Date during which such Participant
was, a Full-Time Employee of the Employer. An Employee shall also be given
credit for all Years
42
<PAGE> 49
of Service with an Affiliate which is not a participating employer.
IN WITNESS WHEREOF, the undersigned has caused this Plan to be
executed by its duly authorized officer effective as of the Effective Date.
UNITED COMMUNITY FINANCIAL CORP.
By:
----------------------------------------
Name (Print):
------------------------------
Title:
-------------------------------------
Date: ___________________
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
By:
----------------------------------------
Name (Print):
------------------------------
Title:
-------------------------------------
Date: ____________________
43
<PAGE> 50
UNITED COMMUNITY FINANCIAL CORP.
--------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
-----------------------------------
Effective January 1, 1998
<PAGE> 51
UNITED COMMUNITY FINANCIAL CORP.
--------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
-----------------------------------
TABLE OF CONTENTS
-----------------
ARTICLE I - NAME OF TRUST 1
- ---------
ARTICLE II - CONTRIBUTIONS TO THE TRUST FUND 2
- ----------
ARTICLE III - PAYMENTS FROM THE TRUST FUND 3
- -----------
ARTICLE IV - INVESTMENT OF THE TRUST FUND 3
- ----------
ARTICLE V - POWERS OF THE TRUSTEE 5
- ---------
ARTICLE VI - ADMINISTRATIVE PROVISIONS 9
- ----------
ARTICLE VII - SUBSTITUTION OF TRUSTEE 12
- -----------
ARTICLE VIII - AMENDMENT AND TERMINATION 14
- ------------
ARTICLE IX - MISCELLANEOUS PROVISIONS 14
- ----------
<PAGE> 52
UNITED COMMUNITY FINANCIAL CORP.
--------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
-----------------------------------
THIS AGREEMENT made and entered into this ___ day of _______________,
by and between United Community Financial Corp. and The Home Savings and Loan
Company of Youngstown, Ohio (hereinafter referred to as the "Employer"), and
__________________, as trustee (hereinafter "Trustee");
W I T N E S S E T H:
WHEREAS, effective as of January 1, 1998, the Employer adopted and
established an employee stock ownership plan, called the United Community
Financial Corp. Employee Stock Ownership Plan (the "Plan"); and
WHEREAS, it is necessary, under applicable law, to establish a trust
(hereinafter the "Trust") to hold the assets of the Plan; and
WHEREAS, the Employer desires to enter into an agreement with the
Trustee to provide for the investment of the assets of the Trust and for the
payment of benefits from the Trust;
NOW, THEREFORE, in consideration of the mutual undertakings of the
parties hereto, it is hereby agreed as follows:
ARTICLE I
---------
NAME OF TRUST
-------------
1. This Agreement and the Trust it evidences shall on and after the
effective date stated in paragraph 3 of this Article I be known as the United
Community Financial Corp. Employee Stock Ownership Plan Trust (which trust
agreement, as hereinafter set forth and as it may hereafter be amended, is
referred to herein as the "Agreement" or the "Trust Agreement"), and the
provisions hereof are intended to implement on and after the effective date the
provisions of the Plan.
<PAGE> 53
2. The Plan, and any future amendments thereto, shall form a part of
this Trust Agreement, and any amendments hereto, in the same manner as if all
terms and provisions thereof were copied herein in detail; the terms and
provisions of this Trust Agreement, and any future amendments hereto, shall form
a part of the Plan, as from time to time amended, in the same manner as if the
same were copied in the Plan in detail.
3. The Trust Agreement is effective as of January 1, 1998.
4. The Trustee is authorized to accept all funds or property designated
to be held under the terms of this Trust Agreement. By execution of this Trust
Agreement, the Trustee acknowledges its acceptance as Trustee hereunder and
accepts the provisions hereof and agrees to hold and administer all the moneys
and other property which, on the effective date hereof, comprise the assets of
the Trust Fund as well as any property hereafter received by it for the uses and
purposes herein expressed.
ARTICLE II
----------
CONTRIBUTIONS TO THE TRUST FUND
-------------------------------
1. Subject to the provisions of Article VIII hereof, the Employer, on
behalf of itself and its employees, intends (but is not required), from time to
time, to deliver or cause to be delivered to the Trustee such amounts of cash,
Employer Shares (as defined in the Plan) and other property acceptable to the
Trustee as the Employer, in its sole discretion, deems necessary to comply with
the provisions of the Plan. All such amounts received by the Trustee from the
Employer shall constitute one common trust fund. Unless the context clearly
applies or indicates the contrary, as used herein, the term "Trust Fund"
comprises all property of every kind held by the Trustee, from time to time,
pursuant to this Trust Agreement. The Trustee shall have no duty, expressed or
implied, to compel any payment to be made to it by the Employer or otherwise be
responsible for the adequacy of the Trust Fund to meet and discharge any
liabilities under the Plan and shall be accountable only for cash and other
property actually received by it.
2. All contributions to the Plan are made subject to continuing
qualification of the Plan and, any provisions of the
2
<PAGE> 54
Plan or this Trust Agreement to the contrary notwithstanding, the Employer, by
delivering to the Trustee written notification specifying the circumstances
which warrant the return of contributions, may direct the Trustee to return
contributions to the Employer in all circumstances permitted under Section
409(j) of the Internal Revenue Code of 1986, as amended (the "Code"). In any
such event, the Trustee shall return to the Employer,
3
<PAGE> 55
within the time frame specified in Section 409(j)(3) of the Code, the market
value of the subject contributions.
ARTICLE III
-----------
PAYMENTS FROM THE TRUST FUND
----------------------------
1. Payments shall be made from the Trust Fund by the Trustee to such
persons, in such manner, at such times and in such amounts as the Plan
Administrator (as defined in the Plan) may from time to time direct in writing;
provided, however, that the Trustee may withhold compliance with the Plan
Administrator's direction to the extent that, and so long as, the Trustee shall
deem such withholding necessary to insure payment of the Trustee's expenses.
2. The Plan Administrator may direct the Trustee to make payments to a
paying agent or agents or to the Employer itself as paying agent.
3. The Plan Administrator shall furnish the Trustee with all necessary
factual information required by it to perform its duties as Trustee hereunder,
and the Trustee shall not be required to verify the facts so furnished by the
Plan Administrator. The Trustee, in following the directions of the Plan
Administrator, is authorized to act upon instructions of the Plan Administrator
or of any individual that the Employer shall designate in writing.
ARTICLE IV
----------
INVESTMENT OF THE TRUST FUND
----------------------------
1. The Trust Fund, except such estimated amounts as in the opinion of
the Trustee are required for current payments and expenses, shall be invested
and reinvested by the Trustee without distinction between principal and income
primarily in qualifying employer securities, as defined in Section 4975(e)(8) of
the Code.
2. To the extent that qualifying employer securities are not available
at a favorable price, the Trustee is authorized to invest and reinvest any
portion of the Trust Fund which is not
4
<PAGE> 56
invested in qualifying employer securities in such bonds; notes; debentures;
mortgages; mutual funds; investment trust certificates; preferred or common
stock; real estate; savings and loan accounts; insurance policies on the lives
of participants in the Plan payable to the Trust; or in such property, real,
personal or mixed, either within or without the state comprising the situs of
the Trust, unless specifically prohibited by law or by the provisions of this
Trust Agreement. All or any part of the Trust Fund may be invested in deposits
which bear a reasonable interest rate in a bank or similar financial institution
which is supervised by the United States or of any state thereof; and the
Trustee may hold any reasonable portion of the Trust Fund in overnight accounts
pending investment or payment of expenses or benefits. The Trustee may, to the
extent it deems it advisable, invest in a common or collective trust fund or
pooled investment fund, including any common trust fund for qualified employee
benefit trusts, maintained by any bank or trust company in the United States
which is supervised by a state or federal agency. During such period of time as
an investment in any such common trust fund shall exist, the Declaration of
Trust of such fund shall constitute a part of this Trust Agreement.
3. The Trustee shall have the right, to the extent permissible under
applicable law, to (a) purchase, sell, exchange and retain preferred or common
stocks or other marketable obligations consisting of bonds, debentures, notes or
certificates, or other evidences of indebtedness, issued by the Employer or by
any "affiliate" [within the meaning of Section 407(d)(7) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")]; and (b) acquire
and hold parcels of real property (and related personal property) which is
leased, or is to be leased, to the Employer or to an "affiliate" [within the
meaning of Section 407(d)(7) of ERISA]. Notwithstanding the foregoing, the
Trustee shall not have the right to invest any Employer Shares held by it which
are either allocated to the accounts of participants, or acquired pursuant to a
loan and held in an unallocated account.
4. The Plan Administrator may appoint one or more Investment Managers
to exercise full investment management authority with respect to all or a
portion of the assets of the Trust Fund and to authorize payment of the fees and
expenses of such Investment Manager from the assets of the Trust Fund. In the
event the Plan Administrator exercises this right, it shall certify to the
Trustee and such Investment Manager the scope of
5
<PAGE> 57
the duties and responsibilities of the Investment Manager. Such Investment
Manager shall be either (a) registered as an investment advisor under the
Investment Advisors Act of 1940; (b) a bank, as defined in the Investment
Advisors Act of 1940; or (c) an insurance company qualified to manage, acquire
or dispose of Plan assets under the laws of more than one state. Upon its
appointment, the Investment Manager shall certify and acknowledge in writing to
the Plan Administrator and the Trustee that it has a copy of the Trust Agreement
and the Plan, that it is a fiduciary with respect to such Plan and Trust and
that it has assumed the duties and responsibilities conferred upon it by the
Plan Administrator. The duties, responsibilities and authority of any such
Investment Manager may be revoked or modified by the Plan Administrator at any
time by written notice to such Investment Manager and to the Trustee. Any
Investment Manager duly appointed and authorized by the Plan Administrator
shall, during the period of its appointment, possess fully and absolutely those
powers, rights and duties of the Trustee (to the extent delegated by the Plan
Administrator and to the extent permissible under the terms of this Trust
Agreement) with respect to the investment or reinvestment of that portion of the
Trust Fund over which such Investment Manager has investment management
authority. During any period of time when such Investment Manager is so
appointed and serving, and with respect to those assets of the Trust Fund over
which such Investment Manager exercises investment management authority, the
Trustee's responsibility shall be limited to holding such assets as a custodian,
providing accounting services, disbursing benefits as authorized and executing
such investment instructions only as directed by such Investment Manager. Any
certificates or other instruments duly signed by such Investment Manager (or the
authorized representative of such Investment Manager), purporting to evidence
any instruction, direction or order of such Investment Manager with respect to
the investment of those assets of the Plan over which the Investment Manager has
investment management authority shall be accepted by the Trustee as conclusive
proof thereof. The Trustee shall also be fully protected in acting in good faith
upon any notice, instruction, direction, order, certificate, opinion, letter,
telegram or other document believed by the Trustee to be genuine and to be by
such Investment Manager (or the authorized representative of such Investment
Manager). Unless the Trustee participates knowingly in, or knowingly undertakes
to conceal, an act or omission of an investment manager, knowing such act or
omission to be a breach of the fiduciary responsibility of the Investment
Manager with respect to the Plan, the Trustee shall
6
<PAGE> 58
not be liable for any act or omission of an Investment Manager and shall not be
under any obligation to invest or otherwise manage the assets of the Plan that
are the subject of the management of the Investment Manager.
ARTICLE V
---------
POWERS OF THE TRUSTEE
---------------------
1. Subject to any limitations imposed under Article IV, the Trustee is
authorized and empowered:
(a) to sell, exchange, convey, transfer or dispose of and
also to grant options with respect to any property,
whether real or personal at any time held by it; and
any sale may be made by private contract or by public
auction and no person dealing with the Trustee shall
be bound to see to the application of the purchase
money or to inquire into the validity, expediency or
propriety of any such sale or other disposition;
(b) to retain, manage, operate, repair and improve and to
mortgage or lease for any period and on such terms as
the Trustee shall deem proper any real estate or
personal property held by the Trustee, including
power to demolish any buildings or other improvements
in whole or in part and to erect buildings or other
improvements and to make leases that may extend
beyond the term of the Trust; and to foreclose,
extend, renew, assign, release or partially release
and discharge mortgages or other liens;
(c) to compromise, compound and settle any debt or
obligation due from third persons to it, or to third
persons from it as Trustee hereunder, and to reduce
the rate of interest on, to extend or otherwise to
modify or to foreclose upon default or otherwise to
enforce such obligation;
(d) except as otherwise provided in Section 20 of the
Plan, (i) to vote in person or by proxy, with or
within power of substitution, on any stocks, bonds
7
<PAGE> 59
or other securities held by it; (ii) to exercise any
options appurtenant to any stocks, bonds or other
securities for the conversion thereof into other
stocks, bonds or securities or to exercise any rights
to subscribe for additional stocks, bonds or other
securities and to make any and all necessary payments
thereof; (iii) to join in, dissent from or oppose the
reorganization, recapitalization, consolidation, sale
or merger of corporations or properties in which it
may be interested as Trustee, upon such terms and
conditions as it may deem wise; and (iv) to accept
any securities which may be issued upon any such
reorganization, recapitalization, consolidation, sale
or merger and thereafter to hold the same;
(e) to make, execute, acknowledge and deliver any and all
deeds, leases, assignments, documents of transfer and
conveyance, documents of release and satisfaction and
any and all other instruments that may be necessary
or appropriate to carry out the powers herein
granted;
(f) to write covered call options for the purchase of
securities held in the Trust and to enter into
closing purchase transactions for the purpose of
terminating same to acquire and dispose of any call
option and any put option and to grant options
involving disposition of any Trust asset or to take
options for the acquisition by the trust estate of
any asset;
(g) to enforce any right, obligation or claim in its
discretion and in general to protect in any way the
interest of the Trust Fund, either before or after
default; and, in any case, it shall consider such
action for the best interest of the Trust Fund, to
abstain from the enforcement of any right, obligation
or claim; to abandon any property, whether real or
personal, which at any time may be held by it;
(h) to borrow, or raise moneys, from the Employer or
other sources, at a reasonable rate of interest, for
the purposes of the Trust Fund, as it may deem
8
<PAGE> 60
advisable, and in particular, to borrow money to
purchase qualifying employer securities; and for any
sums so borrowed to issue its promissory note as
Trustee and to secure the repayment thereof by
mortgaging or pledging only the assets purchased with
the borrowed funds. Loans entered into pursuant to
this subsection shall accrue interest at a reasonable
rate and shall be repaid within a definite period, as
set forth in the loan agreement. Proceeds obtained
from a loan entered into pursuant to this subsection
may be used only to acquire qualifying employer
securities, repay the loan or repay a prior loan
entered into pursuant to this subsection. No lender
shall have recourse against the Trust Fund except
with respect to such assets as the Trustee mortgages
or pledges. The Trustee shall repay such loans only
from Employer contributions and Trust Fund earnings.
Upon the Trustee's payment of any portion of the
balance due on a loan, the assets originally pledged
by it as collateral for such portion shall be
released from encumbrance, and any released
securities shall be allocated in the manner described
in the Plan. No person lending money to the Trustee
shall be bound to see to the application of the money
loaned or to inquire into the validity, expedience or
propriety of any such borrowing;
(i) to cause any investment in the Trust Fund to be
registered in or transferred into its name as Trustee
or the name or names of his nominee or nominees, or
to retain them unregistered or in form permitting
transferability by delivery, but the books and
records of the Trustee shall at all times show that
all such investments are part of the Trust Fund;
(j) to acquire property returning no income or slight
income or to retain any such property so long as the
Trustee shall deem advisable;
(k) to consult with counsel, who may be counsel to the
Trustee or the Employer, and in so doing shall be
fully protected in acting upon the advice of such
counsel;
9
<PAGE> 61
(l) to continue to exercise any powers and discretion
herein granted for a reasonable time after the
termination of the Trust;
(m) to utilize the facilities of any bank as a
depository; and
(n) to perform all acts which it may deem necessary or
proper and to exercise any and all powers of the
Trustee under this Agreement upon such terms and
conditions as it may deem for the best interest of
the Trust Fund.
2. In addition to the powers and authorities herein elsewhere granted,
except as herein expressly provided otherwise, the Trustee shall have the
powers, authorities and discretions set forth in the laws of the state
comprising the situs of the Trust insofar as applicable hereto. The powers and
authorities granted to the Trustee shall not be limited by the fact that such
Trustee may be a bank or other financial institution; and no Trustee duly
appointed, qualified and acting hereunder shall be subject to limitations or
restrictions imposed upon a bank or other financial institution or upon
fiduciaries generally with respect to the type of investment any such
institution or trustee may make of its own funds or the funds of others except
to the extent expressly provided herein or by law. Specifically, such Trustee
may retain, acquire or otherwise deal in stock for which it is registrar,
transfer agent or the like; may deposit Trust funds with itself as Trustee and
as a bank; may contract or otherwise enter into transactions between itself as
Trustee and as a bank or between itself as Trustee and any other institution for
which it then, theretofore, or thereafter may be acting as Trustee, unless
specifically prohibited by law.
3. The Trustee may not maintain the indicia of ownership of any assets
of the Trust Fund outside the jurisdiction of the district courts of the United
States, except to the extent otherwise expressly permitted by law.
ARTICLE VI
----------
ADMINISTRATIVE PROVISIONS
-------------------------
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<PAGE> 62
1. The Trustee shall maintain, with respect to the Employer, true and
accurate records and accounts reflecting all receipts and disbursements made by
it pursuant to this Trust Agreement and containing a description of all assets
from time to time held by it hereunder. Such records and accounts shall be open
to the inspection of the Employer and the Plan Administrator at all reasonable
times and may be audited from time to time by such person or persons as the
Employer or the Plan Administrator may designate. Within 90 days after the end
of each fiscal year, and at such other times as the Employer or Plan
Administrator may request in writing, the Trustee shall deliver to the Employer
or Plan Administrator a report and account in writing, covering the period from
the last previous report and account, in such form and detail as the Employer or
Plan Administrator may reasonably request; and the approval of any such report
and account by the Employer or Plan Administrator shall be a full acquittance
and discharge of the Trustee with respect to the matters therein set forth. Upon
the expiration of 120 days from the date of filing such annual or other report
and account, or upon the earlier specific approval thereof as provided above,
the Trustee shall be forever released and discharged from all liability and
accountability, except for actual fraud or a breach of fiduciary responsibility
by failure to abide by the terms of this Trust Agreement, to anyone with respect
to the propriety of its acts and transactions shown in such report and account
except with respect to any such acts or transactions as to which the Employer or
Plan Administrator shall within such 120-day period file written objections with
the Trustee. Nothing herein contained, however, shall be deemed to preclude the
Trustee from its right to have its accounts judicially settled by a court of
competent jurisdiction, in which event, only the Trustee and the Employer shall
be necessary parties.
2. The Trustee may employ such agents, attorneys (who may be counsel
for the Trustee), auditors, clerical and other assistants as, in its judgment,
may be necessary or desirable for the proper administration of the Trust Fund
and to advise the Trustee hereunder and may delegate to any person so employed
any ministerial power of duty of the Trustee.
3. The Trustee may institute, maintain or defend any litigation
necessary in connection with the administration of the Trust Fund, provided the
Trustee shall be under no duty or obligation to do so unless it shall have been
indemnified to its satisfaction against all expenses and liabilities which it
may
11
<PAGE> 63
sustain or reasonably anticipate by reason thereof. The Trustee shall notify the
Employer in writing before instituting, or commencing the defense of, any such
litigation.
4. All expenses of administering the Plan and Trust, including, without
limitation, the Trustee's compensation (to be agreed upon, from time to time,
between the Employer and Trustee) and expenses, Investment Managers' fees and
expenses and legal, accounting and other professional fees and expenses incurred
in connection with the Plan or the Trust, shall be paid from the Trust Fund,
unless otherwise paid by the Employer. Notwithstanding any provision contained
herein, to the extent that any Trustee serving under this Agreement is an
employee of the Employer, he shall receive no compensation (other than the
reimbursement of his expenses) for serving as Trustee.
5. No person shall be obliged to see to the application of any money or
property delivered to the Trustee, nor shall any such person be required to take
cognizance of the provisions of this Trust Agreement. The certificate of the
Trustee, duly executed, may be received by any person dealing with the Trustee
as conclusive evidence of any matter relating to this Agreement or the
administration thereof. In general, each person dealing with the Trustee may act
upon any advice, request or representation in writing by the Trustee, or the
Trustee's duly authorized agent, and shall not be liable to any person in so
doing. In case of doubt as to whether the Trustee has or has not been granted a
specific power not enumerated hereunder, the certificate of the Trustee that the
exercise of such power is necessary or desirable for the proper administration
or distribution of the Trust Fund shall be conclusive upon all persons dealing
with the Trustee to the same extent as if such power had been specifically
granted to the Trustee.
6. If the assets held by the Trustee hereunder, or any benefits payable
by the Trustee hereunder, shall become liable for the payment of any estate,
inheritance or income tax, which, in the Trustee's opinion, it shall be or may
be required to pay, the Trustee shall have full power and authority to pay such
tax out of any moneys or other property in its hands for the account of the
person whose interests hereunder are liable for such tax; but, at least ten
calendar days prior to making any such payment, the Trustee shall mail a notice
to the Employer or Plan Administrator of its intention to make such payment. The
Trustee also, prior to making any payment to any beneficiary hereunder,
12
<PAGE> 64
may require such releases or other documents from any lawful taxing authority
and may require such indemnity from such beneficiary as it shall deem necessary
for its protection.
7. The Employer or Plan Administrator shall furnish to the Trustee all
the information necessary for the Trustee to carry out the purposes of the Trust
Agreement. This information shall include information relative to the liquidity
needs of the Plan and other information regarding the Plan and its participants
that the Trustee may regard as necessary to carry out its functions.
8. The Trustee shall not be liable for its action in making payment or
delivery of any cash or other property to any person at the direction of the
Employer or Plan Administrator; and, in the event of litigation, actual or
threatened, the Trustee shall not be liable for declining to make delivery
thereof until final adjudication shall have been made by a court of competent
jurisdiction or by agreement of the parties. All costs and expenses of such
litigation shall be paid by the Employer.
9. The Trustee shall be under no duty to inquire into any rule,
regulation, instruction, direction or order purporting to have been issued by
the Employer or Plan Administrator and to be duly signed by an authorized
officer of the Employer or by any other individual designated by the Employer as
authorized to instruct the Trustee; and any certificate duly signed by an
authorized officer or such individual purporting to evidence any such
instruction, direction or order shall be accepted by the Trustee as conclusive
proof thereof. The Trustee shall also be fully protected in acting in good faith
upon any notice, resolution, instruction, direction, order, certificate,
opinion, letter, telegram or other document or communication believed by the
Trustee to be genuine and to be the act of the Employer or Plan Administrator.
10. The Trustee shall discharge its duties with respect to the Trust
Fund solely in the interest of the participants and beneficiaries of the Plan
for the exclusive purpose of providing benefits to such participants and
beneficiaries and defraying reasonable expenses in administering the Plan with
respect to which the Trust Fund is established and maintained.
13
<PAGE> 65
11. The Employer intends that the Trust herein established for the
purpose of implementing the Plan shall qualify under Sections 401 and 501 of the
Code; and until advised to the contrary in writing, the Trustee may assume that
the Trust is so qualified and is entitled to the exemption from taxes provided
for in said sections.
12. No bond shall ever be required of any Trustee, successor Trustee or
ancillary Trustee duly appointed and acting hereunder, except such bond as may
be required by any applicable law or statute of the United States, including,
without limitation, ERISA, or of any state having appropriate jurisdiction,
which required bond may not under such law or statute be waived by the parties
to this Agreement. If requested by the Employer, Trustee shall from time to time
deliver to the Employer copies of Trustee's then most current audited financial
statements.
13. The Trustee shall discharge its duties under this Trust Agreement:
(a) with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of
a like character and with like aims;
(b) by diversifying the investments of the Plan so as to
minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; and
(c) in accordance with the provisions of this Trust
Agreement insofar as they are consistent with the
provisions of ERISA, as the same may be from time to
time amended; but the duties and obligations of the
Trustee shall be limited to those expressly imposed
upon it by this Trust Agreement and any other
agreement to which it is a party, notwithstanding any
reference herein to the Plan.
14
<PAGE> 66
ARTICLE VII
-----------
SUBSTITUTION OF TRUSTEE
-----------------------
1. The Trustee shall serve until a successor Trustee shall be named by
the board of directors of the Employer or until its resignation, death,
incapacity or removal, in which event such board of directors shall name a
successor. A Trustee otherwise eligible to participate in the Plan and Trust
shall not be excluded on the ground that it is a Trustee. The word "Trustee" as
used herein shall include the original and any successor Trustee or Trustees.
2. The Trustee may resign at any time upon giving 30 days' prior
written notice to the Employer or, with the consent of the board of directors of
the Employer, the Trustee may resign with less than 30 days' prior written
notice.
3. The board of directors of the Employer may remove the Trustee by
giving at least 30 days' prior written notice to the Trustee.
4. Upon such removal or resignation of the Trustee, the board of
directors of the Employer shall appoint and designate a successor Trustee which
shall be one or more individual successor Trustees or a corporate Trustee
organized under the laws of the United States or of any state thereof with
authority to accept and execute trusts. Any successor Trustee must accept and
acknowledge in writing its appointment as a successor Trustee before it can act
in such capacity.
5. Title to all property and records or true copies of such records
necessary to the current operation of the Trust Fund held by the Trustee
hereunder shall vest in any successor Trustee acting pursuant to the provisions
hereof, without the execution or filing of any further instrument. Any resigning
or removed Trustee shall execute all instruments and do all acts necessary to
vest such title in any successor Trustee of record. Each successor Trustee shall
have, exercise and enjoy all the powers, both discretionary and ministerial,
herein conferred upon its predecessor. No successor Trustee shall be obliged to
examine the accounts, records and acts of any previous Trustee; and each
successor Trustee in no way or manner shall be responsible for any action or
omission to act on the part of any previous Trustee.
15
<PAGE> 67
6. Any corporation resulting from any merger or consolidation to which
the Trustee may be a party or succeeding to the Trust Business of the Trustee or
to which substantially all of the Trust Assets of the Trustee may be transferred
shall be the successor to the Trustee hereunder without any further act or
formality with like effect as if such successor Trustee had originally been
named Trustee herein; and, in any such event, it shall not be necessary for the
Trustee or any successor Trustee to give notice thereof to any person; and any
requirement, statutory or otherwise, that notice shall be given is hereby
waived.
ARTICLE VIII
------------
AMENDMENT AND TERMINATION
-------------------------
1. This Trust Agreement may be amended from time to time in any respect
whatsoever by resolution of the Employer specifying such amendment, subject to
the following limitations:
(a) Under no condition shall such amendment or amendments
result in or permit the return or repayment to the
Employer of any property held or acquired by the
Trustee hereunder, or the proceeds thereof, or result
in or permit the distribution of any such property
for the benefit of anyone other than employees of the
Employer who are beneficiaries under the Plan, except
to the extent provided for by Paragraph 2 of Article
II.
(b) Such amendment or amendments shall not increase the
duties or responsibilities of the Trustee hereunder
without its written consent.
The Employer or Plan Administrator shall deliver a copy of each amendment to
this Trust Agreement to the Trustee within 90 days of such amendment.
2. This Trust Agreement and the Trust may be terminated by the Employer
at any time by delivering to the Trustee evidence of the formal action
specifying that (a) the Plan is being terminated; or (b) contributions
thereunder are being discontinued.
16
<PAGE> 68
This Agreement and Trust shall automatically terminate when no cash or other
property remains in the Trust.
3. Nothing in this Agreement and Trust shall be construed to prevent
the Employer from suspending contributions to the Trust for any period
whatsoever or permanently; but such a suspension, whether temporary or
permanent, shall not of itself terminate the Trust.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
1. Except to the extent that this provision may not be legally waived,
no personal liability whatever shall attach to or be incurred by any
stockholder, officer, director or employee, as such, of the Employer, under or
by reason of the terms or conditions contained in or implied from this Trust
Agreement. The duties, obligations and rights of the Trustee shall be limited to
and by the provisions of this Trust Agreement, notwithstanding any reference
herein to the Plan; provided, however, the Employer agrees to deliver to the
Trustee a copy of each amendment to the Plan within 90 days of the date of such
amendment.
2. No benefits or beneficial interest provided for hereunder or under
the Plan shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, either voluntary or
involuntary, except as otherwise provided by federal law; and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be null and void; neither shall such benefits or beneficial interest
be liable for or subject to the debts, contracts, liabilities, engagements or
torts of any person to whom such benefits or funds are payable.
3. The Employer shall have no beneficial interest in the Trust Fund or
any part thereof; and no part of the Trust Fund shall ever revert or be repaid
to the Employer, either directly or indirectly, except as provided in Paragraph
2 of Article II hereof.
4. Unless superseded by federal law, the laws of the State of Ohio
shall govern, control and determine all questions arising with respect to the
Trust Fund and interpretation and validity of
17
<PAGE> 69
the provisions of this Agreement. In the event any provision or provisions of
this Agreement shall be held illegal or invalid for any reason, said illegality
or invalidity shall not affect the remaining provisions of this agreement but
shall be fully severable, and the agreement shall be construed and enforced as
if said illegal or invalid provision or provisions had never been inserted
herein.
5. Words and phrases are used interchangeably in the Plan and this
Trust Agreement and a word, term or phrase defined in either is similarly
defined for the purposes of the other. The terms "agreement," "herein,"
"hereunder" and similar terms refer to this Trust Agreement, including the Plan
which is made a part hereof, unless otherwise qualified by the context.
6. This Trust Agreement shall be binding upon persons who are entitled
to any benefits hereunder, their heirs and legal representatives and upon the
Employer, the Trustee and its respective successors and assigns.
7. This Trust Agreement may be executed in any number of counterparts,
each of which shall be an original, and all of which together shall constitute
one and the same instrument.
18
<PAGE> 70
IN WITNESS WHEREOF, United Community Financial Corp. and The Home
Savings and Loan Company of Youngstown, Ohio, as the Employer, and
_________________________, as Trustee, have caused these presents to be executed
as of the day and year first above written.
ATTEST: UNITED COMMUNITY FINANCIAL CORP.
By:
- ------------------------------ -------------------------------------
Its:
- ------------------------------ ------------------------------------
ATTEST: THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
By:
- ------------------------------ -------------------------------------
Its:
- ------------------------------ ------------------------------------
ATTEST: ----------------------------------------
TRUSTEE
By:
- ------------------------------ -------------------------------------
Its:
- ------------------------------ ------------------------------------
19
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as this
"AGREEMENT"), is entered into this ____ day of ____________, 1998, by and
between The Home Savings and Loan Company of Youngstown, Ohio, a savings and
loan association incorporated under Ohio law (hereinafter referred to as the
"COMPANY"), and _______________, an individual (hereinafter referred to as the
"EMPLOYEE");
WITNESSETH:
WHEREAS, the EMPLOYEE is currently employed as the _______________ of
the COMPANY;
WHEREAS, as a result of the skill, knowledge and experience of the
EMPLOYEE, the Board of Directors of the COMPANY desires to retain the services
of the EMPLOYEE as the _______________ of the COMPANY;
WHEREAS, the EMPLOYEE desires to continue to serve as the
_______________ of the COMPANY; and
WHEREAS, the EMPLOYEE and the COMPANY desire to enter into this
AGREEMENT to set forth the terms and conditions of the employment relationship
between the COMPANY and the EMPLOYEE;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the COMPANY and the EMPLOYEE hereby agree as follows:
1. Employment and Term.
(a) Term. Upon the terms and subject to the conditions of this
AGREEMENT, the COMPANY hereby employs the EMPLOYEE, and the EMPLOYEE hereby
accepts employment, as the _______________ of the COMPANY. The term of this
AGREEMENT shall commence on ____________, 1998, and shall end on ____________,
2001, unless extended by the COMPANY, with the consent of the EMPLOYEE, as
provided in subsection (b) of this Section 1 (hereinafter referred to, together
with such extensions, as the "TERM").
(b) Extension. On or before each anniversary of the date of this
AGREEMENT, the Board of Directors of the COMPANY shall review this AGREEMENT
and, upon approval by the Board of Directors, shall extend the term of this
AGREEMENT for a one-year period beyond the then effective expiration date. Any
such extension shall be subject to the written consent of the EMPLOYEE. The
Board of Directors shall document its reasons for extending the term of this
AGREEMENT in the minutes of the meeting at which such action is taken.
<PAGE> 2
2. Duties of the EMPLOYEE.
(a) General Duties and Responsibilities. The EMPLOYEE shall serve as
the _______________ of the COMPANY. Subject to the direction of the Board of
Directors of the COMPANY, the EMPLOYEE shall perform all duties and shall have
all powers which are commonly incident to the office of _______________ or
which, consistent therewith, are delegated to him by the Board of Directors.
Such duties may include, but shall not be limited to,
- ---------------------------------------------------------------------------.
(b) Devotion of Entire Time to the Business of the COMPANY. The
EMPLOYEE shall devote his entire productive time, ability and attention during
normal business hours throughout the TERM to the faithful performance of his
duties under this AGREEMENT. The EMPLOYEE shall not directly or indirectly
render any services of a business, commercial or professional nature to any
person or organization other than the COMPANY, United Community Financial Corp.
(hereinafter referred to as the "HOLDING COMPANY"), the sole shareholder of the
COMPANY, or any subsidiary of the COMPANY or the HOLDING COMPANY without the
prior written consent of the Board of Directors of the COMPANY; provided,
however, that the EMPLOYEE shall not be precluded from (i) vacations and other
leave time in accordance with Section 3(d) below, (ii) reasonable participation
in community, civic, charitable or similar organizations, (iii) reasonable
participation in industry-related activities, including, but not limited to,
attending state and national trade association meetings and serving as an
officer, director or trustee of a state or national trade association or Federal
Home Loan Bank, (iv) serving as an officer or director of the HOLDING COMPANY or
any subsidiary of the COMPANY or the HOLDING COMPANY and receiving a salary,
director's fees or other compensation or benefits, as appropriate, or (v)
pursuing personal investments which do not interfere or conflict with the
performance of the EMPLOYEE's duties to the COMPANY.
3. Compensation.
(a) Base Salary. The EMPLOYEE shall receive during the TERM an annual
salary payable in equal installments not less often than monthly. The amount of
such annual salary shall be $__________ until changed by the Board of Directors
of the COMPANY in accordance with Section 3(b) below.
(b) Annual Salary Review. On or before each anniversary of the date of
this AGREEMENT, the annual salary of the EMPLOYEE shall be reviewed by the Board
of Directors of the COMPANY and shall be set at an amount not less than
$__________, based upon the EMPLOYEE's individual performance and such other
factors as the Board of Directors may deem appropriate (hereinafter referred to
as the "ANNUAL REVIEW"). The results of the ANNUAL REVIEW shall be reflected in
the minutes of the Board of Directors of the COMPANY.
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<PAGE> 3
(c) Employee Benefit Programs. During the TERM, the EMPLOYEE shall be
entitled to participate in all formally established employee benefit, bonus,
pension and profit sharing plans and similar programs that are maintained by the
COMPANY or the HOLDING COMPANY from time to time and all employee benefit plans
or programs hereafter adopted in writing by the Board of Directors of the
COMPANY or the HOLDING COMPANY for which senior management personnel of the
COMPANY are eligible, including any employee stock ownership plan, stock option
plan or other stock benefit plan (hereinafter collectively referred to as
"BENEFIT PLANS"), in accordance with the terms and conditions of such BENEFIT
PLANS. Notwithstanding any statement to the contrary contained elsewhere in this
AGREEMENT, the COMPANY may at any time discontinue or terminate any BENEFIT PLAN
now existing or hereafter adopted, to the extent permitted by the terms of such
BENEFIT PLAN, and shall not be required to compensate the EMPLOYEE for such
discontinuance or termination to the extent such discontinuance or termination
pertains to all employees of the COMPANY who are eligible participants at the
time.
(d) Vacation and Sick Leave. The EMPLOYEE shall be entitled, without
loss of pay, to be absent voluntarily from the performance of his duties under
this AGREEMENT, in accordance with the policies periodically established by the
Board of Directors of the COMPANY for senior management officials of the
COMPANY. The EMPLOYEE shall be entitled to annual sick leave as established by
the Board of Directors of the COMPANY for senior management officials of the
COMPANY.
(e) Expenses. In addition to any compensation received under Section
3(d), the COMPANY shall pay or reimburse the EMPLOYEE for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this AGREEMENT, including participation in
industry-related activities.
4. Termination of Employment.
(a) General. The employment of the EMPLOYEE shall terminate at any time
during the TERM (i) at the option of the COMPANY, upon the delivery by the
COMPANY of written notice of termination to the EMPLOYEE, or (ii) at the option
of the EMPLOYEE, upon delivery by the EMPLOYEE of written notice of termination
to the COMPANY if, in connection with a CHANGE OF CONTROL (hereinafter defined),
the present capacity or circumstances in which the EMPLOYEE is employed are
materially adversely changed (including, but not limited to, a material
reduction in responsibilities or authority or the assignment of duties or
responsibilities substantially inconsistent with those normally associated with
the EMPLOYEE's position described in Section 2(a) of this AGREEMENT, change of
title or removal as a director of the COMPANY or the HOLDING COMPANY, the
requirement that the EMPLOYEE regularly perform his principal executive
functions more than thirty-five (35) miles from his primary office immediately
preceding the CHANGE OF CONTROL or the EMPLOYEE's compensation or other benefits
provided under this AGREEMENT are reduced, unless the benefit reductions are
part of a Company-wide reduction. For purposes of this AGREEMENT, an event shall
be deemed to have occurred "in connection with a CHANGE OF CONTROL" if such
event occurs within one year before or after a CHANGE OF CONTROL. The following
3
<PAGE> 4
subsections (A), (B) and (C) of this Section 4(a) shall govern the obligations
of the COMPANY to the EMPLOYEE upon the occurrence of the events described in
such subparagraphs:
(A) Termination for CAUSE. In the event that the COMPANY terminates the
employment of the EMPLOYEE during the TERM because of the EMPLOYEE's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure or refusal to perform the duties and
responsibilities assigned in this AGREEMENT, willful violation of any law, rule
or regulation (other than traffic violations or other minor offenses), or final
cease-and-desist order or material breach of any provision of this AGREEMENT
(hereinafter collectively referred to as "CAUSE"), the EMPLOYEE shall not
receive, and shall have no right to receive, any compensation or other benefits
for any period after such termination.
(B) Termination in Connection with CHANGE OF CONTROL. In the event that
the employment of the EMPLOYEE is terminated by the COMPANY in connection with a
CHANGE OF CONTROL for any reason other than CAUSE or is terminated by the
EMPLOYEE as provided in Section 4(a)(ii) above, then the following shall occur:
(I) The COMPANY shall promptly pay to the EMPLOYEE or to his
beneficiaries, dependents or estate an amount equal to the product of 2.99
multiplied by the EMPLOYEE's "base amount" as defined in Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (hereinafter collectively referred to as "SECTION 280G");
(II) The EMPLOYEE, his dependents, beneficiaries and estate
shall continue to be covered at the COMPANY's expense under all health, life,
disability and other benefit plans of the COMPANY in which the EMPLOYEE was a
participant prior to the effective date of the termination of his employment as
if the EMPLOYEE were still employed under this AGREEMENT until the earlier of
the expiration of the TERM or the date on which the EMPLOYEE is included in
another employer's benefit plans as a full-time employee; and
(III) The EMPLOYEE shall not be required to mitigate the
amount of any payment provided for in this AGREEMENT by seeking other employment
or otherwise, nor shall any amounts received from other employment or otherwise
by the EMPLOYEE offset in any manner the obligations of the COMPANY hereunder,
except as specifically stated in subparagraph (II) above.
(C) Termination not in Connection with CHANGE OF CONTROL. In the event
that the employment of the EMPLOYEE is terminated before the expiration of the
TERM for any reason other than death, termination for CAUSE or termination in
connection with a CHANGE OF CONTROL, then the following shall occur:
(I) The COMPANY shall be obligated to continue to pay on at
least a monthly basis, until the expiration of the TERM, to the EMPLOYEE, his
designated beneficiaries or his estate, the annual salary in effect at the time
of termination pursuant to
4
<PAGE> 5
Section 3 above, plus a cash bonus equal to the cash bonus, if any, paid to the
EMPLOYEE in the twelve month period prior to the termination of employment;
(II) The COMPANY shall continue to provide to the EMPLOYEE, at
the COMPANY's expense, health, life, disability and other benefits substantially
equal to those being provided to the EMPLOYEE at the date of termination of his
employment until the earliest to occur of the expiration of the TERM or the date
on which the EMPLOYEE is included in another employer's benefit plans as a
full-time employee; and
(III) The EMPLOYEE shall not be required to mitigate the
amount of any payment provided for in this AGREEMENT by seeking other employment
or otherwise, nor shall any amounts received from other employment or otherwise
by the EMPLOYEE offset in any manner the obligations of the COMPANY hereunder,
except as specifically stated in subparagraph II above.
(b) Death of the EMPLOYEE. The TERM shall automatically expire upon the
death of the EMPLOYEE. In such event, the EMPLOYEE's estate shall be entitled to
receive the compensation due the EMPLOYEE through the last day of the calendar
month in which the death occurred, except as otherwise specified herein.
(c) "Golden Parachute" Provision. In the event that any payments
pursuant to this Section 4 would result in the imposition of a penalty tax
pursuant to SECTION 280G, such payments shall be reduced to the maximum amount
which may be paid under SECTION 280G without exceeding such limits. Any payments
made to the EMPLOYEE pursuant to this AGREEMENT are subject to and conditioned
upon their compliance with 12 U.S.C. ss.1828(k) and any regulations promulgated
thereunder.
(d) Definition of "CHANGE OF CONTROL". A "CHANGE OF CONTROL" shall mean
any one of the following events; (i) the acquisition of ownership or power to
vote more than 25% of the voting stock of the COMPANY or the HOLDING COMPANY;
(ii) the acquisition of the ability to control the election of a majority of the
directors of the COMPANY or the HOLDING COMPANY; (iii) during any period of
three or less consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the COMPANY or the HOLDING COMPANY cease
for any reason to constitute at least a majority thereof; provided, however,
that any individual whose election or nomination for election as a member of the
Board of Directors of the COMPANY or the HOLDING COMPANY was approved by a vote
of at least two-thirds of the directors then in office shall be considered to
have continued to be a member of the Board of Directors of the COMPANY or the
HOLDING COMPANY; (iv) the acquisition by any person or entity of "conclusive
control" of the COMPANY within the meaning of 12 C.F.R. ss.574.4(a), or the
acquisition by any person or entity of "rebuttable control" within the meaning
of 12 C.F.R. ss.574.4(b) that has not been rebutted in accordance with 12 C.F.R.
ss.574.4(c); or (v) an event that would be required to be reported in response
to Item 1(a) of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant
to the Securities Exchange Act of 1934, as amended (hereinafter referred to as
the
5
<PAGE> 6
"EXCHANGE ACT"), or any successor thereto, whether or not any class of
securities of the Corporation is registered under the EXCHANGE ACT. For purposes
of this paragraph, the term "person" refers to an individual or corporation,
partnership, trust, association or other organization, but does not include the
EMPLOYEE and any person or persons with whom the EMPLOYEE is "acting in concert"
within the meaning of 12 C.F.R. Part 574.
(e) Termination by EMPLOYEE. If the EMPLOYEE terminates this
AGREEMENT without the written consent of the COMPANY, the EMPLOYEE may be liable
for any damages sustained by the COMPANY with respect to the loss of the
EMPLOYEE'S services, up to the amount of base salary that would have been paid
to the EMPLOYEE to the end of the TERM.
5. Special Regulatory Events. Notwithstanding the provisions of Section 4
of this AGREEMENT, the obligations of the COMPANY to the EMPLOYEE shall be as
follows in the event of the following circumstances:
(a) If the EMPLOYEE is suspended and/or temporarily prohibited from
participating in the conduct of the COMPANY's affairs by a notice served under
section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (hereinafter
referred to as the "FDIA"), the COMPANY's obligations under this AGREEMENT shall
be suspended as of the date of service of such notice, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the COMPANY
shall pay the EMPLOYEE all or part of the compensation withheld while the
obligations in this AGREEMENT were suspended and reinstate, in whole or in part,
any of the obligations that were suspended;
(b) If the EMPLOYEE is removed and/or permanently prohibited from
participating in the conduct of the COMPANY's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the FDIA, all obligations of the COMPANY under
this AGREEMENT shall terminate as of the effective date of such order; provided,
however, that vested rights of the EMPLOYEE shall not be affected by such
termination;
(c) If the COMPANY is in default, as defined in section 3(x)(1) of the
FDIA, all obligations under this AGREEMENT shall terminate as of the date of
default; provided, however, that vested rights of the EMPLOYEE shall not be
affected;
(d) All obligations under this AGREEMENT shall be terminated, except to
the extent of a determination that the continuation of this AGREEMENT is
necessary for the continued operation of the COMPANY, (i) by the Director of the
Office of Thrift Supervision (hereinafter referred to as the "OTS"), or his or
her designee, at the time that the Federal Deposit Insurance Corporation enters
into an agreement to provide assistance to or on behalf of the COMPANY under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director of the
OTS, or his or her designee, at any time the Director of the OTS approves a
supervisory merger to resolve problems related to the operation of the COMPANY
or when the COMPANY is determined by the Director of the OTS to be in an unsafe
or unsound condition; provided,
6
<PAGE> 7
however that no vested rights of the EMPLOYEE shall not be affected by any such
termination; and
(e) The provisions of this Section 5 are governed by the requirements
of 12 C.F.R. ss.563.39(b) and in the event that any statements in this Section 5
are inconsistent with 12 C.F.R. ss.563.39(b), the provisions of 12 C.F.R.
ss.563.39(b) shall be controlling.
6. Consolidation, Merger or Sale of Assets. Nothing in this AGREEMENT shall
preclude the COMPANY or the HOLDING COMPANY from consolidating with, merging
into, or transferring all, or substantially all, of their assets to another
corporation that assumes all of their obligations and undertakings hereunder.
Upon such a consolidation, merger or transfer of assets, the term "COMPANY" as
used herein, shall mean such other corporation or entity, and this AGREEMENT
shall continue in full force and effect.
7. Confidential Information. The EMPLOYEE acknowledges that during his
employment he will learn and have access to confidential information regarding
the COMPANY and its customers and businesses. The EMPLOYEE agrees and covenants
not to disclose or use for his own benefit, or the benefit of any other person
or entity, any confidential information, unless or until the COMPANY consents to
such disclosure or use or such information is otherwise legally in the public
domain. The EMPLOYEE shall not knowingly disclose or reveal to any unauthorized
person any confidential information relating to the COMPANY, its subsidiaries,
or affiliates, or to any of the businesses operated by them, and the EMPLOYEE
confirms that such information constitutes the exclusive property of the
COMPANY. The EMPLOYEE shall not otherwise knowingly act or conduct himself to
the material detriment of the COMPANY, its subsidiaries, or affiliates or in a
manner which is inimical or contrary to the interests of the COMPANY.
8. Non-assignability. Neither this AGREEMENT nor any right or interest hereunder
shall be assignable by the EMPLOYEE, his beneficiaries or legal representatives
without the COMPANY's prior written consent; provided, however, that nothing in
this Section 8 shall preclude the EMPLOYEE from designating a beneficiary to
receive any benefits payable hereunder upon his death or the executors,
administrators or other legal representatives of the EMPLOYEE or his estate from
assigning any rights hereunder to the person or persons entitled thereto.
9. No Attachment. Except as required by law, no right to receive payment under
this AGREEMENT shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy, or similar process of assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
10. Binding Agreement. This AGREEMENT shall be binding upon, and inure to the
benefit of, the EMPLOYEE and the COMPANY and their respective permitted
successors and assigns.
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<PAGE> 8
11. Amendment of AGREEMENT. This AGREEMENT may not be modified or amended,
except by an instrument in writing signed by the parties hereto.
12. Waiver. No term or condition of this AGREEMENT shall be deemed to have been
waived, nor shall there be an estoppel against the enforcement of any provision
of this AGREEMENT, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver,
unless specifically stated therein, and each waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than the act specifically
waived.
13. Severability. If, for any reason, any provision of this AGREEMENT is held
invalid, such invalidity shall not affect the other provisions of this AGREEMENT
not held so invalid, and each such other provision shall, to the full extent
consistent with applicable law, continue in full force and effect. If this
AGREEMENT is held invalid or cannot be enforced, then any prior AGREEMENT
between the COMPANY (or any predecessor thereof) and the EMPLOYEE shall be
deemed reinstated to the full extent permitted by law, as if this AGREEMENT had
not been executed.
14. Headings. The headings of the paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this AGREEMENT.
15. Governing Law. This AGREEMENT has been executed and delivered in the State
of Ohio and its validity, interpretation, performance, and enforcement shall be
governed by the laws of the State of Ohio, except to the extent that federal law
is governing.
16. Effect of Prior Agreements. This AGREEMENT contains the entire understanding
between the parties hereto and supersedes any prior employment agreement between
the COMPANY or any predecessor of the COMPANY and the EMPLOYEE.
17. Notices. Any notice or other communication required or permitted pursuant to
this AGREEMENT shall be deemed delivered if such notice or communication is in
writing and is delivered personally or by facsimile transmission or is deposited
in the United States mail, postage prepaid, addressed as follows:
If to the COMPANY:
The Home Savings and Loan Company
of Youngstown, Ohio
275 Federal Plaza West
P.O. Box 1111
Youngstown, Ohio 44501-1111
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<PAGE> 9
If to the EMPLOYEE:
-------------------
-------------------
-------------------
IN WITNESS WHEREOF, the COMPANY has caused this AGREEMENT to be
executed by its duly authorized officer, and the EMPLOYEE has signed this
AGREEMENT, each as of the day and year first above written.
Attest: The Home Savings and Loan Company
of Youngstown, Ohio
- ---------------------------- By: -------------------------------
-------------------------------
its Chairman of the Board
Attest:
- ---------------------------- -----------------------------------
[EMPLOYEE]
9
<PAGE> 1
Exhibit 16
[Packer, Thomas & Co. letterhead]
May 4, 1998
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments in Item 11 of Amendment No. 1 to
Registration Statement No. 333-47957 on Form S-1 of United Community Financial
Corp. dated May 6, 1998, as it relates to "Change in Accountants."
Very truly yours,
PACKER, THOMAS & CO.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-47957 of United Community Financial Corp. on Form S-1 of our report dated
February 27, 1998, appearing in the Prospectus, which is part of such
Registration Statement.
We also consent to the reference to us under the heading, "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
May 4, 1998
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-47957 of United Community Financial Corp. on Form S-1 of our report dated
February 28, 1997, appearing in the Prospectus, which is part of such
Registration Statement.
We also consent to the reference to us under the headings, "Change in
Accountants", and "Experts" in such Prospectus.
Packer, Thomas & Co.
Youngstown, Ohio
May 4, 1998
<PAGE> 1
Exhibit 99.1
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
275 FEDERAL PLAZA WEST
YOUNGSTOWN, OHIO 44503-1203
(330) 742-0500
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members of The Home
Savings and Loan Company of Youngstown, Ohio (the "Company") will be held at
______________________________, Youngstown, Ohio, on ______ ___, 1998, at __:00
__.m. Eastern Daylight Time (the "Special Meeting"), for the following purposes,
all of which are more completely set forth in the accompanying Summary Proxy
Statement:
1. To consider and act upon a resolution to approve the Amended
Plan of Conversion (the "Plan"), a copy of which is attached to the
Summary Proxy Statement as Exhibit A, pursuant to which the Company
would convert from a mutual savings and loan association incorporated
under the laws of the State of Ohio to a permanent capital stock savings
and loan association incorporated under the laws of the State of Ohio
(the "Conversion") and become a wholly-owned subsidiary of United
Community Financial Corp., an Ohio corporation organized for the purpose
of acquiring all of the capital stock to be issued by the Company in the
Conversion;
2. To consider and act upon a resolution to adopt the Amended
Articles of Incorporation of the Company, a copy of which is attached to
the Plan as Exhibit I;
3. To consider and act upon a resolution to adopt the Amended
Constitution of the Company, a copy of which is attached to the Plan as
Exhibit II;
4. To consider and act upon a resolution to approve the
contribution of up to 1,250,000 common shares of United Community
Financial Corp. to the Home Savings Charitable Foundation, a tax-exempt
organization established by the Company in 1991 in furtherance of the
Company's commitment to the communities it services; and
5. To transact such other business as may properly come before
the Special Meeting and any adjournments thereof.
Only those members of the Company who have a savings deposit at the
Company at the close of business on ________, 1998, are members of the Company
entitled to notice of and to vote at the Special Meeting and any adjournments
thereof. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, WE URGE YOU TO
CONSIDER THE ACCOMPANYING SUMMARY PROXY STATEMENT CAREFULLY, TO COMPLETE THE
ENCLOSED PROXY CARD(S) AND TO RETURN THE COMPLETED PROXY CARD(S) TO THE COMPANY
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE AS SOON AS POSSIBLE TO ASSURE THAT
YOUR VOTE(S) WILL BE COUNTED.
Youngstown, Ohio By Order of the Board of Directors
_______ ___, 1998
Douglas M. McKay,
President
<PAGE> 2
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
275 FEDERAL PLAZA WEST
YOUNGSTOWN, OHIO 44503-1203
(330) 742-0500
SUMMARY PROXY STATEMENT
INTRODUCTION
The enclosed proxy (the "Proxy") is being solicited by the Board of
Directors of The Home Savings and Loan Company of Youngstown, Ohio (the
"Company") for use at a Special Meeting of Members of the Company to be held at
______________________________, Youngstown, Ohio, on ________ ___, 1998, at
__:00 __.m. Eastern Daylight Time, and at any adjournments thereof (the "Special
Meeting"). The Special Meeting is being held for the following purposes:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached hereto as Exhibit
A, pursuant to which the Company would convert from a mutual savings and
loan association incorporated under the laws of the State of Ohio to a
permanent capital stock savings and loan association incorporated under
the laws of the State of Ohio (the "Conversion") and become a
wholly-owned subsidiary of United Community Financial Corp. (the
"Holding Company"), an Ohio corporation organized for the purpose of
acquiring all of the capital stock to be issued by the Company in the
Conversion;
2. To consider and act upon a resolution to adopt the Amended
Articles of Incorporation of the Company (the "Amended Articles"), a
copy of which is attached to the Plan as Exhibit I;
3. To consider and act upon a resolution to adopt the Amended
Constitution of the Company (the "Amended Constitution"), a copy of
which is attached to the Plan as Exhibit II;
4. To consider and act upon a resolution to approve the
contribution of up to 1,250,000 common shares of the Holding Company
(the "Contribution") to the Home Savings Charitable Foundation (the
"Foundation"), a tax-exempt organization established by the Company in
1991 in furtherance of the Company's commitment to the communities it
services; and
5. To transact such other business as may properly come before
the Special Meeting.
The Board of Directors of the Company adopted the Plan on December 9,
1997, and amended the Plan on May 6, 1998. The Plan has been approved by the
Office of Thrift Supervision (the "OTS") and the Ohio Department of Commerce,
Division of Financial Institutions (the "Division"), subject to the approval of
the Plan by the members of the Company at the Special Meeting and the
satisfaction of certain other conditions.
The approval of the Plan will have the effect of (i) terminating the
voting rights of the present members of the Company and (ii) modifying, and
eventually eliminating, their right to receive any surplus in the event of a
complete liquidation of the Company. Except for certain rights in the special
liquidation account established by the Plan (the "Liquidation Account"), such
voting and liquidation rights after the Conversion will vest exclusively in the
holders of the common shares of the Holding Company. See "THE CONVERSION -
Principal Effects of the Conversion -- Liquidation Account."
<PAGE> 3
During and upon the completion of the Conversion, the Company will
continue to provide services to depositors and borrowers pursuant to its current
policies, at its existing offices. In addition, the Company will continue to be
a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati and savings
accounts at the Company will continue to be insured up to applicable limits by
the Federal Deposit Insurance Corporation (the "FDIC") in the Savings
Association Insurance Fund (the "SAIF").
This Summary Proxy Statement is dated ________ ___, 1998, and is first
being mailed to members of the Company, together with the Prospectus of the
Holding Company dated __________ ___, 1998 (the "Prospectus"), on or about
_________ ___, 1998.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
All depositors at the Company having a savings account of record with
the Company on May 6, 1998 (the "Voting Record Date"), are members of the
Company eligible to vote at the Special Meeting and at any adjournments thereof
("Voting Members"). Voting Members will be entitled to cast one vote for each
$100, or fraction thereof, of the withdrawable value of their savings accounts
on the Voting Record Date.
A savings account in which one or more persons has an interest shall be
deemed to be held by only one Voting Member for the purpose of voting at the
Special Meeting. Any questions as to the eligibility of a member to vote, the
number of votes allocated to each Voting Member or any other matter relating to
voting will be resolved at the time of the Special Meeting by reference to the
records of the Company.
The Company records disclose that, as of the Voting Record Date, there
were ____________ votes entitled to be cast at the Special Meeting, a majority
of which are required to approve the Plan and the Contribution to the
Foundation. A vote of three-fifths of the votes cast in person or by proxy at
the Special Meeting is required to adopt the Amended Articles and the Amended
Constitution of the Company.
PROXIES
Voting Members may vote in person or by proxy at the Special Meeting.
For Voting Members wishing to vote by proxy at the Special Meeting, the enclosed
Proxy may be completed and given in accordance with this Summary Proxy
Statement. Any other proxy held by the Company will not be used by the Company
for the Special Meeting.
A Proxy will be voted in the manner indicated thereon or, in the absence
of specific instructions, will be voted FOR the approval of the Plan, FOR the
adoption of the Amended Articles, FOR the adoption of the Amended Constitution
and FOR the Contribution to the Foundation. Without affecting any vote
previously taken, a Voting Member may revoke a proxy at any time before such
proxy is exercised by executing and delivering a later dated proxy or by giving
the Company notice of revocation in writing or in open meeting at the Special
Meeting. Attendance at the Special Meeting will not, of itself, revoke a proxy.
Proxies may be solicited by the directors, officers and employees of the
Company in person or by telephone, telegraph or mail, for use only at the
Special Meeting and any adjournments thereof and will not be used for any other
meeting. The cost of soliciting Proxies will be borne by the Company.
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<PAGE> 4
MANAGEMENT'S RECOMMENDATIONS AND REASONS FOR CONVERSION
THE BOARD OF DIRECTORS RECOMMENDS THAT MEMBERS VOTE FOR THE APPROVAL OF
THE PLAN AND FOR THE ADOPTION OF THE AMENDED ARTICLES AND THE AMENDED
CONSTITUTION OF THE COMPANY.
The principal factors considered by the Company's Board of Directors in
reaching the decision to pursue a mutual-to-stock conversion were the numerous
competitive advantages which the stock form of organization offers, including
growth opportunities, employee retention, and increased capital levels.
If the Company is to continue to grow and prosper, the mutual form of
organization is the least desirable form from a competitive standpoint. The
opportunities for a mutual savings and loan association to expand through
mutual-to-mutual mergers or cash acquisitions are limited. Although the Company
does not have any specific acquisitions planned at this time, the Conversion
will position the Company to take advantage of any acquisition opportunities
which may present themselves. Because a conversion to stock form is a
time-consuming and complex process, the Company cannot wait until a prospective
acquisition arises to embark on the conversion process.
As an increasing number of the Company's competitors convert to stock
form and acquire the ability to use stock-based compensation programs, the
Company, in mutual form, would be at a disadvantage when it comes to attracting
and retaining qualified management. The Company believes that the Holding
Company's employee stock ownership plan (the "ESOP"), stock option plan (the
"Stock Option Plan") and recognition and retention plan (the "RRP") are
important tools in achieving such goals, even though the Holding Company will be
required to wait until at least six months after the Conversion to implement the
Stock Option Plan and the RRP. See "MANAGEMENT - Stock Benefit Plans" in the
Prospectus.
MANAGEMENT'S RECOMMENDATION AND REASONS
FOR THE CONTRIBUTION TO THE FOUNDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT MEMBERS VOTE FOR THE APPROVAL OF
THE CONTRIBUTION TO THE FOUNDATION.
The Plan provides that the Holding Company and the Company may
contribute common shares of the Holding Company to the Foundation. The
Foundation is dedicated to charitable purposes within the communities served by
the Company, including community development activities.
The purpose of the Foundation is to provide funding to support
charitable causes and community development activities. The Company believes
that the contribution to the Foundation could increase the long-term value of
the Company's community banking franchise by enhancing the Company's visibility
and reputation in the communities that it serves. The contribution to the
Foundation of Common Shares will enable the communities served by the Company to
share in the growth and success of the Company and the Holding Company long
after completion of the Conversion. The Foundation enables the Company and the
Holding Company to utilize a unified charitable donation strategy with
centralized responsibility for administration and allocation of corporate
charitable funds and enables the Company to provide a consistent level of
community support in future years, regardless of future earnings. The Company,
however, does not expect the contribution to the Foundation to take the place of
the Company's traditional community lending activities.
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<PAGE> 5
THE BUSINESS OF THE HOLDING COMPANY
The Holding Company was incorporated under Ohio law in February 1998
for the purpose of purchasing all of the capital stock of the Company to be
issued in connection with the Conversion. The Holding Company has not conducted
and will not conduct any business before the completion of the Conversion, other
than business related to the Conversion. Upon the consummation of the
Conversion, the Holding Company will be a unitary savings and loan holding
company, the principal assets of which initially will be the capital stock of
the Company, cash, the investments made with the net proceeds retained from the
sale of common shares of the Holding Company in connection with the Conversion
(the "Common Shares") and a loan to be made by the Holding Company to the ESOP
to facilitate the ESOP's purchase of Common Shares in the Conversion. See "USE
OF PROCEEDS."
The office of the Holding Company is located at 275 Federal Plaza West,
Youngstown, Ohio 44503-1203, and its telephone number is (330) 743-0500.
THE BUSINESS OF THE COMPANY
The Company is a mutual savings and loan association which was
organized under Ohio law in 1889 as "The Home Building and Loan." In 1897, the
name of the Company was changed to "The Home Savings and Loan Company of
Youngstown, Ohio." As an Ohio savings and loan association, the Company is
subject to supervision and regulation by the OTS, the Division and the FDIC. The
Company is a member of the FHLB of Cincinnati, and the deposits of the Company
are insured up to applicable limits by the FDIC in the SAIF. See "REGULATION" in
the Prospectus.
The Company conducts business from its main office located in
Youngstown, Ohio and 13 full-service branches, located in the Northern Ohio
communities of Austintown, Boardman, Canfield, Columbiana, East Palestine,
Liberty Township, Lisbon, Niles, Poland, Salem and Struthers. The principal
business of the Company is the origination of mortgage loans on one- to
four-family residential real estate located in the Company's primary market
area, which consists of northern Columbiana County, Mahoning County and southern
Trumbull County. The Company also originates loans secured by nonresidential
real estate in its primary market area. In addition to real estate lending, the
Company originates commercial loans and various types of consumer loans,
including home equity loans, education loans, loans secured by savings accounts,
motor vehicles, boats and recreational vehicles and unsecured loans. See "THE
BUSINESS OF THE COMPANY - Lending Activities" in the Prospectus. The Company
invests in interest-bearing deposits in other financial institutions, federal
funds and U.S. Treasury and agency Securities. See "THE BUSINESS OF THE COMPANY
"Investment Activities." Funds for lending and other investment activities are
obtained primarily from savings deposits, which are insured up to applicable
limits by the FDIC in the SAIF, principal repayments of loans and maturities of
securities. See "THE BUSINESS OF THE COMPANY - Deposits and Borrowings," in the
Prospectus.
The main office of the Company is located at 275 Federal Plaza West,
Youngstown, Ohio 44503-1203, and its telephone number is (330) 743-0500.
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<PAGE> 6
THE CONVERSION
THE OTS AND THE DIVISION HAVE APPROVED THE PLAN, SUBJECT TO THE
APPROVAL OF THE PLAN BY THE MEMBERS OF THE COMPANY ENTITLED TO VOTE ON THE PLAN
AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS
AND THE DIVISION. OTS AND DIVISION APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE PLAN.
GENERAL
The Board of Directors of the Company adopted the Plan and recommended
that the voting members of the Company approve the Plan at the Special Meeting.
During and upon completion of the Conversion, the Company will continue to
provide the services presently offered to depositors and borrowers, will
maintain its existing offices, and will retain its existing management and
employees.
Based on an independent appraisal of the pro forma market value of the
Holding Company and the Company, as converted, and as a result of the
contribution of shares to the Foundation (the "Adjusted Valuation Range"),
between 21,250,000 and 28,937,500 Common Shares are expected to be offered in a
subscription offering (the "Subscription Offering") and a community offering
(the "Community Offering") at a price of $10 per share. Applicable regulations
permit the Holding Company to issue up to 33,465,625 Common Shares with an
aggregate purchase price of $334,656,250. Federal regulations require, with
certain exceptions, that shares offered in connection with the Conversion must
be sold up to at least the minimum point of the Adjusted Valuation Range in
order for the Conversion to become effective. The actual number of Common Shares
sold in connection with the Conversion will be determined upon completion of the
Offering based on the final valuation of the Company, as converted. See "Pricing
and Number of Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering, subject
to the rights and restrictions established by the Plan, to (a) eligible
depositors of the Company as of July 31, 1996 (the "Eligibility Record Date")
who had deposit accounts with balances, in the aggregate, of $50 or more (a
"Qualifying Deposit"), (b) the ESOP, (c) eligible depositors of the Company who
had Qualifying Deposits as of March 31, 1998 (the "Supplemental Eligibility
Record Date"), (d) members of the Company eligible to vote at the Special
Meeting ("Other Eligible Members"), and (e) directors, officers and employees of
the Company.
Any Common Shares not subscribed for in the Subscription Offering will
be offered to the general public in the Community Offering in a manner which
will seek to achieve the widest distribution of the Common Shares, but which
will give preference to natural persons residing in Columbiana, Mahoning and
Trumbull, Counties, Ohio. Under OTS regulations, the Community Offering must be
completed within 45 days after completion of the Subscription Offering, unless
such period is extended by the Company with the approval of the OTS and the
Division. If the Community Offering is determined not to be feasible, an
occurrence that is not currently anticipated, the Boards of Directors of the
Holding Company and the Company will consult with the OTS and the Division to
determine an appropriate alternative method of selling unsubscribed Common
Shares up to the minimum of the Valuation Range. No alternative sales methods
are currently planned.
The minimum number of Common Shares any person may purchase in the
Offering is 25. Each Eligible Account Holder (hereafter defined), Supplemental
Eligible Account Holder (hereafter defined) and Other Eligible Member may
purchase in the Subscription Offering not more than 35,000 Common Shares. In
connection with the exercise of subscription rights arising from a single
deposit account in
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<PAGE> 7
which two or more persons have an interest, however, the aggregate maximum
number of Common Shares which the persons having an interest in such account may
purchase in the Subscription Offering in relation to such account is 35,000
Common Shares. Except for the ESOP, which may purchase up to 10% of the total
Common Shares sold in the Offering, no person, together with his or her
Associates (hereafter defined) and other persons Acting in Concert (hereafter
defined) with him or her, may purchase more than 1.0% of the Common Shares sold
in the Offering. Subject to OTS regulations, the purchase limitations may be
increased or decreased after the commencement of the Offering in the sole
discretion of the Boards of Directors of the Holding Company and the Company. If
the purchase limitations are increased after the commencement of the
Subscription Offering, persons who have subscribed for the maximum amount will
be given the opportunity to increase their subscriptions. See "Limitations on
Purchases of Common Shares."
OTS and Ohio regulations require the completion of the Conversion
within 24 months after the date of the approval of the Plan by the voting
members of the Company. The commencement and completion of the Conversion will
be subject to market conditions and other factors beyond the Company's control.
Due to changing economic and market conditions, no assurance can be given as to
the length of time that will be required to complete the sale of the Common
Shares. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Company. In such circumstances, the
Company may also incur substantial additional printing, legal and accounting
expenses in completing the Conversion. In the event the Conversion is not
successfully completed, the Company will be required to charge all Conversion
expenses against current earnings.
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Deposit holders who are members of the Company in its
mutual form will have no voting rights in the Company as converted and will not
participate, therefore, in the election of directors or otherwise control the
Company's affairs. Voting rights in the Holding Company will be held exclusively
by its shareholders, and voting rights in the Company will be held exclusively
by the Holding Company as the sole shareholder of the Company. Each holder of
the Holding Company's common shares will be entitled to one vote for each share
owned on any matter to be considered by the Holding Company's shareholders. See
"DESCRIPTION OF AUTHORIZED SHARES."
DEPOSIT ACCOUNTS AND LOANS. Deposit accounts in the Company, as
converted, will be equivalent in amount, interest rate and other terms to the
present deposit accounts in the Company, and the existing FDIC insurance on such
accounts will not be affected by the Conversion. The Conversion will not affect
the terms of loan accounts or the rights and obligations of borrowers under
their individual contractual arrangements with the Company.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by the Company of a private letter ruling from the IRS or
an opinion of counsel to the effect that the Conversion will constitute a
tax-free reorganization as defined in Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Company intends to proceed with the
Conversion based upon an opinion received from its special counsel, Vorys,
Sater, Seymour and Pease LLP, to the following effect:
(1) The Conversion constitutes a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will
be recognized by the Company in its mutual form or in its stock form as
a result of the Conversion. The Company in its mutual form and the
Company in its stock form will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
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<PAGE> 8
(2) No gain or loss will be recognized by the Company upon the
receipt of money from the Holding Company in exchange for the capital
stock of the Company, as converted;
(3) The assets of the Company will have the same basis in its
hands immediately after the Conversion as they had in its hands
immediately prior to the Conversion, and the holding period of the
assets of the Company after the Conversion will include the period
during which the assets were held by the Company before the Conversion;
(4) No gain or loss will be recognized by the deposit account
holders of the Company upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in the Company immediately
prior to the Conversion, of withdrawable deposit accounts in the
Company immediately after the Conversion, in the same dollar amount as
their withdrawable deposit accounts in the Company immediately prior to
the Conversion, plus, in the case of eligible depositors of the Company
as of the Eligibility Record Date who had Qualifying Deposits (the
"Eligible Account Holders") and eligible depositors of the Company as
of the Supplemental Eligibility Record Date who had Qualifying Deposits
(the "Supplemental Eligible Account Holders"), the interests in the
Liquidation Account of the Company, as described below;
(5) The basis of the withdrawable deposit accounts in the
Company held by its deposit account holders immediately after the
Conversion will be the same as the basis of their deposit accounts in
the Company immediately prior to the Conversion. The basis of the
interests in the Liquidation Account received by the Eligible Account
Holders and Supplemental Eligible Account Holders will be zero. The
basis of the nontransferable subscription rights received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other
Eligible Members will be zero (assuming that at distribution such
rights have no ascertainable fair market value);
(6) No gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders or Other Eligible
Members upon the distribution to them of nontransferable subscription
rights to purchase Common Shares (assuming that at distribution such
rights have no ascertainable fair market value), and no taxable income
will be realized by such Eligible Account Holders, Supplemental
Eligible Account Holders or Other Eligible Members as a result of their
exercise of such nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of the
Company pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the
holding period of such shares will commence on the date of such
exercise. The basis of the Common Shares purchased other than by the
exercise of subscription rights will be the purchase price thereof
(assuming in the case of the other subscribers that the opportunity to
buy in the Subscription Offering has no ascertainable fair market
value), and the holding period of such shares will commence on the day
after the date of the purchase;
(8) For purposes of Section 381 of the Code, the Company will
be treated as if there had been no reorganization. The taxable year of
the Company will not end on the effective date of the Conversion.
Immediately after the Conversion, the Company in its stock form will
succeed to and take into account the tax attributes of the Company in
its mutual form immediately prior to the Conversion, including the
Company's earnings and profits or deficit in earnings and profits;
(9) The bad debt reserves of the Company in its mutual form
immediately prior to the Conversion will not be required to be restored
to the gross income of the Company in its stock
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<PAGE> 9
form as a result of the Conversion and immediately after the Conversion
such bad debt reserves will have the same character in the hands of the
Company in its stock form as they would have had if there had been no
Conversion. The Company in its stock form will succeed to and take into
account the dollar amounts of those accounts of the Company in its
mutual form which represent bad debt reserves in respect of which the
Company in its mutual form has taken a bad debt deduction for taxable
years ending on or before the Conversion; and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of the Company available for the subsequent
distribution of dividends within the meaning of Section 316 of the
Code. The creation of the Liquidation Account on the records of the
Company will have no effect on its taxable income, deductions for
additions to reserves for bad debts under Section 593 of the Code or
distributions to stockholders under Section 593(e) of the Code.
For Ohio tax purposes, the tax consequences of the Conversion
will be as follows:
(1) The Company is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status;
(2) The Company is subject to the Ohio corporate franchise tax
on "financial institutions," which is imposed annually at a rate of
1.5% of the Company's equity capital determined in accordance with
generally accepted accounting standards ("GAAP"), and the Conversion
will not change such status;
(3) As a "financial institution," the Company is not subject
to any tax based upon net income or net profit imposed by the State of
Ohio, and the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to the
Company in its mutual or stock form for purposes of the Ohio corporate
franchise tax. As a consequence of the Conversion, however, the annual
Ohio corporate franchise tax liability of the Company will increase if
the taxable net worth of the Company (i.e., book net worth computed in
accordance with GAAP at the close of the Company's taxable year for
federal income tax purposes) increases thereby; and
(5) The Conversion will not be a taxable transaction to any
deposit account holder or borrower member of the Company in its mutual
or stock form for purposes of the Ohio corporate franchise tax and the
Ohio personal income tax.
The Company has received an opinion from Keller & Company, Inc.
("Keller"), a firm experienced in valuing thrift institutions, to the effect
that the subscription rights have no ascertainable fair market value because the
rights are received by specified persons at no cost, may not be transferred and
are of short duration. The IRS could challenge the assumption that the
subscription rights have no ascertainable fair market value.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Company in its present mutual form, each depositor in the Company would
receive a pro rata share of any assets of the Company remaining after payment of
the claims of all creditors, including the claims of all depositors to the
withdrawable value of their deposit accounts. A depositor's pro rata share of
such remaining assets would be the same proportion of such assets as the value
of such depositor's accounts bears to the total aggregate value of all deposits
in the Company at the time of liquidation.
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<PAGE> 10
In the event of a complete liquidation of the Company in its stock form
after the Conversion, each depositor would have a claim of the same general
priority as the claims of all other general creditors of the Company. Except as
described below, each depositor's claim would be solely in the amount of the
balance in such depositor's account plus accrued interest. The depositor would
have no interest in the assets of the Company above that amount. Such assets
would be distributed to the Holding Company as the sole shareholder of the
Company.
For the purpose of granting a limited priority claim to the assets of
the Company in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
deposit accounts at the Company after the Conversion, the Company will, at the
time of Conversion, establish a liquidation account in an amount equal to the
net worth of the Company as of December 31, 1997 (the "Liquidation Account").
The Liquidation Account will not operate to restrict the use or application of
any of the regulatory capital of the Company.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of each fiscal year of the Company subsequent to the
respective record dates, the balance in the deposit account to which a
Subaccount relates is less than the lesser of (i) the deposit balance in such
deposit account at the close of business on the last day of any other annual
closing date subsequent to the Eligibility Record Date or the Supplemental
Eligibility Record Date, or (ii) the amount of the Qualifying Deposit as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, the balance
of the Subaccount for such deposit account shall be adjusted in proportion to
the reduction in such deposit account balance. In the event of any such downward
adjustment, such Subaccount balance shall not be subsequently increased
notwithstanding any increase in the deposit balance of the related deposit
account. If any deposit account is closed, its related Subaccount shall be
reduced to zero upon such closing.
In the event of a complete liquidation of the converted Company (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the Holding Company as the sole
shareholder of the Company. Any assets remaining after satisfaction of such
liquidation rights and the claims of the Company's creditors would be
distributed to the Holding Company as the sole shareholder of the Company. No
merger, consolidation, purchase of bulk assets or similar combination or
transaction with another financial institution, the deposits of which are
insured by the FDIC, will be deemed to be a complete liquidation for this
purpose and, in any such transaction, the Liquidation Account shall be assumed
by the surviving institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE
INSURED BY THE FDIC. For a description of the characteristics of the Common
Shares, see "DESCRIPTION OF AUTHORIZED SHARES."
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<PAGE> 11
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of the Holding Company and the Company will be final. The
Plan may be amended by the Boards of Directors of the Holding Company and the
Company at any time with the concurrence of the OTS and the Division. If the
Company and the Holding Company determine, upon advice of counsel and after
consultation with the OTS and the Division, that any such amendment is material,
subscribers will be notified of the amendment and will be provided the
opportunity to affirm, increase, decrease or cancel their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest at the Conversion Rate (hereinafter defined).
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan and
the adoption of the Amended Articles of Incorporation and the Amended
Constitution by the voting members of the Company at the Special Meeting and the
completion of the sale of the requisite amount of Common Shares within 24 months
following the date of such approval. If these conditions are not satisfied, the
Plan will automatically terminate and the Company will continue its business in
the mutual form of organization. The Plan may be voluntarily terminated by the
Board of Directors at any time before the Special Meeting and at any time
thereafter with the approval of the OTS and the Division.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 12:00 NOON, EASTERN DAYLIGHT
TIME, ON _____ __, 1998. SUBSCRIPTION RIGHTS NOT EXERCISED BEFORE 12:00 NOON,
EASTERN DAYLIGHT TIME, ON _____ __, 1998, WILL BE VOID, WHETHER OR NOT THE
COMPANY HAS BEEN ABLE TO LOCATE EACH PERSON ENTITLED TO SUCH SUBSCRIPTION
RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. EACH PERSON SUBSCRIBING FOR COMMON SHARES MUST
REPRESENT TO THE COMPANY THAT HE OR SHE IS PURCHASING SUCH SHARES FOR HIS OR HER
OWN ACCOUNT AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER
PERSON FOR THE SALE OR TRANSFER OF THE COMMON SHARES. ANY PERSON WHO ATTEMPTS TO
TRANSFER HIS OR HER SUBSCRIPTION RIGHTS MAY BE SUBJECT TO PENALTIES AND
SANCTIONS, INCLUDING LOSS OF THE SUBSCRIPTION RIGHTS.
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of Common Shares for purchase under the
preference categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the voting members of the Company at the Special Meeting.
The preference categories and preliminary purchase limitations which
have been established by the Plan, in accordance with applicable regulations,
for the allocation of Common Shares are as follows:
(a) Each Eligible Account Holder shall receive, without
payment therefor, a nontransferable right to purchase in the
Subscription Offering up to the greater of (i) 35,000
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Common Shares, (ii) .10% of the total number of Common Shares sold in
connection with the Conversion, and (iii) 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number
of Common Shares sold in connection with the Conversion by a fraction,
the numerator of which is the amount of the Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date, subject to the overall purchase
limitations set forth in Section 11 of the Plan and subject to
adjustment by the Board of Directors of the Holding Company and the
Company as set forth in Section 11 of the Plan. If the exercise of
subscription rights by Eligible Account Holders results in an
over-subscription, Common Shares will be allocated among subscribing
Eligible Account Holders in a manner which will, to the extent
possible, make the total allocation of each subscriber equal 100 shares
or the amount subscribed for, whichever is less. Any Common Shares
remaining after such allocation has been made will be allocated among
the subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion which the amount of their respective
Qualifying Deposits on the Eligibility Record Date bears to the total
Qualifying Deposits of all Eligible Account Holders on such date.
Notwithstanding the foregoing, Common Shares in excess of 28,750,000,
the maximum of the Valuation Range, may be sold to the ESOP before
fully satisfying the subscriptions of Eligible Account Holders. No
fractional shares will be issued. For purposes of this paragraph (a),
increases in the Qualifying Deposits of directors and executive
officers of the Company during the twelve months preceding the
Eligibility Record Date shall not be considered.
(b) The ESOP shall receive, without payment therefor, a
nontransferable right to purchase in the Subscription Offering an
aggregate amount of up to 10% of the total Common Shares sold in the
Conversion and contributed to the Foundation, provided that shares
remain available after satisfying the subscription rights of Eligible
Account Holders up to the maximum of the Valuation Range pursuant to
paragraph (a) above. Although the Plan and OTS regulations permit the
ESOP to purchase up to 10% of the Common Shares, the Holding Company
anticipates that the ESOP will purchase 8% of the Common Shares. If the
ESOP is unable to purchase all or part of the Common Shares for which
it subscribes, the ESOP may purchase Common Shares on the open market
or may purchase authorized but unissued Common Shares. If the ESOP
purchases authorized but unissued Common Shares, such purchases could
have a dilutive effect on the interests of the Holding Company's
shareholders. See "RISK FACTORS - Potential Impact of Benefit Plans on
Net Earnings and Shareholders' Equity."
(c) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders and the ESOP pursuant
to paragraphs (a) and (b) above each Supplemental Eligible Account
Holder will receive, without payment therefor, a nontransferable right
to purchase up to the greater of (i) 35,000 Common Shares, (ii) .10% of
the total number of Common Shares sold in connection with the
Conversion, and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of Common Shares
sold in connection with the Conversion by a fraction, the numerator of
which is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in
each case on the Supplemental Eligibility Record Date, subject to the
overall purchase limitations set forth in Section 11 of the Plan and
subject to adjustment by the Board of Directors of the Holding Company
and the Company as set forth in Section 11 of the Plan. If the exercise
of subscription rights by Supplemental Eligible Account Holders results
in an oversubscription, Common Shares will be allocated among
subscribing Supplemental Eligible Account Holders in a manner which
will, to the extent possible, make the total allocation of each
subscriber equal 100 shares or the amount subscribed for, whichever is
less. Any Common Shares remaining after such allocation has been made
will be allocated among the subscribing Supplemental Eligible
11
<PAGE> 13
Account Holders whose subscriptions remain unfilled in the proportion
which the amount of their respective Qualifying Deposits on the
Supplemental Eligibility Record Date bears to the total Qualifying
Deposits of all Supplemental Eligible Account Holders on such date. No
fractional shares will be issued.
(d) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders pursuant to paragraphs (a), (b)
and (c) above, each Other Eligible Member, other than an Eligible
Account Holder or Supplemental Eligible Account Holder, shall receive,
without payment therefor, a nontransferable right to purchase up to the
greater of (i) 35,000 Common Shares, and (ii) .10% of the total number
of Common Shares sold in connection with the Conversion, subject to
adjustment by the Boards of Directors of the Company and the Holding
Company. In the event of an oversubscription by Other Eligible Members,
the available Common Shares will be allocated among subscribing Other
Eligible Members in the same proportion that their subscriptions bear
to the total amount of subscriptions by all Other Eligible Members;
provided, however, that, to the extent sufficient Common Shares are
available, each subscribing Other Eligible Member shall receive 25
Common Shares before the remaining available Common Shares are
allocated.
(e) Provided that shares remain available after satisfying the
subscription rights of Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders and Other Eligible Members pursuant to
paragraphs (a), (b), (c) and (d), above, the directors, officers and
employees of the Company shall receive, without payment therefor,
nontransferable rights to purchase an aggregate of up to 15% of the
Common Shares sold in connection with the Conversion subject to the
overall purchase limitations set forth in Section 11 of the Plan and
subject to adjustment by the Boards of Directors of the Company and the
Holding Company as set forth in Section 11 of the Plan. The rights of
directors, officers and employees to purchase Common Shares under this
paragraph are in addition to rights which are otherwise available to
them under the Plan.
If the exercise of subscription rights by directors, officers and
employees of the Company results in an oversubscription, Common Shares will be
allocated among subscribing directors, officers and employees on an equitable
basis to be determined by the Board of Directors of the Company by giving weight
to an individual's period of service, compensation and position at the Company.
For information as to the number of shares proposed to be purchased by the
directors and executive officers, see "Shares to be Purchased by Management
Pursuant to Subscription Rights."
The Board of Directors may reject any one or more subscriptions if,
based upon the Board of Directors' interpretation of applicable regulations,
such subscriber is not entitled to the shares for which he or she has subscribed
or if the sale of shares subscribed for would be in violation of any applicable
statutes, regulations, or rules. In connection with the exercise of subscription
rights arising from a deposit account in which two or more persons have an
interest, the aggregate maximum number of Common Shares which the persons having
an interest in such account may purchase in the Subscription Offering in
relation to such account is 35,000 Common Shares.
The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons having subscription
rights reside. However, no such person will be offered or receive any Common
Shares under the Plan who resides in a foreign country or in a state of the
United States with respect to which each of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares under the Plan
resides in such country or state; (ii) under the securities laws of such country
or state, the granting of subscription rights or the offer or sale of Common
Shares to
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<PAGE> 14
such persons would require the Holding Company or its officers or directors to
register as a broker or dealer or to register or otherwise qualify its
securities for sale in such country or state; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
COMMUNITY OFFERING
To the extent Common Shares remain available after the satisfaction of
all subscriptions received in the Subscription Offering, the Company is hereby
offering Common Shares in the Community Offering subject to the limitations set
forth below. If subscriptions are received in the Subscription Offering for up
to 33,465,625 Common Shares, Common Shares may not be available in the Community
Offering. All sales of the Common Shares in the Community Offering will be at
the same price per share as in the Subscription Offering.
THE COMMUNITY OFFERING WILL BE TERMINATED ON OR BEFORE 12:00 NOON,
EASTERN DAYLIGHT TIME, ___________ 1998, UNLESS EXTENDED BY THE COMPANY AND THE
HOLDING COMPANY. IN ACCORDANCE WITH THE PLAN, THE OFFERING MAY NOT BE EXTENDED
BEYOND ______________, 1998, WITHOUT THE APPROVAL OF THE OTS AND THE DIVISION.
In the event shares are available for the Community Offering, each
person, together with any Associate or groups Acting in Concert, may purchase in
the Community Offering up to 35,000 Common Shares. If an insufficient number of
Common Shares is available to fill all of the orders received in the Community
Offering, the available Common Shares will be allocated in a manner to be
determined by the Boards of Directors of the Holding Company and the Company,
subject to the following:
(i) Preference will be given to natural persons who maintain a
bona fide residence in Columbiana, Mahoning or Trumbull Counties, Ohio,
the counties in which the offices of the Company are located on the
date of submission of a Stock Order Form;
(ii) Orders received in the Community Offering will first be
filled up to 2% of the total number of Common Shares offered, with any
remaining shares allocated on an equal number of shares per order basis
until all orders have been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of the Holding Company and
the Company to accept or reject such purchases in whole or in part.
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<PAGE> 15
PUBLIC OFFERING
The Plan provides that all Common Shares not purchased in the
Subscription Offering and the Community Offering may be offered for sale to the
general public in a public offering (the "Public Offering") through a syndicate
of registered broker-dealers to be formed. The Company and the Holding Company
expect to market any Common Shares which remain unsubscribed after the
Subscription Offering and the Community Offering through the Public Offering.
The Company and the Holding Company have the right to reject orders in whole or
part in their sole discretion in the Public Offering. Neither Trident, McDonald
& Company, Oppenheimer nor any registered broker-dealer shall have any
obligation to take or purchase any Common Shares in the Public Offering;
however, Trident Securities, Inc. ("Trident") , McDonald & Company Securities,
Inc. ("McDonald & Company") and CIBC Oppenheimer Corp. ("Oppenheimer") have
agreed to use their best efforts in the sale of Common Shares in the Public
Offering.
The price at which Common Shares are sold in the Public Offering will
be the same price at which Common Shares are offered and sold in the
Subscription Offering and the Community Offering. No person will be permitted to
subscribe in the Public Offering for more than 35,000 Common Shares, subject to
the maximum purchase limitations. See "- Limitations on Purchases of Common
Shares."
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon
the purchase of Common Shares. To the extent Common Shares are available, the
minimum number of Common Shares that may be purchased by any party is 25, or
$250. No fractional shares will be issued. Each Eligible Account Holder,
Supplemental Eligible Account Holder and Other Eligible Member may purchase in
the Subscription Offering not more than 35,000 Common Shares. In connection with
the exercise of subscription rights arising from a single deposit account in
which two or more persons have an interest, however, the aggregate maximum
number of Common Shares which the persons having an interest in such account may
purchase in the Subscription Offering in relation to such account is 35,000
Common Shares. In the event shares are available for the Community Offering or
the Public Offering, each person, together with any Associate or other persons
Acting in Concert, may purchase in the Community Offering and the Public
Offering up to 35,000 Common Shares. Purchases in the Subscription Offering, the
Community Offering and the Public Offering are subject to the additional
limitation that no person, together with his or her Associates and other persons
Acting in Concert with him or her, may purchase more than 1% of the Common
Shares sold in the Offering. Such limitations do not apply to the Foundation and
the ESOP, which intends to purchase up to 8% of the total Common Shares sold in
the Conversion and contributed to the Foundation. Subject to applicable
regulations, the purchase limitations may be increased or decreased after the
commencement of the Offering in the sole discretion of the Boards of Directors.
The minimum number of Common Shares any person may purchase in the
Offering is 25. Each Eligible Account Holder, Supplemental Eligible Account
Holder and Other Eligible Member may purchase in the Subscription Offering not
more than 35,000 Common Shares. In connection with the exercise of subscription
rights arising from a single deposit account in which two or more persons have
an interest, however, the aggregate maximum number of Common Shares which the
persons having an interest in such account may purchase in the Subscription
Offering in relation to such account is 35,000 Common Shares. Except for the
ESOP, which may purchase up to 10% of the total Common Shares sold in the
Offering, no person, together with his or her Associates and other persons
Acting in Concert with him or her, may purchase more than 1.0% of the Common
Shares sold in the Offering. Subject to OTS regulations, the purchase
limitations may be increased or decreased after the commencement of the Offering
in the sole discretion of the Boards of Directors of the Holding Company and the
Company. If
14
<PAGE> 16
the purchase limitations are increased after the commencement of the
Subscription Offering, persons who have subscribed for the maximum amount will
be given the opportunity to increase their subscriptions. See "Limitations on
Purchases of Common Shares."
Purchases of Common Shares in the Offering are also subject to the
change in control regulations of the OTS which restrict direct and indirect
purchases of 10% or more of the stock of any savings association by any person
or group of persons acting in concert, under certain circumstances. See
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE COMPANY AND RELATED
ANTI-TAKEOVER PROVISIONS - Federal Law and Regulation" in the Prospectus.
After the Conversion, Common Shares, except for Common Shares purchased
by affiliates of the Holding Company and the Company, will be freely
transferable, subject to OTS and Division regulations.
PLAN OF DISTRIBUTION
The offering of the Common Shares is made only pursuant to this
Prospectus, which is available at the offices of the Company. See "ADDITIONAL
INFORMATION AND STOCK ORDER FORMS." Officers and directors of the Company will
be available to answer questions about the Conversion and may also hold
informational meetings for interested persons. Such officers and directors will
not be permitted to make statements about the Holding Company or the Company
unless such information is also set forth in this Prospectus, nor will they
render investment advice. The Holding Company will rely on Rule 3a4-1 under the
Securities Exchange Act of 1934 (the "Exchange Act"), and sales of Common Shares
will be conducted within the requirements of Rule 3a4-1, which will permit
officers, directors and employees of the Holding Company and the Company to
participate in the sale of Common Shares. No officer, director or employee of
the Holding Company or the Company will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Shares.
To assist the Holding Company and the Company in marketing the Common
Shares, the Holding Company and the Company have retained Trident, a
broker-dealer registered with the SEC and a member of the National Association
of Securities Dealers, Inc. ("NASD"). Trident will assist the Company in (i)
training and educating the Company's employees regarding the mechanics and
regulatory requirements of the conversion process; (ii) conducting information
meetings for subscribers and other potential purchasers; and (iii) keeping
records of all stock subscriptions. For providing these services, the Company
has agreed to pay Trident a commission equal to .95% of the aggregate dollar
amount of Common Shares sold in the Subscription Offering and the Community
Offering, excluding shares sold by Selected Dealers, if any, and shares
purchased by the ESOP and directors, officers, and employees of the Company and
their affiliates.
The Company has also agreed to reimburse Trident for its reasonable
legal fees and expenses not to exceed $50,000 and its reasonable out-of-pocket
expenses not to exceed $10,000. The Company and the Holding Company have also
agreed to indemnify Trident, under certain circumstances, against liabilities
and expenses (including legal fees) arising out of or based upon untrue
statements or omissions contained in the materials used in the Offering or in
various documents submitted to regulatory authorities in respect of the
Conversion, including liabilities under the Securities Act of 1933, as amended
(the "Act"), unless such untrue statement or omission, or alleged untrue
statement or omission, was made in reliance upon certain information furnished
to the Company by Trident expressly for use in the Summary Proxy Statement or
this Prospectus.
If Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, Trident, McDonald & Company
and Oppenheimer may enter into an agreement
15
<PAGE> 17
with other NASD member firms ("Selected Dealers") to assist in the sale of
Common Shares in the Community Offering. If Selected Dealers are used, the
Company will pay a fee for shares sold by Selected Dealers in an amount to be
agreed upon jointly by Trident and McDonald & Company and the Company to reflect
market requirements at the time of the Community Offering. During the Community
Offering, Selected Dealers may only solicit indications of interest from their
customers to place orders with the Company as of a certain date (the "Order
Date") for the purchase of Common Shares. When and if the Company believes that
enough indications of interest and orders have been received in the Community
Offering to consummate the Conversion, Trident and McDonald & Company will
request, as of the Order Date, Selected Dealers to submit orders to purchase
shares for which they have previously received indications of interest from the
customers. Selected Dealers will send confirmations of the orders to such
customers on the next business day after the Order Date. Selected Dealers will
debit the accounts of their customers on the date which will be three business
days from the Order Date (the "Settlement Date"). On the Settlement Date, funds
received by Selected Dealers will be remitted to the Company. It is anticipated
that the Conversion will be consummated on the Settlement Date. However, if
consummation is delayed after the Settlement Date, funds will earn interest at
the Conversion Rate until the completion of the offering. Funds will be returned
promptly in the event the Conversion is not consummated.
EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond ____________, 1998, persons
who have subscribed for Common Shares in the Subscription Offering or in the
Community Offering will receive a written notice that prior to a date specified
in the notice, they have the right to affirm, increase, decrease or rescind
their subscriptions for Common Shares. Persons who do not affirmatively elect to
continue their subscription or who elect to rescind their subscriptions during
any such extension will have all of their funds promptly refunded with interest
at the Conversion Rate. Persons who elect to decrease their subscriptions will
have the appropriate portion of their funds promptly refunded.
USE OF STOCK ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and in the
Community Offering may be made only by completing and submitting a Stock Order
Form. Any person who desires to subscribe for Common Shares in the Subscription
Offering must do so by delivering to the Company by mail or in person, prior to
12:00 noon, Eastern Daylight Time, on ____________, 1998, a properly executed
and completed Stock Order Form, together with full payment of the subscription
price of $10 for each Common Share for which subscription is made. ANY STOCK
ORDER FORM WHICH IS NOT RECEIVED BY THE COMPANY PRIOR TO 12:00 NOON, EASTERN
DAYLIGHT TIME, ON _____ ______, 1998, OR FOR WHICH FULL PAYMENT HAS NOT BEEN
RECEIVED BY THE COMPANY PRIOR TO SUCH TIME, WILL NOT BE ACCEPTED. PHOTOCOPIES,
TELECOPIES OR OTHER REPRODUCTIONS OF STOCK ORDER FORMS WILL NOT BE ACCEPTED. See
"ADDITIONAL INFORMATION."
AN EXECUTED STOCK ORDER FORM, ONCE RECEIVED BY THE HOLDING COMPANY, MAY
NOT BE MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF THE HOLDING
COMPANY, UNLESS (I) THE COMMUNITY OFFERING IS NOT COMPLETED BY __________, 1998,
OR (II) THE FINAL VALUATION OF THE COMPANY, AS CONVERTED, IS LESS THAN
$212,500,000 OR MORE THAN $334,652,500. IF EITHER OF THOSE EVENTS OCCUR, PERSONS
WHO HAVE SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION OFFERING OR ORDERED
COMMON SHARES IN THE COMMUNITY OFFERING WILL RECEIVE WRITTEN NOTICE THAT THEY
HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR RESCIND THEIR SUBSCRIPTIONS OR
ORDERS PRIOR TO A DATE SPECIFIED IN THE NOTICE. ANY PERSON WHO DOES NOT
AFFIRMATIVELY ELECT TO CONTINUE HIS SUBSCRIPTION OR ELECTS TO RESCIND HIS
SUBSCRIPTION DURING ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS PROMPTLY
REFUNDED. ANY PERSON WHO ELECTS TO DECREASE HIS SUBSCRIPTION DURING ANY SUCH
EXTENSION WILL HAVE THE
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<PAGE> 18
APPROPRIATE PORTION OF HIS FUNDS PROMPTLY REFUNDED. IN ADDITION, IF THE PURCHASE
LIMITATIONS ARE INCREASED, PERSONS WHO HAVE SUBSCRIBED FOR THE MAXIMUM AMOUNT
WILL BE GIVEN THE OPPORTUNITY TO INCREASE THEIR SUBSCRIPTIONS.
PAYMENT FOR COMMON SHARES
Payment of the subscription price for all Common Shares for which
subscription is made must accompany a completed Stock Order Form in order for
subscriptions or orders to be valid. Payment for Common Shares may be made (i)
in cash, if delivered in person; (ii) by check, bank draft, or money order made
payable to the Company; or (iii) by authorization of withdrawal from deposit
accounts in the Company (other than non-self-directed IRAs). No payments by wire
transfer will be accepted. The Company cannot lend money or otherwise extend
credit to any person to purchase Common Shares.
Payments made in cash or by check, bank draft, or money order will be
placed in a segregated savings account insured by the FDIC up to applicable
limits until the Conversion is completed or terminated. Interest will be paid by
the Company on such account at the then current passbook savings account rate,
which is currently ____% (the "Conversion Rate") with an annual percentage yield
of ____%, from the date payment is received until the Conversion is completed or
terminated. Payments made by check will not be deemed to have been received
until the check has cleared for payment.
Instructions for authorizing withdrawals from deposit accounts,
including certificates of deposit, are provided in the Stock Order Form. Once a
withdrawal has been authorized, none of the designated withdrawal amount may be
used by a subscriber for any purpose other than to purchase Common Shares,
unless the Conversion is terminated. All sums authorized for withdrawal will
continue to earn interest at the contract rate for such account or certificate
until the completion or termination of the Conversion. Interest penalties for
early withdrawal applicable to certificate accounts will be waived in the case
of withdrawals authorized for the purchase of Common Shares. If a partial
withdrawal from a certificate account results in a balance less than the
applicable minimum balance requirement, the certificate will be canceled and the
remaining balance will earn interest at the Company's passbook rate subsequent
to the withdrawal.
In order to utilize funds in an IRA maintained at the Company, the
funds must be transferred to a self-directed IRA that permits the funds to be
invested in stock. There will be no early withdrawal or IRS penalties for such
transfer. The beneficial owner of the IRA must direct the trustee of the account
to use funds from such account to purchase Common Shares in connection with the
Conversion. THIS CANNOT BE DONE THROUGH THE MAIL. Persons who are interested in
utilizing IRAs at the Company to subscribe for Common Shares should contact the
Conversion Information Center at (330) 747-1111 for instructions and assistance.
Subscriptions will not be filled by the Company until subscriptions
have been received in the Offering for up to 21,250,000 Common Shares, the
minimum point of the Adjusted Valuation Range. If the Conversion is terminated,
all funds delivered to the Company for the purchase of Common Shares will be
returned, and all charges to deposit accounts will be rescinded. If the
Conversion is completed, subscribers and other purchasers will be notified by
mail, promptly upon completion of the sale of the Common Shares, of the number
of shares for which their subscriptions have been accepted. The funds on deposit
with the Company for the purchase of Common Shares will be withdrawn and paid to
the Holding Company in exchange for the Common Shares. Certificates representing
Common Shares will be delivered promptly thereafter. The Common Shares will not
be insured by the FDIC.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes but may pay for such Common Shares upon consummation of
the Conversion.
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<PAGE> 19
INTENDED PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
intended purchases by the directors and executive officers of the Company and
the Holding Company:
<TABLE>
<CAPTION>
Position with the Percent of
Holding Company Total Aggregate total
Name and the Company(1) shares(2) purchase price(2) offering(3)
- ---- --------------- ------ -------------- --------
<S> <C> <C> <C> <C>
Richard M. Barrett Director 31,000 $ 310,000 .12%
James E. Bennett, Jr. Director 1,000 10,000 -
Charles. B. Cushwa, III Director 60,000 600,000 .24
William A. Holdford(4) - 10,000 100,000 .04
Donald R. Inglis Director 35,000 300,000 .12
Gary Keller Director 60,000 600,000 .24
Patrick A. Kelly Treasurer 60,000 600,000 .24
Douglas M. McKay Chairman of 80,000 800,000 .32
the Board and President
Herbert F. Schuler, Sr. Director 90,000 900,000 .36
Clarence R. Smith, Jr. Director 25,000 250,000 .10
Robert J. Steele, Jr.(6) - 10,000 100,000 .04
Donald J. Varner(7) Secretary 60,000 600,000 .24
John F. Zimmerman, Jr. Director 15,000 150,000 .06
------- ---------- ----
All directors and executive
officers as a group
(13 persons) 532,000 $5,320,000 2.12%
======= ========== ====
- -----------------------------
</TABLE>
(1) Unless otherwise noted, the individual holds the same position with
both the Company and the Holding Company.
(2) Includes intended purchases by Associates of directors and executive
officers, to the extent known.
(3) Assumes that 25,000,000 Common Shares, the mid-point of the Adjusted
Valuation Range, will be sold in connection with the Conversion at $10
per share and that a sufficient number of Common Shares will be
available to satisfy the intended purchases by directors and executive
officers. See "Pricing and Number of Common Shares to be Sold."
(4) Mr. Holdford is the Vice President of Loan Administration of the
Company.
(5) Mr. Kelly is the Treasurer, Chief Financial Officer, Senior Vice
President and a director of the Company.
(6) Mr. Steele is the Vice President of Savings Administration of the
Company.
(7) Mr. Varner is the Secretary, Senior Vice President of Retail Banking
and a director of the Company.
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<PAGE> 20
All purchases by executive officers and directors of the Company are
being made for investment purposes only and with no present intent to resell.
Directors and executive officers will pay the same $10 per share price for
Common Share purchased in the Conversion as all other subscribers.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the
pro forma market value of the shares as determined by an independent appraisal
of the Company, as converted, and the Holding Company. Keller, a firm which
evaluates and appraises financial institutions, has been retained by the Company
to prepare an appraisal of the estimated pro forma market value of the Company
as converted, and the Holding Company. Keller will receive a fee of $27,000 for
its appraisal and one update and will not be reimbursed for out-of-pocket
expenses.
Keller was selected by the Board of Directors of the Company because
Keller has extensive experience in the valuation of thrift institutions,
particularly in the mutual-to-stock conversion context. The Board of Directors
reviewed the credentials of Keller's appraisal personnel and obtained references
and recommendations from other companies which have engaged Keller. Keller is
certified by the OTS as a mutual-to-stock conversion appraiser.
The Company and Keller have no relationships which would affect Keller's
independence.
The appraisal was prepared by Keller in reliance upon the information
contained herein and in the Prospectus. Keller also considered the following
factors, among others: the economic and demographic conditions in the Company's
primary market area; the quality and depth of the Company's management and
personnel; certain historical financial and other information relating to the
Company; a comparative evaluation of the operating and financial statistics of
the Company with those of other thrift institutions; the aggregate size of the
Offering; the impact of the Conversion on the Company's regulatory capital and
earnings potential; the trading market for stock of comparable thrift
institutions and thrift holding companies; and general conditions in the markets
for such stocks. The Boards of Directors of the Holding Company and the Company
reviewed and deemed appropriate the assumptions and methodology used by Keller
in preparing the appraisal.
The Pro Forma Value, determined by Keller, is $250,000,000 as of
February 24, 1998. The Adjusted Valuation Range established in accordance with
the Plan is $212,500,000 to $289,375,000 which, based upon a per share offering
price of $10, will result in the sale of between 21,250,000 and 28,937,500
Common Shares. Applicable regulations permit the Holding Company to Common
Shares in an amount not to exceed issue up to a total of 33,465,625 Common
Shares with an aggregate purchase price of $334,656,250. The total number of
Common Shares sold in the Conversion will be based on the Valuation Range. Pro
forma shareholders' equity per share and pro forma earnings per share decrease
moving from the low end to the high end of the Valuation Range. See "PRO FORMA
DATA" in the Prospectus.
If, due to changing market conditions, the final valuation is less than
$212,500,000 or more than $334,656,250, subscribers will be given the right to
affirm, increase, decrease or rescind their subscriptions. Any person who does
not affirmatively elect to continue his subscription or elects to rescind his
subscription before the date specified in the notice will have all of his funds
promptly refunded with interest. Any person who elects to decrease his
subscription will have the appropriate portion of his funds promptly refunded
with interest.
THE APPRAISAL BY KELLER IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON SHARES
OR VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION, KELLER HAS
RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF
19
<PAGE> 21
THE AUDITED FINANCIAL STATEMENTS AND STATISTICAL INFORMATION PROVIDED BY THE
COMPANY. KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE COMPANY, NOR DID KELLER VALUE INDEPENDENTLY THE
ASSETS OR LIABILITIES OF THE COMPANY OR THE HOLDING COMPANY. THE VALUATION
CONSIDERS THE COMPANY ONLY AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN
INDICATION OF THE LIQUIDATION VALUE OF THE COMPANY. MOREOVER, BECAUSE SUCH
VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING COMMON SHARES WILL THEREAFTER BE ABLE TO SELL
SUCH SHARES AT THE CONVERSION PURCHASE PRICE.
A copy of the complete appraisal is on file and open for inspection at
the office of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the
Central Regional Office of the OTS, 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606; at the office of the Division, 77 S. High Street,
Columbus, Ohio 43215; and at the offices of the Company.
RESTRICTIONS ON REPURCHASE OF COMMON SHARES
OTS regulations generally prohibit the Holding Company from
repurchasing any of its capital stock for three years following the date of
completion of the Conversion, except as part of an open-market stock repurchase
program during the second and third years following the Conversion involving no
more than 5% of the outstanding capital stock during a twelve-month period. In
addition, after such a repurchase, the Company's regulatory capital must equal
or exceed all regulatory capital requirements. Before the commencement of a
repurchase program, the Holding Company must provide notice to the OTS, and the
OTS may disapprove the program if the OTS determines that it would adversely
affect the financial condition of the Company or if it determines that there is
no valid business purpose for such repurchase. Such repurchase restrictions
would not prohibit the ESOP or the RRP from purchasing Common Shares during the
first year following the Conversion.
Ohio regulations prohibit the Holding Company from repurchasing shares
during the first year after the Conversion if the effect thereof would cause the
Company not to meet its capital requirements.
RESTRICTIONS ON TRANSFER OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors and executive officers of the
Holding Company will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. The certificates evidencing Common
Shares issued by the Holding Company to directors and executive officers will
bear a legend giving appropriate notice of the restriction imposed upon them. In
addition, the Holding Company will give appropriate instructions to the transfer
agent (if any) for the Holding Company's common shares in respect of the
applicable restriction on transfer of any restricted shares. Any shares issued
as a stock dividend, stock split or otherwise in respect of restricted shares
will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of the Holding Company or the Company, or
any of their Associates, may purchase any common shares of the Holding Company
without the prior written approval of the OTS, except through a broker-dealer
registered with the SEC. This restriction will not apply, however, to negotiated
transactions involving more than 1% of a class of outstanding common shares of
the Holding Company or shares acquired by any stock benefit plan of the Holding
Company or the Company.
The Common Shares, like the stock of most public companies, are subject
to the registration requirements of the Act. Accordingly, the Common Shares may
be offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common
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<PAGE> 22
Shares received in the Conversion by persons who are not "affiliates" of the
Holding Company may be resold without registration. Common Shares received by
affiliates of the Holding Company will be subject to resale restrictions. An
"affiliate" of the Holding Company, for purposes of Rule 144, is a person who
directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, the Holding Company. Rule 144
generally requires that there be publicly available certain information
concerning the Holding Company and that sales subject to Rule 144 be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is generally entitled to sell in the public market,
without registration, in any three-month period, a number of shares which does
not exceed the greater of (i) 1% of the number of outstanding shares of the
Holding Company or (ii) if the shares are admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities association, such as The Nasdaq Stock Market, the average
weekly reported volume of trading during the four weeks preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves the Plan may obtain review of such action
by filing in the Court of Appeals of the United States for the circuit in which
the principal office or residence of such person is located or in the United
States Court of Appeals for the District of Columbia, a written petition praying
that the final action of the OTS be modified, terminated, or set aside. Such
petition must be filed within 30 days after the date of mailing of proxy
materials to the voting members of the Company or within 30 days after the date
of publication in the Federal Register of notice of approval of the Plan by the
OTS, whichever is later.
OTHER
THE PLAN IS ATTACHED TO THIS SUMMARY PROXY STATEMENT AS EXHIBIT A AND
SHOULD BE REVIEWED CAREFULLY. ALL STATEMENTS MADE IN THIS SUMMARY PROXY
STATEMENT AND THE PROSPECTUS ARE HEREBY QUALIFIED IN THEIR ENTIRETY BY REFERENCE
TO THE PLAN. THE ADOPTION OF THE PLAN BY THE VOTING MEMBERS AT THE SPECIAL
MEETING WILL AUTHORIZE THE BOARDS OF DIRECTORS OF THE HOLDING COMPANY AND THE
COMPANY TO AMEND OR TERMINATE THE PLAN. IF THE BOARDS OF DIRECTORS OF THE
HOLDING COMPANY AND THE COMPANY DETERMINE, UPON ADVICE OF COUNSEL AND AFTER
CONSULTATION WITH THE OTS AND THE DIVISION, THAT ANY SUCH AMENDMENT IS MATERIAL,
SUBSCRIBERS WILL BE NOTIFIED OF THE AMENDMENT AND WILL BE PROVIDED THE
OPPORTUNITY TO AFFIRM, INCREASE, DECREASE OR CANCEL THEIR SUBSCRIPTIONS.
THE FOUNDATION
GENERAL
The Plan provides that the Holding Company and the Company may
contribute common shares to the Foundation. The Company believes that the
contribution to the Foundation could increase the long-term value of the
Company's community banking franchise by enhancing the Company's visibility and
reputation in the communities that it serves. The Foundation is dedicated to
charitable purposes within the communities served by the Company, including
community development activities.
PURPOSE OF THE FOUNDATION
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<PAGE> 23
The purpose of the Foundation is to provide funding to support
charitable causes and community development activities. The Foundation was
formed in 1991 to augment the Company's community activities. The Foundation is
dedicated exclusively to community activities and the promotion of charitable
causes, and may be able to support such activities in ways that are not
currently available to the Company. The Board of Directors believes the
establishment of a charitable foundation is consistent with the Company's
commitment to community service and to the Company's CRA responsibilities.
Funding of the Foundation with Common Shares will enable the communities served
by the Company to share in the growth and success of the Company and the Holding
Company long after completion of the Conversion. The Foundation enables the
Company and the Holding Company to utilize a unified charitable donation
strategy with centralized responsibility for administration and allocation of
corporate charitable funds and enables the Company to provide community support
in future years, regardless of future earnings. The Company, however, does not
expect the contribution to the Foundation to take the place of the Company's
traditional community lending activities.
STRUCTURE OF THE FOUNDATION
The Foundation is a charitable trust established exclusively for
charitable purposes, including community development, as set forth in Section
501(c)(3) of the Code. The trust agreement provides that no part of the net
earnings of the Foundation will inure to the benefit of any private shareholder
or individual.
The business of the Foundation is conducted by an independent trustee,
which is currently National City Bank, Northeast, located at 20 Federal Plaza,
Youngstown, Ohio 44503. The Company has the power to direct the trustee with
respect to distributions by the Foundation, consistent with the purposes for
which the Foundation was established, through a distribution committee of the
Company. The committee consists of Douglas M. McKay, the Chairman of the Board,
President and Chief Executive Officer of the Company, Donald J. Varner, the
Secretary, Senior Vice President/Retail Banking and a director of the Company
and Patrick A. Kelly, the Chief Financial Officer, Treasurer, Senior Vice
President and a director of the Company. In connection with the conversion,
Messrs. McKay, Varner and Kelly have indicated an intent to purchase, together
with their Associates, 80,000, 60,000 and 60,000 shares respectively, or .32%,
.24% and .24%, respectively, of the total number of Common Shares sold in the
Conversion, assuming the sale of 25,000,000 Common Shares at the mid-point of
the Adjusted Valuation Range. See "THE CONVERSION - Intended Purchases by
Directors and Executive Officers." Each director, officer and employee of the
Company, as well as any person who has the authority to direct the management or
policies of the Company or any other person who owes a fiduciary duty to the
Company, must comply with the regulations of the OTS regarding conflicts of
interest if such person is also a trustee of the Foundation, a member of the
distribution committee or an employee of the Foundation.
The Company proposes to contribute to the Foundation immediately
following the Conversion a number of shares equal to 5.0% of the Common Shares
sold in the Conversion, subject to the overall limitation of 1,250,000 common
shares. The contribution would equal 1,062,500 Common Shares at the minimum of
the Adjusted Valuation Range and 1,250,000 common shares at the mid-point,
maximum and adjusted maximum of the Adjusted Valuation Range, which would have a
market value of $10,625,000 and $12,500,000, respectively, based on the purchase
price of $10.00 per share. Keller, an independent appraiser of financial
institutions, considered the effect of the contribution of shares to the
Foundation when determining the pro forma market value of the Holding Company
and the Company, as converted. Keller determined that the contribution would
dilute the equity and earnings of the initial shareholders of the Holding
Company and that the contribution would result in a charge to the Company's
earnings, therefore resulting in a lower pro forma market
22
<PAGE> 24
value of the Holding Company and the Company, as converted. See "RISK FACTORS -
Contribution to the Foundation." As a result of the contribution to the
Foundation, the Holding Company will offer 2,500,000, 3,000,000, 3,262,500 and
3,564,375 fewer shares at the minimum, mid-point, maximum and adjusted maximum
of the Adjusted Valuation Range, than if it had not made such contribution.
Based on the $10 price per share, the Holding Company will receive $25.5
million, $30.0 million, $32.6 million and $35.6 million less in gross proceeds
than it would have if the contribution to the Foundation were not made. See
"COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION."
Notwithstanding the impact of the contribution on the offering, the
Company and the Holding Company determined to fund the Foundation with Common
Shares to enhance the ties between the Company and the communities it serves by
allowing the communities to share in the growth and success of the Company and
the Holding Company over the long term. The funding of the Foundation with
Common Shares also provides the Foundation with a potentially larger endowment
than a cash contribution since, as a shareholder, the Foundation will share in
the growth and success of the Holding Company. The contribution of Common Shares
to the Foundation has the potential to provide a self-sustaining funding
mechanism to enable the Company to maintain a consistent level of charitable
grants and donations regardless of the Company's income.
The Foundation will receive income from any dividends that may be paid
on the Common Shares in the future. Subject to applicable federal and state
laws, the Foundation may also obtain funds through loans collateralized by the
Common Shares or from the proceeds of the sale of any of the Common Shares in
the open market from time to time to provide the Foundation with additional
liquidity. As a private foundation under Section 501(c)(3) of the Code, the
Foundation will be required to distribute annually in grants or donations, a
minimum of 5% of the average fair market value of its net investment assets.
Upon completion of the Conversion and the contribution of shares to the
Foundation, the Holding Company would have 22,312,500, 26,250,000, 30,187,500
and 34,715,265 shares issued and outstanding at the minimum, mid-point, maximum
and adjusted maximum of the Valuation Range, respectively. Because the Holding
Company will have an increased number of shares outstanding, the voting and
ownership interests of shareholders in the Holding Company's Common Shares would
be diluted as compared to their interests in the Holding Company if the shares
were not contributions to the Foundation. Assuming the sale of Common Shares at
the maximum of the Adjusted Valuation Range and the contribution of 1,250,000
common shares to the Foundation, there will be a dilution of approximately 4.14%
to the ownership interests in the Holding Company of the persons purchasing
Common Shares in the Conversion. For additional discussion of the dilutive
effect, see "PRO FORMA DATA" in the Prospectus.
TAX CONSIDERATIONS
The Foundation qualifies as a Section 501(c)(3) exempt organization
under the Code, and is classified as a private foundation.
Under the Code, the Company is generally allowed a deduction for
charitable contributions made to qualifying donees within the taxable year of up
to 10% of its taxable income (with certain modifications) for such year.
Charitable contributions made in excess of the annual deductible amount will be
deductible over each of the five succeeding taxable years, subject to certain
limitations. The Company and the Holding Company believe that the Conversion
presents a unique opportunity to increase the funding of the Foundation given
the substantial amount of additional capital being raised in
23
<PAGE> 25
the Conversion. In making such a determination, the Company and the Holding
Company considered the dilutive impact of the contribution of Common Shares to
the Foundation on the amount of Common Shares available to be offered for sale
in the Conversion. Based on such consideration, the Company and Holding Company
believe that the contribution to the Foundation is justified given the Company's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and the potential benefits of the Foundation to the
communities served by the Company. In this regard, assuming the sale of the
Common Shares at the mid-point of the Valuation Range, the Holding Company would
have pro forma shareholders' equity of $360.7 million, or 28.6% of pro forma
consolidated assets, and the Company's pro forma tangible, core and total
risk-based capital ratios would be 18.78%, 18.78% and 39.62%, respectively. See
"REGULATORY CAPITAL COMPLIANCE," "CAPITALIZATION," AND "COMPARISON OF VALUATION
AND PRO FORMA INFORMATION WITH NO FOUNDATION" in the Prospectus. The amount of
the contribution will not adversely impact the financial condition of the
Company and the Holding Company, and the Company and the Holding Company
therefore believe that the amount of the charitable contribution is reasonable
and is safe and sound given the Company's and the Holding Company's pro forma
capital positions.
The Company and the Holding Company have received an opinion of their
independent tax advisors that the Company's contribution of shares to the
Foundation would not constitute an act of self-dealing, and that the Company
will be entitled to a deduction in the amount of the fair market value of the
shares at the time of the contribution, subject to the annual deduction
limitation described above. The Company, however, will be able to carry forward
any unused portion of the deduction for five years following the contribution,
subject to certain limitations. The Company's independent tax advisors, however,
have not rendered advice as to the fair market value for purposes of determining
the amount of the tax deduction. The Company is permitted under the Code to
carry over the excess contribution over the five-year period following the
contribution to the Foundation. Assuming the close of the Offering at the
mid-point of the Valuation Range, the Company estimates that all of the
deduction should be deductible over the six-year period. The Company and the
Holding Company do not anticipate making any other contributions to the
Foundation during 1998 or the first five years following the Conversion. The
Company may make donations to charitable institutions in an aggregate amount not
to exceed $80,000 per year consistent with past practice. During 1996 and 1997,
the Company directly donated approximately $57,000 and $64,000 to charitable
institutions in its community. After that five-year period, the Company and the
Holding Company may consider future contributions to the Foundation. Any such
decisions would be based on an assessment of, among other factors, the financial
condition of the Company and the Holding Company at that time, the interests of
shareholders of the Holding Company and the depositors of the Company, and the
financial condition and operations of the Foundation.
As a private foundation, earnings and gains, if any, from the sale of
common shares or other assets are generally exempt from federal and state
corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private foundation will generally be subject
to a federal excise tax of 2.0%. The Foundation is required to make an annual
filing with the IRS within four and one-half months after the close of the
Foundation's fiscal year to maintain its tax-exempt status. The Foundation will
be required to publish a notice that the annual information return will be
available for public inspection for a period of 180 days after the date of such
public notice. The information return for a private foundation must include,
among other things, an itemized list of all grants made or approved, showing the
amount of each grant, the recipient, any relationship between a grant recipient
and the Foundation's managers and a concise statement of the purpose of each
grant.
REGULATORY CONDITIONS IMPOSED ON THE FOUNDATION
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<PAGE> 26
The contribution to the Foundation is subject to the following
conditions being agreed to by the Foundation in writing as a condition to
receiving OTS approval of the Conversion: (i) the Foundation will be subject to
examination by the OTS; (ii) the Foundation must comply with supervisory
directives imposed by the OTS; (iii) the Committee will operate in accordance
with written policies adopted by the Board of Directors, including a conflict of
interest policy; (iv) any common shares held by the Foundation must be voted in
the same ratio as all other outstanding common shares on all proposals
considered by shareholders of the Holding Company; provided, however, that,
consistent with the condition, the OTS would waive this voting restriction under
certain circumstances if compliance with the voting restriction would: (a) cause
a violation of the law of the State of Ohio and the OTS determines that federal
law would not preempt the application of the laws of Ohio to the Foundation; (b)
would cause the Foundation to lose its tax-exempt status or otherwise have a
material and adverse tax consequence on the Foundation; or (c) would cause the
Foundation to be subject to an excise tax under Section 4941 of the Code; and
(v) any common shares subsequently purchased by the Foundation will be
aggregated with any shares repurchased by the Company or the Holding Company for
purposes of calculating the number of shares which may be repurchased during the
three-year period subsequent to the Conversion. In order for the OTS to waive
such voting restriction, the Holding Company's or the Foundation's legal counsel
would be required to render an opinion satisfactory to the OTS. While there is
no current intention for the Holding Company or the Foundation to seek a waiver
from the OTS from such restrictions, there can be no assurances that a legal
opinion addressing these issues could be rendered, or if rendered, that the OTS
would grant an unconditional waiver of the voting restriction. In no event would
the voting restriction survive the sale of common shares held by the Foundation.
The establishment of the Foundation is subject to the approval of the
majority of the total outstanding votes of the Company's members eligible to be
cast at the Special Meeting. The establishment of the Foundation will be
considered as a separate matter from approval of the Plan. If the Company's
members approve the Plan, but not the establishment of the Foundation, the
Company intends to complete the Conversion without the Foundation. Failure to
approve the Foundation may materially increase the pro forma market value of the
common shares being offered. See "Pro Forma Data" in the Prospectus.
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from
the sale of the Common Shares, based on the Valuation Range:
<TABLE>
<CAPTION>
Minimum Mid-point Maximum Maximum, as adjusted
------- --------- ------- --------------------
<S> <C> <C> <C> <C>
Gross proceeds $212,500,000 $250,000,000 $289,375,000 $334,656,250
Less estimated expenses 3,172,000 3,500,000 3,845,000 4,240,000
------------ ------------ ------------ ------------
Total net proceeds $209,328,000 $246,500,000 $285,535,000 $330,416,250
============ ============ ============ ============
</TABLE>
The net proceeds from the sale of the Common Shares may vary depending
upon financial and market conditions at the time of the completion of the
Offering. See "THE CONVERSION - Pricing and Number of Common Shares to be Sold."
The expenses detailed above are estimated. Actual expenses may be more than or
less than estimated. See "THE CONVERSION - Plan of Distribution."
The Holding Company will retain up to 50% of the net proceeds from the
sale of the Common Shares, or approximately $165.2 million at the adjusted
maximum of the Adjusted Valuation Range.
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<PAGE> 27
Such proceeds will be used to lend up to 8% of the proceeds of the Offering to
the ESOP to acquire Common Shares in the Offering. Based upon the issuance of
33,465,625 shares at the adjusted maximum of the Adjusted Valuation Range, the
loan to the ESOP would be $26.8 million. See "MANAGEMENT - Stock Benefit Plans
- -- Employee Stock Ownership Plan." The loan to the ESOP will have a term of up
to 15 years and an interest rate equal to the base rate on corporate loans,
posted by at least 75% of the nation's 30 largest banks, as reported in The Wall
Street Journal (the "Prime Rate") less 1/2%, which is currently 8.0%. The
balance of the net proceeds may be invested initially in investment securities,
mortgage-backed securities, U.S. Government and federal agency securities of
various maturities, deposits in either the Company or other financial
institutions, or a combination thereof.
Ultimately the proceeds retained by the Holding Company may be used for
general corporate purposes, which may include, acquisitions of other financial
institutions, other financial service companies or other businesses which a
savings and loan holding company is permitted to own, the payment of dividends,
a tax-free return of capital, repurchases of Common Shares and funding of the
RRP. The Holding Company and the Company, however, will not take any action that
would further the payment of a tax-free return of capital to the Holding Company
shareholders during the first year following the completion of the Conversion.
The Holding Company currently has no specific plan to repurchase any of the
Common Shares. In the future, the Board of Directors of the Holding Company will
make decisions on the repurchase of the Common Shares based on its view of the
appropriateness of the price of the Common Shares as well as the Holding
Company's and the Company's investment opportunities and capital needs. OTS
regulations generally prohibit the Holding Company from repurchasing any of its
capital stock for three years following the date of completion of the
Conversion, except as part of an open-market stock repurchase program during the
second and third years following the Conversion involving no more than 5% of the
outstanding capital stock during a twelve-month period. The OTS may permit a
repurchase during the first year following the completion of the Conversion or
may permit the Holding Company to exceed the 5% limits in the second and third
years if exceptional circumstances are established. In addition, after any
repurchase during the three years following the completion of the Conversion,
the Company's regulatory capital must equal or exceed all regulatory capital
requirements. See "THE CONVERSION - Restrictions on Repurchase of Common
Shares."
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $165.2 million at the adjusted maximum of the Valuation
Range, will be invested by the Holding Company in the capital stock to be issued
by the Company to the Holding Company. The resulting increase in the regulatory
capital of the Company will permit the Company to expand its lending and
investment activities and to enhance customer services. The Company anticipates
that the portion of the net proceeds received by the Company will initially be
invested in overnight funds and short-term investments with maturities of up to
three years and eventually utilized for general corporate purposes, including
increased loan origination activity and a modest increase in investments in
corporate notes and U.S. Government and federal agency securities. During the
next three years, the Company intends to concentrate on increasing its consumer
and commercial loan portfolios, but during the first year following the
Conversion, the Company anticipates an increase in construction and one- to
four-family loans. The Company may also use such funds for the expansion of its
facilities, and, although no such transactions are specifically being considered
at this time, to expand operations through acquisitions of other financial
institutions, branch offices or other financial services companies, including
those located within the Company's market area or the establishment of de novo
branch offices or loan origination facilities.
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<PAGE> 28
MARKET FOR COMMON SHARES
Neither the Holding Company nor the Company has ever issued capital
stock to the public and, consequently, there is currently no established market
for the Common Shares. The Holding Company received conditional approval to have
the Common Shares listed on Nasdaq under the symbol "UCFC." One of the
conditions to the Nasdaq listing is the commitment of at least three brokerage
firms to make a market in the Common Shares. Trident, McDonald & Company and
Oppenheimer have informed the Holding Company that they intend to make a market
in the Common Shares and expect that additional market makers will be
identified.
A public trading market for the stock of any issuer, including the
Holding Company, depends upon the presence of both willing buyers and willing
sellers at any given time. Accordingly, the number of active buyers and sellers
of the Common Shares at any particular time may be limited. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially long-term nature
of an investment in the Common Shares.
The appraisal of the pro forma market value of the Common Shares is not
a recommendation as to the advisability of purchasing Common Shares, nor does it
represent Keller's opinion as to the price at which the Common Shares may trade.
There can be no assurance that the Common Shares may later be resold at the
price at which they are purchased in the Conversion. See "RISK FACTORS - Absence
of Established Market for the Common Shares" in the Prospectus.
DIVIDEND POLICY
Following the completion of the Conversion, the Board of Directors of
the Holding Company intends to establish a dividend policy. The declaration and
payment of dividends by the Holding Company will be subject to the discretion of
the Board of Directors of the Holding Company, to the earnings and financial
condition of the Holding Company and to general economic conditions. The timing
of payments of dividends and the annual rate will depend upon a determination by
the Board of Directors of the Holding Company, in the exercise of its
discretion, that the net income, capital and consolidated financial condition of
the Holding Company and the general economy justify the declaration and payment
of dividends by the Holding Company, subject to the limitation under Ohio law
that a corporation may pay dividends only out of surplus. There can be no
assurance that dividends will be paid on the Common Shares or, if paid, that
such dividends will continue to be paid in the future. In addition, the Holding
Company and the Company will not take any action that would further the payment
of a tax-free return of capital to the Holding Company shareholders during the
first year following the completion of the Conversion.
Other than earnings on the investment of the proceeds retained by the
Holding Company and interest earned on the loan to the ESOP, the principal
source of income of the Holding Company will be dividends periodically declared
and paid by the Board of Directors of the Company on the common shares of the
Company held by the Holding Company. The declaration and payment of dividends by
the Company to the Holding Company will be subject to the discretion of the
Board of Directors of the Company, to the earnings and financial condition of
the Company, to general economic conditions and to federal and state
restrictions on the payment of dividends by thrift institutions. Under
regulations of the OTS applicable to converted associations, the Company will
not be permitted to pay a cash dividend on its capital stock after the
Conversion if its regulatory capital would, as a result of the payment of such
dividend, be reduced below the amount required for the Liquidation Account or
the applicable regulatory capital requirement prescribed by the OTS. See "THE
CONVERSION Principal Effects of the
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<PAGE> 29
Conversion -- Liquidation Account" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources"
in the Prospectus. The Company may not pay a dividend unless such dividend also
complies with an OTS regulation limiting capital distributions by savings and
loan associations. Capital distributions, for purposes of such regulation,
include, without limitation, payments of cash dividends, repurchases, and
certain other acquisitions by an association of its shares and payments to
stockholders of another association in an acquisition of such other association.
See "REGULATION - Office of Thrift Supervision -- Limitations on Capital
Distributions" in the Prospectus.
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of the Holding Company authorize the
issuance of __________ common shares, and ____ preferred shares. Neither the
common shares nor the preferred shares authorized by the Holding Company's
Articles of Incorporation have par value. Upon receipt by the Holding Company of
the purchase price therefor and subsequent issuance thereof, each Common Share
issued in the Conversion will be fully paid and nonassessable. Notwithstanding
the foregoing, until payments are received by the Holding Company from the ESOP
in accordance with the terms of a loan agreement to be entered into by and
between the Holding Company and the ESOP, Common Shares issued to the ESOP for
which payment in money has not been received will not be fully paid and
non-assessable. The Common Shares will represent nonwithdrawable capital and
will not and cannot be insured by the FDIC. Each Common Share will have the same
relative rights and will be identical in all respects to every other Common
Share.
None of the preferred shares of the Holding Company will be issued in
connection with the Conversion. The Board of Directors of the Holding Company is
authorized, without shareholder approval, to issue preferred shares and to fix
and state the designations, preferences or other special rights of such shares
and the qualifications, limitations and restrictions thereof. The preferred
shares may rank prior to the common shares as to dividend rights, liquidation
preferences or both. Each holder of preferred shares will be entitled to one
vote for each preferred share held of record on all matters submitted to a vote
of shareholders. The issuance of preferred shares and any conversion rights
which may be specified by the Board of Directors for the preferred shares could
adversely affect the voting power of holders of the common shares. The Board of
Directors has no present intention to issue any of the preferred shares.
The following is a summary description of the rights of the common
shares of the Holding Company, including the material express terms of such
shares as set forth in the Holding Company's Articles of Incorporation.
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of the Holding
Company, the holders of the Common Shares will be entitled to receive all assets
of the Holding Company available for distribution, in cash or in kind, after
payment or provision for payment of (i) all debts and liabilities of the Holding
Company, (ii) any accrued dividend claims, and (iii) any interests in the
Liquidation Account payable as a result of a liquidation of the Company.
See "THE CONVERSION - Liquidation Account."
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<PAGE> 30
VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights
in the Holding Company. Each holder of Common Shares will be entitled to one
vote for each share held of record on all matters submitted to a vote of holders
of common shares. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND
THE BANK AND ANTI-TAKEOVER PROVISIONS - Articles of Incorporation of the Holding
Company -- Elimination of Cumulative Voting" in the Prospectus.
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY," "REGULATION - Office of
Thrift Supervision -- Limitations on Capital Distributions" and "TAXATION -
Federal Taxation" in the Prospectus for a description of restrictions on the
payment of cash dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of the Holding
Company will have, as a matter of right, the preemptive right to purchase or
subscribe for shares of any class of the Holding Company, now or hereafter
authorized, or to purchase or subscribe for securities or other obligations
convertible into or exchangeable for such shares or which by warrants or
otherwise entitle the holders thereof to subscribe for or purchase any such
share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for
a description of the limitations on the repurchase of stock by the Holding
Company; "THE CONVERSION - Restrictions on Transfer of Common Shares by
Directors and Officers" for a description of certain restrictions on the
transferability of Common Shares purchased by officers and directors; and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE BANK AND
ANTI-TAKEOVER PROVISIONS" in the Prospectus for information regarding regulatory
restrictions on acquiring Common Shares.
EXPERTS
Keller has consented to the publication herein of the summary of its
opinion as to the estimated pro forma market value of the Company, as converted,
and the Holding Company and to the use of its name and statements with respect
to it appearing herein.
LEGAL PROCEEDINGS
The Company is not presently involved in any material legal
proceedings. From time to time, the Company is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Company.
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<PAGE> 31
ADDITIONAL INFORMATION AND STOCK ORDER FORMS
The Prospectus contains the following: audited financial statements of
the Company, including statements of income and retained earnings, for the three
fiscal years ended December 31, 1997, management's discussion and analysis of
financial condition and results of operations; selected financial information of
the Company for the five fiscal years ended December 31, 1997; information
concerning the capitalization of the Company; a description of the Company's
lending, savings and investment activities; and additional information about the
business and financial condition of the Company. A copy of the Prospectus
accompanies this Summary Proxy Statement. To obtain an additional copy of the
Prospectus, contact the Company's Conversion Information Center at (330)
747-1111.
The Subscription Offering will commence on _________ ___, 1998, and end
at 12:00 noon, Eastern Daylight Time, on _______ ____, 1998. Stock Order Forms
for purchases of Common Shares in the Subscription Offering must be received by
the Company on or before noon, Eastern Daylight Time, on ______ ___, 1998.
30
<PAGE> 1
Exhibit 99.2
REVOCABLE PROXY
THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE HOME SAVINGS AND LOAN COMPANY OF
YOUNGSTOWN, OHIO
The undersigned member of The Home Savings and Loan Company of Youngstown, Ohio,
a savings and loan association incorporated under Ohio law ("Home Savings"),
hereby nominates, constitutes and appoints _________________________________ and
_______________________________________, or either one of them, as proxy or
proxies for the undersigned member, each with full power of substitution and
resubstitution, to vote all of the votes which the undersigned member is
entitled to cast at the Special Meeting of the Members of Home Savings to be
held at _____________ __.m., Eastern Standard Time, on ______________________,
1998, at ___________________________, Youngstown, Ohio, and at any adjournments
thereof (the "Special Meeting"), on the following matters and in the manner
specified below:
IMPORTANT: PLEASE SIGN AND DATE THIS REVOCABLE PROXY ON THE REVERSE SIDE.
- --------------------------------------------------------------------------------
UNITED COMMUNITY FINANCIAL CORP. ORDER FORM INSTRUCTIONS
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ITEM INSTRUCTIONS
ITEMS 1, 2 AND 3 --
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares purchased
by the Subscription Price of $10.00 per share. The minimum purchase is 25
shares. The maximum purchase by (i) any person or entity or (ii) persons of
entities exercising subscription rights through a single account, is 35,000
shares. In addition, no person or entity, or group of persons acting in concert,
together with any Associate (as defined in the Prospectus), may subscribe for
more than 1% of the common shares sold in the Offering.
United Community Financial Corp. and Home Savings have the right to reject the
order of any subscriber who (i) submits false or misleading information on a
Stock Order Form or otherwise, (ii) attempts to purchase shares in violation of
the Plan of Reorganization or applicable law or (iii) fails to cooperate with
attempts to verify information with respect to purchase rights.
ITEM 4 -- Payment for shares may be made in cash (only if delivered by you in
person) or by check, bank draft or money order made payable to United Community
Financial Corp. Your funds will earn interest at the Home Savings current
passbook savings rate until the Offering is completed or terminated. DO NOT MAIL
CASH TO PURCHASE STOCK! PAYMENT MAY NOT BE MADE BY WIRE TRANSFER. Please check
this box if your method of payment is by cash, check, bank draft or money order.
ITEM 5 -- If you pay for your stock by a withdrawal from a Home Savings deposit
account, insert the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the
amount of your stock purchase. Your order will be rejected if, on the date your
order is received, the accounts designated by you do not contain sufficient
funds to complete your purchase. There will be no penalty assessed for early
withdrawals from certificate of deposit accounts used for stock purchases. This
form of payment may not be used if your account is an Individual Retirement
Account. If you wish to use your IRA currently at Home Savings, you must call
the Stock Information Center prior to ________, 1998 and complete all paperwork
required.
ITEM 6 -- a. Please check this box if you were a member of Home Savings on
August 31, 1996 (the Eligibility Record Date). You must list the full title and
account numbers of all accounts you had on this date in order to insure proper
identification of your purchase rights and preferences.
b. Please check this box if you were a member of Home Savings on __________ (the
Supplemental Eligibility Record Date). You must list the full title and account
numbers of all accounts you had on this date in order to insure proper
identification of your purchase rights and preferences.
c. Please check this box if you were a member of Home Savings on May 6, 1998
(the Record Date). You must list the full title and account numbers of all
accounts you had on this date in order to insure proper identification of your
purchase rights and preferences.
ITEMS 7, 8 AND 9 -- The stock transfer industry has developed a uniform system
of shareholder registrations that we will use in the issuance of your common
shares. Please complete items 7, 8 and 9 as fully and accurately as possible,
and be certain to supply your social security number or tax identification
number and your daytime telephone number(s). We will need to call you if we
cannot execute your order as given. If you have any questions or concerns
regarding the registration of your common shares, please consult your legal
advisor. Stock ownership must be registered in one of the ways described under
"Stock Ownership Guide."
ITEM 10 -- Please check this box if you are a member of the NASD or if this item
otherwise applies to you.
ITEMS 11 AND 12 -- Please sign and date the Stock Order Form where indicated.
Review the Stock Order Form carefully before you sign, including the
acknowledgment. Normally, one signature is required. An additional signature is
required only when payment is to be made by withdrawal from a deposit account
that requires multiple signatures to withdraw funds. If you have any remaining
questions, or if you would like assistance in completing your Stock Order Form,
you may call the Stock Information Center. The Stock Information Center phone
number is (330) _______________.
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Stock Ownership Guide
If you decide to subscribe for common shares, you will need to register your
common shares in one of the following ways. Please consult this guide when
completing Section 8 of your Stock Order Form.
INDIVIDUAL
o Include the first name, middle initial and last name of the shareholder.
o Avoid the use of two initials.
o Omit titles such as "Mr., "Mrs.", or "Dr."
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
o Joint Tenant with Rights of Survivorship can be used to identify two or more
owners.
o When stock is held by joint tenants, ownership passes automatically to the
surviving joint tenants(s) upon the death of any joint tenant.
o All parties must agree to the transfer or sale of shares held by joint
tenants.
o In order to subscribe as joint tenants, all tenants must appear together on an
eligible joint tenant account at Home Savings.
TENANTS IN COMMON
o Tenants in common may be used to identify two or more owners.
o When stock is held by tenants in common, upon the death of one co-tenant,
ownership of the stock is held by the surviving co-tenant(s) and by the heirs
of the deceased co-tenants.
o All parties must agree to the transfer or sale of shares held by tenants in
common.
o In order to order in common, all tenants must appear together on an eligible
tenants in common account in Home Savings.
UNIFORM TRANSFER TO MINORS
o Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state.
o There may be only one custodian and one minor designated on a stock
certificate.
o Example, stock held by John Doe as custodian for Susan Doe under the Ohio
Uniform Transfer to Minors Act will be abbreviated: John Doe, CUST Susan Doe
UTMA, OH.
o Use the minor's social security number.
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
o The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title. If an
individual and a corporation, list the corporation before the individual.
o The fiduciary capacity, such as administrator, executor, trustee, committee,
etc.
o The date of the document governing the relationship.
o The name of the maker, donor or testator and the name of the beneficiary.
o An example of fiduciary ownership in the case of a trust is:
John Doe, Trustee Under Agreement Dated 10-1-87 for Susan Doe.
<PAGE> 2
Please mark
your votes as
indicated in
this example
[ X ]
This Revocable Proxy will be voted as directed by the
undersigned member. IF NO DIRECTION IS GIVEN, THIS
REVOCABLE PROXY WILL BE VOTED FOR THE APPROVAL OF THE
PLAN OF CONVERSION, FOR THE ADOPTION OF THE AMENDED
ARTICLES OF INCORPORATION, FOR THE ADOPTION OF THE
AMENDED CONSTITUTION AND FOR THE APPROVAL OF THE
CONTRIBUTION TO THE FOUNDATION.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 1. The approval of the Plan of Conversion, a copy of
which is attached as Exhibit A to the Summary Proxy
Statement mailed to the undersigned member in
connection with the Special Meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 2. The adoption of the Amended Articles of
Incorporation of Home Savings, a copy of which is
attached to the Plan of Conversion as Exhibit I.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 3. The adoption of the Amended Constitution of Home
Savings, a copy of which is attached to the Plan of
Conversion as Exhibit II.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 4. The approval of the contribution of up to 1,250,000
common shares of United Community Financial Corp.
(the "Contribution") to the Home Savings Charitable
Foundation (the "Foundation"), a tax-exempt
organization established by Home Savings in 1991 in
furtherance of Home Savings commitment to the
communities it serves.
5. In their discretion, upon such other matters as may
properly come before the Special Meeting.
Without affecting any vote previously taken, this
Revocable Proxy may be revoked by the undersigned at
any time before it is exercised by (i) executing and
delivering to Home Savings a later dated proxy, or (ii)
giving notice of revocation in writing to the Secretary
of Home Savings or in open meeting to the inspectors of
election.
Receipt of the Summary Proxy Statement of Home
Savings and the Prospectus of United Community
Financial Corp. dated ______, 1998, is hereby
acknowledged by the undersigned.
NOTE: Please sign your name exactly as it appears on
this Revocable Proxy. Joint accounts require only one
signature. If you are signing this Revocable Proxy as
an attorney, administrator, agent, corporation,
officer, executor, trustee or guardian, etc., please
add your full title to your signature.
Signature Dated: , 1998
---------------------------------------------- -------------
IMPORTANT: IF YOU RECEIVE MORE THAN ONE CARD, PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
- --------------------------------------------------------------------------------
o THIS IS YOUR PROXY CARD to vote on the Amended Plan of Conversion, the Amend
Articles of Incorporation and the Amended Constitution of The Home Savings and
Loan Company of Youngstown, Ohio.
o PLEASE SIGN AND RETURN ALL CARDS YOU RECEIVE IMMEDIATELY. A postage paid
envelope is enclosed.
o If you do not sign and return a proxy card, it is the same as voting
against the Amended Plan of Conversion.
o Voting in favor of the Amended Plan of Conversion in no way obligates
you to buy any common share.
o If you would like to order common share, please fill out the Stock
Order Form on the following page.
<PAGE> 3
UNITED COMMUNITY FINANCIAL CORP.
Stock Order Form
The Home Savings & Loan Company EXPIRATION DATE
of Youngstown, Ohio
275 Federal Plaza West for Stock Order Forms:
Youngstown, Ohio 12:00 Noon, Youngstown, Ohio Time
44503-1203
330-747-1101
- --------------------------------------------------------------------------------
IMPORTANT -- PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for common shares. Faxes or copies of this form will not be
accepted. Please read the Stock Ownership Guide and Stock Order Form
Instructions as you complete this Form.
- --------------------------------------------------------------------------------
(1) NUMBER OF SHARES SUBSCRIPTION PRICE (2) TOTAL PAYMENT DUE
X $10.00 =
- ----------------------- -----------------------
- --------------------------------------------------------------------------------
(3) EMPLOYEE/OFFICER/DIRECTOR INFORMATION
[ ] Check here if you are a director, officer
or employee of Home Savings or a member of
such person's immediate family.
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(4) METHOD OF PAYMENT/CHECK
Enclosed is a check, bank draft or money order made payable to
United Community Financial Corp. in the amount of: -----------------
- --------------------------------------------------------------------------------
(5) METHOD OF PAYMENT/WITHDRAWAL
The undersigned authorizes withdrawal from the following account(s) at Home
Savings. There is no penalty for early withdrawal for purposes of this payment.
- --------------------------------------------------------------------------------
ACCOUNT NUMBER(S) WITHDRAWAL AMOUNT(S)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL WITHDRAWAL AMOUNT:
---------------------------------------------------
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(6) PURCHASER INFORMATION
A. [ ] Eligible Account Holder -- Check here if you were a depositor of a least
$50.00 at Home Savings on July 31, 1996. Enter Information below for all
deposit accounts that you had at Home Savings on July 31, 1996.
B. [ ] Supplemental Eligible Account Holder -- Check here if you were a
depositor of at least $50.00 at Home Savings on March 31, 1998 but are
not an Eligible Account Holder. Enter information below for all deposit
accounts that you had at Home Savings on March 31, 1998.
C. [ ] Other Member -- Check here if you were a depositor of at least $50.00 on
May 6, 1998 but are not an eligible Account Holder or Supplemental
Eligible Account Holder. Enter information below for all deposit accounts
that you had at Home Savings on May 6, 1998.
o THESE ACCOUNT NUMBERS CORRESPOND TO THE PREPRINTED REGISTRATION IN THE TOP
LEFT HAND CORNER OF THIS FORM.
o THESE MAY NOT BE ALL OF YOUR QUALIFYING ACCOUNTS.
o YOU MUST LIST ANY ACCOUNT NUMBERS FROM OTHER STOCK ORDER FORMS YOU HAVE
RECEIVED IN THE MAIL AND ANY OTHER ACCOUNTS THAT YOU HAVE OR HAVE HAD AT
HOME SAVINGS.
o IF YOU DO NOT LIST ALL OF YOUR ACCOUNTS, YOU MAY NOT RECEIVE ALL OF THE
COMMON SHARES THAT YOU ARE ELIGIBLE FOR.
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ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER(S)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP
[ ] Individual [ ] Joint Tenants [ ] Tenants in Common
[ ] Fiduciary (Under Agreement Dated , 19 )
[ ] Individual Retirement Account (IRA) [ ] Corporation or Partnership
[ ] Uniform Transfer to Minors Act [ ] Other
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT CLEARLY) Social Security # or Tax ID
<S> <C>
- -------------------------------------------------------------------- ---------------------------
Name(s) continued Telephone (Daytime)
- -------------------------------------------------------------------- ---------------------------
Street Address City State Zip Code
- -------------------------------------------------------------------- ----- ---------------
</TABLE>
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(9) NASD AFFILIATION
[ ] Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of
the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which an
NASD member or person associated with an NASD member has a beneficial
interest. To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD Affiliation box, (i) not to sell,
transfer or hypothecate the stock for a period of 90 days following
issuance, and (ii) to report this subscription in writing to the applicable
NASD member within one day of payment therefor.
- --------------------------------------------------------------------------------
(10) ASSOCIATE--ACTING IN CONCERT
[ ] Check here, and complete the reverse side of this Form, if you or any
associate (as defined on the reverse side of this Form) or persons acting in
concert with you have submitted other orders for shares in the Subscription
and/or the Community Offerings.
- --------------------------------------------------------------------------------
(11) ACKNOWLEDGMENT
To be effective, this fully completed Stock Order Form must be actually received
by Home Savings, no later than 12:00 Noon, Local Time, on May XX, 1998, unless
extended; otherwise this Stock Order Form and all subscription rights will be
void. Completed Stock Order Forms, together with the required payment or
withdrawal authorization, may be delivered to Home Savings or may be mailed to
the Post Office Box indicated on the enclosed business reply envelope. All
rights exercisable hereunder are not transferable and shares purchased upon
exercise of such rights must be purchased for the account of the person
exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance with,
and subject to, the terms and conditions of the Amended Plan of Conversion from
a Mutual Savings and Loan Association to a Stock Savings and Loan Association
("Plan") of Home Savings described in the accompanying Prospectus. If the Plan
is not approved by the members of Home Savings at a Special Meeting to be held
on May XX, 1998, or any adjournment thereof, all orders will be cancelled and
funds received as payment, with accrued interest, will be returned promptly.
The undersigned agrees that after receipt by Home Savings, this Stock Order Form
may not be modified, withdrawn or cancelled (unless the offering is not
completed within 45 days after the completion of the Subscription Offering)
without Home Savings' consent, and if authorization to withdraw from deposit
accounts at Home Savings has been given as payment for shares, the amount
authorized for withdrawal shall not otherwise be available for withdrawal by the
undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID Number
and the other information provided under the number 8 of this Stock Order Form
are true, correct and complete, that I am not subject to back-up withholding,
that I am purchasing for my own account and that there is no agreement or
understanding regarding the transfer of my subscription rights or the sale or
transfer to these shares.
Applicable regulations prohibit any person from transferring or entering into
any agreement directly or indirectly to transfer, the legal or beneficial
ownership of subscription rights, or the underlying securities to the account of
another. Home Savings and United Community Financial Corp. may pursue any and
all legal and equitable remedies in the event they become aware of the transfer
of subscription rights and will not honor orders known by them to involve such
transfer. I acknowledge that the common shares offered are not a savings or
deposit accounts and are not insured by the Savings Association Insurance Fund,
the Bank Insurance Fund, the Federal Deposit Insurance Corporation, or any other
government agency, may lose value and is not guaranteed by United Community
Financial Corp.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED TWICE: BELOW AND ON THE FORM
OF CERTIFICATION ON THE REVERSE HEREOF.
SIGNATURE DATE SIGNATURE DATE
--------- ---- --------- ----
- --------------------------------------- ------------------------------
OFFICE USE
------------- ------------- -------------
Date Received Batch # Order #
SIGNED FORM OF CERTIFICATION MUST ACCOMPANY ALL STOCK ORDER FORMS
(SEE REVERSE SIDE)
<PAGE> 4
ITEM (6)A, B, C -- (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER(S) ACCOUNT TITLE (NAMES ON ACCOUNTS) ACCOUNT NUMBER(S)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 11 -- (CONTINUED)
List below all other orders submitted by you or your Associates (as defined) or
by persons acting in concert with you.
- --------------------------------------------------------------------------------
NUMBER OF
NAMES(S) LISTED ON OTHER SHARES
STOCK ORDER FORMS ORDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
"Associate" is defined as: (i) any corporation or organization (other than Home
Savings, United Community Financial Corp., or a majority-owned subsidiary of
Home Savings, or United Community Financial Corp.) 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 a trustee or in a similar fiduciary capacity; except for any
tax-qualified employee stock benefit plan or any charitable trust which is
exempt from federal taxation pursuant to Section 501(c)(3) of the Code; and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of Home
Savings, United Community Financial Corp. or any subsidiaries thereof.
- --------------------------------------------------------------------------------
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ON THE FRONT OF THIS
FORM.
FORM OF CERTIFICATION
I/WE ACKNOWLEDGE THAT THE COMMON SHARES OF UNITED COMMUNITY FINANCIAL CORP. IS
NOT A DEPOSIT OR SAVINGS ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT
GUARANTEED BY HOME SAVINGS OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the common shares are federally insured or guaranteed, or
are as safe as an insured deposit, I should call the Office of Thrift
Supervision, Central Regional Director, Ronald N. Karr at (312) 917-50 .
I/We further certify that, before purchasing the common shares, no par value per
share, of United Community Financial Corp., the proposed holding company for
Home Savings, I/we received a Prospectus dated May 22, 1998 (the "Prospectus"),
which contains disclosure concerning the nature of the common shares being
offered and describes the following risks involved in the investment under the
heading "RISK FACTORS" beginning on page of the Prospectus.
<TABLE>
<CAPTION>
<S> <C>
1. Anticipated Low Return on Equity ..............................................(page )
2. Interest Rate Risk ............................................................(page )
3. Risks Associated with Commercial Lending.......................................(page )
4. Possible Adverse Effects of Contribution of Shares to the Foundation ..........(page )
5. Risks Associated with Economic Conditions in the Company's Market Area ........(page )
6. Geographic Concentration of Credit.............................................(page )
7. Competition in Primary Market Area ............................................(page )
8. Absence of Established Market for the Common Shares ...........................(page )
9. Dilutive Impact of Benefit Plans on Net Income and Shareholders' Equity........(page )
10. Potential Awards of Shares to Directors, Officers and
Employees Pursuant to Benefit plans...........................................(page )
11. Legislation and Regulation Which May Adversely Affect Earnings
and Operations................................................................(page )
12. Anti-Takeover Provisions Which May Discourage Sales of Common Shares
for Premium Prices............................................................(page )
</TABLE>
Signature Date Signature Date
- --------- ---- --------- ----
- -------------------------------- -----------------------------------
Name (Please Print) Name (Please Print)
- -------------------------------- -----------------------------------
<PAGE> 1
Exhibit 99.4
UNITED COMMUNITY FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR THE HOME SAVINGS AND
LOAN COMPANY OF YOUNGSTOWN, OHIO )
YOUNGSTOWN, OHIO
PROPOSED MARKETING MATERIALS
<PAGE> 2
Marketing Materials for
The Home Savings and Loan Company of Youngstown, Ohio
Table of Contents
-----------------
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Examples
II. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
III. Officer and Director Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Counter Cards, Lobby Posters and a Tombstone Announcement
A. Explanation
B. Quantity
C. Examples
V. Community Meeting Invitation and Prospect Letters
A. Explanation
B. Examples
VI. IRA Mailing
F. Explanation
G. Example
VII. Letters
G. Explanation
H. Example
VIII. Proxygram
A. Explanation
B. Example
<PAGE> 3
I. Press Releases
A. Explanation
In an effort to ensure that all customers, community members, and other
interested investors receive prompt accurate information in a
simultaneous manner, Trident Securities, Inc. advises The Home Savings
and Loan Company to forward press releases to national and regional
publications, newspapers, radio stations, etc., at various points
during the Conversion process.
Only press releases approved by Conversion Counsel will be forwarded
for publication in any manner.
B. Press Releases
1. Approval of Conversion by the Office of Thrift Supervision and
the Securities and Exchange Commission (mid to late May 1998)
2. Close of Stock Offering
C. Distribution Lists (see attached) (Note: Distribution to be coordinated
with PR firm)
D. Examples (see attached)
<PAGE> 4
National Media Distribution List
--------------------------------
AMERICAN BANKER
One State Street Plaza
New York, New York 10004
Michael Weinstein
BUSINESS WIRE
212 South Tryon
Suite 1460
Charlotte, North Carolina 28281
WALL STREET JOURNAL
World Financial Center
200 Liberty
New York, New York 10004
SNL SECURITIES
Post Office Box 2124
Charlottesville, Virginia 22902
BARRONS
Dow Jones & Company
Barron's Statistical Information
200 Burnett Road
Chicopee, Massachusetts 01020
INVESTORS BUSINESS DAILY
12655 Beatrice Street
Post Office Box 661750
Los Angeles, California 90066
LOCAL MEDIA LIST
(Provided by PR Firm)
<PAGE> 5
D. Press Release
FOR IMMEDIATE RELEASE
For More Information Contact:
Douglas M. McKay, President
Telephone: (330) 742-0500
THE HOME SAVINGS AND LOAN COMPANY STOCK SALE APPROVED
-----------------------------------------------------
Youngstown, Ohio, _________, 1998 - Mr. Douglas M. McKay, President and
Chief Executive Officer of The Home Savings and Loan Company of Youngstown,
Ohio, announced today that The Home Savings and Loan Company of Youngstown, Ohio
has received approval from the Office of Thrift Supervision and the Division of
Financial Institutions of the Department of Commerce of the State of Ohio to
convert from a state chartered mutual savings and loan association to a
permanent capital stock savings and loan association. In connection with the
Conversion, The Home Savings and Loan Company has formed a holding company,
United Community Financial Corp. to hold all of the outstanding capital stock of
The Home Savings and Loan Company.
A Prospectus and Proxy Statement describing the Plan of Conversion will
be mailed to certain members of The Home Savings and Loan Company on or about
_________, 1998. Under the Plan of Conversion, United Community Financial Corp.
is offering an estimated 25,000,000 shares of common stock at $10.00 per share.
Certain of The Home Savings and Loan Company's past and present members will
have the opportunity to purchase stock through a subscription offering that
closes on _________, 1998. Shares that are not subscribed for during the
subscription offering, if any, will be offered to the general public, with
preference given to natural persons who are residents of Columbiana, Mahoning
and Trumbull Counties, Ohio, in a community offering. The offerings are being
managed by Trident Securities, Inc., of Raleigh, North Carolina and McDonald &
Company Securities, Inc., Cleveland, Ohio.
As a result of the Conversion, The Home Savings and Loan Company will
be structured in the stock form, just like all commercial banks and an
increasing number of savings institutions, and will become a subsidiary of
United Community Financial Corp.
According to Mr. McKay, "Our day to day operations will not change as
a result of the Conversion and deposits will continue to be insured by the FDIC
up to the applicable legal limits".
The Home Savings and Loan Company is headquartered in Youngstown, Ohio.
The Bank was organized in 1889. At December 31, 1997, The Home Savings and Loan
Company had total assets of $1.0 billion and total equity of $141.4 million.
Customers or interested members of the community with questions
concerning the stock offering should call the institution at (330) 747-1111 or
visit any Home Savings and Loan Company office.
<PAGE> 6
D. Press Release FOR IMMEDIATE RELEASE
Contact: Douglas M. McKay, President
Telephone: (330) 742-0500
UNITED COMMUNITY FINANCIAL CORP. HOLDING COMPANY FOR
----------------------------------------------------
THE HOME SAVINGS AND LOAN COMPANY,
----------------------------------
COMPLETES INITIAL STOCK OFFERING
--------------------------------
Youngstown, Ohio _________, 1998 - Douglas M. McKay, President and
Chief Executive Officer of The Home Savings and Loan Company, Youngstown, Ohio,
announced today that United Community Financial Corp., the proposed holding
company for The Home Savings and Loan Company, has completed its initial common
stock offering. In connection with the stock offering, United Community
Financial Corp. sold a total of _______ shares at $10 per share. It is
anticipated that the common stock of United Community Financial Corp. will begin
trading on the NASDAQ National Market System on _________, 1998 under the symbol
"UCFC." Trident Securities, Inc. and McDonald & Company Securities, Inc. will be
market makers in the stock.
The net proceeds contributed to The Home Savings and Loan Company upon
Conversion will substantially increase its capital. The Home Savings and Loan
Company will use the funds contributed to it for general corporate purposes,
including, initially, local lending and investment in short-term U.S. Government
and agency obligations.
On _______, 1998, The Home Savings and Loan Company's Plan of
Conversion was approved by The Home Savings and Loan Company's depositor and
borrower members at a Special Meeting that was held at the main office of the
institution.
Mr. McKay stated, "The Officers and Board of Directors of The Home
Savings and Loan Company express their thanks for the response by customers and
the community to the stock offering. The Home Savings and Loan Company looks
forward to serving the needs of its customers as a stock institution."
<PAGE> 7
II. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
Conversion. It serves to answer some of the most commonly asked
questions in "plain, everyday language." Although most of the answers
are taken verbatim from the Prospectus and Proxy Statement, it assists
the individual in finding answers to simple questions.
Conversion Counsel approves the language for each Question and Answer.
Trident Securities, Inc. and The Home Savings and Loan Company and it's
advertising agency will be responsible for any introductory or
concluding remarks, design, layout, color, and paper stock. This will
be coordinated through Trident Securities, Inc. in conjunction with the
financial printer.
B. Method of Distribution
There are three primary methods of distribution of the Question and
Answer brochure. However, regardless of the method of distribution, the
brochure is always accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial
mailing to all members of The Home Savings and Loan Company.
2. Question and Answer brochures are available in The Home
Savings and Loan Company's offices.
3. Question and Answer brochures are sent out in a standard
information packet to all interested investors who phone the
Conversion Information Center requesting information.
C. Example
<PAGE> 8
C. Example
HOME SAVINGS OF YOUNGSTOWN, OHIO
Questions and Answers Regarding the Subscription Offering and the Community
Offering
MUTUAL TO STOCK CONVERSION
--------------------------
The Board of Directors of The Home Savings and Loan Company of
Youngstown, Ohio ("HOME SAVINGS" or the "Company") has adopted a plan of
conversion (the "Plan") to convert from an Ohio mutual savings and loan
association to an Ohio capital stock savings and loan association (the
"Conversion") and simultaneously become a wholly-owned subsidiary of United
Community Financial Corp., an Ohio corporation organized by HOME SAVINGS to own
all of the outstanding common shares of HOME SAVINGS ("UCFC" or the "Holding
Company").
This brochure is provided to answer general questions you might have
about the Conversion and about your opportunity to invest in common shares of
UCFC. Following the Conversion, HOME SAVINGS will continue to provide financial
services to its depositors, borrowers and other customers as it has in the past
and will operate with its existing management and employees. The Conversion will
not affect the terms, balances, interest rates or existing federal insurance
coverage on HOME SAVINGS' deposits or the terms or conditions of any loans to
existing borrowers under their contract arrangements with HOME SAVINGS.
For complete information regarding the Conversion, see the Prospectus
and the Proxy Statement. Copies of each of the Prospectus and the Proxy
Statement may be obtained by calling the Conversion Information Center at (330)
747-1111.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY UCFC COMMON SHARES. OFFERS TO BUY OR TO SELL MAY BE MADE ONLY BY
THE PROSPECTUS. PLEASE READ THE PROSPECTUS PRIOR TO MAKING AN INVESTMENT
DECISION.
THE COMMON SHARES OF UCFC BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE> 9
1. Q. WHAT IS A "CONVERSION"?
A. A Conversion is a change in the legal form of organization.
HOME SAVINGS currently operates as a mutual savings and loan
association with no shareholders. Through the Conversion, HOME
SAVINGS will become a stock savings and loan association and
will form a holding company, UCFC, which will ultimately own
all of the outstanding shares of HOME SAVINGS. UCFC will issue
common shares in the Conversion, as described below, and will
be a publicly-owned company.
2. Q. WHY IS HOME SAVINGS CONVERTING?
A. As a mutual savings and loan association, HOME SAVINGS does
not have shareholders and has no authority to issue capital
stock. By converting to the stock form of organization, HOME
SAVINGS will be structured in the form used by commercial
banks, most business entities and a growing number of savings
institutions. The Conversion will be important to the future
growth and performance of HOME SAVINGS by providing a larger
capital base from which it may operate, enhancing future
access to capital markets and, if desired, enhancing HOME
SAVINGS' ability to diversify and expand into other financial
service-related activities. Currently, HOME SAVINGS has no
specific plans, agreements, arrangements or understandings
regarding such diversification.
3. Q. WILL THE CONVERSION HAVE ANY EFFECT ON A PERSON'S SAVINGS
ACCOUNTS, CERTIFICATES OF DEPOSIT OR LOANS WITH HOME SAVINGS?
A. No. The Conversion will not change the amount, interest rate
or withdrawal rights of any savings and checking accounts or
certificates of deposit. The rights and obligations of
borrowers under their loan agreements will not be affected.
However, upon consummation of the Conversion, HOME SAVINGS'
deposit account holders will no longer have voting rights in
HOME SAVINGS, and will not have voting rights in UCFC unless
they purchase common shares.
4. Q. WILL THE CONVERSION CAUSE ANY CHANGES IN PERSONNEL OR
MANAGEMENT?
A. No. The Conversion will not cause any changes in the personnel
or management of HOME SAVINGS.. The normal day-to-day
operations will continue as before.
5. Q. DID THE BOARD OF DIRECTORS OF HOME SAVINGS APPROVE THE
CONVERSION?
Yes. The Board of Directors unanimously adopted the Plan on
December 9, 1997, and amended the Plan on May 6, 1998.
6 Q. HOW WILL THE COMMUNITY BENEFIT FROM THE CONVERSION?
A. In 1991, HOME SAVINGS established the Home Savings Charitable
Foundation
<PAGE> 10
(the "Foundation"), which is an exempt organization under
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"). Each year since the Foundation was
established, HOME SAVINGS has made annual contributions to the
Foundation in furtherance of HOME SAVINGS' commitment to the
communities that it serves. In connection with the Conversion,
UCFC intends to contribute to the Foundation approximately
5.0% of the number of common shares issued in the Conversion,
subject to the overall limitation of 1,250,000 common shares.
HOME SAVINGS and UCFC believe that the contribution of common
shares to the Foundation will benefit the long term value of
HOME SAVINGS' community banking franchise by enabling the
communities it serves to share in the potential growth and
success of HOME SAVINGS and UCFC over the long term.
THE SUBSCRIPTION OFFERING, THE COMMUNITY OFFERING AND THE SYNDICATED
COMMUNITY OFFERING
7. Q. WHO IS ENTITLED TO SUBSCRIBE FOR COMMON SHARES OF UCFC?
A. Rights to subscribe for common shares will be given in
order of priority to (i) each account holder, who, at the
close of business on July 31, 1996 ("Eligibility Record
Date"), had one or more deposit accounts with deposit
balances, in the aggregate, of $50 or more (a "Qualifying
Deposit") with HOME SAVINGS ("Eligible Account Holders"), (ii)
the United Community Financial Corp. Employee Stock Ownership
Plan (the "ESOP"), (iii) each account holder who, at the close
of business on March 31, 1998 ("Supplemental Eligibility
Record Date"), had a Qualifying Deposit with HOME SAVINGS
("Supplemental Eligible Account Holders"), (iv) members of
HOME SAVINGS as of April 30, 1998 ("Other Members") and (v)
directors, officers and employees of HOME SAVINGS.
IT IS THE RESPONSIBILITY OF EACH SUBSCRIBER QUALIFYING AS AN
ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER
OR OTHER MEMBER TO LIST COMPLETELY ALL ACCOUNT NUMBERS FOR
QUALIFYING SAVINGS ACCOUNTS AS OF THE QUALIFYING DATE ON THE
STOCK ORDER FORM. FAILURE TO DO SO MAY RESULT IN A REDUCTION
OR ELIMINATION OF A SUBSCRIBER'S ORDER.
Shares that are not subscribed for during the Subscription
Offering, if any, may be offered to the general public through
a Community Offering with preference given to natural persons
who are residents of Mahoning, Columbiana and Trumbull
Counties, Ohio (the "Local Community"). It is anticipated that
any shares not subscribed for in the Subscription Offering and
the Community Offering will be offered to certain members of
the general public through a syndicate of registered broker
dealers pursuant to selected dealers agreements in a
Syndicated Community Offering.
<PAGE> 11
8. Q. HOW DO I SUBSCRIBE FOR COMMON SHARES OF UCFC?
A. Eligible subscribers wishing to exercise their subscription
rights must return the completed stock order form along with
full payment or appropriate instructions authorizing a
withdrawal from a deposit account at HOME SAVINGS to HOME
SAVINGS in the postage-paid envelope provided, so that the
stock order form and payment or withdrawal authorization
instructions are RECEIVED on or prior to the close of the
Subscription Offering which will be 12:00 noon, Eastern
Daylight Time, on ___________, 1998, unless extended.
9. Q. HOW CAN I PAY FOR MY SUBSCRIPTION ORDER?
A. You may pay for your order in cash, but only if delivered in
person to HOME SAVINGS or by check or money order.
Subscription funds will earn interest at HOME SAVINGS'
passbook rate from the day the funds are received by HOME
SAVINGS until the completion or termination of the Conversion.
You may also authorize HOME SAVINGS to withdraw funds from
your HOME SAVINGS savings account or certificate of deposit
without early withdrawal penalty. These funds will continue to
earn interest at the rate in effect for your account until
completion of the Conversion at which time your funds will be
withdrawn for your purchase. Funds remaining in this account
(if any) will continue at the contractual rate unless the
withdrawal reduces the account balance below the applicable
minimum, in which case you will receive interest at the
passbook rate. A hold will be placed on your account for the
amount you specify for payment for common shares. You will not
have access to these funds from the day HOME SAVINGS receives
your order until the completion or termination of the
Conversion.
If you want to use funds in your Individual Retirement Account
("IRA") held at HOME SAVINGS to subscribe for shares, call our
Conversion Information Center at (330) 747-1111 for
assistance. There will be no early withdrawal or IRS penalties
incurred by these transactions. It takes several days to
process the necessary IRA forms and, therefore, it is
necessary that you make arrangements by ___________, 1998, to
accommodate your order.
10. Q. HOW MANY COMMON SHARES OF UCFC ARE BEING OFFERED?
A. UCFC is offering up to 28,937,500 common shares at a price of
$10.00 per share. The number of shares may be decreased to
21,250,000 or increased to 33,465,625 in response to the
independent appraiser's final determination of the
consolidated pro forma market value of UCFC and HOME SAVINGS,
as converted.
<PAGE> 12
11. Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF COMMON SHARES THAT I
CAN PURCHASE IN THE CONVERSION?
A. The minimum number of common shares any person may purchase is
25 shares. No stock order form will be accepted for less than
$250. Each Eligible Account Holder, Supplemental Eligible
Account Holder and Other Eligible Member may purchase in the
Subscription Offering not more than 30,000 common shares.
12. Q. MUST I PAY A COMMISSION ON THE SHARES FOR WHICH I SUBSCRIBE?
A. No. You will not pay a commission on shares purchased in
the Subscription Offering, the Community Offering, if any, or
the Syndicated Community Offering, if any.
13. Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR SHARE PURCHASES?
A. Yes. HOME SAVINGS will pay its current passbook rate from the
date funds are received (with a completed stock order form)
during the Subscription Offering and the Community Offering
until the completion of the Conversion.
14. Q. IF I HAVE MISPLACED MY STOCK ORDER FORM, WHAT SHOULD I DO?
A. HOME SAVINGS will mail you another order form, or you may
obtain one from any HOME SAVINGS' office. If you need
assistance in obtaining or completing a Stock Order Form,
please call the Conversion Information Center at (330)
747-1111 or visit the Conversion Information Center.
15. Q. WILL THERE BE ANY DIVIDENDS PAID ON THE SHARES?
A. Following the completion of the Conversion, the Board of
Directors of UCFC intends to establish a dividend policy. The
declaration and payment of dividends or other capital
distributions by UCFC will be subject to the discretion of the
Board of Directors of UCFC, to the earnings and financial
condition of UCFC and HOME SAVINGS and to general economic
conditions. The timing of the payment of dividends and the
annual rate will depend upon a determination by the Board of
Directors of UCFC that the net income, capital and financial
condition of UCFC and the general economy justify the
declaration and payment of dividends by UCFC. No assurance can
be given, however, that dividends will be paid or, if paid,
will continue in the future. In accordance with the policy of
the Office of Thrift Supervision, UCFC will not undertake an
extraordinary tax-free return of capital to its shareholders
during the first year following the completion of the
Conversion.
<PAGE> 13
16. Q. HOW MANY SHARES DO THE DIRECTORS AND OFFICERS OF HOME
SAVINGS INTEND TO PURCHASE THROUGH THE SUBSCRIPTION OFFERING?
A. Directors and executive officers intend to purchase
approximately 5,320,000 of the common shares to be offered in
the Conversion (approximately 2.128% if 25,000,000 shares are
sold in the Conversion). The directors and officers will pay
the same $10 purchase price as that paid by members and the
general public.
17. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE TO ANOTHER PARTY?
A. NO. Pursuant to federal regulations, subscription rights
granted to Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members may be exercised only by the
person(s) to whom they are granted. Any person found to be
transferring or selling subscription rights will be subject to
forfeiture of such rights and other penalties.
18. Q. I CLOSED MY ACCOUNT SEVERAL MONTHS AGO. SOMEONE TOLD ME
THAT I AM STILL ELIGIBLE TO BUY STOCK. IS THAT TRUE?
A. If you were an account holder on the Eligibility Record Date
(July 31, 1996), the Supplemental Eligibility Record Date
(March 31, 1998) or the Voting Record Date (May 6, 1998) you
are entitled to purchase shares regardless of whether or not
you continue to hold your HOME SAVINGS account.
19. Q. MAY I OBTAIN A LOAN FROM HOME SAVINGS USING SHARES AS
COLLATERAL TO PAY FOR MY SHARES?
A. No. Federal regulations do not allow HOME SAVINGS to make
loans for this purpose, but another financial institution may
make a loan for this purpose.
20. Q. CAN I PURCHASE SHARES USING FUNDS IN A HOME SAVINGS IRA
ACCOUNT?
A. Yes. Contact the Conversion Information Center at (330)
747-1111 for additional information. It takes several days to
process the necessary IRA forms and, therefore, it is
necessary that you make arrangements by ________, 1998, to
accommodate your order.
21. Q. WILL THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") INSURE
THE SHARES OF STOCK?
A. No. The shares of UCFC are not savings deposits or savings
accounts and will not be insured by the FDIC or any other
government agency.
<PAGE> 14
22. Q. WILL THERE BE A MARKET FOR THE SHARES FOLLOWING THE
CONVERSION?
A. UCFC has never issued stock before, and consequently there is
no established market for its common shares. UCFC has received
conditional approval to have the common shares listed on The
Nasdaq National Market System under the symbol "UCFC". Trident
Securities, Inc., McDonald & Company Securities, Inc. and CIBC
Oppenheimer Corp. intend to make a market in the common
shares. However, purchasers of common shares should recognize
that no assurance can be given that an active and liquid
trading market will develop or, if developed, will be
maintained.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
23. Q. AM I ELIGIBLE TO VOTE AT THE SPECIAL MEETING OF MEMBERS TO BE
HELD TO CONSIDER THE PLAN?
A. If you were a member of HOME SAVINGS on May 6, 1998 (the
"Voting Record Date", you are eligible to vote at the Special
Meeting of Members to be held on ________, 1998. However,
members of record as of the close of business on the Voting
Record Date who cease to be depositors prior to the date of
the Special Meeting are no longer members and will not be
entitled to vote at the Special Meeting. If you are a Voting
Member, you should have received a proxy statement and proxy
card with which to vote.
24. Q. HOW MANY VOTES DO I HAVE AS A VOTING MEMBER?
A. HOME SAVINGS' charter provides that each account holder is
entitled to one vote for each $100, or fraction thereof, on
deposit in such account.
25. Q. IF I VOTE "AGAINST" THE PLAN AND IT IS APPROVED, WILL I BE
PROHIBITED FROM BUYING COMMON SHARES DURING THE SUBSCRIPTION
OFFERING?
A. No. Voting against the Plan in no way restricts you from
purchasing stock in either the Subscription Offering, the
Community Offering or the Syndicated Community Offering.
26. Q. WHAT HAPPENS IF HOME SAVINGS DOES NOT GET ENOUGH VOTES TO
APPROVE THE PLAN?
A. The Conversion would not take place and HOME SAVINGS would
remain a mutual savings and loan association.
<PAGE> 15
27. Q. AS A VOTING MEMBER OF HOME SAVINGS, AM I REQUIRED TO VOTE?
A. No. However, failure to return your proxy card will have the
same effect as a vote "Against" the Plan.
28. Q. WHAT IS A PROXY CARD?
A. A Proxy Card gives you the ability to vote without attending
the Special Meeting in person. However, you may attend the
meeting and vote in person, even if you have previously
returned your proxy card.
29. Q. HOW DOES THE CONVERSION AFFECT ME?
A. The Conversion is intended, among other things, to assist HOME
SAVINGS in maintaining and expanding its many services to HOME
SAVINGS' customers and community. By purchasing shares, you
will also have the opportunity to invest in UCFC, the proposed
holding company for HOME SAVINGS. However, there is no
obligation to purchase shares. The purchase of shares is
strictly optional.
30. Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE OFFERING?
A. You may call the Conversion Information Center, at (330)
747-1111 for further information or to request a copy of the
Prospectus, Proxy Statement, Stock Order Form and Proxy Card.
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. A PROSPECTUS CAN BE
OBTAINED AT A HOME SAVINGS OFFICE OR BY CALLING THE CONVERSION INFORMATION
CENTER. THERE SHALL BE NO SOLICITATION OF AN OFFER OR SALE OF STOCK IN ANY
JURISDICTION IN WHICH ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF COMMON
SHARES WOULD BE UNLAWFUL.
THE COMMON SHARES ARE NOT A DEPOSIT OR ACCOUNT AND ARE NOT FEDERALLY INSURED OR
GUARANTEED.
FOR YOUR CONVENIENCE
In order to assist you during the stock offering period, we have established a
Conversion Information Center to answer your questions. Please call:
(330) 747-1111
<PAGE> 16
III. Officer and Director Brochure (optional)
A. Explanation
An Officer and Director Brochure merely highlights the intended stock
purchases shown in the Prospectus.
B. Method of Distribution
There are three primary methods of distribution of Officer and Director
Brochures. However, regardless of the method of distribution, they are
always accompanied by a Prospectus.
1. An Officer and Director Brochure is sent out in the initial
mailing to all members of The Home Savings and Loan Company.
2. Officer and Director Brochures will be available in any of The
Home Savings and Loan Company's offices.
3. Officer and Director Brochures are sent out in a standard
information packet to all interested investors who telephone
the Conversion Information Center requesting information.
<PAGE> 17
OFFICER AND DIRECTOR STOCK PURCHASE COMMITMENTS
<TABLE>
<CAPTION>
Aggregate Percent of
Total Shares Purchase Price Total Offering (1)
------------ -------------- ------------------
Name and Position
- -----------------
<S> <C> <C> <C>
Richard M. Barrett 31,000 $310,000 .124
James E. Bennett, Jr. 1,000 10,000 .004
Charles B. Cushwa, III 60,000 600,000 .24
Donald R. Inglis 30,000 300,000 .12
Patrick A. Kelly 60,000 600,000 .24
Gary Keller 60,000 600,000 .24
William A. Holdford 10,000 100,000 .04
Douglas M. McKay 80,000 800,000 .32
Herbert F. Schuler, Sr. 90,000 900,000 .36
Clarence R. Smith, Jr. 25,000 250,000 .10
Robert J. Steele, Jr. 10,000 100,000 .04
Donald J. Varner 60,000 600,000 .24
John F. Zimmerman, Jr. 15,000 150,000 .06
------- ---------- -----
TOTAL 532,000 $5,320,000 2.128%
======= ========== =====
<FN>
(1) At the midpoint of the offering and assumes enough common shares will be
available to satisfy all subscriptions.
</TABLE>
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON SHARES. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THERE SHALL BE NO
SOLICITATION OF AN OFFER OR SALE OF COMMON SHARES IN ANY JURISDICTION IN WHICH
ANY OFFER, SOLICITATION OF AN OFFER OR SALE OF COMMON SHARES WOULD BE UNLAWFUL.
THE COMMON SHARES ARE NOT A DEPOSIT OR ACCOUNT AND ARE NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE> 18
IV. Counter Cards, Lobby Posters and the Tombstone Announcement
A. Explanation
Counter cards, lobby posters and the tombstone announcement serve three
purposes: (1) As a notice to The Home Savings and Loan Company's
customers and members of the local community that the stock sale is
underway; (2) to remind the customers of the end of the Subscription
Offering; and (3) to invite members of the community to an
informational meeting, if applicable. Trident has learned in the past
that many people need reminding of the deadline for subscribing and
therefore we suggest the use of these simple reminders.
B. Quantity
Approximately 3 - 4 counter cards may be used at The Home Savings and
Loan Company's offices, at teller windows and on customer service
representatives' desks. These counter cards will be exact duplicates of
the lobby poster and will be no larger than 8-1/2" x 11".
Approximately 1 - 2 lobby posters may be used at the offices of The
Home Savings and Loan Company. These posters will be approximately 2' x
3'.
Tombstone announcements may be used for placement in local newspapers.
The advertisements will run no more than twice each in the local
newspaper. The ads will be no larger than 8-1/2" x 11".
C. Examples enclosed
<PAGE> 19
POSTER
The Home Savings and Loan Company of Youngstown
STOCK OFFERING MATERIALS
AVAILABLE HERE
Customer Priority Rights for the Stock Offering
by United Community Financial Corp.
Expire on ________, 1998
<PAGE> 20
POSTER
For the first time ever, you can own stock in The Home Savings and Loan Company
of Youngstown, Ohio.
Customers of The Home Savings and Loan Company of Youngstown, Ohio have the
opportunity to invest in The Home Savings and Loan Company of Youngstown, Ohio
by purchasing common stock in the newly-formed holding company, United Community
Financial Corp.
The common shares are being offered in a Subscription Offering to certain
eligible deposit account holders and members of The Home Savings and Loan
Company of Youngstown, Ohio until __________, 1998.
A Proxy Statement and Prospectus relating to these securities were recently
mailed to all eligible customers. Additional Prospectuses, relating to these
securities, are available at any of our branch offices or by calling our
Conversion Information Center at (330) 747-1111.
Your Subscription Rights expire on ___________, 1998.
The common shares offered in the conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This announcement shall not constitute an offer to sell or a solicitation of an
offer to buy common shares. The offer is made only by the Prospectus. There
shall be no sale of common shares in any state in which any offer, solicitation
of an offer or sale of common shares would be unlawful.
<PAGE> 21
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer
to buy these securities. The offer is made only by the Prospectus. These
shares have not been approved or disapproved by the Securities and
Exchange Commission, the Office of Thrift Supervision or the Federal Deposit
Insurance Corporation, nor has such Commission, Office or Corporation passed
upon the accuracy or adequacy of the Prospectus. Any representation to
the contrary is a criminal offense.
NEW ISSUE ______, 1998
UP TO 28,937,500 SHARES
These shares are being offered pursuant
to a Plan of Conversion whereby
THE HOME SAVINGS AND LOAN COMPANY
OF YOUNGSTOWN, OHIO
will convert from an Ohio mutual savings and loan association
to an Ohio permanent capital stock savings and loan association
and become the wholly-owned subsidiary of
UNITED COMMUNITY FINANCIAL CORP.
COMMON SHARES
---------------
PRICE $10.00 PER SHARE
---------------
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from such of the undersigned or other brokers and dealers
as may legally offer these securities in such state.
TRIDENT SECURITIES, INC.
MCDONALD & COMPANY SECURITIES, INC.
CIBC OPPENHEIMER CORP.
For a copy of the Prospectus call (330) 747-1111.
- --------------------------------------------------------------------------------
<PAGE> 22
V. Community Meeting Materials
A. Explanation
In order to educate the public about the stock offering, Trident
suggests holding Community meetings in various locations. In an effort
to target a group of interested investors, Trident requests that each
Director and Executive Officer of The Home Savings and Loan Company
submit a list of acquaintances that he or she would like to invite to a
Community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director and/or Officer submits his list of prospects.
Invitations are sent to each Director's prospects through the mail. All
invitations are preceded by a Prospectus and all attendees are given a
Prospectus at the meeting.
<PAGE> 23
PROSPECT INVITATION
================================================================================
The Directors and Officers
of
The Home Savings and Loan Company of Youngstown, Ohio
cordially invite you to attend a brief
presentation regarding the stock offering of
United Community Financial Corp., our proposed holding company.
Please join us at one of the following meetings:
Place Place Place
Address Address Address
Date Date Date
at ____ p.m. at ____ p.m. at ____ p.m.
Hors d'oeuvres will be served.
Space is Limited so Please call (330) 747-1111 if You Plan to Attend.
================================================================================
<PAGE> 24
VI. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of
HOME SAVINGS in order to alert the customers that funds held in an IRA
can be used to purchase stock. Since this transaction is not as simple
as designating funds from a certificate of deposit like a normal stock
purchase, this letter informs the customer that this process is
slightly more detailed and cannot be done through the mail.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of The
Home Savings and Loan Company. These letters would be mailed following
OTS approval for the Conversion and after each customer has received
the initial mailing containing a Proxy Statement and a Prospectus.
C. Example - Enclosed
<PAGE> 25
The Home Savings and Loan Company Letterhead
________, 1998
Dear Individual Retirement Account Participant:
As you know, The Home Savings and Loan Company of Youngstown, Ohio
("Home Savings") is in the process of converting from an Ohio mutual savings and
loan association to an Ohio permanent capital stock savings and loan
association, and has formed United Community Financial Corp. ("UCFC") to hold
all of the stock of Home Savings (the "Conversion"). Through the Conversion,
certain current and former depositors of Home Savings have the opportunity to
purchase common shares of UCFC in a Subscription Offering. UCFC currently is
offering up to 28,937,500 common shares, subject to adjustment, at a price of
$10.00 per share.
As the holder of an individual retirement account ("IRA") at Home
Savings, you may use your IRA funds to subscribe for the common shares. If you
desire to purchase common shares of UCFC through your IRA, Home Savings can
assist you in self-directing those funds. This process can be done without an
early withdrawal penalty and generally without a negative tax consequence to
your IRA.
If you are interested in receiving more information on self-directing
your IRA, please contact our Conversion Information Center at (330) 747-1111.
Because it takes several days to process the necessary IRA forms, a response
must be received by _______, 1998 to accommodate your interest.
Sincerely,
Douglas M. McKay
President
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE> 26
VII. Letters
A. Explanation
Cover letters to accompany offering materials.
B. Method of Distribution
Enclosed with the initial mailing.
C. Examples
<PAGE> 27
(Trident Letterhead)
___________, 1998
To Members and Friends of The Home Savings and Loan Company of Youngstown, Ohio:
Trident Securities, Inc., McDonald & Company Securities, Inc. and CIBC
Oppenheimer Corp., members of the National Association of Securities Dealers,
Inc., are assisting The Home Savings and Loan Company of Youngstown, Ohio ("Home
Savings") in its conversion from a mutual savings and loan association to a
permanent capital stock savings and loan association and the concurrent offering
of common shares by United Community Financial Corp. ("UCFC"), an Ohio
corporation recently formed for the purpose of acquiring all of the stock of
Home Savings (the "Conversion").
At the request of Home Savings, we are enclosing materials explaining
the Conversion process and your right to subscribe for common shares of HOME
SAVINGS. Please read the enclosed offering materials carefully before
subscribing for common shares.
If you have any questions, please call the Conversion Information
Center at (330) 747-1111.
Sincerely,
TRIDENT SECURITIES, INC.
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE> 28
(The Home Savings and Loan Company Letterhead)
___________, 1998
Dear Valued Member:
The Home Savings and Loan Company of Youngstown, Ohio ("Home Savings")
is pleased to announce that we have received regulatory approval to proceed with
our plan to convert from a mutual savings and loan association to a permanent
capital stock savings and loan association (the "Conversion"), conditioned upon
receipt of approval by Home Savings' members, among other things. This
Conversion is a significant event in the history of Home Savings in that it
allows customers, directors and employees an opportunity to subscribe for common
shares of United Community Financial Corp. ("UCFC"), the proposed holding
company for Home Savings.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at Home
Savings, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with Home Savings. Let us also assure you
that the Conversion will not result in any changes in the management, personnel
or the Board of Directors of Home Savings.
A special meeting of the members of Home Savings will be held on
___________, 1998, at _______, Eastern Daylight Time, at Home Savings' main
office to consider and vote upon Home Savings' Plan of Conversion. Enclosed is a
proxy card. The Board of Directors of Home Savings solicits your vote "FOR" the
Plan of Conversion. A vote in favor of the Plan of Conversion does not obligate
you to purchase common shares of UCFC. If you do not plan to attend the special
meeting, please sign and return your proxy card promptly. Your vote is important
to us.
As one of our valued members, you have the opportunity to invest in the
future of Home Savings by purchasing common shares of UCFC during the
Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares,
you must return a properly completed stock order form, together with full
payment for the subscribed shares, so that it is RECEIVED by Home Savings not
later than 12:00 Noon, Eastern Daylight Time on _________, 1998.
We also have enclosed a Prospectus and Proxy Statement which fully
describes the Conversion and provides financial and other information about UCFC
and Home Savings. Please review these materials carefully before you vote or
invest. For your convenience we have established a Conversion Information
Center. If you have any questions, please call the Conversion Information Center
at (330) 747-1111.
We look forward to continuing to provide quality financial services to
you in the future.
Sincerely,
Douglas M. McKay
President
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of common shares would be unlawful.
<PAGE> 29
(Optional)
(The Home Savings and Loan Company Letterhead)
____________, 1998
Dear Interested Investor:
The Home Savings and Loan Company of Youngstown, Ohio ("Home Savings")
is pleased to announce that we have received regulatory approval to proceed with
our plan to convert from a mutual savings and loan association to a permanent
capital stock savings and loan association (the "Conversion"), conditioned upon
receipt of approval by Home Savings' members, among other things. This
Conversion is a significant event in the history of Home Savings in that it
allows customers, community members, directors and employees an opportunity to
purchase common shares of United Community Financial Corp., the proposed holding
company for Home Savings.
We want to assure you that the Conversion will not result in any
changes in the management, personnel or the Board of Directors of Home Savings.
Enclosed is a Prospectus which fully describes Home Savings, its
management, board of directors and financial condition. Please review it
carefully before you make an investment decision. If you decide to invest,
please return to Home Savings a properly completed stock order form, together
with full payment for shares, at your earliest convenience. For your convenience
we have established a Conversion Information Center. If you have any questions,
please call the Conversion Information Center at (330) 747-1111.
Sincerely,
Douglas M. McKay
President
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of common shares would be unlawful.
<PAGE> 30
(The Home Savings and Loan Company Letterhead)
____________, 1998
Dear Friend:
The Home Savings and Loan Company of Youngstown, Ohio ("Home Savings")
is pleased to announce that we have received regulatory approval to proceed with
our plan to convert from a mutual savings and loan association to a permanent
capital stock savings and loan association (the "Conversion"), conditioned upon
receipt of approval by Home Savings' members, among other things. The Conversion
is a significant event in the history of Home Savings in that it allows
customers, directors and employees an opportunity to subscribe for common shares
of United Community Financial Corp., the proposed holding company for Home
Savings.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at Home
Savings, or the terms or conditions of any loans to existing borrowers under
their individual contract arrangements with Home Savings. Let us also assure you
that the Conversion will not result in any changes in the management, personnel
or the Board of Directors of Home Savings.
Our records indicate that you were a depositor of Home Savings on July
31, 1996, or March 31, 1998. Therefore, under applicable law, you are entitled
to subscribe for common shares of United Community Financial Corp. in the
Subscription Offering. Orders submitted by you and others in the Subscription
Offering are contingent upon the current members' approval of the Plan of
Conversion at a special meeting of members to be held on __________, 1998, and
upon receipt of all required regulatory approvals.
If you decide to exercise your subscription rights to purchase shares,
you must return a properly completed stock order form, together with full
payment for the subscribed shares, so that it is RECEIVED at Home Savings not
later than 12:00 Noon, Eastern Daylight Time on __________, 1998.
Enclosed is a Prospectus which fully describes Home Savings, its
management, board of directors and financial condition. Please review it
carefully before you invest. For your convenience, we have established a
Conversion Information Center. If you have any questions, please call the
Conversion Information Center at (330) 747-1111.
Sincerely,
Douglas M. McKay
President
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of common shares would be unlawful.
<PAGE> 31
(Optional)
(The Home Savings and Loan Company Letterhead)
___________, 1998
Dear Member:
As a qualified member of The Home Savings and Loan Company of
Youngstown, Ohio ("Home Savings"), you have the right to vote upon Home Savings'
proposed Plan of Conversion and also generally have the right to subscribe for
common shares of United Community Financial Corp., the proposed holding company
for Home Savings. However, the proposed Plan of Conversion provides that United
Community Financial Corp. will not offer shares in any state in which compliance
with the securities laws would be impracticable for reasons of cost or
otherwise. Unfortunately, the securities laws of your state would require United
Community Financial Corp. to register its common shares and /or its employees in
order to sell the common shares to you. Such registration would be prohibitively
expensive or otherwise impracticable in light of the few members residing in
your state.
You may vote on the proposed Plan of Conversion and we urge you to read
the enclosed Summary Proxy Statement and execute the enclosed Revocable Proxy.
Questions regarding the execution of the Revocable Proxy should be directed to
Home Savings' Conversion Information Center at (330) 747-1111.
Sincerely,
Douglas M. McKay
President
Enclosures
The common shares offered in the Conversion are not savings accounts or deposits
and will not be insured by the Federal Deposit Insurance Corporation or any
other government agency.
This is not an offer to sell or a solicitation of an offer to buy the common
shares. The offer is made only by the Prospectus. There shall be no sale of
common shares in any state in which any offer, solicitation of an offer or sale
of stock would be unlawful.
<PAGE> 32
VIII. Proxy Reminder
A. Explanation
A proxygram is used when the majority of votes needed to adopt the Plan
of Conversion is still outstanding. The proxygram is mailed to those
"target vote" depositors who have not previously returned their signed
proxy.
The target vote depositors are determined by the Conversion agent.
B. Example enclosed
<PAGE> 33
B. Example
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
P R O X Y G R A M
(LOGO)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT BEEN RECEIVED.
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE PLAN OF CONVERSION.
VOTING FOR THE PLAN OF CONVERSION WILL NOT AFFECT THE INSURANCE COVERAGE OF YOUR
ACCOUNTS. ALL ACCOUNTS WILL CONTINUE TO BE INSURED UP TO THE LEGAL LIMIT
($100,000 PER ACCOUNT AS DEFINED BY LAW) BY THE SAVINGS ASSOCIATION INSURANCE
FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, AN AGENCY OF THE U.S.
GOVERNMENT.
REMEMBER, VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO BUY ANY
SHARES.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL OR DELIVER IT TO AN
OFFICE OF THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO.
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION.
THANK YOU!
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF
THE HOME SAVINGS AND LOAN
COMPANY OF YOUNGSTOWN, OHIO
<PAGE> 34
SUBSCRIPTION RIGHTS
SPECIAL NOTICE
Any transfer of, or attempt to transfer, a subscription right to any other
person is illegal and subject to civil fines and/or penalties and even criminal
fines and/or penalties. The Home Savings and Loan Company of Youngstown, Ohio
intends to vigorously prosecute any transfer or attempt to transfer subscription
rights that comes to its attention.
If you are (or have been) contacted by anyone offering to give you money to buy
common shares in order to transfer the common shares to them later, share the
proceeds upon the sale of the common shares, or transfer your subscription
rights in any other way, please call us immediately at (330) 747-1111. Thank
you.
